Standard & Poor''s 500 Guide, 2011 Edition (Standard and Poor's 500 Guide)

Standard & Poor’s® 500 Guide

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Standard & Poor’s® 500 Guide 2011 Edition

Standard & Poor’s

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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. ISBN: 978-0-07-175491-0 MHID: 0-07-175491-1 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-175490-3, MHID: 0-07-175490-3. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please e-mail us at [email protected]. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. —From a declaration of principles jointly adopted by a committee of the American Bar Association and a committee of publishers TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGrawHill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

ABOUT THE AUTHOR Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., is the nation’s leading securities information company. It provides a broad range of financial services, including the respected Standard & Poor’s ratings and stock rankings, advisory services, data guides, and the most closely watched and widely reported gauges of stock market activity—the S&P 500, S&P MidCap 400, S&P SmallCap 600, and the S&P Composite 1500 stock price indexes. Standard & Poor’s products are marketed around the world and used extensively by financial professionals and individual investors.

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Introduction by David M. Blitzer, Ph.D. Managing Director & Chairman of the Index Committee Standard & Poor’s The S&P 500 Any Web site, television news program, newspaper, or radio report covering the stock market gives the latest results of a handful of stock indices, including the Dow Industrials, the NASDAQ, and the S&P 500. The Dow is the oldest, extending back over 100 years, and has covered only 30 stocks since shortly before the crash of 1929. The NASDAQ came to fame in the tech boom but ignores all the companies listed on the New York Stock Exchange. The S&P 500 is the index used by market professionals and institutional investors when they need to know what the stock market is doing. While there are several thousand stocks traded in the U.S. market, the S&P 500 covers the most significant ones, representing some three-quarters of the total value of all U.S. equities. Over $1.5 trillion invested through mutual funds, pensions, and exchange-traded funds track the S&P 500. These funds mimic what the index does—if the index rises, so do the funds. Further, when a stock is added to or dropped from the index, these trillions of dollars of funds buy, or sell, the stock. The S&P 500 is also the way the market and its condition is measured— for Wall Street, corporate earnings are the earnings per share calculated for the S&P 500, and the market’s valuation is gauged by the price-earnings ratio on the S&P 500. The S&P 500 and You, the Investor If you picked up this book, you are probably interested in the stock market or stocks you might invest in; you may be wondering why institutional investors and market professionals focus so much attention on the 500 or what you can learn from the index. So, what can the index do? It can: • Give you a benchmark for investment performance • Tell you what kinds of stocks performed well or poorly in the past • Let you see if today’s valuations are higher or lower than in the past • Help you compare one company or industry to another We will look at these in turn before describing what’s inside the S&P 500 and how S&P maintains the index. Benchmarks: Monitoring investment performance—keeping score—is what separates occasional stock pickers from serious investors. People who chat about stocks with fellow workers or around the backyard barbeque rarely maintain records beyond the minimum level required to file their taxes. For these investors, stocks that go up are good and stocks that go down are disappointing; there is no serious analysis of what makes stocks move. Serious investors, whether institutional investors or individuals committed to managing their investments, know that understanding whether your stock selections work out requires knowing what the market did and how your portfolio compares to the market. This is where an index benchmark is essential. The first question most investors have about their success is whether they are beating the market. A rough and ready answer can be found by comparing your portfolio’s results to the S&P 500. More in-depth answers would either include dividends as well as price changes or would adjust for investment risks, or both. All the necessary data are widely available for the S&P 500 as well as being included in some brokerage statements and most mutual fund reports.

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What went up and what went down: Simply looking at whether the market—the index—gained or lost can tell you a lot about what happened to your portfolio. For most portfolios and most stocks, the largest factor in their movements is how the overall market did. The second largest factor is often how similar stocks—in the same economic sector or industry—behaved. Because the S&P 500 covers 75 percent of the total value of the U.S. equity market, it is a very good indication of what the market did. The stocks in the index are all classified into sectors and industries, so you can use these segments of the index to see if your stocks did better or worse than others in the same sector. There are 10 economic sectors that classify all the stocks in the S&P 500; the table following lists these sectors, the number of stocks in each, and the weight (based on market values) of each sector in the index. The performance of different sectors can be very different. Looking at the period from the recent low on March 9, 2009, to the end of November 2009, the financial sector gained 135%, materials and industrials each rose about 81% while telecommunication services gained “only” 24%. Before someone decides financial stocks are the all-time best remember that from the record high on October 9, 2007, to March 9th financials fell 59%, far more than any other sector. One comment heard from time to time is that no sector holds the leadership in the S&P 500 forever. Indeed, technology and financials have been trading the leadership back and forth for some 20 years. So be wary of anything that seems to overstay its welcome at the top of the list. There are other classifications of stocks in the S&P 500. Not only are stocks assigned to an economic sector. They are also assigned to an industry group, an industry, and a subindustry, using a classification standard called GICS® or the Global Industry Classification Standard.1 There are 10 sectors, 24 industry groups, 68 industries, and 154 sub-industries. Separately from GICS, stocks are classified as growth or value stocks. Traditionally, growth stocks are those with fast-growing earnings, which offer investors the promise of higher earnings in the future. Value stocks are stocks believed to offer unrecognized values that are not reflected in the stock price. The classification is based on a number of financial ratios and measures, including earnings growth, price/earnings ratios, dividend yields, and similar measures. Although most investors hunt for growth stocks, value stocks tend to perform better over the long run. During periods of a few years or less, either one can easily outperform the other. Investors aren’t the only people seeking growth; few if any companies want to be known as value stocks, and all want to be called growth stocks. Market Valuations: The last few years certainly proved that there are times when markets go both up and down, sometimes by large amounts. The last 10 years of market moves are likely to be remembered for a long, long time. Through it all, what we really want to know is if stocks are really cheap and the market is likely to rise, or if stocks are overpriced and the market will tumble. Economics tells us that a stock’s value lies in the future earnings and dividends. Two convenient measures of how stock prices compare to earnings and dividends are the ratio of the price to earnings (P/E) and the dividend yield or percentage that the dividend is of the stock’s price. Just as these are used for individual stocks, they are also used for the overall market by calculating these measures for the S&P 500. As of October 2010, the figures for the index were a P/E of 15.2 and a dividend yield of 2.0 percent. These numbers change as the market rises or falls and as company earnings and dividends change. Up-to-date numbers are published by Standard & Poor’s on the Web at www.indices.standardandpoors.com and by various newspapers, magazines, and financial and investing Web sites. 1 GICS(®) is maintained jointly by Standard & Poor’s and MSCIBarra. Standard & Poor’s Financial Services LLC is a subsidiary of the McGraw-Hill Companies, Inc.

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A P/E of 15.2 for the index is significantly lower than the average since 1988 of 19.5. Many investors see a P/E below average as a sign that stocks are undervalued and that there are buying opportunities while a P/E far above the average is a caution sign. Earnings move up and down just as stock prices do, so both can affect the P/E ratio. Corporate earnings tend to fall in recessions and rise in good times, and these movements could distort P/E ratios. Dividends have dropped out of fashion in the last two decades, and fewer investors seem to watch dividend yields. However, about 368 of the 500 stocks in the S&P 500 pay dividends, so the current dividend yield of 2.0 percent may tell us something about the market. Since the 1950s, the dividend yield on the S&P 500 has almost always been lower than the yield on U.S. treasury or high-grade corporate bonds. The bonds may be attractive for their safety, but they don’t offer any opportunity for growth, although companies often raise their dividends as their earnings grow. In late 2008, this pattern reversed for awhile; the dividend yield of 2.3 percent topped the yield on 10-year U.S. treasuries. Following the gyrations of 2008 another version of the P/E ratio has become popular with some analysts. Instead of looking at one year, the idea is to look at a longer period so that sharp short-term swings don’t warp the figures. This approach, originally due to two academic economists2 is to divide the current price by a 10-year average of earnings after the earnings’ figures are adjusted for inflation. This figure gives a sense of the market’s long-term relative value and long-run prospects that are less affected by recent economic and market gyrations. In March 2009, when the market made a deep low, this 10-year P/E was about 13 compared to a long-run average around 19 and it suggested stocks were cheap. As of October 2010, it was up to 15.2. Both these measures may give some sense of whether the market is over- or underpriced. However, neither of these is even close to being a fail-safe guide to the stock market in any time period. Moreover, the wide price swings seen in 2007 through 2010 should remind all investors that the market constantly changes and evolves and must be approached with both care and respect. Comparing One Company to Another: Suppose your neighbor or a coworker tells you about a stock you “have to own” because the P/E is only 10, much less than the overall market. Is it a buy? Maybe, or maybe not. The index and its components can tell you a lot about the stocks in the index as well as about the market. Stocks in the same industry or industry group often rise and fall together because the economic events and factors that affect one stock in an industry will affect others as well. When oil prices rise, most oil company stocks tend to do well. Rumors of changes in Medicare and other health care programs may affect all pharmaceutical stocks at once. One can compare data about a stock to the same information for similar stocks, to the industry or economic sector, and to the whole market. The S&P 500 and information about the stocks in it make this possible. How does this help decide if a stock is cheap? Suppose the market’s P/E as measured by the S&P 500 is 15 and the stock’s P/E is 20, so it looks to be overpriced. Before forgetting about it, compare the data on the stock—P/E ratios, dividend yields, or other statistics—to similar stocks. The easiest way to find similar stocks is to use the sector and industry classifications from the S&P 500, as shown on the stock reports. As you do this with various stocks, you will begin to see that some sectors or industries seem to always have P/Es higher than the market while other sectors have low P/Es. Some sectors focus on growth stocks, which have high P/Es, while others focus on value stocks. You will notice similar patterns if you compare dividend yields. In fact, even looking for stocks that pay dividends will reveal some patterns. 2John Y. Campbell and Robert J. Shiller, “Valuation Ratios and the Long-Run Stock Market Outlook”, Journal of Portfolio Management, winter 1998. Figures used in the text from www.dshort.com.

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The stock market is shifting all the time, with some sectors becoming relatively more expensive and others fading from popularity. Within a sector there are similar movements among stocks as some move up faster while others may fade. It is useful to know how a stock compares to its peers in the same industry or sector as well as to understand how it compares to the entire market. Using the S&P 500 and the data shown on the stock reports, one can see these shifts and comparisons. What’s in the S&P 500 The S&P 500 Index consists of 500 stocks selected by Standard & Poor’s to represent the U.S. stock market and, through the market, the U.S. economy. It is not the 500 “largest” stocks in the market. Rather, it is sometimes described as containing the leading stocks in leading industries. The stocks are selected based on published guidelines; all members of the S&P 500 must be U.S. companies. When they join the index, they must have market values of at least $3 billion, trade with reasonable liquidity, be profitable, and have at least half their shares available to investors. The selection of companies also considers the balance of economic sectors in the market and the index so that the index is a fair representation of the market as a whole. The S&P 500 index is reported on television, Web sites and newspapers very widely. Data are also published on S&P’s Web site at www.indices.standardandpoors.com. Many investors and investment analysts use the S&P 500 to help choose stocks, as described above. However it has many other investment uses: index mutual funds, exchange-traded funds (ETFs), futures, and options. Index mutual funds are mutual funds that track an index. The first funds, and the largest index funds today, track the S&P 500. Exchangetraded funds have grown in popularity in recent years. These are similar to index mutual funds except that they trade on an exchange and can by bought and sold at any time of day whereas mutual funds are only sold at prices based on the market close. The first U.S. ETF was based on the S&P 500; there are two large ETFs based on the S&P 500. In addition, numerous pension funds, endowments, and other institutional investments track the S&P 500. As of the end of 2007, over $1.5 trillion was invested in various investments that track the S&P 500 as closely as possible. This means that the fund tries to mimic the index, adding stocks when they are added to the index and matching any other adjustments in the index. There are relatively few changes in the index; most of these changes are caused by mergers, acquisitions, and other corporate actions that remove companies from the index. Over the last several years, the index has seen about 30 changes each year where a “change” is one company added and one dropped. If one thinks of the index as a portfolio, it is amazingly stable compared to most mutual funds—the turnover in the S&P 500 is about 5 to 10 percent of its value each year, whereas mutual funds can see a turnover of over 100 percent in a single year. A typical change in the index occurs when a company is acquired and is dropped from the index and replaced with another company. At times, especially recently with the turmoil in the markets, companies in the index are removed because of bankruptcy. While changes to the index don’t occur every day, they can be important to some traders. Because so much money tracks the index, about 10 percent of the outstanding stock of any company in the index is bought by index funds, ETFs, and other index investors when a stock is added to the index. Further, this buying occurs over a relatively short period of time—a few weeks or less. The result is that stocks added to the S&P 500 often see their prices rise when they go into the index. The S&P 500 index was created and is maintained by S&P. There is an Index Committee of S&P professional staff who oversee the index and are responsible for making necessary changes to assure that the index will be an accurate reflection of the U.S. equity markets. Because changes in the index can move the market, all the work done by

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the Index Committee is confidential until any changes to the index are announced. Moreover, because the changes can move the market, the announcements are made available to the public, and no one gets any advance notice before the public announcements on S&P’s Web site. Beyond various kinds of index funds and ETFs, there are other investment uses of the index—futures and options. These are derivatives based on the value of the index that offer investors—mostly institutional investors, but some individuals as well—opportunities to either hedge their positions or to easily establish a leveraged position in the index. Futures and options are usually seen as more complex and often riskier than buying stocks. Just as successful stock investing requires research and understanding, successful use of futures and options demands a solid understanding of how the instruments work and what the risks are. At times these can magnify the impact of shifts in the index. Furthermore, unlike stocks, futures and options have firm expiration dates that must be considered in any investment plan. History The S&P 500 celebrated its fiftieth anniversary in March 2007. However, its forebears go farther back. The S&P 500 is not the oldest index, an honor which goes to the Dow Jones Industrials. The 500 traces its lineage back to an index of 233 companies published weekly by The Standard Statistics Company beginning in 1923. That index was one of the first to have industry classifications to support investment analysis. In 1926, Standard Statistics began a daily index of 90 stocks. A decade and a half later, in 1941, Standard Statistics merged with Poor’s Publishing to form S&P. In 1957 the indices were combined and gave us the S&P 500. A small number of companies in the current S&P 500 can trace their membership back to the 1920s, over 50 were members in 1957. The index has seen various changes over the years as it kept up with the times and with developments in the market. Different industries have come and gone. Some of today’s leading sectors were barely present or nonexistent in 1957. Technology is now a much bigger part of the index. Investment banks and brokerage houses were all private partnerships in 1957 and didn’t begin to enter the index until the 1970s. In many ways the index’s history is the history of the U.S. stock market. Many investors, especially those who consider mutual funds, have seen data on the history of the U.S. stock market since 1926. That history is the S&P 500 and the 90 stock index that preceded the 500. Mutual funds and other investment products often compare their performance to the market; the market is the S&P 500. You might think that 500 stocks chosen simply to represent the market without any attempt to select “good” stocks that will beat the market might be an easy target to outperform. Actually, it is not; in fact, it is very difficult to consistently outperform the S&P 500 or most other broad-based indices. Research by Standard & Poor’s and by various others shows that in a typical period of three or more years, fewer than one-third of mutual funds outperform the index. Further, a fund that managed to be in the lucky third that beat the index in the last three years has only a one-in-three chance of beating the index in the next three years. Why? First, index funds and ETFs are cheap, with very low expenses. Second, since it is very hard to know which stocks will go up first, it helps to own a lot of stocks.3 Today Standard & Poor’s publishes literally hundreds of thousands of indices, covering over 80 stock markets in almost every country where there is a stock market. The largest indices have several times more stocks than the 500, including a global equity index with over 11,000 securities. At the other extreme there are narrow indices focused on a small sub-industry in one country. All these indices are used by investors, often in the same way the 500 can be used, as described here. 3On

index results vs. mutual funds, see S&P’s SPIVA reports on S&P’s Web site or books by John Bogle or Burton Malkiel.

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In conclusion When you want to know how the market did, what went up or down, or whether your stock picks beat the market, the best place to look is the S&P 500.

S&P 500 Global Industry Classification Standard (GICS) Sectors As of October 18, 2010

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities

Number of Companies

Percent of Market Capitalization

81 41 39 81 51 57 76 31 9 34

10.40 11.13 11.20 15.49 11.55 10.70 19.20 3.61 3.13 3.60

What You’ll Find in This Book In the pages that follow you will find an array of text and statistical data on 500 different companies spanning over 130 sub-industries. This information, dealing with everything from the nature of these companies’ basic businesses, recent corporate developments, current outlooks, and select financial information relating to revenues, earnings, dividends, margins, capitalization, and so forth, might initially seem overwhelming. However, it’s not that difficult. Just take a few moments to familiarize yourself with what you’ll find on these pages. Following is a glossary of terms and definitions used throughout this book. Please refer to this section as you encounter terms which need further clarification. Glossary

S&P STARS – Since January 1, 1987, Standard & Poor’s Equity Research Services has ranked a universe of common stocks based on a given stock’s potential for future performance. Under proprietary STARS (STock Appreciation Ranking System), S&P equity analysts rank stocks according to their individual forecast of a stock’s future total return potential versus the expected total return of a relevant benchmark (e.g., a regional index (S&P Asia 50 Index, S&P Europe 350 Index or S&P 500 Index), based on a 12-month time horizon. STARS was designed to meet the needs of investors looking to put their investment decisions in perspective. S&P 12-Month Target Price – The S&P equity analyst’s projection of the market price a given security will command 12 months hence, based on a combination of intrinsic, relative, and private market valuation metrics. Investment Style Classification – Characterizes the stock as either a growth-or valueoriented investment, and, indicates the market value (size) of the company as large-cap, mid-cap or small-cap. Growth stocks typically have a higher price-to-earnings and

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price-to-cash flow ratio, that represents the premium that is being paid for the expected higher growth. Value stocks typically have higher dividends and more moderate P/E ratios consistent with their current return policies. Qualitative Risk Assessment – The S&P equity analyst’s view of a given company’s operational risk, or the risk of a firm’s ability to continue as an ongoing concern. The Qualitative Risk Assessment is a relative ranking to the S&P U.S. STARS universe, and should be reflective of risk factors related to a company’s operations, as opposed to risk and volatility measures associated with share prices. Quantitative Evaluations – In contrast to our qualitative STARS recommendations, which are assigned by S&P analysts, the quantitative evaluations described below are derived from proprietary arithmetic models. These computer-driven evaluations may at times contradict an analyst’s qualitative assessment of a stock. One primary reason for this is that different measures are used to determine each. For instance, when designating STARS, S&P analysts assess many factors that cannot be reflected in a model, such as risks and opportunities, management changes, recent competitive shifts, patent expiration, litigation risk, etc. S&P Quality Rankings (also known as S&P Earnings & Dividend Rank-ings) – Growth and stability of earnings and dividends are deemed key elements in establishing S&P’s Quality Rankings for common stocks, which are designed to capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of rankings: A⫹ A A⫺ B⫹ B

Highest High Above Average Average Below Average

B⫺ C D NR

Lower Lowest In Reorganization Not Ranked

S&P Fair Value Rank – Using S&P’s exclusive proprietary quantitative model, stocks are ranked in one of five groups, ranging from Group 5, listing the most undervalued stocks, to Group 1, the most overvalued issues. Group 5 stocks are expected to generally outperform all others. A positive (⫹) or negative (⫺) Timing Index is placed next to the Fair Value ranking to further aid the selection process. A stock with a (⫹) added to the Fair Value Rank simply means that this stock has a somewhat better chance to outperform other stocks with the same Fair Value Rank. A stock with a (⫺) has a somewhat lesser chance to outperform other stocks with the same Fair Value Rank. The Fair Value rankings imply the following: 5-Stock is significantly undervalued; 4-Stock is moderately undervalued; 3-Stock is fairly valued; 2-Stock is modestly overvalued; 1-Stock is significantly overvalued. S&P Fair Value Calculation – The price at which a stock should trade at, according to S&P’s proprietary quantitative model that incorporates both actual and estimated variables (as opposed to only actual variables in the case of S&P Quality Ranking). Relying heavily on a company’s actual return on equity, the S&P Fair Value model places a value on a security based on placing a formula-derived price-to-book multiple on a company’s consensus earnings per share estimate.

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Insider Activity – Gives an insight as to insider sentiment by showing whether directors, officers and key employees who have proprietary information not available to the general public, are buying or selling the company’s stock during the most recent six months. Investability Quotient (IQ) – The IQ is a measure of investment desirability. It serves as an indicator of potential medium- to long-term return and as a caution against downside risk. The measure takes into account variables such as technical indicators, earnings estimates, liquidity, financial ratios and selected S&P proprietary measures. Volatility – Rates the volatility of the stock’s price over the past year. Technical Evaluation – In researching the past market history of prices and trading volume for each company, S&P’s computer models apply special technical methods and formulas to identify and project price trends for the stock. Relative Strength Rank – Shows, on a scale of 1 to 99, how the stock has performed versus all other companies in S&P’s universe on a rolling 13-week basis. Global Industry Classification Standard (GICS) – An industry classification standard, developed by Standard & Poor’s in collaboration with Morgan Stanley Capital International (MSCI). GICS is currently comprised of 10 sectors, 24 industry groups, 68 industries, and 154 sub-industries. S&P Core Earnings – Standard & Poor’s Core Earnings is a uniform methodology for adjusting operating earnings by focusing on a company’s after-tax earnings generated from its principal businesses. Included in the Standard & Poor’s definition are employee stock option grant expenses, pension costs, restructuring charges from ongoing operations, write-downs of depreciable or amortizable operating assets, purchased research and development, M&A related expenses and unrealized gains/losses from hedging activities. Excluded from the definition are pension gains, impairment of goodwill charges, gains or losses from asset sales, reversal of prior-year charges and provision from litigation or insurance settlements. S&P Issuer Credit Rating – A Standard & Poor’s Issuer Credit Rating is a current opinion of an obligor’s overall financial capacity (its creditworthiness) to pay its financial obligations. This opinion focuses on the obligor’s capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation, as it does not take into account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and enforceability of the obligation. In addition, it does not take into account the creditworthiness of the guarantors, insurers, or other forms of credit enhancement on the obligation. The Issuer Credit Rating is not a recommendation to purchase, sell, or hold a financial obligation issued by an obligor, as it does not comment on market price or suitability for a particular investor. Issuer Credit Ratings are based on current information furnished by obligors or obtained by Standard & Poor’s from other sources it considers reliable. Standard & Poor’s does not perform an audit in connection with any Issuer Credit Rating and may, on occasion, rely on unaudited financial information. Issuer Credit Ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Standard & Poor’s Equity Research Services – Standard & Poor’s Equity Research Services U.S. includes Standard & Poor’s Investment Advisory Services LLC; Standard & Poor’s

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Equity Research Services Europe includes Standard & Poor’s LLC- London; Standard & Poor’s Equity Research Ser-vices Asia includes Standard & Poor’s LLC’s offices in Hong Kong and Singapore, Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’s Information Services (Australia) Pty Ltd. Abbreviations Used in S&P Equity Research Reports CAGR – Compound Annual Growth Rate CAPEX – Capital Expenditures CY – Calendar Year DCF – Discounted Cash Flow EBIT – Earnings Before Interest and Taxes EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization EPS – Earnings Per Share EV – Enterprise Value FCF – Free Cash Flow FFO – Funds From Operations FY – Fiscal Year P/E – Price/Earnings PEG Ratio – P/E-to-Growth Ratio PV – Present Value R&D – Research & Development ROA – Return on Assets ROE – Return on Equity ROI – Return on Investment ROIC – Return on Invested Capital SG&A – Selling, General & Administrative Expenses WACC – Weighted Average Cost of Capital Dividends on American Depository Receipts (ADRs) and American Depository Shares (ADSs) are net of taxes (paid in the country of origin). REQUIRED DISCLOSURES S&P Global STARS Distribution In North America As of September 30, 2010, research analysts at Standard & Poor’s Equity Research Services North America recommended 39.2% of issuers with buy recommendations, 52.5% with hold recommendations and 8.3% with sell recommendations. In Europe As of September 30, 2010, research analysts at Standard & Poor’s Equity Research Services Europe recommended 36.6% of issuers with buy recommendations, 43.2% with hold recommendations and 20.2% with sell recommendations. In Asia As of September 30, 2010, research analysts at Standard & Poor’s Equity Research Services Asia recommended 46.8% of issuers with buy recommendations, 44.4% with hold recommendations and 8.8% with sell recommendations. Globally As of September 30, 2010, research analysts at Standard & Poor’s Equity Research Services globally recommended 39.5% of issuers with buy recommendations, 50.2% with hold recommendations and 10.3% with sell recommendations.

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5-STARS (Strong Buy): Total return is expected to outperform the total return of a relevant benchmark, by a wide margin over the coming 12 months, with shares rising in price on an absolute basis. 4-STARS (Buy): Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis. 3-STARS (Hold): Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis. 2-STARS (Sell): Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price not anticipated to show a gain. 1-STAR (Strong Sell): Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis. Relevant benchmarks: In North America, the relevant benchmark is the S&P 500 Index, in Europe and in Asia, the relevant benchmarks are generally the S&P Europe 350 Index and the S&P Asia 50 Index. For All Regions: All of the views expressed in this research report accurately reflect the research analyst’s personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed in this research report. Additional information is available upon request. Other Disclosures This report has been prepared and issued by Standard & Poor’s and/or one of its affiliates. In the United States, research reports are prepared by Standard & Poor’s Investment Advisory Services LLC (“SPIAS”). In the United States, research reports are issued by Standard & Poor’s (“S&P”); in the United Kingdom by Standard & Poor’s LLC (“S&P LLC”), which is authorized and regulated by the Financial Services Authority; in Hong Kong by Standard & Poor’s LLC, which is regulated by the Hong Kong Securities Futures Commission; in Singapore by Standard & Poor’s LLC, which is regulated by the Monetary Authority of Singapore; in Malaysia by Standard & Poor’s Malaysia Sdn Bhd (“S&PM”), which is regulated by the Securities Commission; in Australia by Standard & Poor’s Information Services (Australia) Pty Ltd (“SPIS”), which is regulated by the Australian Securities & Investments Commission; and in Korea by SPIAS, which is also registered in Korea as a cross-border investment advisory company. The research and analytical services performed by SPIAS, S&P LLC, S&PM, and SPIS are each conducted separately from any other analytical activity of Standard & Poor’s. Standard & Poor’s or an affiliate may license certain intellectual property or provide pricing or other services to, or otherwise have a financial interest in, certain issuers of securities, including exchange-traded investments whose investment objective is to substantially replicate the returns of a proprietary Standard & Poor’s index, such as the S&P 500. In cases where Standard & Poor’s or an affiliate is paid fees that are tied to the amount of assets that are invested in the fund or the volume of trading activity in the fund, investment in the fund will generally result in Standard & Poor’s or an affiliate earning compensation in addition to the subscription fees or other compensation for services rendered by

Introduction

xvii

Standard & Poor’s. A reference to a particular investment or security by Standard & Poor’s and/or one of its affiliates is not a recommendation to buy, sell, or hold such investment or security, nor is it considered to be investment advice. Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. Standard & Poor’s and its affiliates provide a wide range of services to, or relating to, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries, and accordingly may receive fees or other economic benefits from those organizations, including organizations whose securities or services they may recommend, rate, include in model portfolios, evaluate or otherwise address. For a list of companies mentioned in this report with whom Standard & Poor’s and/or one of its affiliates has had business relationships within the past year, please go to: http://www.standardandpoors.com/products-services/articles/en/us/?assetID=1245187 982940 Disclaimers This material is based upon information that we consider to be reliable, but neither S&P nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. With respect to reports issued to clients in Japan and in the case of inconsistencies between the English and Japanese version of a report, the English version prevails. With respect to reports issued to clients in German and in the case of inconsistencies between the English and German version of a report, the English version prevails. Neither S&P nor its affiliates guarantee the accuracy of the translation. Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Neither S&P nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material is not intended for any specific investor and does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. For residents of the U.K. – This report is only directed at and should only be relied on by persons outside of the United Kingdom or persons who are inside the United Kingdom

xviii

Introduction

and who have professional experience in matters relating to investments or who are high net worth persons, as defined in Article 19(5) or Article 49(2) (a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, respectively. For residents of Singapore – Anything herein that may be construed as a recommendation is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Advice should be sought from a financial adviser regarding the suitability of an investment, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the recommendation, before the person makes a commitment to purchase the investment product. For residents of Malaysia – All queries in relation to this report should be referred to Alexander Chia, Desmond Ch’ng, or Ching Wah Tam. This investment analysis was prepared from the following sources: S&P MarketScope, S&P Compustat, S&P Industry Reports, I/B/E/S International, Inc.; Standard & Poor’s, 55 Water St., New York, NY 10041. Key Stock Statistics Market Cap.—The stock price multiplied by the number of shares outstanding, based on market value calculated at the issue level. Institutional Holdings—Shows the percent of total common shares held by financial institutions. This information covers some 2,500 institutions and is compiled by Vickers Stock Research Corporation, 226 New York Avenue, Huntington, N.Y. 11743 Value of $10,000 Invested 5 years ago—The value today of a $10,000 investment in the

stock made 5 years ago, assuming year-end reinvestment of dividends. Beta—The beta coefficient is a measure of the volatility of a stock’s price relative to the S&P 500 Index (a proxy for the overall market). An issue with a beta of 1.5 for example, tends to move 50% more than the overall market, in the same direction. An issue with a beta of 0.5 tends to move 50% less. If a stock moved exactly as the market moved, it would have a beta of 1.0. A stock with a negative beta tends to move in a direction opposite to that of the overall market. Per Share Data ($) Tables Cash Flow—Net income plus depreciation, depletion, and amortization, divided by shares used to calculate earnings per common share. (See also: “Cash Flow” under Industrial Companies.) Dividends—Generally total cash payments per share based on the ex-dividend dates over

a 12-month period. May also be reported on a declared basis where this has been established to be a company’s payout policy. Earnings—The amount a company reports as having been earned for the year on its com-

mon stock based on generally accepted accounting standards. Earnings per share are presented on a “diluted” basis pursuant to FASB 128, which became effective December 15, 1997, and are generally reported from continuing operations, before extraordinary items. This reflects a change from previously reported primary earnings per share. Insurance companies report operating earnings before gains/losses on security transactions and earnings after such transactions. Net Asset Value—Appears on investment company reports and reflects the market value of stocks, bonds, and net cash divided by outstanding shares. The % difference indicates the percentage premium or discount of the market price over the net asset value.

Introduction

xix

Payout Ratio—Indicates the percentage of earnings paid out in dividends. It is calculated by dividing the annual dividend by the earnings. For insurance companies, earnings after gains/losses on security transactions are used. P/E Ratio High/Low—The ratio of market price to earnings—essentially indicates the valuation investors place on a company’s earnings. Obtained by dividing the annual earnings into the high and low market price for the year. For insurance companies, operating earnings before gains/losses on security transactions are used. Portfolio Turnover—Appears on investment company reports and indicates percentage of

total security purchases and sales for the year to overall investment assets. Primarily mirrors trading aggressiveness. Prices High/Low—Shows the calendar year high and low of a stock’s market price. Tangible Book Value; Book Value (See also: “Common Equity” under Industrial

Companies)—Indicates the theoretical dollar amount per common share one might expect to receive from a company’s tangible “book” assets should liquidation take place. Generally, book value is determined by adding the stated value of the common stock, paid-in capital and retained earnings and then subtracting intangible assets (excess cost over equity of acquired companies, goodwill, and patents), preferred stock at liquidating value and unamortized debt discount. Divide that amount by the outstanding shares to get book value per common share. Income/Balance Sheet Data Tables

Banks Cash—Mainly vault cash, interest-bearing deposits placed with banks, reserves required by

the Federal Reserve, and items in the process of collection—generally referred to as float. Commercial Loans—Commercial, industrial, financial, agricultural loans and leases, gross. Common Equity—Includes common/capital surplus, undivided profits, reserve for contin-

gencies and other capital reserves. Deposits—Primarily classified as either demand (payable at any time upon demand of depositor) or time (not payable within 30 days). Deposits/Capital Funds—Average deposits divided by average capital funds. Capital funds include capital notes/debentures, other long-term debt, capital stock, surplus, and undivided profits. May be used as a “leverage” measure. Earning Assets—Assets on which interest is earned. Effective Tax Rate—Actual income tax expense divided by net before taxes. Gains/Losses on Securities Transactions—Realized losses on sales of securities, usually

bonds. Government Securities—Includes United States Treasury securities and securities of other U.S. government agencies at book or carrying value. A bank’s major “liquid asset.” Investment Securities—Federal, state, and local government bonds and other securities. Loan Loss Provision—Amount charged to operating expenses to provide an adequate

reserve to cover anticipated losses in the loan portfolio. Loans—All domestic and foreign loans (excluding leases), less unearned discount and reserve for possible losses. Generally considered a bank’s principal asset. Long-Term Debt—Total borrowings for terms beyond one year including notes payable,

mortgages, debentures, term loans, and capitalized lease obligations. Money Market Assets—Interest-bearing interbank deposits, federal funds sold, trading

account securities.

xx

Introduction

Net Before Taxes—Amount remaining after operating expenses are deducted from income, including gains or losses on security transactions. Net Income—The final profit before dividends (common/preferred) from all sources after

deduction of expenses, taxes, and fixed charges, but before any discontinued operations or extraordinary items. Net Interest Income—Interest and dividend income, minus interest expense. Net Interest Margin—A percentage computed by dividing net interest income, on a taxable equivalent basis, by average earning assets. Used as an analytical tool to measure profit margins from providing credit services. Noninterest Income—Service fees, trading, and other income, excluding gains/ losses on

securities transactions. Other Loans—Gross consumer, real estate and foreign loans. % Equity to Assets—Average common equity divided by average total assets. Used as a measure of capital adequacy. % Equity to Loans—Average common equity divided by average loans. Reflects the degree

of equity coverage to loans outstanding. % Expenses/Op. Revenues—Noninterest expense as a percentage of taxable equivalent

net interest income plus noninterest income (before securities gains/losses). A measure of cost control. % Loan Loss Reserve—Contra-account to loan assets, built through provisions for loan

losses, which serves as a cushion for possible future loan charge-offs. % Loans/Deposits—Proportion of loans funded by deposits. A measure of liquidity and

an indication of bank’s ability to write more loans. % Return on Assets—Net income divided by average total assets. An analytical measure of asset-use efficiency and industry comparison. % Return on Equity—Net income (minus preferred dividend requirements) divided by aver-

age common equity. Generally used to measure performance. % Return on Revenues—Net income divided by gross revenues. State and Municipal Securities—State and municipal securities owned at book value. Taxable Equivalent Adjustment—Increase to render income from tax-exempt loans and

securities comparable to fully taxed income. Total Assets—Includes interest-earning financial instruments—principally commercial, real estate, consumer loans and leases; investment securities/ trading accounts; cash/money market investments; other owned assets.

Industrial Companies Following data is based on Form 10K Annual Report data as filed with SEC. Capital Expenditures—The sum of additions at cost to property, plant and equipment,

and leaseholds, generally excluding amounts arising from acquisitions. Cash—Includes all cash and government and other marketable securities. Cash Flow—Net income (before extraordinary items and discontinued operations, and after preferred dividends) plus depreciation, depletion, and amortization. Common Equity [See also “Tangible Book Value” under Per Share Data($) Tables]— Common stock plus capital surplus and retained earnings, less any difference between the carrying value and liquidating value of preferred stock.

Introduction

xxi

Current Assets—Those assets expected to be realized in cash or used up in the production of revenue within one year. Current Liabilities—Generally includes all debts/obligations falling due within one year. Current Ratio—Current assets divided by current liabilities. A measure of liquidity. Depreciation—Includes noncash charges for obsolescence, wear on property, current portion of capitalized expenses (intangibles), and depletion charges. Effective Tax Rate—Actual income tax charges divided by net before taxes. Interest Expense—Includes all interest expense on short/long-term debt, amortization of debt discount/premium, and deferred expenses (e.g., financing costs). Long-Term Debt—Debts/obligations due after one year. Includes bonds, notes payable,

mortgages, lease obligations, and industrial revenue bonds. Other long-term debt, when reported as a separate account, is excluded. This account generally includes pension and retirement benefits. Net Before Taxes—Includes operating and nonoperating revenues (including extraordi-

nary items not net of taxes), less all operating and nonoperating expenses, except income taxes and minority interest, but including equity in nonconsolidated subsidiaries. Net Income—Profits derived from all sources after deduction of expenses, taxes, and fixed charges, but before any discontinued operations, extraordinary items, and dividends (preferred/common). Operating Income—Net sales and operating revenues less cost of goods sold and oper-

ating expenses (including research and development, profit sharing, exploration and bad debt, but excluding depreciation and amortization). % Long-Term Debt of Invested Capital—Long-term debt divided by total invested capital.

Indicates how highly “leveraged” a business might be. % Operating Income of Revenues—Net sales and operating revenues divided into operat-

ing income. Used as a measure of operating profitability. % Net Income of Revenues—Net income divided by sales/operating revenues. % Return on Assets—Net income divided by average total assets on a per common share

basis. Used in industry analysis and as a measure of asset-use efficiency. % Return on Equity—Net income less preferred dividend requirements divided by average

common shareholders’ equity on a per common share basis. Generally used to measure performance and industry comparisons. Revenues—Net sales and other operating revenues. Includes franchise/ leased department income for retailers, and royalties for publishers and oil and mining companies. Excludes excise taxes for tobacco, liquor, and oil companies. Total Assets—Current assets plus net plant and other noncurrent assets (intangibles and deferred items). Total Invested Capital—The sum of stockholders’ equity plus long-term debt, capital lease

obligations, deferred income taxes, investment credits, and minority interest. Insurance Companies Life Insurance In Force—The total value of all life insurance policies including ordinary,

group, industrial and credit. Generally the figure is reported before any amounts ceded, or the portions placed with other insurance companies. Premium Income—The amount of premiums earned during the year is generally equal to the net premiums written plus any increase or decrease in earned premiums. The categories are divided into Life, Accident & Health, Annuity and Property & Casualty.

xxii

Introduction

Net Investment Income—Income received from investment assets (before taxes) including bonds, stocks, loans and other investments (less related expenses). Total Revenues—Includes premium income, net investment income and other income. Property & Casualty Underwriting Ratios— Includes: Loss Ratio—losses and loss adjust-

ment expenses divided by premiums earned; Expense Ratio—underwriting expenses divided by net premiums written; Combined Loss-Expense Ratio—Measures claims, losses and operating expenses against premiums. The total of losses and loss expenses, before policyholders’ dividends, to premiums earned, e.g., at 106.0%, equivalent to a loss of six cents of every premium dollar before investment income and taxes. Net Before Taxes—Total operating income before income taxes and security gains or losses. Generally will include any equity in income of subsidiaries. Net Operating Income—Includes income from operations, before security gains or losses, and before results of discontinued operations and special items. Net Income—Includes income from operations, after security gains or losses, and before

results of discontinued operations and special items. % Return On Revenues—Is the net operating income divided by the total revenues. % Return On Assets—Is the net operating income divided by the mean/ average assets. % Return On Equity—Is obtained by dividing the average common equity for the year into the net operating income, less any preferred stock dividend requirements. Cash & Equivalent—Includes cash, accrued investment income and short- term investments (except when classified as investments by the company). Premiums Due—Generally includes premiums owed but uncollected, agent’s balances receivable and earned and unbilled premiums receivable. Investment Assets—Includes all investments shown under the company’s investment account. Bonds, values at cost, includes bonds and notes, debt obligations and any shortterm investments. Stocks, values at market, includes common and preferred stocks in the investment portfolio. Loans, includes mortgage, policy and other loans. % Investment Yield—Is the return received on the company’s investment assets, and is obtained by dividing the average investment assets into the net investment income, before applicable income taxes. Deferred Policy Costs—Reflect certain costs of acquiring insurance business which have been deferred. These costs are primarily related to the production of business such as commissions, expenses in issuing policies and certain agency expenses. Total Assets—Includes total investments, cash and cash items, accrued investment

income, premiums due, deferred policy acquisition costs, property and equipment, separate accounts and other assets. Debt—Includes bonds, debentures, notes, loans and mortgages payable. Common Equity—Consists of common stock, additional paid in capital, net unrealized

capital gains or losses on investments, retained earnings—less treasury stock at cost. Investment Companies Total Investment Income—The sum of income received from dividends and interest on

portfolio holdings. Net Investment Income—The amount of income remaining after operating expenses are deducted from total investment income. The per share figure is generally reported by the company, or may be obtained by dividing the net investment income by the shares outstanding. This amount is available for the payment of distributions.

Introduction

xxiii

Realized Capital Gains—Represents the net gain realized on the sale of investments, as reported by the company in the statement of changes in net assets. Divide amount by shares outstanding to obtain per share figure. % Net Investment Income/Net Assets—Measures return on net assets. Percentage is obtained by dividing net investment income by average net assets. % Expenses/Net Assets—Generally measures cost control. Percentage is obtained by dividing operating expenses by average net assets. % Expenses/Investment Income—Indicates the amount of income absorbed by expenses.

Percentage is obtained by dividing operating expenses by total investment income. Net Assets—Represents the total market value of portfolio securities, including net cash, short-term investments, and stocks and bonds at market. % Change S&P “500”—Measures the percentage change in Standard & Poor’s 500 stock price index, before reinvestment of dividends, and is a general indicator of overall stock market performance. % Change AAA Bonds—Measures the percentage change in the Standard & Poor’s high

grade bond index, before reinvestment of interest, and is a measure of AAA bond price movements. % Net Asset Distribution—Indicates the percentage breakdown of net assets in the following categories: a) net cash (cash receivables and other assets, less liabilities); b) shortterm obligations (U.S. Government securities, commercial paper and certificates of deposit); c) bonds and preferred stocks; d) common stocks. To calculate the % net asset distribution, divide net assets into each of the above categories.

Real Estate Investment Trusts and Savings & Loans Rental Income—Primarily income received from rental property. Mortgage Income—Primarily income derived from mortgages. Total Income—Includes rental and mortgage income, gains on sale of real estate and other. General Expenses—Includes property operating expenses, real estate taxes, depreciation

& amortization, administrative expenses and provision for losses. Interest Expense—Includes interest paid on mortgage debt, convertible debentures, other debt obligations and short-term debt. % Expenses/Revenues—Total expenses divided by revenues. The result represents the

percentage of revenues (or the number of cents per dollar of income) absorbed by expenses. Provision for Losses—Reserve charged to income for possible real estate losses. Net Income—Profits for the year. This would include any gains/losses on the sale of real

estate but exclude extraordinary items. % Earnings & Depreciation/Assets—Obtained by dividing average assets into the sum of net income and depreciation expense (a measure of “cash flow” for REITs). Total Assets—The sum of net investments in real estate and other assets. Real Estate Investments—The sum of gross investments in real estate, construction in

process and mortgage loans and notes before allowances for losses and accumulated depreciation. Loss Reserve—Reserves set aside for possible losses on real estate investments. Net Investment—Real estate investments less accumulated depreciation and loss reserves. Cash—Cash on hand, cash in escrow and short-term investments.

xxiv

Introduction

S T Debt—Short-term obligations due and payable within one year of balance sheet date.

This would include the current portion of long-term debt, mortgages and notes, bank loans and commercial paper. Debt—Includes debentures, mortgages and other long-term debt due after one year of bal-

ance sheet date. Equity—Represents the sum of shares of beneficial interest or common stock, convertible preferred stock when included as equity, capital surplus and undistributed net income. Total Capitalization—Is the sum of the stated values of a company’s total shareholders’ equity including preferred, common stock and debt obligations. Price Times Book Value Hi Lo—Indicates the relationship of a stock’s market price to book value. Obtained by dividing year-end book values into yearly high/low range.

Utilities Capital Expenditures—Represents the amounts spent on capital improvements to plant

and funds for construction programs. Capitalization Ratios—Reflect the percentage of each type of debt/equity issues outstand-

ing to total capitalization. % DEBT is obtained by dividing total debt by the sum of debt, preferred, common, paid-in capital and retained earnings. % PREFERRED is obtained by dividing the preferred stocks outstanding by total capitalization. % COMMON, divide the sum of common stocks, paid-in capital and retained earnings by total capitalization. Construction Credits—Credits for interest charged to the cost of constructing new plant.

A combination of allowance for equity funds used during construction and allowance for borrowed funds used during construction—credit. Depreciation—Amounts charged to income to compensate for the decline in useful value of plant and equipment. Effective Tax Rate—Actual income tax expense divided by the total of net income and actual income tax expense. Fixed Charges Coverage—The number of times income before interest charges (operating income plus other income) after taxes covers total interest charges and preferred dividend requirements. Gross Property—Includes utility plant at cost, plant work in progress, and nuclear fuel. Long-Term Debt—Debt obligations due beyond one year from balance sheet date. Maintenance—Amounts spent to keep plants in good operating condition. Net Income—Amount of earnings for the year which is available for preferred and com-

mon dividend payments. Net Property—Includes items in gross property less provision for depreciation. Operating Revenues—Represents the amount billed to customers by the utility. Operating Ratio—Ratio of operating costs to operating revenues or the proportion of rev-

enues absorbed by expenses. Obtained by dividing operating expenses including depreciation, maintenance, and taxes by revenues. % Earned on Net Property—Percentage obtained by dividing operating income by average net property for the year. A measure of plant efficiency. % Return on Common Equity—Percentage obtained by dividing income available for common stock (net income less preferred dividend requirements) by average common equity. % Return on Invested Capital—Percentage obtained by dividing income available for fixed

charges by average total invested capital.

Introduction

xxv

% Return on Revenues—Obtained by dividing net income for the year by revenues. Total Capitalization—Combined sum of total common equity, preferred stock and long-

term debt. Total Invested Capital—Sum of total capitalization (common-preferred-debt), accumu-

lated deferred income taxes, accumulated investment tax credits, minority interest, contingency reserves, and contributions in aid of construction. Finally, at the very bottom of the right-hand page, you’ll find general information about the company: its address and telephone number, the names of its senior executive officers and directors (usually including the name of the investor contact), and the state in which the company is incorporated. How to Use This Book to Select Investments And so, at last, we come to the $64,000 question: Given this vast array of data, how might a businesswoman seeking to find out about her competition, a marketing manager looking for clients, a job seeker, and an investor use it to best serve their respective purposes? If you are like one of the first three of these individuals—a businesswoman, a marketing manager, or a job seeker—your task will be arduous, to be sure, but this book will provide you with an excellent starting point and your payoff can make it all worthwhile. You will have to go through this book page by page, looking for those companies that are in the industries in which you are interested, that are of the size and financial strength that appeal to you, that are located geographically in your territory or where you’re willing to relocate, that have been profitable and growing, and so forth. And then you will have to read about just what’s going on at those companies by referring to the appropriate “Highlights” and “Business Summary” comments in these reports. Of course, this book won’t do it all for you. It is, after all, just a starting point, not a conclusive summary of everything you might need to know. It is designed to educate, not to render advice or provide recommendations. But it will get you pointed in the right direction. Finally, what about an investor who wants to use this book to find good individual investments from among the 500 stocks in the S&P 500 Index? If you fall into that category, what should you do? Well, you can approach your quest the same way that the businesswoman looking for information about her competitors, the marketing manager, and the job seeker approached theirs—by thumbing through this book page by page, looking for companies with high historical growth rates, generous dividend payout policies, wide profit margins, A⫹ Standard & Poor’s Quality Rankings, or whatever other characteristics you consider desirable in stocks in which you might invest. In this case, however, we have made your job just a little bit easier. We have already prescreened the 500 companies in this book for several of the stock characteristics in which investors generally are most interested, including Standard & Poor’s Quality Rankings, growth records, and dividend payment histories, and we’re pleased to present on the next several pages lists of those companies which score highest on the bases of these criteria. So if you, like most investors, find these characteristics important in potential investments, you might want to turn first to the companies on these lists in your search for attractive investments. Good luck and happy investment returns!

Companies With Five Consecutive Years of Earnings Increases This table, compiled from a computer screen of the stocks in this handbook, shows companies that have recorded rising per-share earnings for five consecutive years, have estimated 2010 EPS above those reported for 2009, pay dividends, and have Standard & Poor’s Quality Rankings of A– or better.

xxvi

Company

Business

Baxter Intl Becton, Dickinson Brown-Forman'B' C.H. Robinson Worldwide Colgate-Palmolive CVS Caremark Corp Entergy Corp Hasbro Inc Hudson City Bancorp Intl Bus. Machines Kellogg Co Oracle Corp Polo Ralph Lauren'A' Praxair Inc Ross Stores Sigma-Aldrich Smucker (J.M.) TJX Companies Wal-Mart Stores Wisconsin Energy Corp Yum Brands

Mfr,dstr hospital/lab prod Health care pr:ind'l safety Mkt whisky,wine prd/Lenox chin Motor freight transportat'n Household & personal care Oper drug/health stores Owns five operating utilities Mfrs toys & games Savings bank,New Jersey Lgst mfr business machines Convenience food products Mkts database mgmt softwr Retail apparel/home prd Ind'l gases/spcl coatings Apparel,shoes,linen retailer Specialty chem prod Preserves: jellies & fillings Off-price specialty stores Operates discount stores Hdlg:El & gas utility Oper family style restaurants

S&P Quality Ranking

Fiscal Year End

A A A A⫹ A⫹ A⫹ A A⫺ A A A⫹ A⫺ A⫺ A⫹ A⫹ A⫹ A⫹ A⫹ A⫹ A⫺ A

Dec Sep Apr# Dec Dec Dec Dec Dec Dec Dec Dec May# Mar⫹ Dec Jan⫹ Dec Apr# Jan⫹ Jan⫹ Dec Dec

#Actual 2010 EPS; P/E based on actual 2010 EPS. ⫹Actual 2010 EPS and Estimated 2011 EPS; P/E based on estimated 2011. Chart data is as of the close October 8, 2010. NOTE: All earnings estimates are Standard & Poor's projections.

S&P 500 STOCK SCREENS

EPS 2009 Actual $ 3.59 4.99 2.87 2.13 4.37 2.55 6.29 2.48 1.07 10.01 3.16 1.09 4.73 4.01 3.54 2.80 3.12 2.84 3.70 3.24 2.22

EPS 2010 Estimate $

5 Yr. EPS % Growth Rate

Price

P/E on 2010 Est.

3.98 5.08 3.02 2.30 4.77 2.70 6.80 2.63 1.19 11.50 3.40 1.21 5.11 4.65 4.25 3.15 4.15 3.35 4.03 3.78 2.49

13 15 6 12 13 13 8 21 21 17 7 13 11 12 26 10 11 19 8 5 12

49.16 74.75 61.11 71.21 74.90 31.25 76.12 45.64 12.00 138.85 49.97 28.00 92.91 90.62 55.74 60.65 61.90 44.67 54.41 58.22 47.65

12.4 14.7 20.2 31.0 15.7 11.6 11.2 17.4 10.1 12.1 14.7 23.1 18.2 19.5 13.1 19.3 14.9 13.3 13.5 15.4 19.1

Yield 2.4% 2.0% 2.0% 1.4% 2.8% 1.1% 4.4% 2.2% 5.0% 1.9% 3.2% 0.7% 0.4% 2.0% 1.1% 1.1% 2.6% 1.3% 2.2% 2.7% 2.1%

Stocks With A⫹ Rankings Based on the issues in this handbook, this screen shows stocks of all companies with Standard & Poor’s Quality Rankings of A⫹.

xxvii

Company

Business

Caterpillar Inc C.H. Robinson Worldwide Coca-Cola Co Colgate-Palmolive CVS Caremark Corp Danaher Corp Ecolab Inc Expeditors Intl,Wash Exxon Mobil Family Dollar Stores Genl Dynamics Grainger (W.W.) Hormel Foods Johnson & Johnson Kellogg Co McCormick & Co

Earthmoving mchy: diesel eng Motor freight transportat'n Major soft drink/juice co Household & personal care Oper drug/health stores Mfr hand tools,auto parts Comm'l cleaning&sanitizing Int'l air freight forward'g World's leading oil co Self-service retail stores Armored/space launch vehicles Natl dstr indus/comm'l prod Meat & food processing Health care products Convenience food products Spices, flavoring, tea, mixes

NIKE, Inc'B' Company

Athletic footwear Business

Omnicom Group PepsiCo Inc Praxair Inc Procter & Gamble Ross Stores Sigma-Aldrich Smucker (J.M.) Stryker Corp Sysco Corp Target Corp 3M Co TJX Companies United Technologies UnitedHealth Group Wal-Mart Stores

Major int'l advertising co Soft drink:snack foods Ind'l gases/spcl coatings Hshld,personal care,food prod Apparel,shoes,linen retailer Specialty chem prod Preserves: jellies & fillings Specialty medical devices Food distr & service systems Depart/disc/spec stores Scotch tapes: coated abrasives Off-price specialty stores Aerospace,climate ctrl sys Manages health maint svcs Operates discount stores

Table based on data at the close of October 8, 2010.

S&P 500 STOCK SCREENS

xxvii

Rapid Growth Stocks The stocks below have shown strong and consistent earnings growth. Issues of rapidly growing companies tend to carry high price-earnings ratios and offer potential for substantial appreciation. At the same time, though, the stocks are subject to strong selling pressures should growth in earnings slow. Five-year earnings growth rates have been calculated for fiscal years 2005 through 2009 and the most current 12-month earnings.

xxviii

Company

Business

Apple Inc Biogen Idec Cerner Corp Cognizant Tech Solutions'A' Express Scripts IntercontinentalExchange Inc Intl Bus. Machines Oracle Corp Ross Stores Sigma-Aldrich Smucker (J.M.) Stericycle Inc TJX Companies Waters Corp Yum Brands

Personal computer systems Dvlp stge:immune sys pharma'ls Dvp hlthcare ind software pd Computer software & svcs Health care management svcs Energy commodity trad exch Lgst mfr business machines Mkts database mgmt softwr Apparel,shoes,linen retailer Specialty chem prod Preserves: jellies & fillings Environmental mgmt svcs Off-price specialty stores Mfr liquid chromatography inst Oper family style restaurants

Fiscal Year End

5 Yr. EPS Growth Rate %

EPS 2009 Actual $

EPS 2010 Estimate $

S&P Quality Rank

Price

P/E on 2010 Est.

Sep Dec Dec Dec Dec Dec Dec May# Jan⫹ Dec Apr# Dec Jan⫹ Dec Dec

54 57 19 29 22 52 17 13 26 10 11 23 19 15 12

9.08 3.35 2.31 1.78 1.55 4.27 10.01 1.09 3.54 2.80 3.12 2.03 2.84 3.34 2.22

14.48 4.70 2.75 2.27 2.50 5.89 11.50 1.21 4.25 3.15 4.15 2.45 3.35 3.96 2.49

B B B⫹ B⫹ B⫹ NR A AA⫹ A⫹ A⫹ B⫹ A⫹ B⫹ A

294.07 57.59 86.24 64.20 48.30 112.36 138.85 28.00 55.74 60.65 61.90 71.65 44.67 70.79 47.65

20.3 12.3 31.4 28.3 19.3 19.1 12.1 23.1 13.1 19.3 14.9 29.2 13.3 17.9 19.1

#Actual 2010 EPS; P/E based on actual 2010 EPS ⫹Actual 2010 EPS and Estimated 2011 EPS; P/E based on estimated 2011 EPS Chart based on data at the close of October 8, 2010 NOTE: All earnings estimates are Standard & Poor's projections

S&P 500 STOCK SCREENS

Yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.9% 0.7% 1.1% 1.1% 2.6% 0.0% 1.3% 0.0% 2.1%

Fast-Rising Dividends Based on the issues in this handbook, the companies below were chosen on the basis of their five-year annual growth rate in dividends to the current 12-month indicated rate. All have increased their dividend payments each calendar year from 2005 to their current 12-month indicated rate.

xxix

Company

Divd. Paid 2005

Divd. Paid 2009

* Ind. Divd. Rate

** Divd. Growth Rate

Price

CenturyLink Inc AmerisourceBergen Corp Stryker Corp Texas Instruments Natl Semiconductor Yum Brands CSX Corp Darden Restaurants Ameriprise Financial Airgas Inc Lowe's Cos Cardinal Health Safeway Inc Monsanto Co Harris Corp Cummins Inc McDonald's Corp Ross Stores Tiffany & Co Intl Bus. Machines L-3 Communications Hldgs Norfolk Southern Hasbro Inc ITT Corp Lockheed Martin AFLAC Inc Walgreen Co Microchip Technology Medtronic, Inc TJX Companies Republic Services Murphy Oil Target Corp Hudson City Bancorp Xilinx Inc Praxair Inc

0.24 0.03 0.09 0.11 0.08 0.22 0.22 0.24 0.11 0.23 0.10 0.18 0.10 0.34 0.28 0.30 0.67 0.19 0.28 0.78 0.50 0.48 0.33 0.36 1.05 0.44 0.24 0.45 0.36 0.23 0.33 0.45 0.36 0.27 0.26 0.72

2.80 0.24 0.50 0.45 0.32 0.78 0.88 0.90 0.68 0.70 0.35 0.63 0.37 1.04 0.84 0.70 2.05 0.54 0.68 2.15 1.40 1.36 0.80 0.81 2.34 1.12 0.50 1.36 0.79 0.47 0.76 1.00 0.66 0.59 0.58 1.60

2.90 0.32 0.60 0.52 0.40 1.00 1.04 1.28 0.72 1.00 0.44 0.78 0.48 1.12 1.00 1.05 2.44 0.64 1.00 2.60 1.60 1.44 1.00 1.00 3.00 1.20 0.70 1.37 0.90 0.60 0.80 1.10 1.00 0.60 0.64 1.80

87.94 58.15 51.04 41.05 38.48 37.65 37.63 36.30 36.28 35.92 33.05 32.20 31.63 30.15 29.48 28.78 28.20 28.02 27.79 26.64 25.22 25.01 23.92 23.49 23.36 23.31 23.29 22.08 21.43 21.37 21.31 20.97 20.30 19.97 19.68 19.43

39.76 31.67 49.68 28.73 13.03 47.65 57.49 44.12 49.93 67.85 22.70 32.61 21.19 50.87 43.73 92.91 76.10 55.74 48.51 138.85 70.78 60.53 45.64 47.91 70.10 54.35 33.98 30.97 33.45 44.67 31.22 64.40 54.20 12.00 26.08 90.62

Yield 7.3% 1.0% 1.2% 1.8% 3.1% 2.1% 1.8% 2.9% 1.4% 1.5% 1.9% 2.4% 2.3% 2.2% 2.3% 1.1% 3.2% 1.1% 2.1% 1.9% 2.3% 2.4% 2.2% 2.1% 4.3% 2.2% 2.1% 4.4% 2.7% 1.3% 2.6% 1.7% 1.8% 5.0% 2.5% 2.0%

Company

Divd. Paid 2005

Divd. Paid 2009

* Ind. Divd. Rate

** Divd. Growth Rate%

Price

Illinois Tool Works Grainger (W.W.) Automatic Data Proc Genl Dynamics NIKE, Inc'B' Linear Technology Corp Occidental Petroleum Gap Inc Best Buy Analog Devices Assurant Inc Clorox Co Becton, Dickinson PepsiCo Inc Caterpillar Inc United Technologies Deere & Co Parker-Hannifin Microsoft Corp Intel Corp VF Corp Leggett & Platt Robert Half Intl Colgate-Palmolive Northrop Grumman Williams Cos PG&E Corp Wisconsin Energy Corp Costco Wholesale CenterPoint Energy ConocoPhillips Procter & Gamble Ecolab Inc Sherwin-Williams Archer-Daniels-Midland

0.59 0.92 0.62 0.78 0.50 0.40 0.76 0.16 0.30 0.38 0.31 1.12 0.72 0.98 0.91 0.88 0.61 0.57 0.32 0.32 1.10 0.62 0.28 1.11 1.01 0.25 0.90 0.88 0.45 0.40 1.18 1.09 0.35 0.82 0.34

1.24 1.78 1.32 1.49 1.00 0.88 1.30 0.34 0.56 0.80 0.59 1.92 1.32 1.75 1.68 1.54 1.12 1.00 0.52 0.56 2.37 1.01 0.48 1.72 1.69 0.44 1.65 1.35 0.70 0.76 1.91 1.72 0.56 1.42 0.56

1.36 2.16 1.36 1.68 1.08 0.92 1.52 0.40 0.60 0.88 0.64 2.20 1.48 1.92 1.76 1.70 1.20 1.08 0.64 0.63 2.40 1.08 0.52 2.12 1.88 0.50 1.82 1.60 0.82 0.78 2.20 1.93 0.62 1.44 0.60

19.20 18.12 17.73 17.28 17.02 16.91 16.41 16.17 15.92 15.82 15.70 15.62 15.49 14.93 14.49 14.31 14.25 14.13 14.05 14.02 13.87 13.42 13.42 13.08 13.05 13.05 12.98 12.80 12.55 12.49 12.42 12.22 12.08 12.02 12.02

48.43 123.00 42.10 63.37 82.04 30.96 83.18 18.21 41.09 32.34 40.89 68.15 74.75 65.75 80.37 72.91 75.35 71.18 24.57 19.52 84.33 23.75 26.53 74.90 62.29 19.72 46.78 58.22 64.29 16.09 59.61 61.86 51.64 73.48 32.86

*12-month indicated rate. **Five-year annual compounded annual growth rate. Chart based on data at the close of October 8, 2010.

S&P 500 STOCK SCREENS

Yield 2.8% 1.8% 3.2% 2.7% 1.3% 3.0% 1.8% 2.2% 1.5% 2.7% 1.6% 3.2% 2.0% 2.9% 2.2% 2.3% 1.6% 1.5% 2.6% 3.2% 2.8% 4.5% 2.0% 2.8% 3.0% 2.5% 3.9% 2.7% 1.3% 4.8% 3.7% 3.1% 1.2% 2.0% 1.8%

This page intentionally left blank

Stock Reports In using the Stock Reports in this handbook, please pay particular attention to the dates attached to each evaluation, recommendation, or analysis section. Opinions rendered are as of that date and may change often. It is strongly suggested that before investing in any security you should obtain the current analysis on that issue. To order the latest Standard & Poor’s Stock Report on a company, for as little as $3.00 per report, please call: S&P Reports On-Demand at 1–800–292–0808.

Stock Report | October 23, 2010 | NYS Symbol: ABT | ABT is in the S&P 500

Abbott Laboratories

★★★★★

S&P Recommendation BUY

Price $52.56 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $62.00

Investment Style Large-Cap Growth

Summary This diversified life science company is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.79– 44.59 Trailing 12-Month EPS $3.41 Trailing 12-Month P/E 15.4 $10K Invested 5 Yrs Ago $14,170

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.18 4.65 12.6 1,544.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$81.154 3.35 $1.76 67

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.27 10 AA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Abbott's operations in competitive markets and its exposure to the potential for generic competition. However, we believe the company has a relatively strong new product pipeline, with possible significant launches in both the medical device and pharmaceutical areas. We see the company as financially sound and having a strong balance sheet.

70

55 50 45

Vol. Mil.

Quantitative Evaluations

60 40 20 0 5

S&P Quality Ranking 4

5

4

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

47 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Herman B. Saftlas on July 26, 2010, when the stock traded at $ 48.93. Highlights ➤

➤

➤

We project that revenues will exceed $35 billion in 2010, up from 2009's $30.8 billion, lifted by an estimated contribution of about $2.9 billion from Solvay Group (acquired in mid-February 2010). We also forecast growth in established Abbott franchises such as Humira, which continues to grow faster than the overall self-injectable antiTNF market. The Xience drug-eluting coronary stent should also continue to bolster vascular sales, while new products should support growth in nutritional and diagnostic products. We expect gross margins to expand modestly from 2009's 57.1%, helped by manufacturing efficiencies. But the SG&A and R&D ratios will probably increase somewhat, reflecting new product-related costs. The new U.S. health care reform law is expected to reduce EPS by $0.11 in 2010, which we think should be largely offset by EPS accretion of about $0.10 from the Solvay acquisition. After a projected adjusted effective tax rate of about 16.3% versus 2009's 16.8%, we forecast operating EPS of $4.18 for 2010. Lifted by new products, we see EPS rising to $4.65 in 2011.

Investment Rationale/Risk ➤

➤

➤

We believe Abbott's success with its targeted acquisition strategy will be a key driver for the above-average growth we forecast for ABT over the coming years. In mid-February 2010, ABT completed the $6.2 billion acquisition of the pharmaceuticals division unit of Belgiumbased Solvay SA. We view this deal positively, as it gives ABT full rights to cholesterol drugs Tricor and Trilipix, and allows it to expand in vaccines and emerging foreign markets. The deal should also diversify ABT away from its reliance on Humira. We expect this acquisition to boost EPS by $0.10 in 2010 and $0.20 in 2011. Risks to our recommendation and target price include failure to integrate the Solvay acquisition, greater than expected competitive pressures in key markets, and possible pipeline setbacks. Our 12-month target price of $62 applies a premium-to-peers 14.8X multiple to our 2010 EPS estimate. We think this valuation is warranted in light of ABT's rapidly growing franchises in diversified health care markets. Our DCF model, which assumes a WACC of about 8.3% and terminal growth of 2%, also implies intrinsic value of $62.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 7,698 8,826 2009 6,718 7,495 2008 6,766 7,314 2007 5,290 6,371 2006 5,183 5,501 2005 5,383 5,524

3Q -7,761 7,498 6,377 5,574 5,384

4Q -8,790 7,950 7,221 6,218 6,047

Year -30,765 29,528 25,914 22,476 22,338

Earnings Per Share ($) 2010 0.64 0.83 2009 0.92 0.83 2008 0.60 0.85 2007 0.41 0.63 2006 0.56 0.40 2005 0.53 0.56

E1.05 0.95 0.69 0.46 0.46 0.44

E1.31 0.98 0.89 0.77 -0.31 0.63

E4.18 3.69 3.03 2.31 1.12 2.16

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.400 0.440 0.440 0.440

12/11 02/19 06/11 09/16

01/13 04/13 07/13 10/13

01/15 04/15 07/15 10/15

02/15/10 05/15/10 08/15/10 11/15/10

Dividends have been paid since 1926. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ABT

Abbott Laboratories Business Summary July 26, 2010 CORPORATE OVERVIEW. Abbott Laboratories is a leading player in several growing health care markets. Through acquisitions, product diversification and R&D programs, ABT offers a wide range of prescription pharmaceuticals, infant and adult nutritionals, diagnostics, and medical devices. During 2009, pharmaceuticals accounted for 53% of operating revenues, while nutritionals represented 17%, diagnostics contributed 12%, and vascular represented 9%. Sales of other products represented 9% of 2009 sales. Foreign sales accounted for 54% of total sales in 2009. ABT's Pharmaceutical Products Group markets a wide array of human therapeutics. Major products include: Humira to treat rheumatoid arthritis and psoriatic arthritis ($5.5 billion in 2009 sales); Kaletra, an anti-HIV medication ($1.4 billion); TriCor/Trilipix, cholesterol treatments ($1.3 billion); Niaspan, a niacinbased cholesterol treatment ($855 million); and Lupron, a treatment for prostate cancer ($800 million). This division was augmented by the $6.2 billion purchase of the Solvay drug business in February 2010.

Isomil names, as well as adult nutritionals, such as Ensure and ProSure for patients with special dietary needs, including cancer and diabetes patients. ABT also markets enteral feeding items. Abbott Diabetes Care markets the Precision and FreeStyle lines of hand-held glucose monitors for diabetes patients. This division also markets data management and point-of-care systems, insulin pumps and syringes, and Glucerna shakes and nutrition bars tailored for diabetics. Abbott Vascular markets coronary and carotid stents, catheters and guide wires, and products used for surgical closure. The principal product is the new Xience drug-eluting stent (DES), which was launched in July 2008 and is presently the leading product in the domestic DES market. Boston Scientific markets the Xience stent manufactured by Abbott under the Promus name, pursuant to an agreement with ABT.

Nutritionals fall under U.S.-based Ross Products and Abbott Nutrition International. Products include leading infant formulas sold under the Similac and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.17 5.04 3.69 3.61 1.56 42% 57.39 41.27 16 11

2008 1.51 4.21 3.03 2.86 1.41 46% 61.09 45.75 20 15

2007 1.24 3.50 2.31 2.31 1.27 55% 59.50 48.75 26 21

2006 NM 2.13 1.12 1.16 1.16 104% 49.87 39.18 45 35

2005 2.89 3.02 2.16 2.01 1.09 50% 50.00 37.50 23 17

2004 2.22 2.84 2.02 1.90 1.03 51% 47.63 38.26 24 19

2003 2.90 2.56 1.75 1.95 0.97 55% 47.15 33.75 27 19

2002 1.93 2.52 1.78 1.62 0.92 51% 58.00 29.80 33 17

2001 1.14 1.74 0.99 0.77 0.82 83% 57.17 42.00 58 42

2000 4.54 2.31 1.78 NA 0.74 42% 56.25 29.38 32 16

30,765 8,698 2,090 520 7,194 20.1% 5,746 5,599

29,528 8,316 1,839 528 5,856 19.2% 4,734 4,473

25,914 7,378 1,855 593 4,479 19.3% 3,606 3,609

22,476 6,419 1,559 416 2,276 24.6% 1,717 1,787

22,338 5,738 1,359 241 4,620 27.0% 3,372 3,158

19,680 5,187 1,289 200 4,126 23.0% 3,176 2,972

19,681 4,597 1,274 146 3,734 26.3% 2,753 2,971

17,685 4,815 1,177 239 3,673 23.9% 2,794 2,561

16,285 3,062 1,168 307 1,883 17.7% 1,550 1,233

13,746 4,228 827 114 3,816 27.0% 2,786 NA

Balance Sheet & Other Financial Data (Million $) Cash 9,932 Current Assets 23,314 Total Assets 52,417 Current Liabilities 13,049 Long Term Debt 11,484 Common Equity 22,856 Total Capital 34,594 Capital Expenditures 1,089 Cash Flow 7,835 Current Ratio 1.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 18.7 % Return on Assets NA % Return on Equity NA

5,080 17,043 42,419 11,592 8,713 17,480 26,193 1,288 6,573 1.5 33.3 16.0 11.5 26.9

2,821 14,043 39,714 9,103 9,488 17,779 27,266 1,656 5,461 1.5 34.8 13.9 9.5 22.7

521 11,282 36,178 11,951 7,010 14,054 21,064 1,338 3,276 0.9 33.3 7.6 5.3 12.1

2,894 11,386 29,141 7,416 4,572 14,415 19,570 1,207 4,731 1.5 23.4 15.1 11.6 23.5

1,226 10,734 28,767 6,826 4,788 14,326 19,334 1,292 4,465 1.6 24.8 16.1 11.6 23.2

995 10,290 26,715 7,640 3,452 13,072 16,525 1,247 4,027 1.3 20.9 14.0 10.8 23.2

704 9,122 24,259 7,002 4,274 10,665 14,939 1,296 3,971 1.3 28.6 15.8 11.7 28.3

657 8,419 23,296 7,927 4,335 9,059 13,395 1,164 2,718 1.1 32.4 9.5 8.0 17.6

914 7,376 15,283 4,298 1,076 8,571 9,647 1,036 3,613 1.7 11.2 20.3 18.7 34.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Abbott Park Road, Abbott Park, IL 60064-6400. Telephone: 847-937-6100. Website: http://www.abbott.com Chrmn & CEO: M.D. White

EVP & CFO: T.C. Freyman EVP, Secy & General Counsel: L.J. Schumacher Chief Acctg Officer & Cntlr: G.W. Linder Treas: V. Yien

Investor Contact: L. Peepo (847-935-6722) Founded: 1888 Board Members: R. Alpern, R. S. Austin, W. M. Domicile: Illinois Daley, W. J. Farrell, H. L. Fuller, E. M. Liddy, P. N. Employees: 73,000 Novakovic, W. A. Osborn, D. A. Owen, R. S. Roberts, S. C. Scott, III, W. D. Smithburg, G. F. Tilton, M. D. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ANF | ANF is in the S&P 500

Abercrombie & Fitch Co. S&P Recommendation BUY

★★★★★

Price $42.40 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel Retail

12-Mo. Target Price $52.00

Investment Style Large-Cap Growth

Summary This apparel retailer, which specializes in lifestyle branding, operates about 1,100 retail apparel stores across four brands.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $51.12– 29.88 Trailing 12-Month EPS $1.05 Trailing 12-Month P/E 40.4 $10K Invested 5 Yrs Ago $9,179

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.85 2.88 22.9 88.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.743 1.65 $0.70 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.64 25 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of ANF's strong balance sheet and cash flows, offset by a consumer base whose tastes change constantly.

80 60 40

Quantitative Evaluations 20

S&P Quality Ranking D

C

B-

B+ B

B+

A-

A

A+

Vol. Mil. 24 16 8 0

Relative Strength Rank

STRONG 78

LOWEST = 1 5

5

4

3

3

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on August 20, 2010, when the stock traded at $ 36.00. Highlights ➤

➤

➤

We see international expansion as the dominant growth theme for the next few years as ANF penetrates global markets with flagship stores for its A&F adult and kid business and in mall locations for Hollister. The fall opening of a Gilly Hicks in London will test whether this young woman's intimate brand has global demand as well. Same-store sales comparisons turned positive in FY 11 (Jan.) posting a +3% comp for the first half. A 20% increase in transactions per store in the July quarter suggests that lower prices (down about 15%), along with an improved assortment, are driving store traffic. We see more upside on back-to-school shopping. We estimate 11% sales growth for FY 11 and see 360 basis points (bps) of operating margin expansion to 7.6% of sales, on improved merchandise and gross margins, and leverage of store and distribution and marketing expenses. We see similar sales and productivity gains in FY 12. ANF has a 15% operating margin objective for FY 13 (versus 21% in FY 08), which we see as doable with the closure of underperforming domestic stores and the growing proportion of ecommerce and international.

Investment Rationale/Risk ➤

➤

➤

We see ANF continuing to invest in social media and a mobile commerce platform in FY 11, along with the pursuit of brand building and a ramp up of international expansion and new flagship locations. Some 12% of FY 10 sales were outside the U.S., where sales productivity and margins are substantially higher. U.K. Hollister stores, for example, average 6X the sales volume of a domestic Hollister. We expect the bulk of growth over the next five years to be from abroad. Risks to our recommendation and target price include weaker global economic growth than we project, negative same-store sales trends, and fashion and inventory risk. Our 12-month target price of $52 is 18X our FY 12 EPS estimate, which represents a modest premium to peers of 15% and is a 5% premium to ANF's five-year average forward P/E multiple. We believe operating performance was at a cyclical low in FY 10, but that the strong and rising global appeal of ANF brands will drive improved operating metrics and margin recovery in FY 11 and beyond.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 687.8 745.8 2010 601.7 637.2 2009 800.2 845.8 2008 742.4 804.5 2007 657.3 658.7 2006 546.8 571.6

3Q -753.7 896.3 973.9 863.5 704.9

4Q -936.0 998.0 1,229 1,139 961.4

Year -2,929 3,540 3,750 3,318 2,785

Earnings Per Share ($) 2011 -0.13 0.22 2010 -0.26 -0.09 2009 0.69 0.87 2008 0.65 0.87 2007 0.62 0.72 2006 0.45 0.63

E0.57 0.55 0.72 1.29 1.11 0.79

E1.20 0.68 0.78 2.40 2.14 1.80

E1.85 0.89 3.05 5.20 4.59 3.66

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.175 0.175 0.175 0.175

11/13 02/16 05/18 08/17

11/24 02/24 05/26 08/25

11/27 02/26 05/28 08/27

12/15/09 03/16/10 06/15/10 09/14/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ANF

Abercrombie & Fitch Co. Business Summary August 20, 2010 CORPORATE OVERVIEW. Abercrombie & Fitch, established in 1892, operates four branded retail concepts: Abercrombie & Fitch (340 domestic, six international stores as of January 2010), abercrombie kids (205, four), Hollister Co. (507, 18), and Gilly Hicks (16), and e-commerce sites for each concept. Each targets a different age demographic, minimizing cannibalization, and all employ casual luxury positioning. MARKET PROFILE. The company participates in the specialty apparel retail market targeted at youth, spanning the tween to young adult demographic. While the U.S. apparel market is considered mature, with demand mirroring population growth and a modicum related to fashion, the youth marketplace is generally considered attractive based on its spending clout. According to NPD consumer data, collectively, this group accounts for approximately 35% of total apparel spending, with the "sweet spot" being teenagers, who represent about 20%.

telligence, and this knowledge is often combined with high customer service levels to result in an attractive price/value equation for the consumer. ANF's target demographic is attracted to strong brands, as well as fashion and value, when determining apparel selections. The specialty channel holds the largest share of the apparel market at about 31% according to NPD Group and the sub-segment serving the youth demographic represents about 3% of total retail sales. With barriers to entry minimal (capital investment in merchandise, rent and labor expense) and potential returns on investment high and quick (four wall return on investment exceed 30% in 12 months for many specialty retailers), there was a steady flow of new industry participants through most of this decade, but more recently we've seen more store closures and slowed expansion plans. In addition to competing with other apparel retailers, regardless of channel, for youth discretionary spending, ANF competes with merchandise and services, especially consumer electronics and entertainment services.

COMPETITIVE LANDSCAPE. The retail landscape is consolidating, with share accruing to the mass merchants and specialty chains while the traditional department store is losing ground. Specialty chains compete on customer knowledge garnered from daily interactions, focus groups and marketing inCompany Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 20.78 3.59 0.89 0.96 0.70 79% 2009 42.31 16.95 48 19

2009 21.06 5.57 3.05 3.15 0.70 79% 2008 82.06 13.66 27 4

2008 23.45 7.21 5.20 5.20 0.70 13% 2007 85.77 67.72 16 13

2007 19.17 6.18 4.59 4.59 0.60 13% 2006 79.42 49.98 17 11

2006 11.34 5.02 3.66 3.38 0.50 14% 2005 74.10 44.17 20 12

2005 7.78 3.39 2.28 2.32 0.50 22% 2004 47.45 23.07 21 10

2004 9.21 2.73 2.06 1.81 Nil Nil 2003 33.65 20.65 16 10

2003 7.71 2.50 1.94 1.70 Nil Nil 2002 33.85 14.97 17 8

2002 6.02 2.05 1.65 1.45 Nil Nil 2001 47.50 16.21 29 10

2001 4.28 1.85 1.55 1.35 Nil Nil 2000 31.31 8.00 20 5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,929 398 239 6.60 120 33.9% 79.0 84.9

3,540 686 225 3.40 451 39.6% 272 281

3,750 912 184 Nil 759 37.4% 476 476

3,318 794 146 Nil 672 37.2% 422 422

2,785 661 124 Nil 549 39.2% 334 312

2,021 453 106 Nil 353 38.7% 216 220

1,708 398 66.6 Nil 335 38.8% 205 180

1,596 370 56.9 Nil 316 38.4% 195 170

1,365 313 41.2 Nil 277 39.0% 169 148

1,238 284 30.7 Nil 261 39.5% 158 138

Balance Sheet & Other Financial Data (Million $) Cash 712 Current Assets 1,260 Total Assets 2,833 Current Liabilities 449 Long Term Debt 71.2 Common Equity 1,828 Total Capital 1,899 Capital Expenditures 175 Cash Flow 318 Current Ratio 2.7 % Long Term Debt of Capitalization 3.8 % Net Income of Revenue 2.7 % Return on Assets 2.8 % Return on Equity 4.3

522 1,085 2,848 450 100 1,846 1,980 368 498 2.4 5.1 7.7 10.1 15.7

649 1,140 2,568 543 Nil 1,618 1,641 403 659 2.1 Nil 12.7 19.8 31.5

530 1,092 2,248 511 Nil 1,405 1,436 403 568 2.1 Nil 12.7 20.9 35.2

462 947 1,790 492 Nil 995 1,034 256 458 1.9 Nil 12.0 21.0 40.1

350 652 1,348 414 Nil 669 725 185 322 1.6 Nil 10.7 15.8 28.3

521 753 1,199 280 Nil 871 891 99.1 272 2.7 Nil 12.0 18.5 25.3

401 601 995 211 Nil 750 770 93.0 252 2.8 Nil 12.2 22.1 29.0

239 405 771 164 Nil 595 597 127 210 2.5 Nil 12.4 24.8 33.1

138 304 588 155 Nil 423 423 153 189 2.0 Nil 12.8 30.2 43.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6301 Fitch Path, New Albany, OH 43054. Telephone: 614-283-6500. Email: [email protected] Website: http://www.abercrombie.com

Chrmn & CEO: M.S. Jeffries EVP, CFO & Chief Acctg Officer: J.E. Ramsden SVP, Secy & General Counsel: R.A. Robins, Jr. Investor Contact: T.D. Lennox (614-283-6751)

Cntlr: B.P. Logan Board Members: J. B. Bachmann, L. J. Brisky, A. M. Griffin, M. S. Jeffries, J. W. Kessler, E. M. Lee, C. R. Stapleton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1892 Domicile: Delaware Employees: 80,000

Stock Report | October 23, 2010 | NYS Symbol: ACE | ACE is in the S&P 500

ACE Ltd S&P Recommendation BUY

★★★★★

Price $60.38 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $68.00

Investment Style Large-Cap Value

Summary This specialty insurer provides commercial insurance and reinsurance for a diverse group of international clients. In July 2008, ACE redomesticated its holding company to Switzerland from the Cayman Islands.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $61.00– 47.09 Trailing 12-Month EPS $8.48 Trailing 12-Month P/E 7.1 $10K Invested 5 Yrs Ago $13,370

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.75 7.30 8.9 338.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.68 NM BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of ACE as an opportunistic underwriter, offset by concerns we have about reserve levels in certain lines of business and the potential that credit quality in ACE's fixed income investment portfolio could deteriorate.

70 60 50 40

30

Quantitative Evaluations

Vol. 140

Mil.

104

24 16 8 0 5

$20.461 2.12 $1.28 91

S&P Quality Ranking D

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+

MODERATE

4

69 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for ACE has recently been changed to $68.00 from $68.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on ACE from MarketScope, see below.

➤

10/07/10 08:56 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF ACE LIMITED (ACE 59.1****): ACE announced plans to acquire Malaysian insurer Jerneh Insurance Berhad for about $200M in a deal set to close in Q4. We believe this proposed purchase will enhance ACE's existing capabilities in that region. We also view positively ACE's plan of allocating some of its excess capital to an acquisition strategy that has included other accretive deals. We see ACE as a well run, opportunistic entity. We raise our target price by $3 to $68, assuming that the shares trade at 9.3X our $7.30 2011 EPS forecast, discounted to peers on our view of an asset mix riskier than some peers. / C.Seifert

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,949 3,760 2009 3,575 3,547 2008 3,076 3,834 2007 3,549 3,468 2006 3,181 3,289 2005 3,148 3,258

3Q -3,681 3,619 3,642 3,389 3,494

4Q --4,272 3,103 3,495 3,469 3,188

Year -15,075 13,632 14,154 13,328 13,088

Earnings Per Share ($) 2010 2.22 1.98 2009 1.99 1.58 2008 1.11 2.20 2007 2.10 1.93 2006 1.45 1.72 2005 1.48 1.58

E1.63 1.46 0.16 1.95 1.73 -0.43

E1.41 2.81 0.06 1.69 1.99 0.69

E6.75 7.55 3.53 7.66 6.90 3.31

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.310 0.310 0.330 0.330

11/19 02/25 05/19 08/12

12/15 03/29 07/23 09/29

12/17 03/31 07/27 10/01

01/11/10 04/12/10 08/17/10 10/22/10

Dividends have been paid since 1993. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ACE

ACE Ltd Business Summary September 20, 2010 CORPORATE OVERVIEW. ACE Ltd. underwrites an array of insurance and reinsurance, and also provides funds to support underwriting capacity for Lloyd's syndicates managed by Lloyd's managing agencies. Net earned premiums totaled $13.24 billion in 2009 (up 0.3% from $13.2 billion in 2008), with North American Insurance operations accounting for 43%, Overseas General Insurance for 39%, Global Reinsurance for 7%, and Life Insurance and Reinsurance for 11%. Underwriting results remained profitable in 2009, amid generally stable claim trends, and the combined loss and expense ratio ended the year at 88.3%, versus 89.6% in 2008. Included in these results was the loss ratio, which totaled 58.8% in 2009, versus 60.6% in 2008. The expense ratio deteriorated a bit, to 29.5% in 2009, from 29.0% in 2008. Insurance - North America provides property and casualty insurance and reinsurance coverage, including excess liability, professional lines, satellite, excess property and political risk, to a diverse group of industrial, commercial and other enterprises.

border subsidiaries. In addition, the segment includes the insurance operations of ACE Global Markets, which mainly encompasses operations in the Lloyd's market. Global Reinsurance includes the operations of ACE Tempest Re and several other subsidiaries that mainly provide property catastrophe reinsurance worldwide to insurers of commercial and personal property. Life Insurance and Reinsurance includes the operations of ACE Tempest Re and ACE International Life and businesses of Combined Insurance. ACE Tempest Re offers traditional life reinsurance products, and an array of other reinsurance products aimed at helping life insurance companies manage their mortality, morbidity, lapse and/or capital market risks. ACE International Life offers individual life and group insurance and savings products in Indonesia, Thailand, Vietnam, Taiwan, UAE, China, Egypt, Europe and Latin America. On April 28, 2004, ACE sold approximately 65% of Assured Guaranty Ltd. (NYSE: AGO) in an initial public offering that netted ACE about $835 million.

Insurance - Overseas General includes the operations of ACE International, which provides property and casualty insurance, accident and health insurance and consumer-oriented products to individuals, mid-sized firms and large commercial clients. It also provides customized and comprehensive insurance policies and services to multinational companies and their crossCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 51.04 NA 7.55 1.45 19% 55.64 30.92 7 4

2008 29.24 NA 3.53 1.09 31% 68.00 34.90 19 10

2007 42.29 NA 7.66 1.06 14% 64.32 52.79 8 7

2006 35.37 NA 6.90 0.98 14% 61.90 47.81 9 7

2005 28.17 NA 3.31 0.90 27% 56.85 38.36 17 12

2004 25.11 NA 3.88 0.82 21% 45.98 31.80 NM NM

2003 21.52 NA 5.25 0.74 14% 42.80 23.59 NM NM

2002 13.20 NA 0.27 0.66 NM 44.98 22.01 NM NM

2001 12.13 NA -0.88 0.58 NM 43.19 18.10 NM NM

2000 10.35 NA 2.19 0.48 22% 43.94 14.06 NM NM

NA NA NA 15,075 3,077 NA 2,549

13,203 2,062 -1,633 13,632 1,567 NA 1,197

12,297 1,918 -61.0 14,154 3,160 NA 2,578

11,825 1,601 -98.0 13,328 2,831 NA 2,301

11,748 1,264 76.0 13,088 1,317 NA 1,028

11,110 1,013 198 12,320 1,439 NA 1,153

9,727 901 265 10,892 1,794 NA 1,482

6,905 812 -489 7,227 -11.7 NA 100

6,039 803 -58.0 6,784 -247 NA -158

4,539 781 -39.0 5,281 598 NA 517

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 669 Premiums Due NA Investment Assets:Bonds NA Investment Assets:Stocks NA Investment Assets:Loans NA Investment Assets:Total 46,515 Deferred Policy Costs NA Total Assets 77,980 Debt NA Common Equity 19,667 Property & Casualty:Loss Ratio NA Property & Casualty:Expense Ratio NA Property & Casualty Combined Ratio 88.3 % Return on Revenue 16.9 % Return on Equity 14.9

867 14,176 34,015 2,609 52.0 40,547 1,214 72,057 2,806 14,446 60.6 29.0 89.6 8.8 7.7

926 14,362 36,171 1,837 Nil 41,779 1,121 72,090 1,811 16,675 61.6 26.3 87.9 18.2 16.4

917 14,580 31,587 1,713 Nil 36,601 1,077 67,135 2,447 14,276 52.3 33.9 86.2 17.3 17.6

850 3,343 27,361 1,507 Nil 31,922 930 62,440 2,120 11,810 74.5 25.1 99.6 7.9 9.5

807 3,255 22,891 1,266 Nil 26,925 944 56,183 2,261 9,843 70.6 25.8 96.4 9.4 11.9

817 2,823 19,312 562 Nil 22,555 1,005 49,317 1,824 8,821 64.6 26.4 91.0 13.6 19.2

NA 2,654 NA NA NA 17,555 832 43,874 2,224 6,269 73.7 27.5 101.2 1.4 1.2

NA NA NA NA NA 15,197 679 37,186 2,224 6,010 83.9 28.5 112.4 NM NM

NA NA NA NA NA 13,064 573 31,837 2,299 5,358 65.6 30.8 96.4 9.8 NA

Income Statement Analysis (Million $) Premium Income Net Investment Income Other Revenue Total Revenue Pretax Income Net Operating Income Net Income

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. 2004-2000 data restated based on 2004 SEC Form 10-K/A. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Barengasse 32, Zurich, Switzerland 8001. Telephone: 41 43 456 76 00. Email: [email protected] Website: www.acelimited.com

Chrmn, Pres & CEO: E.G. Greenberg Vice Chrmn: J. Keogh COO: R.J. Rintala CFO: P.V. Bancroft

Chief Acctg Officer: P.B. Medini Founded: 1985 Investor Contact: H.M. Wilson (441-299-9283) Domicile: Switzerland Board Members: M. G. Atieh, M. A. Cirillo-Goldberg, B. Employees: 15,000 L. Crockett, E. G. Greenberg, R. M. Hernandez, J. Keogh, J. Krol, P. Menikoff, L. F. Mullin, T. J. Neff, R. Ripp, T. E. Shasta, O. Steimer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ADBE | ADBE is in the S&P 500

Adobe Systems Inc S&P Recommendation HOLD

★★★★★

Price $28.21 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Application Software

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary This company provides software for multimedia content creation, distribution, and management.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.20– 25.45 Trailing 12-Month EPS $0.90 Trailing 12-Month P/E 31.3 $10K Invested 5 Yrs Ago $9,039

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.60 1.74 17.6 508.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.351 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.69 10 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the regularly changing nature of the software industry and our view that the success of new products will be impacted by the global economic environment. These factors are offset by our view of the company's size and market leadership, strong operating history, and solid balance sheet.

40 30

20 15

Quantitative Evaluations

Vol. 196

Mil.

S&P Quality Ranking

60 40 20 0 5

D 4

3

3

4

3

4

5 3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Zaineb Bokhari on October 06, 2010, when the stock traded at $ 25.92. Highlights

➤

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

Investment Rationale/Risk

We estimate that sales will rise approximately 28% in FY 10 (Nov.) to about $3.8 billion, on our outlook for sales growth from Creative Suite 5 (CS5), and contribution from the acquisition of Omniture (October 2009). We see a very gradual improvement in the global economic environment and expect this to influence the ultimate sales trajectory of CS5, whose sales to date have tracked above those for CS4, but below the pace set by CS3. We see 7% sales growth in FY 11, propelled mainly by new products.

➤

Despite projected strong sales growth, we think FY 10 non-GAAP operating margins will widen modestly to 36.5%, from 35.1% in FY 09, reflecting the integration of Omniture. We expect the company to benefit from a recent restructuring, but expect expenses like R&D and sales and marketing to trend higher, as new products are launched and sales levels rise. We look for operating margins to remain flat in FY 11, as ADBE continues to invest in support of newer products.

➤

We estimate non-GAAP EPS of $1.60 in FY 10, then a rise to $1.74 for FY 11, excluding items such as restructuring and amortization charges.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

26

1

➤

C

While still early, the upgrade cycle for Creative Suite 5 looks to be trailing the highly successful cycle for Creative Suite 3. Sales are being impacted by weakness in Japan, ADBE's second largest geographic region, and in education, the company's largest vertical market. We see the economic environment improving gradually through FY 11 and expect the trajectory of new product sales to be impacted by prevailing conditions. We look for ADBE to make acquisitions as it targets $5 billion in sales by FY 12. Risks to our recommendation and target price include weak demand for new products, loss of share to competing products or standards, and lack of support from makers of popular hardware platforms. Prolonged weakness in key markets is also a concern.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 858.7 943.0 2009 786.4 704.7 2008 890.5 886.9 2007 649.4 745.6 2006 655.5 635.5 2005 472.9 496.0

3Q 990.3 697.5 887.3 851.7 602.2 487.0

4Q -757.3 915.3 911.2 682.2 510.4

Year -2,946 3,580 3,158 2,575 1,966

Earnings Per Share ($) 2010 0.24 0.28 2009 0.30 0.24 2008 0.38 0.41 2007 0.24 0.25 2006 0.17 0.20 2005 0.30 0.29

0.44 0.26 0.35 0.35 0.16 0.29

E0.46 -0.06 0.46 0.38 0.30 0.31

E1.60 0.73 1.59 1.21 0.83 1.19

Fiscal year ended Nov. 30. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2005.

➤

We blend relative and intrinsic valuation measures to derive our 12-month target price of $35. In our DCF model, we incorporate assumptions for a 9.9% WACC and 3% terminal growth, resulting in a $42 value. In our P/E analysis, we apply a 16.3X multiple to our FY 11 estimate, the five-year average low we calculate for the shares, resulting in a value of about $28.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ADBE

Adobe Systems Inc Business Summary October 06, 2010 CORPORATE OVERVIEW. Adobe Systems (founded in 1982) is one of the world's largest software companies. It offers creative, business and mobile software and services used by consumers, artistic professionals, designers, knowledge workers, original equipment manufacturers, developers and enterprises for producing, managing, delivering and experiencing content across multiple operating systems, devices and media. Some of the company's core products include: Acrobat (for document creation, distribution and management); Illustrator (to make graphic artwork); and Photoshop (for photo design, enhancement and editing). In December 2005, ADBE acquired Macromedia, a leading developer of software that enables the creation and consumption of digital content, for $3.5 billion in stock and related costs. Through this transaction, the company gained Macromedia's significant products, including Dreamweaver (Web development) and Flash (which provides an environment to produce dynamic digital content). While acquisition activity had been minor in the two subsequent fiscal years, ADBE acquired Web analytics company Omniture for $1.8 billion in late FY 09 (Nov.). The company reasoned that its products offered the tools to create online content and, with Omniture, it could now help customers measure the efficacy of such content and thus allow them to better monetize it. The company recently announced, but has not completed, the purchase of Swiss enterprise content management software provider Day Software, for about $240 million.

The company's software runs on Microsoft Windows, Apple Mac OS, Linux, UNIX and other non-PC platforms. ADBE is making a push to provide solutions that can develop content for connected devices such as smartphones. ADBE participates in the Open Screen Project, with the aim of allowing developers of content to deliver their creations across connected devices that use the company's Flash and Adobe Air technologies. Begun in May 2008, the Open Screen Project had about 50 participants at the end of FY 09, including many top smartphone manufacturers. CORPORATE STRATEGY. ADBE's indicated strategy is to address the needs of a variety of customers with offerings that support industry standards and can be deployed in a variety of contexts. We believe ADBE is focused on leveraging its market-leading software franchises with bundles and enhancements. Selling multiple products together has enabled ADBE to gain market share, increase penetration with existing customers, and expand its overall customer base. The Creative Suite is the company's flagship bundled offering. Macromedia was acquired to further this strategy.

Company Financials Fiscal Year Ended Nov. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.50 1.26 0.73 0.74 Nil Nil 38.20 15.70 52 22

2008 3.74 2.09 1.59 1.57 Nil Nil 46.44 19.49 29 12

2007 3.67 1.74 1.21 1.21 Nil Nil 48.47 37.20 40 31

2006 4.25 1.33 0.83 0.76 Nil Nil 43.22 25.98 52 31

2005 3.54 1.31 1.19 1.01 0.01 1% 39.48 25.80 33 22

2004 2.68 1.03 0.91 0.69 0.03 3% 32.24 17.15 35 19

2003 2.08 0.65 0.55 0.18 0.03 5% 23.19 12.29 42 22

2002 1.24 0.52 0.40 0.05 0.03 6% 21.66 8.25 55 21

2001 1.23 0.53 0.42 0.11 0.03 6% 30.81 11.10 74 27

2000 1.45 0.65 0.57 NA 0.03 6% 43.66 13.36 77 24

2,946 1,014 282 3.41 702 44.9% 387 392

3,580 1,328 268 10.0 1,079 19.2% 872 860

3,158 1,173 315 Nil 947 23.5% 724 721

2,575 870 308 Nil 680 25.6% 506 466

1,966 793 64.3 Nil 766 21.3% 603 515

1,667 653 60.8 Nil 609 26.0% 450 343

1,295 428 49.0 Nil 380 30.0% 266 86.7

1,165 368 63.5 Nil 285 32.8% 191 20.6

1,230 447 56.6 Nil 307 33.0% 206 51.7

1,266 457 43.3 Nil 444 35.1% 288 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,904 Current Assets 2,474 Total Assets 7,256 Current Liabilities 845 Long Term Debt 1,000 Common Equity 4,864 Total Capital 5,864 Capital Expenditures 120 Cash Flow 669 Current Ratio 2.9 % Long Term Debt of Capitalization 17.1 % Net Income of Revenue 13.1 % Return on Assets 5.9 % Return on Equity 8.3

2,019 2,735 5,822 763 350 4,410 4,878 112 1,140 3.6 7.2 24.4 15.1 19.2

946 2,573 5,714 852 Nil 4,650 4,799 132 1,039 3.0 Nil 22.9 12.3 14.7

772 2,884 5,963 677 Nil 5,152 5,223 83.3 814 4.3 Nil 19.6 12.0 14.4

421 2,009 2,440 480 Nil 1,864 1,943 48.9 667 4.2 Nil 30.7 27.4 36.7

376 1,551 1,959 451 Nil 1,423 1,502 63.2 511 3.4 Nil 27.0 25.6 35.7

190 1,329 1,555 437 Nil 1,101 1,119 39.5 315 3.0 Nil 20.6 20.4 30.0

184 814 1,052 377 Nil 674 674 31.6 255 2.2 Nil 16.4 19.3 29.6

219 767 931 314 Nil 617 617 46.6 262 2.4 Nil 16.7 20.6 30.0

237 878 1,069 315 Nil 753 755 29.8 331 2.8 Nil 22.7 30.7 45.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 345 Park Avenue, San Jose, CA, USA 95110-2704. Telephone: 408-536-6000. Email: [email protected] Website: http://www.adobe.com

Co-Chrmn: J. Warnock Co-Chrmn: C. Geschke Pres & CEO: S. Narayen EVP & CFO: M. Garrett

SVP & CTO: K. Lynch Board Members: C. Baldwin, E. Barnholt, R. K. Burgess, M. R. Cannon, J. E. Daley, C. Geschke, S. Narayen, D. Rosensweig, R. Sedgewick, J. Warnock

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1983 Domicile: Delaware Employees: 8,660

Stock Report | October 23, 2010 | NYS Symbol: AMD | AMD is in the S&P 500

Advanced Micro Devices Inc S&P Recommendation HOLD

★★★★★

Price $6.89 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $8.00

Investment Style Large-Cap Value

Summary This company is a leading producer of semiconductors that are used principally in computers and related products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$10.24– 4.33 $1.74 4.0 $3,153

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.38 0.47 18.1 674.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.648 Nil Nil 56

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.17 NM B+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

AMD is subject to the cyclical swings of the semiconductor industry, demand fluctuations for computer end-products, vacillation in average selling prices for chips, and strong competition from Intel, which is a much larger rival in microprocessors.

12

6 4

2

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 240 160 80 0 5

D

C

B-

C B

B+

A-

Relative Strength Rank 3

A

A+

MODERATE

32

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on October 15, 2010, when the stock traded at $ 7.04. Highlights ➤

➤

➤

We expect revenues to rise around 3% in 2011, following a projected 20% increase in 2010. Although we expect a period of inventory digestion over the near term and pricing pressure as competitors launch new products, we see PC demand improving next year, and believe new CPU and GPU product cycles will support average selling prices. We also think AMD can further penetrate the desktop PC market and gain traction in the server and mobile markets. We look for AMD's non-GAAP gross margins to widen to 46% from an anticipated 45% in 2010. Considering AMD's equity method of accounting for its stake in Globalfoundries, we generally see a less volatile gross margin structure, with fluctuations coming largely from sales mix. As new products are developed and released, we think R&D will rise at a faster rate, and see compensation-related expenses rising variably with sales. Overall, we expect the non-GAAP operating margin to be around 8% for 2010 and 2011. We think AMD's debt and interest payments will continue to weigh on its bottom line. Our non-GAAP estimates exclude equity income/ losses from Globalfoundries.

Investment Rationale/Risk ➤

➤

➤

Our hold recommendation reflects our view of improving fundamentals, balanced by fair valuations. We are modeling below-peer revenue growth in 2011 due to a modest inventory correction and pricing pressure. Although we expect gross margins to contract from current levels, we believe AMD's revamped product portfolio and more flexible business model can lead to better profitability as sales rise, resulting in notable earnings growth. We also see adjusted profits and free cash flows leading to debt reduction, alleviating some financial risks. Based on these anticipated improvements, we think multiples should be above recent historical averages. Risks to our recommendation and target price include less-than-anticipated demand for computers, greater market share losses, and notable financial risk. Our 12-month target price of $8 is based on a blend of relative valuations. We apply a priceto-sales ratio of 1.1X to our forward 12-month sales per share estimate to derive a value of $10. We use a P/E multiple of 12X our 2011 EPS estimate, yielding a value of $6. Both multiples are above recent historical averages.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,574 1,653 2009 1,177 1,184 2008 1,487 1,362 2007 1,233 1,378 2006 1,332 1,216 2005 1,227 1,260

3Q 1,618 1,396 1,797 1,632 1,328 1,523

4Q -1,646 1,162 1,770 1,773 1,838

Year -5,403 5,808 6,013 5,649 5,848

Earnings Per Share ($) 2010 0.35 -0.06 2009 -0.65 -0.49 2008 -0.54 -1.14 2007 -1.11 -1.09 2006 0.38 0.18 2005 -0.04 0.03

-0.16 -0.18 -0.04 -0.71 0.27 0.18

E0.11 1.52 -2.32 -3.06 -1.08 0.21

E0.38 0.45 -3.98 -6.06 -0.34 0.40

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: AMD

Advanced Micro Devices Inc Business Summary October 15, 2010 CORPORATE OVERVIEW. Advanced Micro Devices designs and sells digital integrated circuits (IC), including x86 microprocessors and chipsets for computers, embedded microprocessors for commercial and consumer applications, and, as a result of the company's acquisition of ATI Technologies in October 2006, graphics processors. A microprocessor is an IC that serves as the central processing unit, or brain, of a computer. The performance of a processor is a critical factor for the performance of the computer. The main measures for microprocessor performance include: work-per-cycle, or how many instructions per cycle, clock speed, how fast the CPU's internal logic operates as measured by units of hertz, and power consumption. Other factors impacting performance include the number of cores on a microprocessor, bit rating of the microprocessor, memory size, and data access speed. AMD also sells chipsets, which send data between the microprocessor and the computer's input, display, and storage devices.

lower in cost, size, and power. The embedded market has grown at a healthy pace as customers, who generally used to design the embedded chips, are increasingly opting to use industry-standard x86 instruction architecture as a way to reduce costs and speed up time to market. Graphics processors are used in computers to increase the speed of rendering images and to improve image resolution and color definition. In this business, AMD's discrete graphics processing unit (GPU) includes the relatively popular ATI Radeon products, which are widely utilized to improve graphics for video games and other multimedia functions. The company has two reportable segments: Computing Solutions and Graphics. The Computing Solutions segment includes sales of microprocessors, chipsets, and embedded processors. The Graphics segment includes graphics, video and multimedia products, as well as revenues from the sale of video game consoles that include its technology.

Embedded microprocessors are used in applications, such as industrial controls, point of sale/self-service kiosks, and casino gaming machines, among others. These chips require moderate-to-high performance and are relatively Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.22 0.45 -1.46 Nil Nil 10.04 1.86 22 4

2008 NM -1.96 -3.98 -2.32 Nil Nil 8.08 1.62 NM NM

2007 0.82 -3.72 -6.06 -6.08 Nil Nil 20.63 7.26 NM NM

2006 2.49 1.36 -0.34 -0.35 Nil Nil 42.70 16.90 NM NM

2005 7.70 3.14 0.40 0.38 Nil Nil 31.84 14.08 80 35

2004 7.68 3.54 0.25 -0.19 Nil Nil 24.95 10.76 NM NM

2003 6.96 2.08 -0.79 -1.08 Nil Nil 18.50 4.78 NM NM

2002 7.16 -1.60 -3.81 -4.24 Nil Nil 20.60 3.10 NM NM

2001 10.64 1.69 -0.18 -0.49 Nil Nil 34.65 7.69 NM NM

2000 10.09 4.53 2.95 NA Nil Nil 48.50 13.56 16 5

5,403 615 1,128 438 408 27.5% 213 -978

5,808 255 1,223 375 -2,313 NM -2,414 -1,401

6,013 94.0 1,305 390 -3,321 NM -3,379 -3,391

5,649 1,238 837 126 -115 NM -166 -170

5,848 1,451 1,219 105 33.7 NM 165 155

5,001 1,452 1,224 112 116 5.05% 91.2 -68.2

3,519 748 996 110 -316 NM -274 -373

2,697 -139 756 71.3 -1,258 NM -1,303 -1,450

3,892 654 623 61.4 -75.0 NM -60.6 -161

4,644 1,468 579 60.0 1,263 20.3% 1,006 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,676 Current Assets 4,275 Total Assets 9,078 Current Liabilities 2,210 Long Term Debt 4,252 Common Equity 648 Total Capital 6,284 Capital Expenditures 466 Cash Flow 1,507 Current Ratio 1.9 % Long Term Debt of Capitalization 67.7 % Net Income of Revenue 3.9 % Return on Assets 2.5 % Return on Equity NM

1,096 2,379 7,675 2,226 4,702 -82.0 4,880 624 -1,191 1.1 96.4 NM NM NM

1,889 3,816 11,550 2,625 5,031 2,990 8,292 1,685 -2,074 1.5 60.7 NM NM NM

1,380 3,963 13,147 2,852 3,672 5,785 9,778 1,857 671 1.4 37.6 NM NM NM

633 3,559 7,288 1,822 1,327 3,352 5,006 1,513 1,385 2.0 26.5 2.8 2.2 5.2

918 3,228 7,844 1,846 1,628 3,010 5,583 1,440 1,315 1.7 29.2 1.8 1.2 3.3

968 2,900 7,094 1,452 1,900 2,438 5,213 570 721 2.0 36.4 NM NM NM

429 2,020 5,619 1,372 1,780 2,467 4,247 705 -547 1.5 41.9 NM NM NM

427 2,353 5,647 1,314 673 3,555 4,333 679 562 1.8 15.5 NM NM NM

591 2,658 5,768 1,224 1,168 3,172 4,544 805 1,585 2.2 25.7 21.7 19.8 39.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One AMD Place, Sunnyvale, CA 94088-3453. Telephone: 408-749-4000. Email: [email protected] Website: http://www.amd.com

Chrmn: B.L. Claflin Pres & CEO: D.R. Meyer COO, EVP & Chief Admin Officer: R.J. Rivet SVP, CFO & Chief Acctg Officer: T. Seifert

SVP & CIO: A. Mahmoud Founded: 1969 Investor Contact: R. Cotter (408-749-3887) Domicile: Delaware Board Members: W. A. Al Muhairi, W. M. Barnes, J. E. Employees: 13,400 Caldwell, B. L. Claflin, C. Conway, N. M. Donofrio, H. P. Eberhart, D. R. Meyer, R. B. Palmer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AES | AES is in the S&P 500

AES Corporation (The) S&P Recommendation BUY

★★★★★

Price $12.31 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Independent Power Producers & Energy Traders

12-Mo. Target Price $13.00

Investment Style Large-Cap Growth

Summary The world's largest independent power producer, AES produces and distributes electricity in international and domestic markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$14.64– 8.82 $0.66 18.7 $7,962

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.79 1.15 15.6 794.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.774 Nil Nil 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.39 4 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's relatively large capitalization and mix of lower-risk regulated utility businesses in North America, offset by higher-risk merchant power operations and utility operations in emerging markets in South America, Eastern Europe, Central America and Asia.

20 15 10

5

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 4

3

4

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Christopher B. Muir on September 01, 2010, when the stock traded at $ 10.54. Highlights We see 2010's revenues rising 13% and 2011's 6.5%. We see unregulated 2010 revenues being helped by stabilizing commodity prices and new projects and acquisitions. We expect regulated revenues to rise, also helped by stabilizing commodity prices, partly offset by reduced demand in Chile related to the earthquake. We believe 2011 will be helped by slightly rising commodity prices and a weaker U.S. dollar. Our operating margin estimates are 22.2% for 2010 and 22.9% for 2011, versus 22.2% in 2009. For 2010, we expect higher per-revenue cost of sales for the regulated businesses, offset by lower per-revenue general & administrative expenses and unregulated cost of sales. Our pretax margin estimates are 15.3% for 2010 and 17.7% in 2011, versus 17.4% in 2009. We see lower non-operating income partly offset by lower net interest expense in 2010. We estimate 2010 operating EPS, excluding net nonrecurring gains of $0.05, of $0.79, a 34% decrease from 2009's $1.19, which excluded nonrecurring charges of $0.06, due to dilution related to the sale of stock. Our 2011 EPS forecast is $1.15, up 46%.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

78 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

We believe AES is a superior independent power producer. We think it should see above-average earnings growth and an improving balance sheet over the next couple of years, partly due to expansion projects. Results should also be helped by cost controls and strategic growth initiatives, which include a joint venture with China Investment Corp. and a pipeline of projects in advanced development, including plants not yet under construction, that total 8.0 gigawatts (GW) of traditional, 1.4 GW of wind, and 0.5 GW of solar generation capacity additions. We expect AES to add 1.5 GW of new capacity in 2010 and 0.7 GW in 2011. Risks to our recommendation and target price include financial statement revisions, currency fluctuations, political and regulatory uncertainty regarding utility rates and U.S. power margins, and counterparty default risk. The stock recently traded at 9.1X our 2011 EPS estimate, a 24% discount to independent power producer peers. Our 12-month target price of $13 is 11.3X our 2011 EPS estimate, a 21% discount to our peer target, as we see risk related to volatile exchange rates and an uncertain outlook for the global economy.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,112 4,021 2009 3,269 3,335 2008 4,081 4,126 2007 3,121 3,344 2006 2,973 3,044 2005 2,663 2,668

3Q -3,695 4,319 3,471 3,135 2,782

4Q -3,820 3,544 3,673 3,147 2,973

Year -14,119 16,070 13,588 12,299 11,086

Earnings Per Share ($) 2010 0.26 0.17 2009 0.31 0.44 2008 0.35 1.31 2007 0.18 0.41 2006 0.53 0.33 2005 0.19 0.13

E0.26 0.27 0.22 0.14 -0.51 0.37

E0.16 0.08 -0.10 0.01 0.07 0.27

E0.79 1.09 1.80 0.73 0.43 0.95

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: AES

AES Corporation (The) Business Summary September 01, 2010 CORPORATE OVERVIEW. AES Corporation (AES) owns and operates a portfolio of electricity generation and distribution business in 29 countries through its subsidiaries and affiliates. The company has two principal businesses: generation and regulated utilities. The generation business provides power for sale to utilities and other wholesale customers while the regulated utilities business distributes power to retail, commercial, industrial and governmental customers. In 2009, the generation unit contributed 51% of total revenues. It primarily sells electricity to utilities or other wholesale customers under power purchase agreements that are generally for five years or longer. The generation business also sells electricity to wholesale customers through competitive markets. The remaining 49% of total revenues in 2009 came from the regulated utilities business. It markets electricity to residential, business, and government customers through integrated transmission and distribution systems.

ations for 7%, and corporate activities for less than 0.1%. The company's largest exposures geographically are to Brazil (38%), the U.S. (18%), Chile (9%), Argentina (5%) and El Salvador (4%). CORPORATE STRATEGY. AES pursues both a global and a local growth strategy to increase its business. The company's global strategy focuses on largescale projects and pursues strategic initiatives. It concentrates on mergers and acquisitions, exploring opportunities in the climate change business such as the production of greenhouse gas reduction activities and related industries that involve environmental issues. The company also aims to mitigate exposure to price swings. In 2009, 65% of the revenues from its generation business was from plants that operate under PPAs of five years or longer for at least 75% of their output capacity. Additionally, 96% of its construction program capacity is subject to long-term contracts.

The company also reports results geographically by segment. Latin American operations accounted for 67% of revenues, North American operations for 21%, European and African operations for 5%, Middle Eastern and Asian operCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.29 1.09 1.10 Nil Nil 15.44 4.80 14 4

2008 2.64 1.80 0.53 Nil Nil 22.48 5.80 12 3

2007 1.91 0.73 0.65 Nil Nil 24.24 16.69 33 23

2006 1.97 0.43 0.78 Nil Nil 23.85 15.63 55 36

2005 NM 0.95 1.04 Nil Nil 18.13 12.53 19 13

2004 NM 0.57 0.51 Nil Nil 13.71 7.56 24 13

2003 NM 0.56 0.94 Nil Nil 9.50 2.63 17 5

2002 NM -4.81 -3.66 Nil Nil 17.92 0.92 NM NM

2001 2.87 0.87 0.74 Nil Nil 60.15 11.60 69 13

2000 5.21 1.42 NA Nil Nil 72.81 34.25 51 24

14,119 1,049 NA 2.56 NA 24.6% 729 732

16,070 960 NA 2.12 NA 27.8% 1,216 344

13,588 942 NA 1.90 NA 42.4% 495 447

12,299 933 NA 1.94 NA 31.0% 286 526

11,086 889 NA 1.73 NA 31.9% 632 693

9,486 841 NA 1.30 NA 28.2% 366 332

8,415 781 NA 1.38 NA 30.3% 336 564

8,632 837 NA 0.34 NA NM -2,590 -1,970

9,327 859 NA 1.42 NA 28.7% 467 394

6,691 582 NA 1.80 NA 24.7% 648 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 33,217 Capital Expenditures 2,520 Net Property 24,297 Capitalization:Long Term Debt 18,003 Capitalization:% Long Term Debt 79.4 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 4,675 Capitalization:% Common 20.6 Total Capital 28,856 % Operating Ratio 81.9 % Earned on Net Property 13.9 % Return on Revenue 5.2 % Return on Invested Capital 12.2 % Return on Common Equity 17.5

28,908 2,840 21,393 16,863 82.1 Nil Nil 3,669 17.9 25,082 84.1 16.1 7.6 12.7 35.6

27,522 2,425 20,020 16,629 84.0 Nil Nil 3,164 16.0 24,282 83.7 15.5 3.6 16.7 15.9

26,053 1,460 19,074 14,892 83.1 Nil Nil 3,036 16.9 21,818 83.8 23.0 2.3 16.3 12.3

24,741 1,143 18,654 36,674 95.7 Nil Nil 1,649 4.30 40,655 85.5 20.9 5.7 7.0 48.5

24,141 892 18,788 16,823 91.1 Nil Nil 1,645 8.91 20,758 84.2 18.5 3.9 13.6 33.4

23,098 1,228 18,505 16,792 96.3 Nil Nil 645 3.70 19,293 84.5 17.0 4.0 13.6 221.1

23,050 2,116 18,846 17,684 102.0 Nil Nil -341 -1.97 19,142 88.5 14.3 NM 21.6 NM

26,748 3,173 23,434 20,564 78.8 Nil Nil 5,539 21.2 29,537 89.7 13.6 5.0 7.3 8.4

19,150 2,150 17,846 16,927 77.9 NA NA 4,811 22.1 24,752 88.3 14.0 9.7 9.8 17.4

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4300 Wilson Blvd Ste 1100, Arlington, VA 22203-4167. Telephone: 703-522-1315. Email: [email protected] Website: http://www.aes.com

Chrmn: P.A. Odeen Pres & CEO: P. Hanrahan COO & EVP: A.R. Weilert EVP & CFO: V.D. Harker

EVP, Secy & General Counsel: B.A. Miller Investor Contact: A. Pasha (703-682-6552) Board Members: S. W. Bodman, III, P. Hanrahan, T. Khanna, J. A. Koskinen, P. Lader, S. O. Moose, J. B. Morse, Jr., P. A. Odeen, C. O. Rossotti, S. Sandstrom

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1981 Domicile: Delaware Employees: 27,000

Stock Report | October 23, 2010 | NYS Symbol: AET | AET is in the S&P 500

Aetna Inc.

★★★★★

S&P Recommendation BUY

Price $31.20 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Managed Health Care

12-Mo. Target Price $33.00

Investment Style Large-Cap Blend

Summary This company is a leading U.S. provider of health care, dental, pharmacy, group life, disability, and long-term care benefits.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.96– 25.00 Trailing 12-Month EPS $3.52 Trailing 12-Month P/E 8.9 $10K Invested 5 Yrs Ago $7,187

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.15 3.10 9.9 417.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.023 0.13 $0.04 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.24 7 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects AET's leadership in the highly fragmented managed care market. We see competition intensifying as consolidation has led the largest companies, including AET, to bump up against one another in more markets and geographies. Still, we believe AET's expanding product, market, and geographic diversity will permit stable operating performance over the long term.

60 40 30 20

Vol. Mil.

Quantitative Evaluations

45 30 15 0 5

S&P Quality Ranking 5 3

3

4

4

3

3

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 57

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Phillip M. Seligman on August 06, 2010, when the stock traded at $ 30.11. Highlights ➤

➤

➤

We expect health care operating revenue to decline by 3.2% to $30.6 billion in 2010, following a 10% rise in 2009, when AET gained 1.2 million net new members via large commercial account wins and large gains in its Medicare Advantage (MA; Medicare managed care) and Medicaid units. We expect 575,000 fewer commercial risk and 120,000 fewerl commercial self-funded members, partly offset by slightly higher MA and Medicaid membership by yearend 2010. We estimate that medical costs in the commercial book will decline by 190 basis points as a percentage of premiums (medical loss ratio, MLR), on higher prices and the first half's reduction in reserves for medical costs related to prior-year and first-quarter 2010 claims. However, we expect the firm-wide medical loss ratio to decline by 150 bps on a lower MA premium rate and a higher mix of MA and Medicaid enrollment. We estimate 2010 operating EPS of $3.15 before one-time gains, versus 2009's $2.75 before onetime items and net realized capital gains. We project $3.10 for 2011, assuming higher MLRs under health care reform.

Investment Rationale/Risk ➤

➤

➤

We think AET has the size, scale, diversity, and financial flexibility to manage better than most insurers amid health care reform. But we expect the stock to be volatile, while AET waits for the rules on what constitutes medical costs starting 2011, given health care reform's required MLR floors. We are positive on AET's recently announced 12-year pact with CVS Caremark (CVS 30, Strong Buy), under which AET retains its pharmacy benefit management (PBM) unit with CVS administering the PBM services. Although the deal is expected to be accretive to AET's EPS starting in 2012, we think it will help offset some of the pressure on AET's MLRs caused by reform-based mandates. In addition, AET is working with Medicare to lift its marketing and enrollment sanctions by the next enrollment season. Risks to our recommendation and target price include intensified competition, a weaker economy, and adverse medical cost trends. We apply a multiple of 10.5X to our 2010 EPS estimate to derive our 12-month target price of $33. This multiple reflects a modest premium to peers given AET's turnaround efforts.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 8,622 8,546 2009 8,615 8,671 2008 7,739 7,828 2007 6,700 6,794 2006 6,235 6,252 2005 5,427 5,497

3Q -8,722 7,625 6,961 6,300 5,701

4Q -8,756 7,759 7,144 6,360 5,867

Year -34,764 30,951 27,600 25,146 22,492

Earnings Per Share ($) 2010 1.28 1.14 2009 0.95 0.77 2008 0.85 0.97 2007 0.81 0.85 2006 0.65 0.67 2005 0.70 0.68

E0.65 0.73 0.58 0.95 0.85 0.63

E0.46 0.38 0.42 0.87 0.80 0.71

E3.15 2.84 2.83 3.47 2.96 2.70

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040

09/25 09/24

11/10 11/10

11/13 11/15

11/30/09 11/30/10

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AET

Aetna Inc. Business Summary August 06, 2010 CORPORATE OVERVIEW. In December 2000, Aetna sold its financial services and international operations for $5 billion ($35.33 a share, not adjusted) and the assumption of $2.7 billion of debt. AET shareholders received $35.33 a share in cash, plus one share of a new health care company named Aetna. Revenue contributions (excluding net investment and other income) from the company's business operations in 2009 were: Health Care 92.3%; Group Insurance 6.1%; and Large Case Pensions 1.6%. The Health Care segment offers health maintenance organization (HMO), point-of-service (POS), preferred provider organization (PPO), and indemnity benefit products. The company had total health plan enrollment of 18,602,000 lives at June 30, 2010, up from 18,914,000 at December 31, 2009. Commercial risk enrollment was 5,133,000 lives, versus 5,614,000, while commercial administrative services (ASC; fee-based, self-funded accounts) was 11,887,000 lives, versus 11,821,000. Medicare enrollment was 451,000 lives, versus 433,000, while Medicaid enrollment was 1,131,000 lives, versus 1,046,000. The company also provided dental benefits to 13,912,000 members, versus 14,061,000, and

pharmacy benefits to 10,333,000 members, versus 11,013,000. Group Insurance provides group life, disability and long-term care products. Group life contracts and group conversion policies totaled 41,050,000 at December 31, 2009, versus 41,673,000 at December 31, 2008. Large Case Pensions manages various retirement products, including pension and annuity products, for defined benefit and defined contribution plans. Aetna has not marketed its Large Case Pensions products since 1993, but continues to manage the run-off of existing business. At December 31, 2009, assets under management totaled $11.2 billion, up from $10.7 billion at December 31, 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.74 NA 2.84 2.92 0.04 1% 34.91 18.66 12 7

2008 5.33 3.61 2.83 3.17 0.04 1% 59.80 14.21 21 5

2007 8.46 4.08 3.47 3.39 0.04 1% 60.00 39.02 17 11

2006 7.46 2.96 2.96 2.96 0.04 1% 52.48 30.94 18 10

2005 8.57 3.04 2.70 2.55 0.02 NM 49.68 29.93 18 11

2004 8.42 2.22 1.94 1.71 0.01 NM 31.89 16.41 16 8

2003 6.15 1.79 1.48 1.51 0.01 1% 17.56 9.98 12 7

2002 4.69 1.14 0.64 0.19 0.01 2% 12.98 7.48 20 12

2001 4.51 0.54 -0.51 -1.12 0.01 NM 10.67 5.75 NM NM

2000 4.25 0.82 -0.23 NA Nil Nil 10.59 8.23 NM NM

34,764 NA NA 243 1,901 32.9% 1,277 1,315

30,951 2,765 378 236 2,174 36.3% 1,384 1,551

27,600 3,234 322 181 2,796 34.5% 1,831 1,792

25,146 2,983 270 148 2,587 34.8% 1,686 1,682

22,492 2,807 204 123 2,547 35.8% 1,635 1,542

19,904 2,184 182 105 1,899 36.0% 1,215 1,072

17,976 1,596 200 103 1,442 35.2% 934 957

19,879 1,119 302 120 545 27.8% 393 140

25,191 460 598 143 -379 NM -292 -639

26,819 1,104 588 248 -39.0 NM -127 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,204 Current Assets NA Total Assets 38,550 Current Liabilities NA Long Term Debt 3,640 Common Equity 9,504 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 0.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 3.7 % Return on Assets 3.4 % Return on Equity NA

1,180 4,918 35,853 7,555 3,638 8,186 11,825 447 1,762 0.7 30.8 4.5 3.2 15.2

2,078 5,288 50,725 7,675 3,269 10,038 13,323 400 2,153 0.7 23.8 6.6 3.7 19.1

880 18,304 47,626 7,103 2,442 11,009 11,587 291 1,686 2.6 18.2 6.7 3.7 14.5

1,378 18,235 44,365 7,617 1,156 12,167 13,338 272 1,839 2.4 8.7 7.6 3.8 14.0

1,595 19,516 42,134 7,011 1,610 9,081 10,691 190 1,397 2.8 15.1 6.4 2.9 14.3

1,655 19,557 40,950 7,368 1,614 7,924 9,538 211 1,133 2.7 16.9 5.2 2.3 12.5

2,017 19,349 40,048 7,719 1,633 6,980 8,613 156 695 2.5 19.0 2.0 0.9 4.7

1,631 18,751 43,255 8,139 1,591 9,890 11,481 143 306 2.3 13.9 NM NM NM

2,204 19,768 47,446 10,003 Nil 10,127 10,127 36.9 461 2.0 Nil NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 151 Farmington Avenue, Hartford, CT 06156. Telephone: 860-273-0123. Email: [email protected] Website: http://www.aetna.com

Chrmn & CEO: R.A. Williams Pres & COO: M.T. Bertolini EVP & CFO: J. Zubretsky SVP & General Counsel: W.J. Casazza

SVP & CIO: M. McCarthy Investor Contact: J. Chaffkin (860-273-7830) Board Members: F. M. Clark, Jr., B. Z. Cohen, M. J. Coye, R. N. Farah, B. H. Franklin, J. E. Garten, E. G. Graves, G. Greenwald, E. M. Hancock, R. J. Harrington, E. J. Ludwig, J. Newhouse, R. A. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1982 Domicile: Pennsylvania Employees: 35,000

Stock Report | October 23, 2010 | NYS Symbol: AFL | AFL is in the S&P 500

AFLAC Inc S&P Recommendation HOLD

★★★★★

Price $55.46 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $51.00

Investment Style Large-Cap Growth

Summary AFL provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at worksites and help fill gaps in primary insurance coverage. Approximately 75% of revenues comes from Japan and 25% from the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.56– 39.91 Trailing 12-Month EPS $3.89 Trailing 12-Month P/E 14.3 $10K Invested 5 Yrs Ago $13,361

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.48 5.94 10.1 470.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$26.112 2.16 $1.20 67

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.77 7 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the potential for meaningful investment losses given AFL's large exposure to hybrid bonds of financial services companies, particularly European banks, and its exposure to European sovereign debt. This is offset by its strong market share position and solid risk-based capital ratio, and the company's consistent track record of share repurchases and dividend increases.

80

40

20

10 Vol. 99

Mil.

Quantitative Evaluations

30 20 10 0 5

S&P Quality Ranking 5

4

D

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

A B

B+

A-

A

Relative Strength Rank

A+ STRONG

76 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, Ph

Analysis prepared by Bret Howlett on July 29, 2010, when the stock traded at $ 50.01. Highlights ➤

➤

➤

We expect revenues to rise 10% to 12% in 2010, on contributions from new distribution outlets, the success of a new marketing campaign and introduction of products in Japan. We forecast sales growth of 12% to 13% at AFL Japan as the bank and Japan Post channels ramp up and on recent strong sales results of the revised medical product EVER, and the new child endowment product. We forecast that AFL Japan's pretax margins will expand to roughly 22% on an improved business mix and a decrease in the benefit ratio. Longer term, we believe AFL Japan's margins could contract slightly since the new child endowment product is less profitable than existing products. Due to challenging economic conditions in the U.S., we forecast a 5% to 6% sales decline there as consumers remain reluctant to purchase medical supplemental products. We expect revenue growth to be sluggish due to agent recruitment difficulties and lower new money yields. We estimate operating EPS of $5.48 for 2010 and $5.94 for 2011, excluding any realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

We believe AFL is appropriately valued, trading at a significant premium to book value. We think AFL's investment portfolio presents investors with above average risk relative to the group, given its holdings of European bank hybrid bonds and European sovereign debt. While we think significant losses stemming from these investments are unlikely, we believe lower credit ratings could pressure AFL's capital position. However, we believe AFL maintains a strong capital position and generates consistent earnings, which should allow the company to increase its dividend and repurchase its shares in 2010. We believe AFL Japan will continue to be the growth engine and expect the unit's strong sales and margins to fuel EPS growth. Risks to our recommendation and target price include investment losses, unfavorable movements in the yen/dollar exchange rate, less organic premium growth than we forecast, and agent recruiting difficulties. Our 12-month target price is $51, or roughly 2.2X our 2010 book value per share estimate, below historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,065 4,980 2009 4,818 4,313 2008 4,267 4,336 2007 3,751 3,764 2006 3,559 3,697 2005 3,559 3,567

3Q -4,526 3,691 3,861 3,672 3,669

4Q -4,597 4,260 4,018 3,687 3,567

Year -18,254 16,554 15,393 14,616 14,363

Earnings Per Share ($) 2010 1.35 1.23 2009 1.22 0.67 2008 0.98 1.00 2007 0.84 0.84 2006 0.74 0.81 2005 0.64 0.66

E1.37 0.77 0.21 0.85 0.73 0.90

E1.35 0.53 0.42 0.78 0.67 0.72

E5.48 3.19 2.62 3.31 2.95 2.92

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.280 0.280 0.280 0.300

02/02 04/27 07/27 08/10

02/11 05/17 08/16 11/15

02/16 05/19 08/18 11/17

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1973. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AFL

AFLAC Inc Business Summary July 29, 2010 CORPORATE OVERVIEW. Aflac provides supplemental health and life insurance in the U.S. and Japan. Most of Aflac's policies are individually underwritten and marketed at worksites through independent agents, with premiums paid by the employee. As of the end of 2009, Aflac believed it was the world's leading underwriter of individually issued policies marketed at work sites. In 2009, Aflac Japan accounted for 75% of total revenues, compared to 72% in 2008. At December 31, 2009, Aflac Japan accounted for 85% of total company assets, down from 87% at year-end 2008. As of year-end 2009, Aflac Japan ranked first in terms of individual insurance policies in force, surpassing Nippon Life in March 2003. Aflac Japan's insurance products are designed to help pay for costs that are not reimbursed under Japan's national health insurance system. Products include cancer life plans (28% of total Japanese sales in 2008; 34% in 2008); Rider MAX (3%; 5%), a rider for cancer life policies that provides accident and medical/sickness benefits; and EVER (36%; 34%), a stand-alone whole life medical plan. Aflac Japan also offers ordinary life products (29%; 23%) and other products (4%; 4%) such as living benefit life plans and care products.

During 2009, the number of licensed sales associates at AFL Japan rose to approximately 110,500 compared with 107,458 at December 31, 2008. The growth in licensed sales associates resulted primarily from individual agency recruitment. Aflac U.S. sells cancer plans (18% of total U.S. sales in 2009; 19% in 2008) and various types of health insurance, including accident and disability (48%; 49%), fixed-benefit dental (5%; 5%), and hospital indemnity (18%; 16%). Other products include long-term care, short-term disability, and ordinary life policies (11%; 11%). During 2009, the number of licensed sales associates at AFL U.S. rose 1.2% to approximately 75,300 agents. AFL recruited approximately 28,400 new sales associates in 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 36.20 NA 3.19 4.88 1.12 35% 47.75 10.83 15 3

2008 13.78 NA 2.62 3.98 0.96 366% 68.81 29.68 26 11

2007 27.97 NA 3.31 3.27 0.80 24% 63.91 45.18 19 14

2006 25.32 NA 2.95 2.86 0.55 19% 49.40 41.63 17 14

2005 15.89 NA 2.92 2.60 0.44 15% 49.65 35.50 17 12

2004 15.03 NA 2.52 2.47 0.38 15% 42.60 33.85 17 13

2003 13.03 NA 1.52 1.85 0.30 20% 36.91 28.00 24 18

2002 12.41 1.56 1.55 1.49 0.23 15% 33.45 23.10 22 15

2001 10.39 1.34 1.28 1.25 0.19 15% 36.09 23.00 28 18

2000 8.87 1.21 1.26 NA 0.17 13% 37.47 16.78 30 13

128,652 1,860 14,761 2,765 18,254 2,235 NA 1,497 2,290

123,200 1,586 13,361 2,578 16,554 1,914 NA 1,254 1,903

98,027 1,323 11,650 2,333 15,393 2,499 NA 1,634 1,616

87,855 1,214 11,100 2,171 14,616 2,264 NA 1,483 1,438

80,610 1,139 10,851 2,071 14,363 2,226 NA 1,483 1,321

80,496 1,031 10,271 1,957 13,281 1,807 NA 1,299 1,274

69,582 876 9,052 1,787 11,447 1,225 NA 795 962

56,680 761 7,839 1,614 10,257 1,259 825 821 791

46,610 697 7,366 1,550 9,598 1,081 720 687 670

51,496 716 7,523 1,550 9,720 1,012 657 687 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 2,972 Premiums Due 764 Investment Assets:Bonds 70,731 Investment Assets:Stocks 24.0 Investment Assets:Loans Nil Investment Assets:Total 70,869 Deferred Policy Costs 8,533 Total Assets 84,106 Debt 2,599 Common Equity 8,417 % Return on Revenue 8.2 % Return on Assets 1.8 % Return on Equity 19.9 % Investment Yield 4.0

1,591 920 67,495 27.0 Nil 67,609 8,237 79,331 1,721 6,639 7.6 1.7 16.3 4.2

2,523 732 55,410 22.0 Nil 57,056 6,654 65,805 1,465 8,795 10.6 2.6 19.1 4.3

2,036 535 50,686 25.0 Nil 50,769 6,025 59,805 1,420 8,341 10.1 2.6 18.2 4.4

1,781 479 47,551 84.0 Nil 47,692 5,590 56,361 1,050 7,927 10.4 2.6 19.1 4.3

4,308 417 48,024 77.0 Nil 48,142 5,595 59,326 1,141 7,573 9.8 2.4 18.3 4.3

1,508 547 42,893 73.0 Nil 42,999 5,044 50,964 1,409 6,646 6.9 1.7 12.2 4.4

1,793 435 37,483 258 Nil 37,768 4,277 45,058 1,312 6,394 8.0 2.0 13.9 4.6

1,233 347 31,677 245 Nil 31,941 3,645 37,860 1,000 5,425 7.2 1.8 13.6 4.9

989 301 31,305 236 Nil 31,558 3,685 37,232 956 4,694 7.1 1.8 16.0 4.9

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1932 Wynnton Road, Columbus, GA 31999. Telephone: 706-323-3431. Email: [email protected] Website: http://www.aflac.com

Chrmn & CEO: D.P. Amos Pres, EVP, CFO & Treas: K. Cloninger, III EVP & Chief Admin Officer: R.C. Davis EVP, Secy & General Counsel: J.M. Loudermilk

SVP & Chief Acctg Officer: R.A. Rogers, Jr. Founded: 1973 Investor Contact: K.S. Janke, Jr. (706-596-3264) Domicile: Georgia Board Members: D. P. Amos, J. S. Amos, II, P. S. Amos, Employees: 8,057 II, M. H. Armacost, K. Cloninger, III, J. F. Harris, E. J. Hudson, D. W. Johnson, R. B. Johnson, C. B. Knapp, E. S. Purdom, B. K. Rimer, M. R. Schuster, D. G. Thompson, R. L. Wright, T. Yoshida

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: A | A is in the S&P 500

Agilent Technologies Inc S&P Recommendation BUY

★★★★★

Price $34.75 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Electronic Equipment Manufacturers

12-Mo. Target Price $40.00

Investment Style Large-Cap Blend

Summary This Hewlett-Packard (HPQ) spin-off is a diversified global manufacturer of test and measurement instruments, and life sciences and chemical analysis instruments.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.43– 24.61 Trailing 12-Month EPS $1.18 Trailing 12-Month P/E 29.5 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.94 2.26 17.9 346.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.036 Nil Nil 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.36 19 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatility of Agilent's results in the past, offset by recent efforts to streamline its businesses and divest parts of its portfolio that contributed to this variability.

40 30

20 15

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ STRONG

83 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Angelo Zino on August 18, 2010, when the stock traded at $ 29.28. Highlights ➤

➤

➤

We expect sales to rise 13% in FY 11 (Oct.) following our projection for a 20% increase in FY 10. We see revenues paced by growth in A's more cyclical electronic measurement end markets and aided by the acquisition of Varian. We see the chemical analysis business benefiting from growth in the food safety, petrochemical, and environment and forensic markets. In life sciences, we see sales driven by opportunities in pharmaceutical and biotech as well as academic and government. We project an annual gross margin of 55% in FY 11 versus our 54% margin outlook in FY 11, benefiting from higher volume and cost-cutting efforts. We expect A to recognize cost synergies of at least $75 million from its Varian deal over the next few quarters. We view positively previously completed cost-reduction moves, including the restructuring of A's electronic measurement group. We estimate operating EPS of $1.94 for FY 10, which excludes $0.25 in non-recurring charges, and $2.26 for FY 11. We model a 19% tax rate going forward. We think the Varian deal will aid expansion into high-growth adjacent markets, such as environmental analysis.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We have a favorable view of the company's diversified end-market mix, with exposure to the non-cyclical life sciences and chemical analysis markets as well as cyclical electronic measurement markets. Over the longer term, we expect Agilent to focus on expanding aggressively through new product offerings in high-growth industries, complemented by opportunistic acquisitions in core markets. We forecast more stable demand and higher market share in both the chemical analysis and life science endmarkets. We view the shares as attractively valued at current levels. Risks to our recommendation and target price include a weaker-than-expected global economy, narrower margins than we project, and weaker-than-anticipated traction for new product introductions. Our 12-month target price of $40 is based on our discounted cash flow analysis, which assumes a weighted average cost of capital of 10%, beta of 1.3X, and a terminal growth rate of 3%. Our target price is supported by a priceto-sales (P/S) ratio of 2.3X our FY 11 sales per share estimate of $17.69, near A's five-year historical average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,213 1,271 2009 1,166 1,091 2008 1,393 1,456 2007 1,280 1,320 2006 1,167 1,239 2005 1,212 1,688

3Q 1,384 1,057 1,444 1,374 1,239 1,242

4Q -1,167 1,481 1,446 1,328 1,407

Year -4,481 5,774 5,420 4,973 5,139

Earnings Per Share ($) 2010 0.22 0.31 2009 0.18 -0.29 2008 0.31 0.47 2007 0.36 0.30 2006 2.03 0.28 2005 0.10 0.11

0.58 -0.06 0.45 0.45 0.51 0.10

E0.58 0.07 0.64 0.46 0.31 -0.03

E1.94 -0.09 1.87 1.57 3.26 0.28

Fiscal year ended Oct. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: A

Agilent Technologies Inc Business Summary August 18, 2010 CORPORATE OVERVIEW. Agilent Technologies, which was spun off from Hewlett-Packard (HPQ) in 1999, provides investors with exposure to the communications, electronics, life sciences and chemical analysis industries. Agilent's revenues during FY 09 (Oct.) came from three business segments: electronic measurement 51% (60% in FY 08), bio-analytical measurement 45% (40%) and the semiconductor and board test business 4% (included with electronic measurement in FY 08). Starting in FY 10, Agilent will form three new operating segments from its existing businesses. The bio-analytical measurement segment will be separated into two operating segments, life sciences and chemical analysis. The electronic measurement segment will recombine electronic measurement and semiconductor and board test, which were reported separately in FY 09. Following this reorganization, Agilent will have three businesses -- life sciences, chemical analysis and electronic measurement. The company's electronic measurement products compete in the communications test market and the general test market, which represented 39% and 61% of FY 09 segment revenues, respectively. The communications test market includes handset manufacturers, network equipment manufacturers and communications service providers. Agilent has a suite of fiber optic, broadband and data and wireless communications and microwave network products. General purpose test products and services are sold to the electronics

industry and other industries with significant electronic content, such as the aerospace and defense, computer and semiconductor industries. It sells electronic measurement products that are used for electronics manufacturing testing, parametric testing, and flat panel display (FPD) markets. The bio-analytical measurement business focuses on the life sciences arena (47% of FY 09 segment sales) and the chemical analysis market (53% of FY 09 segment sales). Within life sciences, Agilent focuses on the pharmaceutical value chain in the areas of therapeutic research, discovery & development, clinical trials, and manufacturing and quality assurance and quality control. In the pharmaceutical and biopharmaceutical markets, Agilent's instruments help lower the cost of discovering and developing new drugs. It also has exposure to the academic and government market, which includes academic institutions, large government institutes and privately funded organizations. Chemical analysis focuses primarily on the following areas: petrochemical, environmental, homeland security and forensics, bioagriculture and food safety, and material science.

Company Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.86 0.38 -0.09 -0.09 Nil Nil 31.77 12.02 NM NM

2008 4.81 2.35 1.87 1.53 Nil Nil 38.00 14.76 20 8

2007 6.75 2.04 1.57 1.52 Nil Nil 40.42 30.26 26 19

2006 7.79 3.64 3.26 1.59 Nil Nil 39.54 26.96 12 8

2005 7.39 0.65 0.28 -0.11 Nil Nil 36.10 20.11 NM NM

2004 6.42 1.31 0.71 0.27 Nil Nil 38.80 19.51 55 27

2003 5.09 -3.02 -3.78 -5.70 Nil Nil 29.42 18.35 NM NM

2002 8.44 -0.62 -2.20 -3.10 Nil Nil 38.00 10.50 NM NM

2001 9.95 0.72 -0.89 -2.63 Nil Nil 68.00 18.00 NM NM

2000 10.37 2.75 1.66 NA Nil Nil 162.00 38.06 98 23

4,481 399 162 88.0 7.00 542.9% -31.0 -27.9

5,774 974 179 123 815 15.0% 693 568

5,420 775 191 91.0 670 4.70% 638 615

4,973 680 170 69.0 1,528 5.96% 1,437 701

5,139 367 186 27.0 306 50.7% 141 -55.1

7,181 678 292 36.0 440 20.7% 349 137

6,056 -363 362 Nil -690 NM -1,790 -2,695

6,010 -872 735 Nil -1,547 NM -1,022 -1,438

8,396 -44.0 734 Nil -477 NM -406 -1,202

10,773 1,548 495 Nil 1,164 35.0% 757 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,493 Current Assets 3,961 Total Assets 7,612 Current Liabilities 1,123 Long Term Debt 2,904 Common Equity 2,506 Total Capital 5,410 Capital Expenditures 128 Cash Flow 131 Current Ratio 3.5 % Long Term Debt of Capitalization 53.7 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,429 3,208 7,437 1,325 2,125 2,559 4,684 154 872 2.4 45.4 12.0 9.3 23.9

1,826 3,671 7,554 1,663 2,087 3,234 5,321 154 829 2.2 39.2 11.7 8.5 18.5

2,262 3,958 7,369 1,538 1,500 3,648 5,341 185 1,607 2.6 29.1 28.9 20.4 37.2

2,251 4,447 6,751 1,936 Nil 4,081 4,081 139 327 2.3 Nil 2.7 2.0 3.7

2,315 4,577 7,056 1,871 1,150 3,569 4,719 118 641 2.4 24.4 4.9 5.2 10.9

1,607 3,889 6,297 1,906 1,150 2,824 3,974 205 -1,428 2.0 28.9 NM NM NM

1,844 4,880 8,203 2,181 1,150 4,627 5,777 301 -287 2.2 19.9 NM NM NM

1,170 4,799 7,986 2,002 Nil 5,659 5,659 881 328 2.4 Nil NM NM NM

996 5,655 8,425 2,758 Nil 5,265 5,265 824 1,252 2.1 Nil 7.0 10.9 17.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5301 Stevens Creek Blvd, Santa Clara, CA 95051-7201. Telephone: 408-553-2424. Email: [email protected] Website: http://www.agilent.com

Chrmn: J.G. Cullen Pres & CEO: W.P. Sullivan SVP, Secy & General Counsel: M.O. Huber CFO: D. Hirsch

CTO: D.J. Solomon Founded: 1999 Investor Contact: R. Gonsalves (408-345-8948) Domicile: Delaware Board Members: P. N. Clark, J. G. Cullen, H. Fields, R. J. Employees: 16,800 Herbold, B. Koh, D. M. Lawrence, A. B. Rand, W. P. Sullivan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ARG | ARG is in the S&P 500

Airgas Inc. S&P Recommendation HOLD

★★★★★

Price $70.13 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Industrial Gases

12-Mo. Target Price $70.00

Investment Style Large-Cap Growth

Summary This leading distributor of industrial, medical and specialty gases and related equipment also distributes safety and other disposable supplies through its network of stores.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $70.23– 41.82 Trailing 12-Month EPS $2.45 Trailing 12-Month P/E 28.6 $10K Invested 5 Yrs Ago $26,787

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.16 3.63 22.2 83.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.853 1.43 $1.00 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.28 13 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Airgas reflects the company's acquisition strategy, its significant proportion of sales to the cyclical industrial manufacturing industry, and what we consider to be a relatively high level of debt.

60 50 40

30

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

18

6 4 2 0

33

D

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 59

5

5

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, Ph

Analysis prepared by Mathew Christy, CFA on October 14, 2010, when the stock traded at $ 69.72. Highlights ➤

➤

➤

Investment Rationale/Risk

Following a sales decline of greater than 11% in FY 10 (Mar.), we see FY 11 sales gaining slightly more than 8%. Our forecast is based primarily on somewhat better pricing and volumes that should lead to higher overall same-store sales in FY 11. In addition, our forecast is based on the positive effects from our expectation of continued acquisitions. For FY 12, we forecast that revenue will rise by nearly 7%, on higher overall demand that we see leading to somewhat higher pricing and volumes.

➤

We believe operating margins will widen by about 1 percentage point in FY 11. Our forecast is based on higher operating margins from somewhat higher volumes, better asset utilization rates, increased pricing, and the positive effects of cost-cutting efforts, all partially offset by increased costs associated with the rollout of a new enterprise management software system. In FY 12, we forecast somewhat better operating margins on improved volume and pricing.

➤

On our projection for effective tax rates of 39% in FY 11 and 38% in FY 12, we expect operating EPS of $3.16 and $3.63 in the respective years.

➤

Revenue/Earnings Data

2010

In February 2010, ARG rejected Air Products' (APD 82, Hold) $60 a share offer for the company, asserting that the proposed price significantly undervalued ARG. Following a series of increased offers (with the most recent at $65.50) and a partial victory by APD at ARG's latest annual meeting, the battle has moved to the courts due to disagreement over the outcome of the results for proposed changes to ARG's by-laws. In our opinion, a friendly deal could eventually be reached. Risks to our recommendation and target price include a negative resolution to the recent hostile acquisition offer from Air Products, and a renewed downturn in the economy. Our 12-month target price of $70 reflects our belief that ARG is an attractive acquisition target, considering its scale in packaged industrial gas. It is based on a weighted blend of historical chemical industry acquisition multiples applied to our forward 12-month estimates, including multiples of 1.14X our sales per share estimate, 8X our EBITDA estimate, and 22X our EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,053 -2010 979.3 962.3 2009 1,117 1,162 2008 915.1 1,007 2007 773.0 790.8 2006 690.7 714.4

3Q -942.1 1,079 1,008 787.4 702.4

4Q -980.4 992.1 1,087 853.9 746.9

Year -3,864 4,349 4,017 3,205 2,830

Earnings Per Share ($) 2011 0.76 E0.78 2010 0.66 0.65 2009 0.81 0.86 2008 0.63 0.60 2007 0.48 0.49 2006 0.38 0.38

E0.78 0.56 0.76 0.67 0.40 0.41

E0.81 0.47 0.68 0.76 0.54 0.45

E3.16 2.34 3.12 2.66 1.92 1.62

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.180 0.220 0.220 0.250

11/05 01/28 05/25 07/21

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ARG

Airgas Inc. Business Summary October 14, 2010 CORPORATE OVERVIEW. Airgas has completed over 400 acquisitions over the past 25 years and has become the largest U.S. distributor of packaged gases and welding, safety, and related products, with an average market share of 25%, based on company data. ARG operated an integrated network of over 875 branch locations, 325 gas cylinder fill planters, 75 national/regional specialty gas laboratories, and other gas plants and facilities while marketing its products and services through sales representatives, retail stores, and has electronic, catalog, and telesales channels. The company had over 14,000 employees as of March 2010. Competitors in the packaged gas market include independent distributors (50% of the market), through a fragmented distribution network, as well as large distributors (25%), including Praxair, Linde AG, Air Liquide, Matheson Trigas and Valley National. The distribution segment (89% of FY 10 (Mar.) total sales, 87.8% of earnings before interest and taxes (EBIT), and nearly 11% EBIT margins) purchases and distributes industrial, medical and specialty gases, process chemicals, and hardgoods. Products include industrial, specialty and medical gases, and welding, safety, and related products. Gas and rent revenues accounted for 60.7% of segment sales in FY 10, with hardgoods providing the remaining 39.3%. Industry segments served include manufacturing, service, construction, retail consumer establishments, transportation and utilities, and agricul-

ture and mining. The other operations segment (11%, 12.2%, 12.3%) produces and distributes certain gas products, principally dry ice, carbon dioxide, specialty gases, and nitrous oxide. The segment also includes the results of the company's National Welders, a producer and distributor of industrial gases. Customers include food processors, food services, pharmaceutical and biotech industries, and wholesale trade and grocery outlets. The company has a fairly broad exposure to the overall U.S. economy, as it serves over 800,000 customers in multiple industries. As a percentage of total net sales, ARG estimates sales to the repair and maintenance segment accounted for 30%; industrial manufacturing 23%; energy and infrastructure construction 10%; medical 9%; petrochemical 7%; food products 6%; retail and wholesale trade 4%; analytical 3%; utilities 3%; transportation 2%; and other 3%.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 5.69 5.15 2.34 2.38 0.76 32% 2009 51.00 26.29 22 11

2009 3.59 5.75 3.12 3.20 0.56 18% 2008 65.45 27.09 21 9

2008 3.59 4.90 2.66 2.66 0.28 11% 2007 55.89 39.00 21 15

2007 2.93 3.66 1.92 1.92 0.24 12% 2006 43.43 31.65 22 16

2006 4.59 3.14 1.62 1.52 0.18 11% 2005 33.79 21.15 21 13

2005 3.76 2.64 1.20 1.11 0.16 13% 2004 27.19 19.82 23 17

2004 2.22 2.25 1.07 0.99 Nil Nil 2003 21.75 15.27 20 14

2003 1.84 2.05 0.94 0.86 Nil Nil 2002 20.74 11.75 22 13

2002 0.95 1.74 0.69 0.64 Nil Nil 2001 15.85 6.38 23 9

2001 0.87 1.71 0.42 0.34 Nil Nil 2000 10.19 4.63 24 11

3,864 658 235 63.3 314 37.5% 196 200

4,349 746 221 87.1 429 39.2% 261 268

4,017 676 190 61.4 371 38.9% 223 223

3,205 489 147 62.1 257 38.8% 154 154

2,830 396 128 55.7 208 37.4% 128 119

2,411 315 112 52.8 148 36.8% 92.0 84.9

1,895 255 88.0 43.0 128 37.1% 80.2 74.2

1,787 238 79.8 47.3 109 37.7% 68.1 61.8

1,636 198 72.9 48.0 78.4 38.0% 48.6 44.5

1,629 198 86.8 61.4 48.9 42.3% 28.2 23.3

Balance Sheet & Other Financial Data (Million $) Cash 47.0 Current Assets 711 Total Assets 4,496 Current Liabilities 476 Long Term Debt 1,499 Common Equity 1,796 Total Capital 3,305 Capital Expenditures 253 Cash Flow 431 Current Ratio 1.5 % Long Term Debt of Capitalization 45.4 % Net Income of Revenue 5.1 % Return on Assets 4.4 % Return on Equity 11.7

47.2 718 4,400 432 1,750 1,572 3,888 352 482 1.7 45.0 6.0 6.2 17.5

43.1 639 3,979 506 1,540 1,413 2,993 267 413 1.3 51.4 5.6 6.1 17.6

25.9 550 3,333 428 1,310 1,125 2,866 244 302 1.3 52.6 4.8 5.3 14.9

35.0 459 2,474 476 636 947 1,968 214 255 1.0 32.3 4.5 5.4 14.5

32.6 466 2,292 333 802 814 1,934 168 204 1.4 41.4 3.8 4.3 12.2

Nil 327 1,931 242 683 692 1,668 93.7 168 1.3 40.9 4.2 4.4 12.4

Nil 271 1,700 209 658 597 1,464 68.0 148 1.3 44.9 3.8 4.0 12.4

Nil 304 1,717 221 764 503 1,465 58.3 122 1.4 52.1 3.0 2.9 9.7

Nil 334 1,583 282 621 497 1,279 65.9 115 1.2 48.5 1.7 1.7 5.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 259 North Radnor-Chester Road, Radnor, PA 19087-5283. Telephone: 610-687-5253. Email: [email protected] Website: http://www.airgas.com

Chrmn: J.C. van Roden, Jr. Pres & CEO: P. McCausland COO & EVP: M.L. Molinini SVP & CFO: R.M. McLaughlin

SVP, Secy & General Counsel: R.H. Young, Jr. Investor Contact: J. Worley (610-902-6206) Board Members: W. T. Brown, J. P. Clancey, J. W. Hovey, R. C. Ill, R. L. Lumpkins, P. McCausland, T. B. Miller, Jr., P. A. Sneed, D. Stout, L. M. Thomas, E. Wolf, J. C. van Roden, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1986 Domicile: Delaware Employees: 14,000

Stock Report | October 23, 2010 | NYS Symbol: APD | APD is in the S&P 500

Air Products and Chemicals Inc. S&P Recommendation HOLD

★★★★★

Price $84.74 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Industrial Gases

12-Mo. Target Price $88.00

Investment Style Large-Cap Blend

Summary This major producer of industrial gases and electronics and specialty chemicals also has interests in environmental and energy-related businesses.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $85.44– 64.13 Trailing 12-Month EPS $4.62 Trailing 12-Month P/E 18.3 $10K Invested 5 Yrs Ago $17,500

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.97 5.55 17.1 212.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.010 2.31 $1.96 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.15 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the stable growth of the industrial gases industry versus commodity chemicals, and what we see as the company's relatively strong balance sheet, offset by volatile raw material cost exposure in the chemical segment.

100 80

50 40

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 12 8 4 0

D

C

B-

A B

B+

A-

A

Relative Strength Rank

5

3

2

3

2

A+ STRONG

72

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Highlights ➤

The 12-month target price for APD has recently been changed to $88.00 from $85.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on APD from MarketScope, see below.

➤

10/21/10 12:54 pm ET ... S&P MAINTAINS HOLD OPINION ON SHARES OF AIR PRODUCTS & CHEMICALS (APD 84.6***): Sep-Q operating EPS of $1.35, vs. $1.14, exceeds our $1.30 estimate. Sales rose 10%, with volumes up 9% including a strong gain in electronics materials. Full FY 10 (Sep) operating EPS was $5.02 vs. $4.06. We boost our FY 11 EPS estimate by $0.15 to $5.55, helped by continued volume growth and strong equipment results. On the better EPS outlook, we boost our target price by $3 to $88. We note that a unfriendly merger with Airgas (ARG 70, Hold), if completed at the current $5.7B bid, would likely be operating EPS neutral to slightly accretive in first year before related costs. /R.O'Reilly-CFA

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,174 2,249 2009 2,195 1,955 2008 2,474 2,605 2007 2,410 2,451 2006 2,016 2,230 2005 1,991 2,003

3Q 2,252 1,976 2,808 2,574 2,246 2,078

4Q -2,129 2,715 2,603 2,359 2,071

Year -8,256 10,415 10,038 8,850 8,144

Earnings Per Share ($) 2010 1.16 1.16 2009 0.42 0.89 2008 1.16 1.16 2007 1.03 1.02 2006 0.80 0.89 2005 0.72 0.75

1.17 0.54 0.23 1.28 -0.82

E1.30 1.14 1.26 1.35 0.73 0.79

E4.97 3.00 4.98 4.67 3.29 3.08

Fiscal year ended Sep. 30. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.450 0.490 0.490 0.490

11/19 03/18 05/20 09/16

12/30 03/30 06/29 09/29

01/04 04/01 07/01 10/01

02/08/10 05/10/10 08/09/10 11/08/10

Dividends have been paid since 1954. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: APD

Air Products and Chemicals Inc. Business Summary October 12, 2010 CORPORATE OVERVIEW. Air Products & Chemicals is one of the largest global producers of industrial gases, and has a large specialty chemicals business. APD focuses on several areas for growth in industrial gases, including electronics, hydrogen for petroleum refining, health care, and Asia. International operations accounted for 54% of FY 09 (Sep.) sales. The industrial gases businesses consists of nitrogen, oxygen, argon, hydrogen, helium, carbon monoxide, synthesis gas, and fluorine compounds for both merchant (44% of sales and 55% of profits in FY 09) and on-site tonnage (31%, 33%) customers. Sales of atmospheric gases (oxygen, nitrogen and argon) accounted for 21% of the total in FY 09. APD is the world's leading supplier of hydrogen (15% of total sales) and carbon monoxide products (HYCO) and helium. Beginning with the fourth quarter of FY 08, the European health care business (sales of $360 million in FY 07) has been reported as part of the merchant gases segment. APD has leading market positions in Spain, Portugal, and the U.K. Beginning in FY 08, the tonnage gases segment has also included the polyurethane intermediates business. The business had sales of $340 mil-

lion in FY 07. The electronics and performance materials segment (19%, 8%) supplies specialty gases (nitrogen trifluoride, silane, phosphine), tonnage gases, specialty and bulk chemicals, services and equipment to makers of silicone and semiconductors, displays and photovoltaic devices. Performance materials include epoxy and polyurethane additives, specialty amines, and surfactants for coatings, adhesives, personal care and cleaning products, and polyurethanes. Equipment and energy (6%, 4%) includes cryogenic and gas processing equipment for air separation, gas processing, natural gas liquefaction (LNG), and hydrogen purification. The segment also includes 50%-owned ventures in power cogeneration and flue gas desulfurization facilities.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.10 6.93 3.00 2.74 1.79 60% 85.44 43.44 28 14

2008 18.21 8.94 4.98 4.56 1.70 34% 106.06 41.46 21 8

2007 22.01 8.44 4.67 4.65 1.48 32% 105.02 68.58 22 15

2006 17.59 6.64 3.29 2.94 1.34 41% 72.45 58.01 22 18

2005 16.03 6.22 3.08 3.01 1.25 41% 65.81 53.00 21 17

2004 15.45 5.76 2.64 2.63 1.04 39% 59.18 46.71 22 18

2003 12.99 4.65 1.79 1.66 0.88 49% 53.07 36.97 30 21

2002 13.33 4.97 2.36 1.67 0.82 35% 53.52 40.00 23 17

2001 10.79 4.95 2.12 1.70 0.78 37% 49.00 32.25 23 15

2000 10.78 3.24 0.57 NA 0.74 130% 42.25 23.00 74 40

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,256 1,995 840 144 837 22.2% 640 584

10,415 2,360 869 184 1,479 24.7% 1,091 1,001

10,038 2,179 840 176 1,376 21.9% 1,043 1,038

8,850 1,777 763 119 1,049 25.8% 748 670

8,144 1,700 728 110 998 26.4% 712 695

7,411 1,567 715 121 851 26.6% 604 601

6,297 1,218 640 124 565 26.0% 400 369

5,401 1,319 581 122 784 30.7% 525 369

5,717 1,313 573 191 737 29.7% 513 370

5,496 1,407 576 197 118 NM 124 NA

Balance Sheet & Other Financial Data (Million $) Cash 488 Current Assets 2,998 Total Assets 13,080 Current Liabilities 2,504 Long Term Debt 3,716 Common Equity 4,792 Total Capital 9,098 Capital Expenditures 1,179 Cash Flow 1,480 Current Ratio 1.2 % Long Term Debt of Capitalization 40.8 % Net Income of Revenue 7.8 % Return on Assets 5.0 % Return on Equity 13.0

104 2,848 12,490 2,212 3,515 5,031 9,309 1,085 1,960 1.3 37.8 10.5 8.7 20.7

42.3 2,858 12,660 2,423 2,977 5,496 9,362 1,055 1,883 1.2 31.8 10.4 8.8 20.0

35.2 2,613 11,181 2,323 2,280 4,924 8,215 1,261 1,511 1.1 27.8 8.5 6.9 15.8

55.8 2,415 10,409 1,943 2,053 4,576 7,644 930 1,440 1.2 26.9 8.7 7.0 15.8

146 2,417 10,040 1,706 Nil 4,444 5,401 706 1,319 1.4 Nil 8.2 6.2 14.7

76.2 2,068 9,432 1,581 2,169 3,783 6,845 613 1,040 1.3 31.7 6.4 4.5 11.1

254 1,909 8,495 1,256 2,041 3,460 6,411 628 1,106 1.5 31.8 9.7 6.3 16.0

66.2 1,685 8,084 1,352 2,028 3,106 6,030 708 1,086 1.2 33.6 9.0 6.3 17.3

94.1 1,805 8,271 1,375 2,616 2,821 6,334 768 700 1.3 41.3 2.3 1.5 4.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7201 Hamilton Boulevard, Allentown, PA 18195-1501. Telephone: 610-481-4911. Website: http://www.airproducts.com Chrmn, Pres & CEO: J. McGlade

SVP & CFO: P.E. Huck SVP & General Counsel: J.D. Stanley CTO: M. Alger Treas: G.G. Bitto

Investor Contact: N. Squires (610-481-7461) Founded: 1940 Board Members: M. L. Baeza, W. L. Davis, III, C. C. Domicile: Delaware Deaton, M. J. Donahue, U. O. Fairbairn, W. D. Ford, E. E. Employees: 18,900 Hagenlocker, E. Henkes, J. McGlade, M. G. McGlynn, L. S. Smith

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: AKAM | AKAM is in the S&P 500

Akamai Technologies Inc S&P Recommendation HOLD

★★★★★

Price $47.61 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Internet Software & Services

12-Mo. Target Price $45.00

Investment Style Large-Cap Growth

Summary This company develops and deploys solutions designed to accelerate and improve the delivery of Internet content and applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $53.06– 20.06 Trailing 12-Month EPS $0.80 Trailing 12-Month P/E 59.5 $10K Invested 5 Yrs Ago $27,600

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.86 1.07 55.4 181.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.646 Nil Nil 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.80 16 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as rapidly evolving technologies, and notable and increasing competition.

50 40 30 20

Quantitative Evaluations S&P Quality Ranking

10

D

C

B-

BB

B+

A-

A

A+

Vol. 93

Mil.

Relative Strength Rank

45 30 15 0

MODERATE

49 LOWEST = 1

5 2

4

3

4

3

3

3

2

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Scott H. Kessler on October 07, 2010, when the stock traded at $ 44.27. Highlights ➤

➤

We project that revenues will increase 17% in 2010 and 14% in 2011, reflecting what we consider solid secular growth, driven by the increasing use and importance of the Internet to distribute content and applications, and improving volumes, offset somewhat by the challenging global economy and pricing pressures.

Investment Rationale/Risk ➤

We think that annual gross, operating and net margins will be roughly steady from 2009 through 2011, reflecting scale and efficiency benefits, offset somewhat by pricing pressures and significant investment. ➤

➤

AKAM has made some $450 million in acquisitions since late 2006, enhancing its capabilities regarding content and application transmission speeds, rich-media distribution, and peerto-peer networks. In November 2008, it bought acerno for up to $100 million to build a more focused advertising business. A $100 million buyback was announced in April 2009 and extended in April 2010. As of June 2010, AKAM had roughly $1.0 billion of net cash and marketable securities.

➤

AKAM has been a pioneer in content and application distribution. We believe this area will continue to grow notably, reflecting increasing demand for online video and software as a service (SaaS) offerings, but we think AKAM faces challenges related to weakened pricing in core products and services, online and mobile HD video perhaps gaining traction more gradually than some expect, and possibly some new competition in the value-added services area. We view the stock as fairly valued at recent levels. Risks to our opinion and target price include the potential for weakening of pricing, less robust demand for AKAM's solutions than we expect, and more significant competition. Our DCF analysis, with assumptions including a WACC of 10.7%, free cash flow growth averaging 15% from 2010 to 2014, and a terminal growth rate of 3%, leads to an intrinsic value of $45, which is our 12-month target price. We think DCF considerations constitute the best way to value AKAM, because certain non-cash items are very material to its results.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 240.0 245.3 2009 210.4 204.6 2008 187.0 194.0 2007 139.3 152.7 2006 90.83 100.7 2005 60.10 64.65

3Q -206.5 197.4 161.2 111.5 75.71

4Q -238.3 212.6 183.2 125.7 82.66

Year -859.8 790.9 636.4 428.7 283.1

Earnings Per Share ($) 2010 0.22 0.20 2009 0.20 0.19 2008 0.20 0.19 2007 0.11 0.12 2006 0.07 0.07 2005 0.10 0.11

E0.20 0.17 0.18 0.13 0.08 1.71

E0.24 0.21 0.22 0.20 0.12 0.16

E0.86 0.77 0.79 0.56 0.34 2.11

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: AKAM

Akamai Technologies Inc Business Summary October 07, 2010 CORPORATE OVERVIEW. The Internet plays a crucial role in the way entities conduct business; however, it was not originally intended to accommodate the volume or complexity of today's demands. As a result, online information is often delayed or lost. Akamai Technologies has developed solutions to accelerate and improve the delivery of Internet content and applications. Its solutions are designed to help customers enhance their revenues and reduce costs by maximizing the performance of their online businesses. Advancing website performance and reliability enable AKAM's customers to improve end-user experiences and promote more effective operations. Specifically, AKAM seeks to address issues related to performance, scalability and security. The company offers solutions focused on digital media distribution and storage, content and application delivery, application performance, on-demand managed services, and website intelligence. Importantly, we believe the company's offerings help clients monetize traffic and save/conserve capital.

collection and monitoring to deliver customer content and applications. We perceive this platform and the related intellectual property as a notable competitive advantage the company will continue to leverage. Although competition in this area has increased over the past few years, AKAM's focus on both dynamic (i.e., back and forth) distribution and segments beyond media and entertainment help insulate the company from substantial pricing pressures, in our view. Nonetheless, we believe lower-end business is more at risk given additional players entering the market. We believe recent acquisitions have bolstered the company's base and breadth of technologies related to streaming rich media, enhancing distribution speeds, peer-to-peer networks, and online advertising. We see these areas contributing to significant growth, and expect AKAM to continue pursuing transactions that are not transformational in nature. We note that valueadded services have been growing as a percentage of the company's revenues.

CORPORATE STRATEGY. AKAM believes it has deployed the world's largest globally distributed computing platform, which includes more than 73,000 servers around the world. The company employs its proprietary solutions and specialized technologies such as advanced routing, load balancing, and data Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.81 1.32 0.77 0.77 Nil Nil 26.27 12.29 34 16

2008 6.04 1.30 0.79 0.79 Nil Nil 40.90 9.25 52 12

2007 5.47 0.93 0.56 0.56 Nil Nil 59.69 27.75 NM NM

2006 4.10 0.58 0.34 0.34 Nil Nil 56.80 19.57 NM NM

2005 3.19 2.25 2.11 1.93 Nil Nil 22.25 10.64 11 5

2004 NM 0.37 0.25 -0.16 Nil Nil 18.47 10.74 74 43

2003 NM 0.17 -0.25 -0.64 Nil Nil 14.20 1.18 NM NM

2002 NM -1.01 -1.81 -2.05 Nil Nil 6.34 0.56 NM NM

2001 NM -20.40 -23.59 -12.47 Nil Nil 37.44 2.52 NM NM

2000 2.02 -1.98 -10.07 NA Nil Nil 345.50 18.06 NM NM

860 348 116 2.84 237 38.5% 146 144

791 313 98.1 2.83 235 38.1% 145 145

636 217 71.9 3.09 168 40.0% 101 101

429 124 45.6 3.17 98.5 41.7% 57.4 57.2

283 98.5 25.2 5.33 70.4 NM 328 300

210 69.2 20.2 10.2 35.1 2.20% 34.4 -19.9

161 30.1 49.7 18.3 -28.7 NM -29.3 -75.6

145 -46.3 90.4 18.4 -204 NM -204 -231

163 -131 330 18.9 -2,434 NM -2,436 -1,286

89.8 -187 712 8.93 -886 NM -886 NA

Balance Sheet & Other Financial Data (Million $) Cash 566 Current Assets 761 Total Assets 2,107 Current Liabilities 327 Long Term Debt 200 Common Equity 1,758 Total Capital 1,958 Capital Expenditures 108 Cash Flow 248 Current Ratio 6.0 % Long Term Debt of Capitalization 10.2 % Net Income of Revenue 17.0 % Return on Assets 7.3 % Return on Equity 8.8

327 502 1,881 100 200 1,569 1,769 115 243 5.0 11.3 18.4 8.2 9.9

546 695 1,656 88.4 200 1,359 1,559 100 173 7.9 12.8 15.9 7.0 8.7

270 375 1,248 89.3 200 955 1,155 56.8 103 4.2 17.3 13.4 5.4 7.3

292 355 891 61.9 200 624 824 26.9 353 5.7 24.3 115.9 61.1 131.7

70.6 109 183 46.8 257 -126 131 12.3 54.6 2.3 196.4 16.4 14.9 NM

165 202 279 62.7 386 -175 211 1.42 20.5 3.2 183.2 NM NM NM

115 142 230 81.1 301 -168 133 7.25 -114 1.7 226.5 NM NM NM

211 228 421 91.3 300 17.2 317 64.5 -2,106 2.5 94.6 NM NM NM

310 355 2,791 84.9 300 2,404 2,705 132 -174 4.2 11.1 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 8 Cambridge Center, Cambridge, MA 02142-1413. Telephone: 617-444-3000. Email: [email protected] Website: http://www.akamai.com

Chrmn: G.H. Conrades Pres: D. Kenny CEO: P.L. Sagan COO: R. Blumofe

SVP, CFO & Chief Acctg Officer: J.D. Sherman Founded: 1998 Investor Contact: S. Smith (617-444-2804) Domicile: Delaware Board Members: G. H. Conrades, M. M. Coyne, II, C. K. Employees: 1,750 Goodwin, J. A. Greenthal, D. Kenny, P. J. Kight, F. T. Leighton, G. A. Moore, P. L. Sagan, F. V. Salerno, N. Seligman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AKS | AKS is in the S&P 500

AK Steel Holding Corp S&P Recommendation BUY

★★★★★

Price $13.35 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Steel

12-Mo. Target Price $19.00

Investment Style Large-Cap Blend

Summary This company produces flat-rolled carbon, stainless and electrical steels for the automotive, appliance, construction, electrical power generation and distribution markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.75– 11.34 Trailing 12-Month EPS $0.69 Trailing 12-Month P/E 19.4 $10K Invested 5 Yrs Ago $19,926

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.50 1.84 26.7 110.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.90 NM BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects AKS's exposure to the auto industry and other cyclical markets, along with its high ratio of total liabilities to assets versus peers. Partially offsetting these factors are AKS's debt reduction and cost-cutting in recent years.

80 40 20 10 5

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 60 40 20 0 5

$1.468 1.50 $0.20 61

D

C

B-

BB

B+

A-

A

Relative Strength Rank 4

3

3

2

3

4

WEAK

17 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Stuart J. Benway, CFA on September 17, 2010, when the stock traded at $ 13.79. Highlights ➤

➤

➤

Following a drop of 47% in 2009, we look for a nearly 50% sales increase in 2010, reflecting our expectation for a recovery in shipment volume and higher revenue per ton. Our forecast rests on several assumptions. First, S&P forecasts GDP growth of 2.8% in 2010, versus a decline in GDP of 2.6% in 2009. We see this resulting in rising demand for durable goods. Second, S&P Economics projects auto sales of 11.4 million units in 2010, up from 10.4 million in 2009. Third, we think that distributors will add to inventories in 2010. Fourth, we expect that sales will be aided by a more lucrative product mix. We look for a sizable improvement in margins and a return to operating profit in 2010, aided by higher volume and increased revenue per ton. After interest expense and taxes, we project operating EPS of $0.50 in 2010, versus an operating loss per share of $0.63 in 2009, which excludes unusual expense of $0.05. Longer term, we think earnings will rise on a gradual decline in pension and health care costs, greater internal sourcing of raw materials, and a more lucrative product mix.

Investment Rationale/Risk ➤

➤

➤

For the long term, we view AKS as poised for a turnaround. The company has cut costs and reduced funded debt and underfunded pension and health care liabilities. It also has obtained concessions on health care and retiree costs on its labor contracts, eliminating a sizable cost disadvantage versus other domestic steel companies. Thus, we think AKS now has a lower, more competitive cost structure, which should help boost earnings as steel demand recovers. Moreover, we believe that long-term results will also benefit from rising demand for the company's stainless/electrical steel products. We think the stock is attractively valued at a recent 7.5X our 2011 EPS estimate and with a dividend yield of nearly 1.5%. Risks to our recommendation and target price include declines in the volume of shipments and the average realized price per ton in 2011 instead of the increases we expect. Applying a multiple of 10.3X to our 2011 EPS estimate, at the low end of the historical range, we arrive at our 12-month target price of $19.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,406 1,596 2009 922.2 793.6 2008 1,791 2,237 2007 1,720 1,870 2006 1,436 1,497 2005 1,423 1,455

3Q -1,041 2,158 1,722 1,554 1,393

4Q -1,320 1,459 1,692 1,582 1,377

Year -4,077 7,644 7,003 6,069 5,647

Earnings Per Share ($) 2010 0.02 0.24 2009 -0.67 -0.43 2008 0.90 1.29 2007 0.56 0.98 2006 0.06 0.26 2005 0.54 0.08

E-0.10 -0.06 1.67 0.97 0.23 -0.26

E0.11 0.36 -3.88 0.95 -0.45 0.37

E0.50 -0.68 0.04 3.46 0.11 0.01

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

10/27 01/25 04/20 07/27

11/10 02/10 05/12 08/11

11/13 02/12 05/14 08/13

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AKS

AK Steel Holding Corp Business Summary September 17, 2010 CORPORATE OVERVIEW. AK Steel Holding, the third largest integrated U.S. steelmaker in terms of production, sells premium quality coated, cold rolled and hot rolled carbon steel to the automotive, appliance and manufacturing markets, as well as to the construction industry and independent steel distributors and service centers. Sales by market in 2009 were: automotive 36% (32% in 2008), appliance, industrial machinery, construction and manufacturing 31% (29%), and distribution and service centers 33% (34%). Shipments in 2009 totaled 3,935,500 tons, versus 5,866,000 tons in 2008. In 2009, AKS incurred an $18 per ton operating loss, versus operating profit per ton of $124 in 2008. CORPORATE STRATEGY. The company seeks to achieve sustained profitability by controlling costs and directing its marketing efforts toward those customers that require the highest quality flat-rolled steel with precise justin-time delivery and technical support. AKS believes that its enhanced product quality and delivery capabilities, and its emphasis on customer technical support and product planning, are areas in which it excels in serving this market segment.

MARKET PROFILE. The primary factors affecting demand for steel products are economic growth in general and growth in demand for durable goods in particular. The two largest end markets for steel products in the U.S. are autos and construction. In 2009, these two markets accounted for 28.3% of shipments in the U.S. market. Other end markets include appliances, containers, machinery, and oil and gas. Distributors, also known as service centers, accounted for 20.6% of industry shipments in the U.S. market in 2009. Distributors are the largest single market for the steel industry in the U.S. Because distributors sell to a wide variety of OEMs, it is impossible to track the final destination of much of the industry's shipments. Consequently, demand for steel from the auto, construction and other industries may be higher than the shipment data would suggest. In terms of shipments, the size of the U.S. market was 62.2 million tons in 2009, and AKS's market share was 6.4%. In the U.S. market, consumption decreased at a compound annual growth rate (CAGR) of 7.9% from 2000 through 2009. Global steel production was 1.22 billion metric tons in 2009, versus 1.33 billion metric tons in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.71 1.30 -0.68 -0.88 0.20 NM 24.27 5.39 NM NM

2008 8.43 1.84 0.04 2.41 0.20 500% 73.07 5.20 NM NM

2007 7.51 5.22 3.46 3.43 Nil Nil 53.97 16.13 16 5

2006 3.44 1.95 0.11 1.00 Nil Nil 17.31 7.58 NM NM

2005 1.30 1.86 0.01 0.84 Nil Nil 18.23 6.23 NM NM

2004 0.92 2.29 0.28 2.70 Nil Nil 16.00 3.65 57 13

2003 NM -3.44 -5.48 -2.71 Nil Nil 8.90 1.74 NM NM

2002 3.02 -2.32 -4.42 -1.06 Nil Nil 14.85 6.45 NM NM

2001 7.40 1.41 -0.87 -1.89 0.13 NM 15.00 7.50 NM NM

2000 11.03 3.45 1.20 NA 0.50 42% 20.13 7.50 17 6

4,077 147 217 37.0 -98.0 20.4% -74.6 -97.0

7,644 930 202 50.9 -6.90 NM 4.00 269

7,003 860 196 68.3 591 34.4% 388 385

6,069 409 204 89.1 -3.10 NM 12.0 110

5,647 397 205 86.8 38.0 NM -0.80 92.4

5,217 139 219 110 -193 NM 30.5 295

4,042 155 222 118 -241 NM -594 -326

4,289 331 225 128 -803 NM -476 -125

3,994 370 245 133 -147 NM -92.4 -204

4,612 586 248 136 210 37.0% 132 NA

Balance Sheet & Other Financial Data (Million $) Cash 462 Current Assets 1,630 Total Assets 4,275 Current Liabilities 741 Long Term Debt 606 Common Equity 881 Total Capital 1,487 Capital Expenditures 134 Cash Flow 142 Current Ratio 2.2 % Long Term Debt of Capitalization 40.8 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

563 2,003 4,677 734 633 963 1,596 167 206 2.7 39.6 0.1 0.1 0.4

714 2,427 5,197 973 653 875 1,527 104 584 2.5 42.7 5.5 7.2 60.0

519 2,548 5,518 932 1,115 417 1,532 76.2 216 2.7 72.8 NM NM NM

520 2,246 5,488 903 1,115 220 1,335 174 204 2.5 83.5 NM NM NM

377 2,107 5,453 747 1,110 197 1,307 98.8 250 2.8 84.9 NM NM NM

54.7 1,358 5,026 779 1,198 -52.8 1,145 79.6 -373 1.7 104.6 NM NM NM

283 1,700 5,400 860 1,260 529 1,789 93.8 -250 2.0 70.4 NM NM NM

101 1,548 5,226 954 1,325 1,021 2,358 109 152 1.6 56.2 NM NM NM

86.8 1,522 5,240 890 1,388 1,307 2,707 138 379 1.7 51.3 2.9 2.5 10.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 9227 Centre Pointe Drive, West Chester, OH 45069. Telephone: 513-425-5000. Website: http://www.aksteel.com Chrmn, Pres & CEO: J.L. Wainscott

COO & EVP: J.F. Kaloski EVP, Secy & General Counsel: D.C. Horn Investor Contact: A.E. Ferrara, Jr. (513-425-2888) SVP & CFO: A.E. Ferrara, Jr.

Board Members: R. A. Abdoo, J. S. Brinzo, D. C. Cuneo, W. K. Gerber, B. G. Hill, R. H. Jenkins, R. S. Michael, III, S. D. Peterson, J. A. Thomson, J. L. Wainscott

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1900 Domicile: Delaware Employees: 6,500

Stock Report | October 23, 2010 | NYS Symbol: AA | AA is in the S&P 500

Alcoa Inc S&P Recommendation BUY

★★★★★

Price $12.72 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Aluminum

12-Mo. Target Price $16.00

Investment Style Large-Cap Value

Summary Alcoa is one of the world's largest producers of aluminum and alumina.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$17.60– 9.81 $-0.28 NM $6,083

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.43 0.97 29.6 1,021.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.990 0.94 $0.12 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.08 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects AA's exposure to cyclical markets such as autos and construction, offset by its large shares of the markets it serves.

40

20

Quantitative Evaluations

10

S&P Quality Ranking

5

D

C

B-

BB

B+

A-

A

A+

Vol. Mil.

551

Relative Strength Rank

240 160 80 0

STRONG 73

LOWEST = 1

5

3

2

3

4

4 2

3

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Leo J. Larkin on October 14, 2010, when the stock traded at $ 13.15. Highlights ➤

➤

➤

Investment Rationale/Risk

We expect a sales increase of 9.2% in 2011, following our forecast for an 11% rise in 2010. Our expectation for a further sales gain assumes U.S. real GDP growth of 2.4% in 2011, versus an estimated gain in GDP of 2.6% in 2010, and another year of growth in the global economy. We see higher volume in the downstream businesses on further increases in construction spending and auto sales. S&P forecasts a 2.2% rise in construction spending in 2011, versus a projected advance of 1.5% in 2010, and motor vehicle sales of 12.8 million units in 2011, versus 2010's expected level of 11.4 million units. We look for a higher aluminum price in 2011 on greater world demand and a continued decline in metal exchange inventories.

➤

We look for improved operating profits on higher realized prices for aluminum, increased volume, and production from new lower cost plants. After interest expense and taxes, we estimate EPS of $0.97 in 2011, versus projected operating EPS of $0.43 in 2010, which excludes unusual items totaling $0.32.

➤

Risks to our recommendation and target price include a decline in the price of aluminum in 2011 instead of the increase we project.

➤

Our 12-month target price of $16 is based on our view that the stock will trade at 16.5X our 2011 EPS estimate. Based on our target P/E, AA would trade just below the mid-point of its historical range of the past 10 years and at 2.0X its tangible book value at the end of 2010's third quarter.

Long term, we think EPS will rise on improving aluminum industry fundamentals and a shift to lower-cost aluminum plants.

We think AA is attractively valued, recently trading at 13.5X our 2011 EPS estimate. We view AA as a special situation turnaround and a vehicle to benefit from an improvement in aluminum market fundamentals. In our opinion, AA's cost cutting, together with increased production from new lower-cost facilities, will result in a lower breakeven point, which in turn should lead to greater profitability and positive free cash flow over the business cycle. We are cautiously optimistic that the production discipline demonstrated by China in 2009 will continue and help boost the aluminum price. Market surpluses caused by the emergence of China as a net exporter in 2002 have been a drag on the aluminum price in recent years.

Revenue (Million $) 1Q 2Q 2010 4,887 5,187 2009 4,147 4,244 2008 6,998 7,245 2007 7,908 8,066 2006 7,244 7,959 2005 6,226 6,698

3Q 5,287 4,615 6,970 7,387 7,631 6,566

4Q -5,433 5,688 7,387 7,840 6,669

Year -18,439 26,901 30,748 30,379 26,159

Earnings Per Share ($) 2010 -0.19 0.13 2009 -0.59 -0.32 2008 0.36 0.67 2007 0.77 0.81 2006 0.70 0.86 2005 0.30 0.53

0.06 -0.07 0.37 0.64 0.62 0.33

E0.11 -0.27 -1.16 0.74 0.29 0.24

E0.43 -1.06 0.28 2.95 2.47 1.40

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.030 0.030 0.030 0.030

01/25 04/22 07/23 10/01

02/03 05/05 08/04 11/03

02/05 05/07 08/06 11/05

02/25/10 05/25/10 08/25/10 11/25/10

Dividends have been paid since 1939. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AA

Alcoa Inc Business Summary October 14, 2010 CORPORATE OVERVIEW. Alcoa is one of the world's largest producers of primary aluminum as well as one of the world's largest suppliers of alumina, an intermediate raw material used to make aluminum. In 2009, primary aluminum production totaled 3.6 million metric tons, versus 4.0 million metric tons in 2008; and alumina production totaled 14.3 million metric tons, versus 15.3 million metric tons in 2008. MARKET PROFILE. The primary factor affecting demand for aluminum products is economic growth, in general, and growth in demand for durable goods, in particular. The three largest end markets for aluminum in North America are transportation, containers/packaging, and construction. In 2008 (latest available), these markets accounted for 62% of shipments in North America. In terms of primary production, the size of the world market was 23.4 million metric tons in 2009. Alcoa's market share was 15.4%. From 2000 through 2009, global consumption rose at a compound annual growth rate (CAGR) of 4.6%.

Kaiser Aluminum, Norsk Hydro, United Company RUSAL and Quanex. Indirect competitors include mining companies that have aluminum and alumina operations, such as Vale, BHP Billiton and Rio Tinto. Led mostly by Alcoa and Alcan (now a subsidiary of Rio Tinto), consolidation of the industry accelerated in the late 1990s and thereafter. However, the price of aluminum in the last economic expansion that ended in 2008's second half lagged the gains in other base metals such as carbon steel, copper and nickel by a wide margin. In our view, the reason for the less buoyant aluminum price is that exports from China have kept the aluminum market in overall surplus. Beginning in 2002, China became a net exporter of aluminum, and we believe that its production has become a drag on the aluminum price.

COMPETITIVE LANDSCAPE. Alcoa's direct competitors in the aluminum market are Aleris International, Inc., Aluminum Corp. of China, Century Aluminum, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.90 0.35 -1.06 -1.09 0.26 NM 16.51 4.97 NM NM

2008 7.61 1.79 0.28 -0.26 0.68 243% 44.77 6.80 NM NM

2007 12.75 4.42 2.95 1.74 0.68 23% 48.77 28.09 17 10

2006 8.53 3.96 2.47 2.46 0.60 24% 36.96 26.39 15 11

2005 6.96 2.85 1.40 1.05 0.60 43% 32.29 22.28 23 16

2004 6.72 2.98 1.60 1.52 0.60 38% 39.44 28.51 25 18

2003 5.36 2.61 1.20 0.92 0.60 50% 38.92 18.45 32 15

2002 3.27 3.20 0.58 -0.17 0.60 103% 39.75 17.62 69 30

2001 4.96 2.49 1.05 0.17 0.60 57% 45.71 27.36 44 26

2000 6.19 3.29 1.81 NA 0.50 28% 43.63 23.13 24 13

18,439 359 1,311 470 -1,498 NM -985 -1,021

26,901 3,505 1,234 574 792 43.2% 229 -210

30,748 4,779 1,268 401 4,491 34.6% 2,571 1,511

30,379 5,410 1,280 384 3,432 24.3% 2,161 2,154

26,159 3,398 1,267 339 1,933 22.8% 1,233 924

23,478 3,397 1,212 270 2,204 25.3% 1,402 1,334

21,504 2,885 1,202 314 1,669 24.2% 1,034 777

20,263 2,663 2,224 350 925 31.6% 498 -143

22,859 3,523 1,253 393 1,641 32.0% 908 146

22,936 4,304 1,219 427 2,812 33.5% 1,489 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,481 Current Assets 7,022 Total Assets 38,455 Current Liabilities 5,414 Long Term Debt 8,974 Common Equity 12,397 Total Capital 25,195 Capital Expenditures 1,617 Cash Flow 324 Current Ratio 1.3 % Long Term Debt of Capitalization 35.6 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

762 8,150 37,822 7,279 8,509 11,680 23,162 3,438 1,461 1.1 36.7 0.9 0.6 1.7

483 8,086 38,803 7,166 6,371 15,961 24,847 3,636 3,839 1.1 25.6 8.3 6.7 10.2

506 9,157 37,183 7,281 5,910 14,576 23,103 3,201 3,441 1.3 25.6 7.1 6.1 15.5

762 8,790 33,696 7,368 5,279 13,318 20,892 2,124 2,498 1.2 25.3 4.7 3.7 9.3

457 7,493 32,609 6,298 5,346 13,245 20,852 1,142 2,612 1.2 25.6 6.0 4.4 11.1

576 6,740 31,711 5,084 6,692 12,020 20,911 863 2,234 1.3 32.0 4.8 3.4 9.4

344 6,313 29,810 4,461 8,365 9,872 20,087 1,263 2,720 1.4 41.6 2.5 1.7 4.9

512 6,792 28,355 5,003 6,388 10,614 18,927 1,177 2,159 1.4 33.8 4.0 3.0 8.2

315 7,578 31,691 7,954 4,987 11,366 18,892 1,121 2,706 1.0 26.4 6.5 6.1 16.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 390 Park Ave, New York, NY 10022-4608. Telephone: 212-836-2674. Email: [email protected] Website: http://www.alcoa.com

Chrmn, Pres & CEO: K. Kleinfeld Pres: G.G. Morrison EVP & CFO: C.D. McLane, Jr. EVP & CTO: M.A. Zaidi

EVP & General Counsel: N.J. DeRoma Board Members: A. D. Collins, Jr., K. S. Fuller, C. Ghosn, J. T. Gorman, J. M. Gueron, K. Kleinfeld, M. G. Morris, E. S. O'Neal, J. W. Owens, P. F. Russo, R. N. Tata, E. Zedillo

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1888 Domicile: Pennsylvania Employees: 59,000

Stock Report | October 23, 2010 | NYS Symbol: AYE | AYE is in the S&P 500

Allegheny Energy Inc. S&P Recommendation BUY

★★★★★

Price $23.74 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary This diversified energy company engages in electric generation, transmission, and delivery, and invests in and develops telecommunications and energy-related projects.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.79– 18.97 Trailing 12-Month EPS $2.32 Trailing 12-Month P/E 10.2 $10K Invested 5 Yrs Ago $9,325

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.58 2.78 9.2 169.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.90 7 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's mid-level capitalization and balanced sources of earnings, which include both low-risk regulated electric utility and higher-risk unregulated power generation operations.

60

40 30

Quantitative Evaluations

20

S&P Quality Ranking

Vol. 50

Mil.

D

30

15 10 5 0 5

$4.027 2.53 $0.60 80

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE

38 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Christopher B. Muir on September 03, 2010, when the stock traded at $ 23.53. Highlights ➤

➤

➤

We see 2010 revenues rising 12%, helped by both regulated and unregulated operations. We expect regulated utility revenues to increase 4.6%, benefiting from customer growth, transmission expansion, and a higher rate base. We look for unregulated revenues to rise 105% due to increased generation capacity factors, higher Pennsylvania rates, and greater capacity revenues. In 2011, we see revenues up 3.5%. We expect operating margins to rise to 26.5% in 2010, from 26.3% in 2009, as a result of lower per-revenue non-fuel operating expenses, partly offset by higher per-revenue fuel costs. We forecast operating margins of 27.3% in 2011. We expect pretax profit margins of 18.4% in 2010 and 19.1% in 2011, versus 18.9% in 2009. In 2010, we see higher interest expense, partly offset by higher nonoperating income. We forecast 2010 recurring EPS of $2.58, excluding $0.01 in nonrecurring charges, up 6.2% from $2.43 in 2009, excluding $0.12 of nonrecurring charges. Our 2011 EPS estimate is $2.78, a projected 7.8% increase.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

On February 11, FirstEnergy (FE 37, Buy) announced it intended to purchase AYE, pending approvals, for 0.667 FE shares per AYE share. We view the proposed deal positively, as we think it would lead to $530 million in annual cost savings by the end of five years. We also like the 2010 rate hike for POLR service in Pennsylvania followed by the elimination of rate caps, the absence of residential generation caps in Maryland, and purchased power cost recovery allowances in Virginia. We view positively AYE's debt to total capitalization ratio of 58.3% as of June 30, 2010, versus 59.3%, 59.6%, 61.5%, and 63.3% for the years ending 2009, 2008, 2007, and 2006, respectively. Risks to our recommendation and target price include lower-than-expected cash flows, a weaker-than-projected economy, and a failure to complete the proposed deal. Our 12-month target price of $30 reflects the proposed exchange ratio of 0.667 and FE's 12-month target price of $45. Using FE's recent $37 price, AYE shares traded at a 7.1% discount to the proposed transaction price, indicating, we believe, the market is starting to believe the deal may be completed.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,049 945.7 2009 957.2 814.7 2008 875.0 953.5 2007 847.6 826.5 2006 845.6 722.2 2005 754.0 714.7

3Q -793.7 849.6 846.6 816.6 845.1

4Q -861.1 707.8 786.3 737.0 724.1

Year -3,427 3,386 3,307 3,121 3,038

Earnings Per Share ($) 2010 0.52 0.71 2009 0.79 0.43 2008 0.80 0.91 2007 0.65 0.45 2006 0.68 0.19 2005 0.24 -0.04

E0.64 0.45 0.52 0.67 0.65 0.26

E0.66 0.64 0.10 0.65 0.37 0.02

E2.58 2.31 2.33 2.43 1.89 0.47

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

02/25 05/20 07/08 10/07

03/04 06/03 09/09 12/09

03/08 06/07 09/13 12/13

03/22/10 06/21/10 09/27/10 12/27/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AYE

Allegheny Energy Inc. Business Summary September 03, 2010 CORPORATE OVERVIEW. Allegheny Energy (AYE) is an integrated electric distribution and generation company operating in the Mid-Atlantic region. The company has two operating segments: Delivery and Services, which includes AYE's electric transmission and distribution (T&D) operations, and Generation and Marketing, which includes the company's generation and unregulated businesses. AYE's three distribution businesses operate under the trade name Allegheny Power. West Penn operates a T&D system in southwestern, northern and south central Pennsylvania, serving approximately 714,900 customers as of December 31, 2009. Potomac Edison operates a T&D system in portions of West Virginia, Maryland and Virginia. AYE has agreed to sell the Virginia business and the sale should be completed imminently. Potomac Edison serves approximately 483,400 electric customers. Monongahela conducts a T&D business that serves roughly 383,600 electric customers in northern West Virginia. The Delivery Services segment also includes investments in transmission line projects (TrAIL and PATH) and Allegheny Ventures (includes unregulated energy-related businesses). The TrAIL project is expected to be completed in 2011.

division, ended 2009 with 7,015 megawatts (MW) of capacity. The division's capacity grew from 1999 to 2001 through the transfer of regulated power plants in Pennsylvania, Maryland, Virginia and Ohio from AYE's regulated utilities, acquisition of existing plants, and construction activities. Currently, AE Supply is contractually obligated to provide Potomac Edison and West Penn with the power that they need to meet a majority of their obligations, which represents a majority of AE Supply's operating capacity. Monongahela owns or controls about 2,741 MW of generating capacity, most of which is delivered to AYE's electric utilities. Additionally, AYE owns a 40% interest (or 1,109 MW) in the Bath County pumped-storage hydroelectric power station. As of December 31, 2009, about 78% of AYE's 9,756 MW of owned and controlled capacity was coal-fired, 9% was gas-fired, 12% was hydroelectric, and 1% was oil-fired.

Allegheny Energy Supply (AE Supply), AYE's primary unregulated generating Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 16.19 2.31 2.42 0.60 26% 35.97 20.32 16 9

2008 14.66 2.33 2.08 0.60 26% 64.75 23.86 28 10

2007 12.97 2.43 2.28 0.15 6% 65.48 44.28 27 18

2006 10.36 1.89 1.90 Nil Nil 46.25 31.33 24 16

2005 7.98 0.47 0.45 Nil Nil 32.32 18.25 69 39

2004 6.94 0.99 0.56 Nil Nil 20.20 11.75 20 12

2003 9.05 -2.64 -2.60 Nil Nil 13.09 4.70 NM NM

2002 12.05 -4.00 -4.22 1.29 NM 43.86 2.95 NM NM

2001 16.48 3.73 3.24 1.72 46% 55.09 32.99 15 9

2000 13.80 2.84 NA 1.72 61% 48.75 23.63 17 8

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

3,427 282 NA 3.18 NA 38.0% 393 413

3,386 274 NA 3.59 NA 34.0% 395 352

3,307 277 NA 4.54 NA 37.6% 412 386

3,121 273 NA 2.80 NA 35.0% 320 321

3,038 308 NA 1.39 NA 46.1% 75.1 72.0

2,756 299 NA 1.28 NA NM 130 61.8

2,472 327 NA -0.35 NA NM -334 -329

2,988 309 NA -1.21 13.0 NM -502 -530

10,379 302 288 3.38 11.5 35.2% 449 391

4,012 248 230 3.11 7.28 37.1% 314 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 14,062 Capital Expenditures 1,166 Net Property 8,957 Capitalization:Long Term Debt 4,417 Capitalization:% Long Term Debt 58.7 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 3,113 Capitalization:% Common 41.3 Total Capital 7,686 % Operating Ratio 80.2 % Earned on Net Property 10.8 % Return on Revenue 11.5 % Return on Invested Capital 9.3 % Return on Common Equity 13.2

12,996 994 8,002 4,116 59.1 Nil Nil 2,851 40.9 8,314 82.1 10.7 11.7 7.7 14.7

11,993 848 7,197 3,983 61.1 Nil Nil 2,535 38.9 7,877 82.9 11.9 12.5 11.0 17.9

11,150 447 6,513 3,434 62.3 Nil Nil 2,080 37.7 6,462 82.3 11.5 10.2 9.3 16.9

10,786 306 6,277 3,665 58.8 Nil Nil 1,695 98.6 6,228 83.5 8.5 2.5 23.3 4.9

10,644 266 6,303 4,639 77.4 Nil Nil 1,354 22.6 6,733 82.1 11.5 4.7 7.4 9.0

11,831 254 7,453 5,234 77.5 Nil Nil 1,516 22.5 7,713 99.3 NM NM 2.6 NM

11,357 403 6,883 229 10.6 Nil Nil 1,932 89.4 3,358 101.9 NM NM 4.2 NM

11,087 463 6,853 3,274 54.7 Nil Nil 2,710 45.3 7,090 93.1 11.5 4.3 11.9 20.2

9,507 402 5,539 2,634 60.2 Nil Nil 1,741 39.8 5,372 86.6 10.0 7.8 10.5 18.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 800 Cabin Hill Dr, Greensburg, PA 15601-1689. Telephone: 724-837-3000. Email: [email protected] Website: http://www.alleghenyenergy.com

Chrmn, Pres & CEO: P.J. Evanson SVP & CFO: K.R. Oliver Chief Acctg Officer & Cntlr: W.F. Wahl, III Treas: B.E. Pakenham

Secy & General Counsel: D.M. Feinberg Investor Contact: M. Kuniansky (724-838-6895) Board Members: H. F. Baldwin, E. Baum, P. J. Evanson, C. F. Freidheim, Jr., J. L. Johnson, T. J. Kleisner, C. D. Pappas, S. H. Rice, G. E. Sarsten, M. H. Sutton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1925 Domicile: Maryland Employees: 4,383

Stock Report | October 23, 2010 | NYS Symbol: ATI | ATI is in the S&P 500

Allegheny Technologies Inc S&P Recommendation HOLD

★★★★★

Price $46.83 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Steel

12-Mo. Target Price $49.00

Investment Style Large-Cap Blend

Summary This company is a leading producer of specialty metals for a wide variety of end markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $58.25– 29.62 Trailing 12-Month EPS $0.95 Trailing 12-Month P/E 49.3 $10K Invested 5 Yrs Ago $18,252

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.21 2.58 38.7 98.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.616 1.54 $0.72 77

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.87 -18 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects ATI's exposure to cyclical markets such as aerospace and chemical processing, along with volatile raw material costs. Offsetting these factors are what we consider the company's solid shares of the markets it serves and its moderate balance sheet leverage.

120

60 40

20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

15 10 5 0 5

D 4

3

5 3

2

3

2

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Leo J. Larkin on October 15, 2010, when the stock traded at $ 47.75.

➤

➤

➤

We project a 31% increase in sales in 2010, following the 42% decline in 2009. Our estimate reflects several assumptions. First, S&P estimates U.S. GDP growth of 2.6% in 2010, versus a decline of 2.6% in 2009. In our view, this will lead to a rebound in demand for durable goods and help boost shipments and prices for stainless steel. Second, after keeping their stainless inventories low in 2009, we think distributors will restock in 2010. Third, we think that sales of high-performance metals will recover as a result of the rebuilding of inventories in the aerospace supply chain following destocking in 2009. We look for a rebound in operating profit in 2010 on improved volume and firmer pricing, along with lower pension and other postretirement expenses. After interest expense and taxes, we project operating EPS of $1.21 in 2010, versus operating EPS of $0.17 in 2009, which excludes unusual expense of $0.17 in the second quarter. We think that consolidation in the stainless steel industry, along with a recovery in aerospace and other capital goods markets, will boost ATI's long-term earnings.

Investment Rationale/Risk ➤

➤

➤

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

36

1

2007

C

We see ATI's long-term earnings rising on consolidation in the stainless steel industry. We believe the concentration of stainless steel production in fewer hands will lead to better industry pricing discipline and result in less volatile sales and profits over the business cycle. In our view, a decline in volatility should ultimately lead to higher valuations for ATI and other stainless steel producers. Also, we see longterm earnings rising on secular growth in the aerospace industry and other capital goods markets such as oil and gas, mining, and electrical power generation. With the shares recently trading with just modest upside to our target price, we would not add to positions. Risks to our recommendation and target price include a decline in prices for stainless steel and high performance metals in 2011 instead of the increase we project. Applying a multiple of 19X to our 2011 EPS estimate, toward the high end of ATI's range of the past 10 years, our 12-month target price for these volatile shares is $49. On this projected multiple, ATI would trade about in line with the P/E we apply to its specialty metals peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 899.4 1,052 2009 831.6 710.0 2008 1,343 1,461 2007 1,373 1,471 2006 1,041 1,211 2005 879.6 904.2

3Q -697.6 1,392 1,335 1,288 861.7

4Q -815.7 1,113 1,274 1,397 894.4

Year -3,055 5,310 5,453 4,937 3,540

Earnings Per Share ($) 2010 0.18 0.36 2009 0.06 -0.14 2008 1.40 1.66 2007 1.92 2.00 2006 1.00 1.37 2005 0.61 0.91

E0.26 0.01 1.45 1.88 1.58 0.87

E0.35 0.36 1.15 1.45 1.63 1.19

E1.21 0.32 5.67 7.26 5.59 3.59

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.180 0.180 0.180 0.180

12/10 02/25 05/07 09/02

12/17 03/09 05/25 09/14

12/21 03/11 05/27 09/16

12/30/09 03/26/10 06/17/10 09/27/10

Dividends have been paid since 1996. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ATI

Allegheny Technologies Inc Business Summary October 15, 2010 In November 1999, Allegheny Technologies spun off all of the common stock of Teledyne Technologies Inc. (NYSE: TDY) and Water Pik Technologies, Inc. to ATI stockholders, and changed its name from Allegheny Teledyne Inc. Following the spin-offs, ATI operates in three segments: Flat-Rolled Products, High Performance Metals, and Engineered Products. Markets for the three units include aerospace, oil and gas, transportation, food, chemical processing, consumer products, medical, and power generation. The Flat-Rolled Products segment (49.6% of 2009 sales; $71.3 million of operating profits) consists of Allegheny Ludlum Corp., Rodney Metals, the Allegheny Rodney Strip division of Allegheny Ludlum, and the company's interest in a Chinese joint venture, Shanghai STAL Precision Stainless Steel Ltd. The companies in this segment produce, convert and distribute stainless steel sheet, strip and plate, precision rolled strip products, flat-rolled nickel-based alloys and titanium, silicon electrical steels and tool steels. Shipments totaled 421,073 tons in 2009, versus 542,382 tons in 2008. The average realized price per ton was $3,600, versus $5,364 in 2008. Operating profits totaled $71.3 million in 2009, versus $377.4 million in 2008.

The High Performance Metals segment (42.6%; $235.7 million of operating profit) consists of Allvac, Allvac Ltd., Oremet-Wah Chang, Titanium Industries, and Rome Metals. These companies produce, convert and distribute nickeland cobalt-based alloys and superalloys, titanium and titanium-based alloys, zirconium and zirconium chemicals, hafnium and niobium, tantalum and other special metals, primarily in long-product form. The unit's titanium products are sold mostly to aircraft and jet engine manufacturers. Shipments of titanium mill products totaled 23,588 lbs. in 2009, versus 32,530 lbs. in 2008; shipments of nickel-based alloys were 32,562 lbs. in 2009, versus 42,525 lbs. in 2008; shipments of exotic alloys totaled 5,067 lbs. in 2009, versus 5,473 lbs. in 2008. Operating profits totaled $235.7 million in 2009, versus operating profit of $539 million in 2008. Competitors in high performance and exotic metals include Titanium Metals Corp., RTI International Metals, Verkhnaya Salda Metallurgical Production Organization and UNITI and certain Japanese producers in the industrial and emerging markets.

Competitors in flat-rolled stainless include AK Steel Holding and North American Stainless.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 18.40 1.53 0.32 0.73 0.72 NM 46.31 16.92 NM NM

2008 18.19 6.71 5.67 4.42 0.72 13% 87.32 15.00 15 3

2007 19.82 8.26 7.26 7.12 0.57 8% 119.70 80.00 16 11

2006 12.71 6.48 5.59 5.92 0.43 8% 98.72 35.47 18 6

2005 6.11 4.47 3.59 3.76 0.28 8% 36.66 17.30 10 5

2004 2.30 1.00 0.22 0.26 0.24 109% 23.48 8.64 NM NM

2003 NM -2.96 -3.87 -3.19 0.24 NM 14.00 2.10 NM NM

2002 3.15 0.30 -0.82 -2.17 0.66 NM 19.10 5.21 NM NM

2001 9.42 0.91 -0.31 -2.09 0.80 NM 21.07 12.50 NM NM

2000 10.51 2.80 1.60 NA 0.80 50% 26.81 12.50 17 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,055 211 133 21.4 64.9 41.5% 31.7 71.5

5,310 973 104 38.3 860 34.2% 566 441

5,453 1,256 103 4.80 1,147 34.9% 747 733

4,937 970 84.2 23.3 869 34.2% 572 605

3,540 452 77.3 38.6 307 NM 362 378

2,733 87.7 76.1 35.5 19.8 NM 19.8 23.3

1,937 -110 74.6 27.7 -280 NM -313 -258

1,908 65.0 90.0 34.3 -104 NM -65.8 -176

2,128 166 98.6 29.3 -36.4 NM -25.2 -168

2,460 358 99.7 34.4 209 36.5% 133 NA

Balance Sheet & Other Financial Data (Million $) Cash 709 Current Assets 1,998 Total Assets 4,346 Current Liabilities 625 Long Term Debt 1,038 Common Equity 2,012 Total Capital 3,161 Capital Expenditures 415 Cash Flow 150 Current Ratio 3.2 % Long Term Debt of Capitalization 32.8 % Net Income of Revenue 1.0 % Return on Assets 0.7 % Return on Equity 1.6

470 1,929 4,170 694 495 1,961 2,524 516 670 2.8 19.6 10.7 13.7 27.1

623 2,249 4,096 704 507 2,224 2,731 447 850 3.2 18.6 13.7 20.3 40.2

502 1,988 3,282 646 530 1,493 2,023 235 656 3.1 26.2 11.6 19.0 49.9

363 1,484 2,732 561 547 800 1,347 90.1 439 2.6 40.6 10.2 14.3 59.0

251 1,160 2,316 493 553 426 979 49.9 95.9 2.4 56.5 0.7 0.9 6.6

79.6 743 1,885 395 504 175 679 74.4 -239 1.9 74.3 NM NM NM

59.4 812 2,093 342 509 449 958 48.7 24.2 2.4 53.2 NM NM NM

33.7 926 2,643 333 573 945 1,671 104 73.4 2.8 34.3 NM NM NM

26.2 1,023 2,776 414 491 1,039 1,689 60.2 232 2.5 29.1 5.4 4.8 11.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1000 Six PPG Pl, Pittsburgh, PA 15222-5479. Telephone: 412-394-2800. Website: http://www.alleghenytechnologies.com Chrmn & CEO: L.P. Hassey

Pres & COO: R.J. Harshman EVP, Secy & General Counsel: J.D. Walton SVP & CFO: D.G. Reid Chief Acctg Officer & Cntlr: K.D. Schwartz

Investor Contact: D.L. Greenfield (412-394-3004) Founded: 1960 Board Members: D. C. Creel, J. C. Diggs, J. B. Harvey, L. Domicile: Delaware P. Hassey, B. S. Jeremiah, M. J. Joyce, J. E. Rohr, L. J. Employees: 8,500 Thomas, J. D. Turner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AGN | AGN is in the S&P 500

Allergan Inc. S&P Recommendation BUY

★★★★★

Price $71.83 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $83.00

Investment Style Large-Cap Growth

Summary This technology-driven global health care company develops and commercializes products in the eye care, neuromodulator, skin care and other specialty markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $72.98– 53.32 Trailing 12-Month EPS $2.64 Trailing 12-Month P/E 27.2 $10K Invested 5 Yrs Ago $16,951

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.17 3.75 22.7 303.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

0.94 11 A+

STARS

MEDIUM

HIGH

Our risk assessment reflects the increased diversity of AGN's aesthetic products and markets via the acquisition of Inamed, our view of its strong focus on R&D, its leading market position in several ophthalmic drugs, and continued strong demand for Botox. However, we view the eye care and aesthetics markets as competitive, with the latter affected by the economic environment. We also note that certain pipeline products may not be successful.

2-for-1

30

Vol. 35

Mil.

LOW

Below Avg.

60

15 10 5 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

80

40

$21.795 0.28 $0.20 89

Quantitative Evaluations 4

3

3

4

3

S&P Quality Ranking D

C

B-

B B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

STRONG

2010 Options: ASE, CBOE, Ph

79 LOWEST = 1

HIGHEST = 99

Analysis prepared by Herman B. Saftlas on October 19, 2010, when the stock traded at $ 72.61. Highlights ➤

➤

We see revenues rising about 10% in 2011, from the $4.75 billion that we estimate for 2010. Botox sales will likely show mid-teens growth, supported by firmer trends in consumer spending, and recently approved new indications for spasticity and migraines. Helped by DTC spending, we see robust gains in sales of Juvederm facial filler and Latisse eyelashes thickener. Sales of eye care pharmaceuticals should also rise, with gains in Lumigan and recently launched Ozurdex for macular edema more than offsetting generic erosion in the Alphagan line. We expect modest expansion in 2011 gross margins, benefiting from higher volume and manufacturing efficiencies. We look for the SG&A cost ratio to decrease, but for the R&D cost ratio to rise slightly on increased spending on new products. Non-operating expenses are likely to be slightly higher.

Investment Rationale/Risk ➤

➤

➤ ➤

After an estimated effective tax rate similar to the 28% that we forecast for 2010, we project operating EPS of $3.75 for 2011, up from a projected $3.17 for 2010. Results exclude goodwill amortization and other special items.

Revenue/Earnings Data

We view Allergan as well positioned in ophthalmic drugs and aesthetics products. Although the soft economy has hurt certain lines, we see growth accelerating in 2011, helped by projected firming economic trends and new products. Despite competition from Dysport, we project Botox sales will exceed $1.6 billion in 2011, lifted by improved trends in consumer spending, greater penetration of foreign markets, and recently approved treatment indications for spasticity, and the prevention of chronic migraine headaches. Other new products that we expect to drive growth include Ozurdex for macular edema and Latisse for eyelash thickening.

Revenue (Million $) 1Q 2Q 2010 1,155 1,247 2009 1,007 1,131 2008 1,077 1,172 2007 886.5 988.1 2006 625.7 801.7 2005 527.2 591.0

3Q -1,141 1,098 993.7 806.8 606.1

4Q -1,224 1,057 1,091 829.1 594.9

Year -4,504 4,403 3,939 3,063 2,319

Earnings Per Share ($) 2010 0.55 0.78 2009 0.15 0.58 2008 0.36 0.48 2007 0.14 0.45 2006 -1.65 0.25 2005 0.30 0.13

E0.78 0.59 0.55 0.50 0.35 0.56

E0.89 0.72 0.50 0.52 0.45 0.52

E3.17 2.03 2.57 1.62 -0.44 1.51

Risks to our recommendation and target price include a prolonged economic slump, greaterthan-expected competitive pressures, and pipeline setbacks.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Our 12-month target price of $83 applies an above-peers P/E of 22X to our EPS estimate for 2011. We believe this multiple is reasonable, given the superior EPS growth that we see for AGN. Our DCF model, which assumes a WACC of 9.9%, and terminal growth of 1%, also indicates an intrinsic value of about $83.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

10/22 02/04 04/30 08/02

11/05 02/17 05/14 08/13

11/09 02/19 05/18 08/17

11/30/09 03/12/10 06/08/10 09/07/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1989. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AGN

Allergan Inc. Business Summary October 19, 2010 CORPORATE OVERVIEW. Allergan is a leading producer of ophthalmic, neuromuscular and skin care pharmaceuticals, and, with its March 2006 acquisition of Inamed Corp., aesthetic products. Eye care drugs accounted for 47% of 2009 sales, Botox/neuromodulators 29%, skin care treatments 5%, urologics 2%, breast implants 6%, devices for obesity treatment 6%, and dermal fillers 5%. About 35% of 2009 sales were derived from foreign markets. Eye care drugs include prescription and nonprescription products to treat eye diseases and disorders, including glaucoma, inflammation, infection, allergy, and dry eye. Important products are Alphagan, Alphagan P, and Combigan (sales of $415 million in 2009, versus $398 million in 2008), Lumigan ($457 million, versus $426 million) treatments, which are used to lower eye pressure in patients with open-angle glaucoma or ocular hypertension, and Restasis ($523 million, versus $444 million), for dry eye disease. Other eye care products include Acular, Alocril and Elestat, for seasonal allergic conjunctivitis; and Zymar and Ocuflox, for bacterial conjunctivitis. Originally used for ophthalmic movement disorders, Botox (botulinum toxin type A) is also a widely accepted treatment for neuromuscular disorders and related pain. Botox has also garnered a rapidly growing market as a facial cosmetic agent. In 2002, the FDA approved the injectable drug for removing brow furrows and other facial wrinkles. We estimate that Botox sales are

roughly equally divided between therapeutic indications and cosmetic uses. Botox accounts for over 80% of the total global neuromodulator drug market. Botox is also being studied for treating excessive sweating, post-stroke spasticity, back spasms, and migraines. Skin care products include Zorac/Tazorac receptor-selective retinoids for acne and psoriasis; Aczone treatment for acne; Prevage and Avage facial aesthetic products; and Latisse, a drug used to produce longer, darker and thicker eyelashes. Aesthetic products include breast implants for aesthetic augmentation and reconstructive surgery following mastectomy, a range of dermal products to correct facial wrinkles, and the Lap-Band and Intragastric Balloon (BIB) systems for obesity treatment. COMPETITIVE LANDSCAPE. Eye care competitors include Alcon Laboratories, Bausch & Lomb, Pfizer, Novartis, and Merck, while its skin care business competes against Dermik, a division of Sanofi-Aventis, Galderma, a joint venture between Nestle and L'Oreal, Medicis, Connetics, Novartis, ScheringPlough, and Johnson & Johnson.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.53 2.89 2.03 2.00 0.20 10% 64.08 35.41 32 17

2008 1.48 2.75 2.57 1.85 0.20 8% 70.40 28.95 27 11

2007 0.72 2.32 1.62 1.64 0.20 12% 69.15 52.50 43 32

2006 0.88 0.08 -0.44 -0.42 0.20 NM 61.51 46.29 NM NM

2005 5.34 1.82 1.51 1.36 0.20 13% 55.25 34.51 37 23

2004 3.99 1.69 1.41 1.26 0.18 13% 46.31 33.39 33 24

2003 2.47 0.03 -0.20 -0.33 0.18 NM 40.90 35.83 NM NM

2002 3.02 0.42 0.25 0.45 0.18 73% 37.55 24.53 NM NM

2001 3.24 1.19 0.85 0.70 0.18 21% 49.69 29.50 59 35

2000 2.82 1.09 0.81 NA 0.16 20% 50.56 22.25 63 28

4,504 1,338 262 76.9 848 26.5% 621 610

4,403 1,170 264 62.0 1,080 27.0% 786 567

3,939 1,060 215 72.7 688 27.1% 501 507

3,063 854 152 60.2 -19.5 NM -127 -123

2,319 694 78.9 12.4 599 32.1% 404 363

2,046 603 68.3 18.1 532 28.9% 377 339

1,771 39.1 59.6 15.6 -29.5 NM -52.5 -87.3

1,425 349 45.0 17.4 89.8 28.0% 64.0 118

1,746 404 85.5 21.4 336 32.4% 227 187

1,626 372 77.7 19.8 304 29.0% 215 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,947 Current Assets 3,106 Total Assets 7,537 Current Liabilities 812 Long Term Debt 1,491 Common Equity 4,823 Total Capital 6,353 Capital Expenditures 95.8 Cash Flow 883 Current Ratio 3.8 % Long Term Debt of Capitalization 23.5 % Net Income of Revenue 13.8 % Return on Assets 8.7 % Return on Equity 14.1

1,110 2,271 6,791 697 1,635 4,010 5,652 190 843 3.3 28.9 17.9 11.8 20.3

1,158 2,124 6,579 716 1,630 3,739 5,551 142 716 3.0 29.8 12.7 8.1 14.6

1,369 2,130 5,767 658 1,606 3,143 4,836 131 25.0 3.2 33.2 NM NM NM

1,296 1,826 2,851 1,044 57.5 1,567 1,626 78.5 483 1.7 3.5 17.4 15.8 30.1

895 1,376 2,257 460 570 1,116 1,689 96.4 445 3.0 33.8 18.4 18.8 41.1

508 928 1,755 383 573 719 1,294 110 7.10 2.4 44.3 NM NM NM

774 1,200 1,807 404 526 808 1,337 78.8 109 3.0 39.4 4.5 3.3 7.2

782 1,325 2,046 490 521 977 1,499 89.9 312 2.7 34.7 13.0 11.3 24.5

774 1,326 1,971 433 585 874 1,459 66.9 293 3.1 40.1 13.2 13.0 28.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2525 Dupont Drive, Irvine, CA 92612. Telephone: 714-246-4500. Email: [email protected] Website: http://www.alergan.com

Chrmn, CEO & Chief Admin Officer: D.E. Pyott Pres: M. Ball Vice Chrmn: H.W. Boyer EVP & CSO: S.M. Whitcup

EVP & General Counsel: S.J. Gesten Founded: 1948 Investor Contact: J. Hindman (714-246-4636) Domicile: Delaware Board Members: H. W. Boyer, D. Dunsire, M. R. Employees: 8,300 Gallagher, G. S. Herbert, D. E. Hudson, R. A. Ingram, T. M. Jones, L. J. Lavigne, Jr., D. E. Pyott, R. T. Ray, S. J. Ryan, L. D. Schaeffer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ALL | ALL is in the S&P 500

Allstate Corp (The) S&P Recommendation HOLD

★★★★★

Price $32.79 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $32.00

Investment Style Large-Cap Blend

Summary Allstate, the second largest U.S. personal lines property-casualty insurer, also offers an array of life insurance and retirement savings products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.51– 26.86 Trailing 12-Month EPS $1.85 Trailing 12-Month P/E 17.7 $10K Invested 5 Yrs Ago $7,190

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.28 4.15 10.0 538.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.51 2 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of ALL's potential exposure to an outsized level of claims from catastrophes, partly offset by ALL's geographically diversified base of business. We also remain concerned about the level of illiquid assets in its investment portfolio.

60

30 20

10

Quantitative Evaluations

Vol.

S&P Quality Ranking

75

Mil. 30 20 10 0

$17.643 2.44 $0.80 73

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank

5

4

5

3

2

A+

MODERATE 70

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Cathy A. Seifert on August 06, 2010, when the stock traded at $ 28.95. Highlights ➤

➤

We expect operating revenues to be flat to down slightly in 2010, reflecting our forecast of flat to lower property-casualty earned premiums, and continued weakness in net investment income. Operating revenues in the first half of 2010 declined 1.2%, year to year, reflecting 1.0% lower property-casualty premiums, 11% higher life and annuity premiums, and an 8.1% decline in net investment income. We expect underwriting results to be modestly profitable in 2010, although we see margins contracting amid an ongoing deterioration in claim trends in several core lines. Underwriting margins should also contract if catastrophe losses return to "normal" levels. Catastrophe losses of $636 million in the first months of 2010, versus $818 million in the 2009 interim, led to a combined ratio of 96.8%, versus 100.0%. The combined ratio excluding catastrophes and prior year reserve re-estimates was 88.1% in the 2010 interim, versus 87.2% in the 2009 period.

Investment Rationale/Risk ➤

➤

➤ ➤

We estimate operating EPS of $3.28 in 2010 and $4.15 in 2011, versus $3.48 in 2009. Our operating EPS estimates assume a "normal" level of catastrophe losses and no significant reserve increases or asset writedowns.

Our hold recommendation reflects our view that the shares are fairly valued versus peers, based on a ratio of price-to-tangible capital, which excludes goodwill and deferred acquisition costs. Under this framework, the shares trade at approximately 1.3X June 30, 2010, tangible capital, against an average of 1.2X for most property-casualty peers. We also believe ALL's invested asset mix is less liquid than many of its peers. At December 31, 2009, 11% (or $10.5 billion) of ALL's $97.2 billion of invested assets were classified as "level 3" under FAS fair value accounting rule 157. Level 3 assets are deemed the be the least liquid of a company's assets. Risks to our opinion and target price include a greater than anticipated erosion in underwriting and investment results and a greater than expected deterioration in the credit quality and liquidity of ALL's investment portfolio. Our 12-month target price of $32 assumes the shares will trade at about 7.7X our estimate of 2011 operating earnings per share, a discount to ALL's closest peers that we believe is warranted.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 7,749 7,656 2009 7,883 8,490 2008 8,087 7,418 2007 9,331 9,455 2006 9,081 8,875 2005 8,705 8,791

3Q -7,582 7,320 8,992 8,738 8,942

4Q -8,058 6,569 8,991 9,102 8,945

Year -32,013 29,394 36,769 35,796 35,383

Earnings Per Share ($) 2010 0.22 0.27 2009 -0.51 0.72 2008 0.62 0.05 2007 2.41 2.30 2006 2.19 1.89 2005 1.64 1.71

E0.83 0.41 -1.71 1.70 1.83 -2.36

E0.95 0.96 -2.11 1.36 1.93 1.59

E3.28 1.58 -3.07 7.77 7.84 2.64

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.200 0.200 0.200

11/10 02/23 05/18 07/13

11/25 03/10 05/26 08/27

11/30 03/12 05/28 08/31

01/05/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ALL

Allstate Corp (The) Business Summary August 06, 2010 CORPORATE OVERVIEW. Established in 1931 by Sears, Roebuck & Co., Allstate is the second largest U.S. personal lines property-casualty insurer (based on earned premiums), and the 16th largest life insurer (based on life insurance in force). It writes business mainly through a network of more than 14,000 exclusive agencies. ALL has also implemented a multi-access distribution model designed to allow customers to purchase company products through agents, over the Internet, via telephone, and through The Good Hands Network. ALL became an independent company in June 1995, when Sears, Roebuck & Co. spun off its 80% interest in the company. The company's primary business is the sale of private passenger automobile and homeowners insurance, and it maintains national market shares of about 11% in each of these lines. ALL is licensed to write policies in all 50 states, the District of Columbia, Puerto Rico, and Canada. In 2009, property-liability net written premiums equaled $26.0 billion, down from $26.6 billion in 2008. Earned premiums totaled $26.2 billion in 2009, down from $27.0 billion in 2008. Of the 2009 total, standard automobile policies accounted for 63%, non-standard automobile policies 4%, homeowners' coverage 23%, and other (which includes commercial lines and other personal lines) for the remaining 10%. Underwrit-

ing results in 2009 improved amid a 38% drop in catastrophe claims, partly offset by an erosion in underlying claim trends. As a result, pretax underwriting profits surged to $995 million in 2009, from $164 million in 2008. The combined loss and expense ratio improved to 96.1% in 2009 versus 99.35 in 2008. Allstate Financial (formerly Allstate Life) offers an array of life insurance, annuity, savings and investment and pension products through Allstate agents, financial institutions, independent agents and brokers, and direct marketing. Premiums and deposits totaled $5.1 billion in 2009 (down from nearly $11 billion in 2008 amid the absence of a $4.2 billion funding agreement). Of the 2009 total, interest-sensitive life insurance products accounted for 28%, traditional and other life insurance for 8%, accident and health products 9%, fixed deferred annuities 25%, indexed annuities 10%, fixed immediate annuities 6%, and bank deposits 14%.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 39.57 NA 1.58 2.06 0.80 51% 33.50 13.77 21 9

2008 21.66 NA -3.07 2.52 1.64 NM 52.90 17.72 NM NM

2007 37.35 NA 7.77 6.56 1.52 20% 65.85 48.90 8 6

2006 33.80 NA 7.84 7.91 1.40 18% 66.14 50.22 8 6

2005 29.97 NA 2.64 2.21 1.28 48% 63.22 49.66 24 19

2004 30.74 NA 4.79 4.33 1.12 23% 51.99 42.55 11 9

2003 27.89 3.77 3.85 3.82 0.92 24% 43.27 30.05 11 8

2002 23.52 2.94 1.13 2.64 0.84 74% 41.95 31.03 37 27

2001 22.35 2.06 1.61 1.66 0.76 47% 45.90 30.00 29 19

2000 22.26 2.68 2.95 NA 0.68 23% 44.75 17.19 15 6

NA 26,194 1,958 4,444 32,013 1,248 NA 854 1,115

NA 26,967 1,895 5,622 29,394 -3,025 NA -1,679 1,372

NA 27,233 1,866 6,435 36,769 6,653 NA 4,636 3,915

NA 27,369 1,964 6,177 35,796 7,178 NA 4,993 5,040

NA 27,039 2,049 5,746 35,383 2,088 NA 1,765 1,487

NA 25,989 2,072 5,284 33,936 4,586 NA 3,356 3,028

409,068 24,677 2,304 4,972 32,149 3,566 2,662 2,720 2,692

396,943 23,361 2,293 4,854 29,579 868 2,075 803 1,879

387,039 2,230 22,197 4,796 28,865 1,240 1,492 1,167 1,201

367,914 2,205 21,871 4,633 29,134 3,006 2,004 2,211 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 1,476 Premiums Due 4,839 Investment Assets:Bonds 78,766 Investment Assets:Stocks 7,768 Investment Assets:Loans 7,935 Investment Assets:Total 99,833 Deferred Policy Costs 5,470 Total Assets 132,652 Debt 5,910 Common Equity 16,692 Combined Loss-Expense Ratio 96.2 % Return on Revenue 2.7 % Return on Equity 5.8 % Investment Yield 4.6

1,299 4,842 68,608 5,596 10,229 95,998 8,542 134,798 5,659 12,641 99.4 NM NM 5.2

6,113 4,879 94,451 7,758 10,830 118,980 5,768 156,408 5,640 21,851 89.6 12.6 21.2 5.3

4,935 4,789 98,320 7,777 9,467 119,757 5,332 157,554 4,620 21,846 83.6 13.9 23.8 5.2

1,387 4,739 98,065 6,164 8,748 118,297 5,802 156,072 4,887 20,186 102.4 5.0 8.4 4.9

1,428 4,721 95,715 5,895 7,856 115,530 4,968 149,725 5,291 21,823 93.0 9.9 15.8 4.8

1,434 4,386 87,741 5,288 6,539 103,081 4,842 134,142 5,073 20,565 94.6 8.5 14.3 5.1

1,408 6,958 77,152 3,683 6,092 90,650 4,385 117,426 4,161 34,128 98.9 2.7 2.4 5.7

1,146 6,674 65,720 5,245 5,710 79,876 4,421 109,175 3,894 17,196 102.9 4.0 6.7 6.2

1,164 3,802 60,758 6,086 4,599 74,483 4,309 104,808 3,862 17,451 99.2 7.6 13.0 6.4

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2775 Sanders Road, Northbrook, IL 60062. Telephone: 847-402-5000. Website: http://www.allstate.com Chrmn, Pres & CEO: T.J. Wilson, II

SVP & CFO: D. Civgin SVP & General Counsel: M.C. Mayes Secy: M.J. McGinn Cntlr: S.H. Pilch

Board Members: F. D. Ackerman, R. D. Beyer, W. J. Founded: 1953 Farrell, J. M. Greenberg, R. T. LeMay, A. Redmond, H. J. Domicile: Delaware Riley, Jr., J. I. Smith, J. Sprieser, M. A. Taylor, T. J. Employees: 36,800 Wilson, II

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ALTR | ALTR is in the S&P 500

Altera Corp S&P Recommendation HOLD

★★★★★

Price $29.46 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $32.00

Investment Style Large-Cap Growth

Summary This company is one of the largest makers of high-performance, high-density programmable logic devices (PLDs), and associated computer-aided engineering logic development tools.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.97– 19.23 Trailing 12-Month EPS $1.63 Trailing 12-Month P/E 18.1 $10K Invested 5 Yrs Ago $17,543

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.48 2.64 11.9 307.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.01 50 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that Altera is subject to the sales swings of the semiconductor industry and competition from a larger rival. This is offset by the company's participation in a high-growth niche market.

30 25 20

15

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

60 40 20 0 5

$9.051 0.81 $0.24 96

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 63

3

2

4

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on October 20, 2010, when the stock traded at $ 28.86. Highlights ➤

➤

➤

We see sales advancing 58% this year and 10% in 2011. Although we expect near-term order disruptions as customers digest excessive inventory, we believe healthy chip orders from the communications, computer, and industrial markets will support healthy longer-term growth, especially considering the proliferation of semiconductors in electronic devices and the replacement of ASICs with FPGAs. Also, we view favorably ALTR's 40 nanometer (nm) offerings, and think its relatively quick move onto this technology will help it gain market share. We believe the gross margin will be around 70% in 2011, modestly lower than projected 2010 levels. ALTR outsources its manufacturing, which contributes to relatively stable gross margins, but we see sales mix and modest pricing pressure causing a slight contraction from recent results. However, we think the adjusted operating margin will widen to around 46% in 2011 from a projected 44% in 2010, as sales grow faster than expenses. Our 2011 EPS estimate assumes a 14% effective tax rate and a 2% increase in the diluted share count.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our hold recommendation reflects our view of healthy fundamentals and valuations. Although we anticipate end-market demand softening due to economic uncertainty, and we remain wary about rising inventory in the supply chain, we believe ASIC displacement and market share gains with its 40nm offerings will support healthy long-term growth. With our view of relatively high profitability and with some financial leverage from ALTR's capital structure, we think return on equity will also continue to top the industry's. However, also considering the aforementioned risks, we think that fundamentals are largely reflected in the share price. Risks to our recommendation and target price include deteriorating economic conditions, market share losses, limited supply from foundry partners, and excessive inventory buildup. Our 12-month target price of $32 is based on a price-to-earnings multiple of 12X, near the industry average, applied to our 2011 EPS estimate. We believe this multiple is justified by ALTR's earnings growth, return on equity, and risk compared to other players in the industry.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 402.3 469.3 2009 264.6 279.2 2008 336.1 359.9 2007 304.9 319.7 2006 292.8 334.1 2005 264.8 285.5

3Q -286.6 356.8 315.8 341.2 291.5

4Q -365.0 314.5 323.2 317.4 281.9

Year -1,195 1,367 1,264 1,286 1,124

Earnings Per Share ($) 2010 0.50 0.58 2009 0.15 0.16 2008 0.27 0.32 2007 0.21 0.22 2006 0.16 0.21 2005 0.17 0.18

E0.69 0.19 0.31 0.20 0.24 0.21

E0.71 E0.29 0.28 0.20 0.27 0.19

E2.48 E0.86 1.18 0.82 0.88 0.74

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.060 0.060

01/26 04/20 07/20 10/19

02/08 05/06 08/06 11/08

02/10 05/10 08/10 11/10

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: ALTR

Altera Corp Business Summary October 20, 2010 CORPORATE OVERVIEW. Altera Corp. is a worldwide supplier of programmable logic devices (PLDs), HardCopy brand structured application specific integrated circuits (ASICs), pre-defined design building blocks known as intellectual property cores, and associated software for logic development. Most electronic devices use three types of digital integrated circuits: processors, memory, and logic. The logic semiconductors are used to manage the interchange and manipulation of digital signals within the system. There are three main types of logic chips: ASICs, application specific standard products (ASSPs), and PLDs.

a foundry, the customer has the ability to customize designs, an option that is limited in ASICs and ASSPs. Some of the other benefits of using PLDs include: enhanced design flexibility, shorter design cycles, lower up-front development costs, and the ability to get end-products to market faster. Although the design flexibility has resulted in a higher unit cost for some PLDs versus its logic counterparts, manufacturing technology is helping to eliminate the cost deferential and competitors in this segment are looking to displace ASICs and ASSPs with PLDs.

PLDs are standard products, shipped blank for user programming. They are programmed at the customer's PC or workstation, using ALTR's proprietary software. Since the company's chips are programmed at a desktop and not at Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.66 0.94 0.84 0.84 0.20 24% 23.18 13.92 28 17

2008 2.73 1.28 1.18 1.18 NA 16% 24.19 12.99 21 11

2007 2.74 0.91 0.82 0.82 0.12 15% 26.24 18.00 32 22

2006 4.46 0.96 0.88 0.88 Nil Nil 22.29 15.54 25 18

2005 3.52 0.82 0.74 0.54 Nil Nil 22.99 15.96 31 22

2004 3.42 0.80 0.72 0.48 Nil Nil 26.82 17.50 37 24

2003 2.93 0.51 0.40 0.19 Nil Nil 25.64 10.30 64 26

2002 2.95 0.36 0.23 -0.02 Nil Nil 26.18 8.32 NM NM

2001 2.89 0.04 -0.10 -0.28 Nil Nil 34.69 14.66 NM NM

2000 3.21 1.29 1.19 NA Nil Nil 67.13 19.63 56 16

1,195 344 29.0 5.09 306 17.8% 251 251

1,367 452 30.0 15.5 419 14.2% 360 360

1,264 306 31.1 Nil 338 14.1% 290 290

1,286 331 29.7 Nil 360 10.1% 323 323

1,124 352 29.4 Nil 357 21.9% 279 204

1,016 345 30.5 Nil 331 16.8% 275 182

827 243 45.3 Nil 213 27.0% 155 70.7

712 146 48.5 Nil 123 26.0% 91.3 -8.66

839 48.8 54.3 Nil -13.0 NM -39.8 -106

1,377 598 40.1 Nil 744 33.2% 497 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,547 Current Assets 2,042 Total Assets 2,293 Current Liabilities 490 Long Term Debt 500 Common Equity 1,085 Total Capital 1,585 Capital Expenditures 11.1 Cash Flow 280 Current Ratio 4.2 % Long Term Debt of Capitalization 31.5 % Net Income of Revenue 21.0 % Return on Assets 12.0 % Return on Equity 26.6

1,217 1,627 1,880 386 503 800 1,302 40.3 390 4.2 38.6 26.3 19.7 43.3

1,021 1,534 1,770 490 250 861 1,111 31.2 321 3.1 22.5 23.0 14.6 23.5

738 1,735 2,215 598 1.30 1,608 1,609 36.5 353 2.9 0.1 25.1 16.0 22.5

788 1,495 1,823 555 3.87 1,326 1,330 25.9 308 2.7 0.3 24.8 15.5 21.0

580 1,537 1,747 468 Nil 1,279 1,279 24.7 306 3.3 Nil 27.1 17.1 23.1

259 1,270 1,488 385 Nil 1,102 1,102 13.9 200 3.3 Nil 18.8 10.9 13.9

255 1,176 1,372 241 Nil 1,131 1,131 9.87 140 4.9 Nil 12.8 6.7 8.1

145 1,129 1,361 247 Nil 1,115 1,115 65.8 14.5 4.6 Nil NM NM NM

496 1,769 2,004 756 Nil 1,248 1,248 87.5 537 2.3 Nil 36.1 28.9 42.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 101 Innovation Drive, San Jose, CA 95134. Telephone: 408-544-7000. Email: [email protected] Website: http://www.altera.com

Chrmn, Pres & CEO: J.P. Daane COO: W.Y. Hata SVP, CFO & Chief Acctg Officer: R.J. Pasek Secy & General Counsel: K.E. Schuelke

Investor Contact: S. Wylie (408-544-6996) Founded: 1983 Board Members: J. P. Daane, R. J. Finocchio, Jr., K. Domicile: Delaware McGarity, T. Nevens, K. A. Prabhu, J. C. Shoemaker, S. Employees: 2,551 Wang

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MO | MO is in the S&P 500

Altria Group Inc S&P Recommendation STRONG BUY

★★★★★

Price $24.92 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Tobacco

12-Mo. Target Price $28.00

Investment Style Large-Cap Blend

Summary Altria Group (formerly Philip Morris Companies) is the largest U.S. cigarette producer. It spun off Kraft Foods in 2007 and its international cigarette operations in 2008.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.00– 17.81 Trailing 12-Month EPS $1.66 Trailing 12-Month P/E 15.0 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.91 2.01 13.0 2,084.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$51.932 6.10 $1.52 60

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.39 6 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

MO is a large-cap company in an industry that is operationally very stable. However, the tobacco industry is beset by litigation. The company is subject to several ongoing legal actions, which could have a material impact on future cash flows.

80 60 40

20

Quantitative Evaluations Vol.

90 60 30 0

S&P Quality Ranking

196

Mil.

D

C

B-

A B

B+

A-

A

Relative Strength Rank

5

A+

MODERATE 69

5

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on October 20, 2010, when the stock traded at $ 24.91. Highlights ➤

➤

➤

In March 2008, Altria completed the spinoff of Philip Morris International to shareholders with a share distribution ratio of one for one. The board of directors set Altria's initial dividend at a payout ratio of 75% and announced a $7.5 billion share repurchase program. We forecast that sales volumes will fall at a mid-single digit rate in 2010, moderating from a low double digit rate in 2009 on a significant hike in the federal excise tax on cigarettes, with brand investments, acquisitions, line extensions and new product introductions somewhat offsetting declining consumption. We see revenues rising about 1% and 3% on higher pricing in 2010 and 2011, respectively. Over the next several years, we expect MO's margins to widen on restructuring actions, including the closure of its Cabarrus facility, consolidation of all manufacturing in Richmond, VA, and $500 million of new SG&A expense reductions, up from $300 million estimated originally. On an effective tax rate of about 34%, we estimate 2010 EPS of $1.91, up from 2009 operating EPS of $1.75. For 2011, we forecast EPS of $2.01.

Investment Rationale/Risk ➤

➤

➤

In June 2009, President Obama signed the Family Smoking Prevention and Tobacco Control Act, granting the U.S. FDA the authority to regulate tobacco products. While we view this as a negative for the industry, it was well anticipated, and we see the restrictions solidifying market share leader Altria's dominant position and handicapping its smaller competitors. Operationally, we think Altria is likely to benefit from several factors over the next several years, including the integration of its recent acquisition of smokeless tobacco company UST and recent restructuring actions. Risks to our recommendation and target price include possible pressures on trading multiples as investors remain cautious about court trials, and potential increases in excise taxes and smoking bans at the state and local level. Our 12-month target price of $28 is based on historical and peer forward P/E multiples. We apply a multiple of 14X, above the average historical forward P/E and a slight premium to the domestic peer-average forward P/E, to our 2011 EPS estimate to calculate our target price. The shares recently provided a dividend yield of over 6%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,951 4,341 2009 3,812 4,594 2008 3,604 4,179 2007 17,556 18,809 2006 24,355 25,769 2005 23,618 24,784

3Q -4,318 4,341 19,207 25,885 24,962

Earnings Per Share ($) 2010 0.39 0.50 2009 0.28 0.49 2008 0.29 0.43 2007 1.01 1.05 2006 1.65 1.29 2005 1.24 1.40

E0.51 0.42 0.42 1.24 1.36 1.38

4Q Year --4,100 16,824 3,833 15,957 18,229 38,051 25,398 101,407 24,490 97,854

E0.45 0.35 0.33 1.03 1.40 1.09

E1.91 1.54 1.48 4.33 5.71 5.10

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.340 0.350 0.350 0.380

12/16 02/24 05/20 08/27

12/28 03/11 06/11 09/13

12/30 03/15 06/15 09/15

01/11/10 04/09/10 07/09/10 10/12/10

Dividends have been paid since 1928. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MO

Altria Group Inc Business Summary October 20, 2010 CORPORATE OVERVIEW. Altria Group (formerly Philip Morris Cos., Inc.) is a holding company for wholly owned and majority owned subsidiaries that make and market various consumer products, now primarily including cigarettes. Prior to the March 30, 2007, spinoff of Kraft Foods, Altria Group's reportable segments were domestic tobacco, international tobacco, North American food, international food and financial services. The spinoff of Philip Morris International was completed on March 28, 2008, at a one-for-one exchange rate. Philip Morris U.S.A. (PM USA) is the largest U.S. tobacco company, with total U.S. cigarette shipments amounting to 148.7 billion units in 2009 (down 12.2% from 2008), accounting for 49.9% of total U.S. cigarette market shipments (down from 50.9% in 2008). Focus brands include Marlboro (the largest selling brand in the U.S.), Virginia Slims and Parliament in the premium category, and Basic in the discount category.

ond largest in the world, was spun off on March 30, 2007, to MO shareholders as a tax-free stock dividend. MO shareholders received approximately 0.68 of a KFT share per MO share owned as a stock dividend at the end of March 2007, and cash in lieu of fractional shares. In July 2002, MO sold its Miller Brewing Co. subsidiary to South African Brewers, plc., receiving $3.38 billion worth of shares in the newly formed company, SABMiller. As of December 31, 2009, this stake represented a 27.3% economic and voting interest. CORPORATE STRATEGY. After considering a number of restructuring alternatives, including the possibility of separating Altria Group, Inc. into two, or potentially three, independent entities, the company in June 2007 announced that cigarette production for international markets would be shifted from U.S. facilities to European plants. It subsequently decided to spin off its international tobacco operations, with an effective date of March 28, 2008.

In January 2009, Altria completed the acquisition of UST Inc., the largest U.S. manufacturer and marketer of smokeless tobacco products, for $11.7 billion, which included the assumption of about $1.3 billion of debt. Kraft Foods, the largest packaged food company in North America and secCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.69 1.54 1.58 1.32 86% 20.47 14.50 13 9

2008 NM 1.58 1.48 1.29 1.68 1% 79.59 14.34 54 10

2007 3.97 4.79 4.33 4.33 3.05 70% 90.50 63.13 21 15

2006 NM 6.57 5.71 5.62 3.32 58% 86.56 68.36 15 12

2005 NM 5.92 5.10 5.14 3.06 60% 78.68 60.40 15 12

2004 NM 5.35 4.57 4.54 2.82 62% 61.88 44.50 14 10

2003 NM 5.22 4.52 4.49 2.64 58% 55.03 27.70 12 6

2002 NM 6.10 5.21 4.03 2.44 47% 57.79 35.40 11 7

2001 NM 4.93 3.88 3.62 2.22 57% 53.88 38.75 14 10

2000 NM 4.50 3.75 NA 2.02 54% 45.94 18.69 12 5

16,824 6,627 291 1,189 4,877 34.2% 3,206 3,280

15,957 5,229 215 237 4,789 35.5% 3,090 2,687

38,051 14,892 980 653 13,257 30.9% 9,161 9,163

70,324 19,705 1,804 877 16,536 26.3% 12,022 11,818

68,920 19,004 1,675 1,556 15,435 29.9% 10,668 10,766

63,963 17,929 1,607 1,417 14,004 32.4% 9,420 9,348

60,704 17,663 1,440 1,367 14,760 34.9% 9,204 9,145

62,182 18,476 1,331 1,327 18,098 35.5% 11,102 8,593

72,944 18,039 2,337 1,659 14,284 37.9% 8,566 7,959

63,276 16,396 1,717 1,078 13,960 39.0% 8,510 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,871 Current Assets 10,576 Total Assets 36,677 Current Liabilities 7,992 Long Term Debt 11,185 Common Equity 4,072 Total Capital 16,064 Capital Expenditures 273 Cash Flow 3,497 Current Ratio 1.3 % Long Term Debt of Capitalization 69.6 % Net Income of Revenue 19.1 % Return on Assets 10.0 % Return on Equity 92.9

7,916 16,527 27,215 7,642 6,839 2,828 14,662 241 3,305 2.2 46.6 19.4 7.3 28.9

6,498 28,919 57,211 18,782 11,046 18,554 33,610 1,458 10,141 1.5 30.0 24.1 11.4 31.5

5,020 26,152 104,270 25,427 14,498 39,619 68,496 2,454 13,826 1.0 21.2 17.1 11.3 31.9

6,258 25,781 107,949 26,158 17,868 35,707 71,945 2,206 12,343 1.0 24.8 15.5 10.2 32.1

5,744 25,901 101,648 23,574 18,683 30,714 67,714 1,913 11,027 1.1 27.6 14.7 9.5 33.8

3,777 21,382 96,175 21,393 21,163 25,077 64,110 1,974 10,644 1.0 33.0 15.2 10.0 41.3

565 17,441 87,540 19,082 21,355 19,478 56,832 2,009 12,433 0.9 37.6 17.9 12.9 56.8

453 17,275 84,968 20,141 18,651 19,620 52,768 1,922 10,903 0.9 35.3 11.7 10.4 49.5

937 17,238 79,067 25,949 19,154 15,005 40,824 1,682 10,227 0.7 46.9 13.4 12.1 56.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6601 W Broad St, Richmond, VA 23230-1723. Telephone: 804-274-2200. Website: http://www.altria.com Chrmn & CEO: M.E. Szymanczyk

EVP & CFO: D.R. Beran EVP & Chief Admin Officer: M.J. Barrington EVP & CTO: J.R. Nelson EVP & General Counsel: D.F. Keane

Investor Contact: C.B. Fleet (804-484-8222) Board Members: E. E. Bailey, G. L. Baliles, J. T. Casteen, III, D. S. Devitre, T. F. Farrell, II, R. E. Huntley, T. W. Jones, G. Munoz, N. Sakkab, M. E. Szymanczyk

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1919 Domicile: Virginia Employees: 10,000

Stock Report | October 23, 2010 | NNM Symbol: AMZN | AMZN is in the S&P 500

Amazon.com Inc S&P Recommendation HOLD

★★★★★

Price $169.13 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Internet Retail

12-Mo. Target Price $165.00

Investment Style Large-Cap Growth

Summary This leading online retailer sells a broad range of items from books to consumer electronics to home and garden products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $170.17– 105.80 Trailing 12-Month EPS $2.42 Trailing 12-Month P/E 69.9 $10K Invested 5 Yrs Ago $36,807

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.61 3.70 64.8 447.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$75.741 Nil Nil 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.18 30 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects AMZN's large market capitalization and leading position in the e-commerce industry, offset by increasing competition.

160 120 80 60

Quantitative Evaluations 40

S&P Quality Ranking Vol.

D

C

B-

BB

B+

A-

A

A+

131

Mil. 60 40 20 0

Relative Strength Rank

STRONG 91

LOWEST = 1

5

4

3

2

3

2

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for AMZN has recently been changed to $165.00 from $155.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on AMZN from MarketScope, see below.

➤

10/22/10 09:22 am ET ... S&P REITERATES HOLD RECOMMENDATION ON SHARES OF AMAZON.COM (AMZN 164.97***): Q3 EPS of $0.51, vs. $0.45, is $0.03 shy of our est., as investments to spur growth adversely impacted margins. However, net sales rose 39%, as AMZN continues to capture significant share globally. We expect further margin compression over near the term as AMZN rolls out additional fulfillment centers. We are lowering our '10 and '11 EPS estimates to $2.61 and $3.70 from $2.70 and $3.80. But with sanguine long-term growth prospects, we are raising our DCF-based target price by $10 to $165. We think shares are fully valued, with AMZN trading at about 45X our '11 EPS view. /M. Souers

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 7,131 6,566 2009 4,889 4,651 2008 4,135 4,063 2007 3,015 2,886 2006 2,279 2,139 2005 1,902 1,753

3Q -5,449 4,264 3,262 2,307 1,858

4Q -9,519 6,704 5,673 3,986 2,977

Year -24,509 19,166 14,835 10,711 8,490

Earnings Per Share ($) 2010 0.66 0.46 2009 0.41 0.32 2008 0.34 0.37 2007 0.26 0.19 2006 0.12 0.05 2005 0.12 0.12

E0.51 0.45 0.27 0.19 0.05 0.07

E0.99 0.85 0.52 0.49 0.23 0.47

E2.61 2.04 1.49 1.12 0.45 0.78

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: AMZN

Amazon.com Inc Business Summary September 22, 2010 CORPORATE OVERVIEW. Since opening for business as "Earth's Biggest Bookstore" in July 1995, Amazon.com has expanded into a number of other product categories, including: apparel, shoes and jewelry; electronics and computers; movies, music and games; toys, kids and baby; sports and outdoors; home and garden; tools, auto and industrial; grocery; health and beauty; and digital downloads. AMZN has virtually unlimited online shelf space, and can offer customers a vast selection of products through an efficient search and retrieval interface. The company personalizes shopping by recommending items which, based on previous purchases, are likely to interest a particular customer. Key Web site features also include editorial and customer reviews, manufacturer product information, secure payment systems, wedding and baby registries, customer wish lists, and the ability to view selected interior pages and search the entire contents of many books.

tures and sells a wireless e-reading device, the Amazon Kindle. It focuses first and foremost on the customer experience by offering a wide selection of merchandise, low prices and convenience. In addition to being the seller of record for a broad range of new products, AMZN allows other businesses and individuals to sell new, used and collectible products on its Web sites through its Merchant and Amazon Marketplace programs. The company earns fixed fees, sales commissions, and/or per-unit activity fees under these programs. AMZN also serves developers through Amazon Web Services, which provides access to technology infrastructure that developers can use to enable virtually any type of business. Starting in 2003, the company began reporting results for two core segments: North America (52% of 2009 net sales) and International (48%). In 2009, media products accounted for 52% of net sales, electronics and other general merchandise 45%, and other 3%.

The company operates the following retail Web sites: www.amazon.com (U.S.), www.amazon.co.uk (U.K.), www.amazon.de (Germany), www.amazon.fr (France), www.amazon.co.jp (Japan), www.amazon.ca (Canada), www.amazon.cn (China), www.joyo.cn, www.shopbop.com, www.endless.com, and www.zappos.com. Amazon also designs, manufacCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.35 2.51 2.04 NA Nil Nil 145.91 47.63 72 23

2008 4.44 2.28 1.49 1.41 Nil Nil 97.43 34.68 65 23

2007 2.30 1.76 1.12 1.12 Nil Nil 101.09 36.30 90 32

2006 0.58 0.93 0.45 0.48 Nil Nil 48.58 25.76 NM NM

2005 0.15 1.07 0.78 0.83 Nil Nil 50.00 30.60 64 39

2004 NM 1.56 1.39 1.27 Nil Nil 57.82 33.00 42 24

2003 NM 0.27 0.08 0.02 Nil Nil 61.15 18.55 NM NM

2002 NM -0.16 -0.40 -0.64 Nil Nil 25.00 9.03 NM NM

2001 NM -0.80 -1.53 -2.49 Nil Nil 22.38 5.51 NM NM

2000 NM -2.86 -4.02 NA Nil Nil 91.50 14.88 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

24,509 1,386 206 34.0 1,155 21.9% 902 NA

19,166 1,129 340 71.0 892 27.7% 645 609

14,835 926 271 77.0 660 27.9% 476 476

10,711 629 205 78.0 377 49.6% 190 203

8,490 553 121 92.0 428 22.2% 333 354

6,921 508 75.7 107 356 NM 588 539

5,264 349 78.3 130 35.3 NM 35.3 10.3

3,933 193 87.8 143 -150 NM -150 -242

3,122 35.1 266 139 -557 NM -557 -910

2,762 -257 406 131 -1,411 NM -1,411 NA

Balance Sheet & Other Financial Data (Million $) Cash 6,366 Current Assets 9,797 Total Assets 13,813 Current Liabilities 7,364 Long Term Debt 109 Common Equity 5,257 Total Capital 5,388 Capital Expenditures 373 Cash Flow 1,108 Current Ratio 1.3 % Long Term Debt of Capitalization 2.0 % Net Income of Revenue 3.7 % Return on Assets 8.2 % Return on Equity 22.8

3,727 6,157 8,314 4,746 533 2,672 3,205 333 985 1.3 16.6 3.4 8.7 33.3

3,112 5,164 6,485 3,714 1,282 1,197 2,479 224 747 1.4 51.7 3.2 8.8 58.5

2,019 3,373 4,363 2,532 1,247 431 1,678 216 395 1.3 74.3 1.8 4.7 56.1

2,000 2,929 3,696 1,929 1,521 246 1,767 204 454 1.5 86.1 3.9 9.6 NM

1,779 2,539 3,249 1,620 1,855 -227 1,628 89.1 664 1.6 113.9 8.5 21.8 NM

1,395 1,821 2,162 1,253 1,945 -1,036 909 46.0 114 1.5 213.9 0.7 1.7 NM

1,301 1,616 1,990 1,066 2,277 -1,353 924 39.2 -62.2 1.5 246.3 NM NM NM

997 1,208 1,638 921 2,156 -1,440 716 50.3 -291 1.3 301.1 NM NM NM

1,101 1,361 2,135 975 2,127 -967 1,160 135 -1,005 1.4 183.4 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1200 12th Avenue South, Seattle, WA 98144-2734. Telephone: 206-266-1000. Email: [email protected] Website: http://www.amazon.com

Chrmn, Pres & CEO: J.P. Bezos COO: M.A. Onetto SVP & CFO: T.J. Szkutak SVP, Secy & General Counsel: L.M. Wilson

Chief Acctg Officer & Cntlr: S.L. Reynolds Investor Contact: R. Eldridge (206-266-2171) Board Members: T. A. Alberg, J. P. Bezos, J. S. Brown, W. B. Gordon, A. Monie, T. O. Ryder, P. Stonesifer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1994 Domicile: Delaware Employees: 24,300

Stock Report | October 23, 2010 | NYS Symbol: AEE | AEE is in the S&P 500

Ameren Corp S&P Recommendation HOLD

★★★★★

Price $28.83 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $29.00

Investment Style Large-Cap Value

Summary Ameren is the holding company for the largest electric utility in the state of Missouri and several utilities in Illinois.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.45– 23.09 Trailing 12-Month EPS $2.41 Trailing 12-Month P/E 12.0 $10K Invested 5 Yrs Ago $7,616

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.67 2.48 10.8 239.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.893 5.34 $1.54 56

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.71 -3 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our expectation of steady cash flow from the company's regulated utilities, which have the benefit of fuel costs that are below the industry average. We believe that this, as well as the electric rate settlement agreement in Illinois, will be only partly offset by the impact of the current credit market environment and the economic slowdown.

50 40 30 25 20

Vol.

Quantitative Evaluations

31

Mil. 12 8 4 0 5

S&P Quality Ranking D 4

3

4

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE 54

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: P, Ph

➤

➤

➤

Excluding $0.06 in net one-time gains, we expect operating EPS in 2010 to decline about 4% from 2009's $2.79, which excluded $0.01 of net one-time charges. Operating EPS in the first half of 2010 was aided by a strong second quarter, due to warmer weather and a return to full capacity of a major industrial customer. This was, however, more than offset by lower generation margins and nearly 12% more shares. For full-year 2010, we look for the Missouri and Illinois utilities to earn about $2.28 a share, and the generating segment about $0.39. For 2011, we expect the decline in EPS to reflect more common shares outstanding, reduced merchant generation margins, higher fuel costs, and a return to normal weather. We believe this will be partially offset by lower operating expenses due to AEE's cost-cutting measures. In July 2009, Illinois enacted a law that allowed electric and natural gas utilities to make rate adjustments that would recover the difference between their actual uncollectible accounts and the amount included in their previously approved base rates. In February 2010, the Illinois Commerce Commission (ICC) approved the adjustments that AEE's Illinois utilities had made.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on August 31, 2010, when the stock traded at $ 27.61. Highlights

A+

3

Although the stock is down about 1% year to date, it has rebounded about 17% from it 2010 low. In addition to market volatility, we believe the rebound has reflected the improved earnings outlook for 2010. This follows a 16% decline in 2009, which despite a 43% rebound from the year's low, partly reflected AEE's February announcement of a 39% cut in its dividend and a sharply reduced earnings outlook for the year. Confronted with rising environmental and financing costs, AEE considered the dividend cut essential for its financial strength. Risks to our recommendation and target price include a steep decline in power supply margins and a sharp drop in the average P/E ratio of AEE's peer group as a whole. AEE's 39% dividend cut in 2009 reduced its payout ratio from 91% of its operating EPS for 2009 to 55%. However, we expect the payout ratio to increase to about 62% of our EPS estimate for 2011. Following the recent rebound in the shares, the yield from the current dividend is about 5.6%, which is still well above the recent peer average of about 4.8%. Our 12-month target price is $29, a discount-to-peers multiple of 11.7X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,916 1,704 2009 1,916 1,684 2008 2,081 1,790 2007 2,019 1,723 2006 1,800 1,550 2005 1,626 1,585

3Q -1,815 2,060 1,997 1,910 1,868

4Q -1,675 1,908 1,807 1,620 1,701

Year -7,090 7,839 7,546 6,880 6,780

Earnings Per Share ($) 2010 0.43 0.64 2009 0.66 0.77 2008 0.66 0.98 2007 0.59 0.69 2006 0.34 0.60 2005 0.62 0.93

E1.63 1.04 0.97 1.18 1.42 1.37

E-0.09 0.33 0.27 0.52 0.30 0.21

E2.67 2.78 2.88 2.98 2.66 3.13

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.385 0.385 0.385 0.385

02/12 04/27 08/13 10/08

03/08 06/07 09/07 12/06

03/10 06/09 09/09 12/08

03/31/10 06/30/10 09/30/10 12/31/10

Dividends have been paid since 1906. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AEE

Ameren Corp Business Summary August 31, 2010 CORPORATE OVERVIEW. Ameren Corporation (AEE) is a holding company that operates regulated electric and natural gas utilities and non-regulated businesses, including energy marketing, trading and consulting services, in Missouri and Illinois. AEE's Utility Operations segment is comprised of its electric generation and electric and gas transmission and distribution operations. The company's subsidiaries include Union Electric Company (UE), Central Illinois Light Company (CILCO), Central Illinois Public Service Company (CIPS), Ameren Energy Generating Company (Genco), CILCORP Inc., and Illinois Power Company (IP). In 2009, the company's electric services contributed 83.3% of its consolidated operating revenues (81.2% in 2008), while its gas services contributed 16.7% (18.8%).

every aspect of its business have been rising at a rapid pace. Since new customer rates are usually based on historical costs after an approximate oneyear regulatory review, by the time they have been implemented they are already inadequate to fully recover the current costs and to earn a fair return on the company's investment. AEE has determined that in order to deal with this problem more effectively (and to avoid customer shock at a sudden sharp increase in rates), it intends to seek smaller and more frequent rate increases. It also plans to seek automatic cost recovery mechanisms for its most expensive items, such as its fuel costs and environmental investments.

CORPORATE STRATEGY. Although AEE has attempted to keep its rates low through disciplined cost control and efficient operations, the costs of nearly Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 29.04 2.78 2.63 1.54 55% 35.35 19.51 13 7

2008 28.10 2.88 2.09 2.54 88% 54.29 25.51 19 9

2007 27.48 2.98 3.04 2.54 85% 55.00 47.10 18 16

2006 26.80 2.66 2.90 2.54 95% 55.24 47.96 21 18

2005 25.08 3.13 3.32 2.54 81% 56.77 47.51 18 15

2004 24.92 2.84 3.12 2.54 89% 50.36 40.55 18 14

2003 23.19 3.14 3.28 2.54 81% 46.50 42.55 15 14

2002 24.95 2.60 2.36 2.54 98% 45.25 34.72 17 13

2001 24.26 3.45 2.81 2.54 74% 46.00 36.53 13 11

2000 23.34 3.33 NA 2.54 76% 46.94 27.56 14 8

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

7,090 801 NA 2.88 NA 34.7% 612 578

7,839 742 NA 3.21 NA 33.7% 605 440

7,546 681 NA 3.33 NA 33.5% 618 632

6,880 661 NA 3.48 NA 32.7% 547 597

6,780 632 NA 4.32 NA 35.6% 628 666

5,160 557 NA 3.81 NA 34.7% 530 582

4,593 519 NA 3.61 4.00 37.3% 506 530

3,841 431 NA 4.04 11.0 38.3% 382 347

4,506 406 382 4.65 20.8 38.7% 475 387

3,856 382 368 4.86 14.0 39.7% 457 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 26,397 Capital Expenditures 1,704 Net Property 17,610 Capitalization:Long Term Debt 7,943 Capitalization:% Long Term Debt 50.3 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 7,853 Capitalization:% Common 49.7 Total Capital 16,207 % Operating Ratio 84.7 % Earned on Net Property 8.3 % Return on Revenue 8.6 % Return on Invested Capital 7.5 % Return on Common Equity 8.3

25,066 1,896 16,567 6,749 49.2 Nil Nil 6,963 50.8 15,964 86.8 8.6 7.7 7.0 8.8

23,484 1,381 15,069 5,902 46.7 Nil Nil 6,752 53.3 14,722 86.6 9.1 8.4 7.5 9.3

22,013 992 14,286 5,498 45.5 Nil Nil 6,583 54.5 14,241 87.1 8.4 8.0 6.6 8.4

20,800 947 13,572 5,568 46.7 Nil Nil 6,364 53.3 14,047 86.3 9.6 9.3 7.0 10.3

20,291 806 13,297 5,236 47.4 Nil Nil 5,800 52.6 13,075 84.6 8.9 10.3 6.9 10.4

17,511 682 10,917 4,273 49.5 Nil Nil 4,354 50.5 10,653 83.9 10.7 11.0 7.4 12.3

15,745 787 8,914 3,626 48.6 Nil Nil 3,842 51.4 9,339 81.0 7.2 9.9 8.1 10.6

14,962 1,103 8,427 3,071 47.8 Nil Nil 3,349 52.2 8,144 85.2 8.2 10.6 8.6 14.5

13,910 929 7,706 2,980 48.3 Nil Nil 3,196 51.7 7,884 83.4 8.6 11.9 8.5 14.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1901 Chouteau Avenue, St. Louis, MO 63103. Telephone: 314-621-3222. Email: [email protected] Website: http://www.ameren.com

Chrmn, Pres & CEO: T.R. Voss SVP, CFO, Chief Acctg Officer & Cntlr: M.J. Lyons, Jr. SVP, Secy & General Counsel: S.R. Sullivan Treas: J.E. Birdsong

Investor Contact: D. Fischer (314-554-4859) Founded: 1881 Board Members: S. F. Brauer, E. M. Fitzsimmons, W. J. Domicile: Missouri Galvin, G. P. Jackson, J. C. Johnson, S. H. Lipstein, C. Employees: 9,780 W. Mueller, H. Saligman, P. T. Stokes, T. R. Voss, S. R. Wilson, J. D. Woodard

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: AEP | AEP is in the S&P 500

American Electric Power Co Inc S&P Recommendation BUY

★★★★★

Price $36.46 (as of Oct 25, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $41.00

Investment Style Large-Cap Value

Summary This electric utility holding company has subsidiaries operating in 11 states in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.16– 28.17 Trailing 12-Month EPS $2.42 Trailing 12-Month P/E 15.1 $10K Invested 5 Yrs Ago $12,592

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.12 3.19 11.7 479.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.480 4.61 $1.68 68

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.61 3 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the steady cash flow expected from the regulated utilities, with their low-cost fuel sources and generally supportive regulatory environments. The proceeds from the divestiture of most of AEP's high-risk unregulated energy businesses were used to enhance its balance sheet and financial strength.

50

35 30 25

Vol.

Quantitative Evaluations

91

Mil. 24 16 8 0 5

S&P Quality Ranking 5

4

3

D

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE

43

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

Excluding $0.49 in one-time charges, we expect 2010 operating EPS to increase about 5% from 2009's $2.97, which excluded a net one-time charge of $0.01. EPS in the first nine months of 2010 benefited from rate increases, very favorable weather, increased industrial sales, and lower operation and maintenance expenses, partially offset by increased depreciation and interest charges, a higher effective tax rate, and nearly 6% more shares outstanding. While full-year results in 2010 will benefit from the approval of more than $320 million in rate increases, results will remain restricted by the weakness in the economy and power markets. AEP's cost reduction program is expected to realize savings of approximately $150 million in 2010 and $200 million in 2011. Earnings in 2011 are also expected to benefit from a full-year of the rate increases implemented in 2010. We expect AEP's annual EPS growth rate to range between 2% and 4% in 2011 and 2012, but then increase to between 4% and 6% over the next few years, reflecting AEP's investments in its generation and transmission operations and a gradual recovery in the economy.

HIGHEST = 99

2010

Analysis prepared by Justin McCann on October 25, 2010, when the stock traded at $ 36.70. Highlights

A+

4

Investment Rationale/Risk ➤

While the sharp rise in the shares from their 52-week low and the reduced EPS growth rate projection for 2011 and 2012, has resulted in a lower level of expected appreciation, the recent recommendation by AEP management for a 9.5% increase in the dividend has enhanced the potential yield.

➤

Risks to our recommendation and target price include the potential for weaker than anticipated results from the company's retail and wholesale operations and a sharp decline in the average P/E multiple of the group as a whole.

➤

Following the recent recommendation for a 9.5% increase in the dividend by AEP's management, the projected yield (based on recent prices) would rise from about 4.6% to about 5.0%, well above the recent average for AEP's peers of 4.7%. Our 12-month target price is $41, which reflects a premium-to-peers P/E of 12.9X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,569 3,360 2009 3,458 3,202 2008 3,467 3,546 2007 3,169 3,146 2006 3,108 2,936 2005 3,065 2,819

3Q -3,547 4,191 3,789 3,594 3,328

4Q -3,282 3,236 3,276 2,984 2,899

Year -13,489 14,440 13,380 12,622 12,111

Earnings Per Share ($) 2010 0.72 0.28 2009 0.81 0.68 2008 1.43 0.70 2007 0.68 0.64 2006 0.95 0.43 2005 0.90 0.57

E0.98 0.93 0.93 1.02 0.67 0.94

E0.47 0.50 0.34 0.52 0.44 0.23

E3.12 2.97 3.39 2.86 2.50 2.63

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.410 0.410 0.420 0.420

10/27 01/27 04/27 07/28

11/06 02/08 05/06 08/06

11/10 02/10 05/10 08/10

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1909. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: AEP

American Electric Power Co Inc Business Summary October 25, 2010 CORPORATE OVERVIEW. American Electric Power Co. (AEP) is a holding company that primarily operates electric utility services through its regulated subsidiaries. The utility services include the generation, transmission and distribution of electricity for sale to retail and wholesale customers in the U.S. AEP's non-regulated operations include the AEP River Operations subsidiary (formerly AEP MEMCO), which is engaged in the transportation of coal and dry bulk commodities, mainly on the Ohio, Illinois and lower Mississippi rivers. In 2009, the utility segment accounted for 94.4% of total revenues. CORPORATE STRATEGY. AEP focuses on its core utility operations and seeks to deliver low-cost electric power to the communities it serves. The company plans to improve its efficiency and to maximize the power delivered from its generation facilities. In order to provide safe and reliable power, AEP will continue to make investments to upgrade its transmission and distribution infrastructure, as well as to be in compliance with the appropriate environmental standards. However, due to the conditions in the capital markets, the company's capital investments in 2009 were nearly $1.49 billion (37%) below its expenditures in 2008, and its projected expenditures for 2010 are $315 million

(12.6%) below its expenditures in 2009. MARKET PROFILE. AEP provides electric utility services to over 5 million retail customers in 11 states over a total area of 197,500 square miles. AEP derived about 33% of its total utility operating revenues in 2009 from Ohio, 12% each from Texas and Virginia, 10% each from Indiana, Oklahoma and West Virginia, 5% from Kentucky, 3% from Louisiana, 2% each from Arkansas and Michigan, and about 1% from Tennessee. In 2009, the residential segment contributed 34.6% of utility retail revenues (32.0% in 2008), followed by commercial and industrial, which contributed 24.9% (23.4%) and 20.7% (22.2%), respectively. Wholesale sales accounted for 14.5% of total utility sales in 2009, down from 20.6% in 2007, while other sales accounted for the remainder. At the end of 2009, AEP had 100% ownership of 224,416 overhead circuit miles of transmission and distribution lines.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 27.31 2.97 3.00 1.64 55% 36.51 24.00 12 8

2008 26.09 3.39 2.29 1.64 48% 49.11 25.54 14 8

2007 25.17 2.86 2.77 1.58 58% 51.24 41.67 19 15

2006 24.88 2.50 2.35 1.50 60% 43.13 32.27 17 13

2005 22.87 2.63 2.26 1.42 54% 40.80 32.25 16 12

2004 21.31 2.85 2.58 1.40 49% 35.53 28.50 12 10

2003 19.74 1.35 1.47 1.65 NM 31.51 19.01 23 14

2002 19.67 0.06 0.07 2.40 NM 48.80 15.10 NM NM

2001 20.92 3.11 2.17 2.40 77% 51.20 39.25 16 13

2000 20.72 0.94 NA 2.40 255% 48.94 25.94 52 28

13,489 1,660 1,205 2.98 82.0 29.6% 1,362 1,373

14,440 1,571 NA 2.81 45.0 31.9% 1,368 924

13,380 1,513 NA 2.96 33.0 31.0% 1,144 1,107

12,622 1,467 NA 2.96 30.0 32.7% 992 934

12,111 1,318 NA 2.80 21.0 29.4% 1,029 883

14,057 1,300 NA 2.60 NA 33.7% 1,127 1,021

14,545 1,299 NA 2.97 NA 39.8% 522 573

14,555 1,377 NA 2.84 NA 79.3% 21.0 21.1

61,257 1,383 NA 2.64 NA 35.9% 1,003 698

13,694 1,062 NA 1.95 NA 66.4% 302 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 51,684 Capital Expenditures 2,896 Net Property 34,344 Capitalization:Long Term Debt 15,818 Capitalization:% Long Term Debt 54.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 13,140 Capitalization:% Common 45.4 Total Capital 30,699 % Operating Ratio 83.7 % Earned on Net Property 8.2 % Return on Revenue 10.1 % Return on Invested Capital 8.1 % Return on Common Equity 11.4

49,710 3,960 32,987 15,597 59.3 Nil Nil 10,693 40.7 31,418 87.0 8.9 9.5 6.8 13.2

46,145 3,556 29,870 14,263 58.6 Nil Nil 10,079 41.4 29,072 86.5 8.2 8.6 7.1 11.7

42,021 3,528 26,781 12,490 57.0 Nil Nil 9,412 43.0 26,802 87.2 7.7 7.9 7.5 10.7

39,121 2,404 24,284 11,073 54.9 Nil Nil 9,088 45.1 25,032 84.1 8.2 8.5 6.2 11.7

37,286 1,693 22,801 11,069 56.5 Nil Nil 8,515 43.5 24,403 85.8 8.9 8.0 6.1 13.8

36,033 1,358 22,029 12,459 61.3 Nil Nil 7,874 38.7 24,290 88.8 7.7 3.6 9.4 7.0

37,857 1,722 21,684 9,329 56.9 Nil Nil 7,064 43.1 21,523 91.3 5.8 0.1 8.8 0.3

40,709 1,832 24,543 10,230 55.4 Nil Nil 8,229 44.6 24,523 96.1 10.2 1.6 8.4 12.3

38,088 1,773 22,393 10,097 55.6 Nil Nil 8,054 44.4 23,554 85.2 9.2 2.2 6.8 3.6

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Riverside Plz, Columbus , OH 43215-2373. Telephone: 614-716-1000. Email: [email protected] Website: http://www.aep.com

Chrmn, Pres & CEO: M.G. Morris COO: C.L. English EVP & CFO: B.X. Tierney SVP, Chief Acctg Officer & Cntlr: J.M. Buonaiuto

SVP & Treas: C.E. Zebula Founded: 1906 Investor Contact: B. Rozsa (614-716-2840) Domicile: New York Board Members: E. R. Brooks, D. M. Carlton, J. F. Employees: 21,673 Cordes, R. D. Crosby, Jr., L. A. Goodspeed, T. E. Hoaglin, L. A. Hudson, Jr., M. G. Morris, L. L. Nowell, III, R. L. Sandor, K. D. Sullivan, S. M. Tucker, J. F. Turner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AXP | AXP is in the S&P 500

American Express Co S&P Recommendation BUY

★★★★★

Price $39.03 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Consumer Finance

12-Mo. Target Price $52.00

Investment Style Large-Cap Growth

Summary American Express is a leading global payments and travel services company.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.19– 34.42 Trailing 12-Month EPS $2.71 Trailing 12-Month P/E 14.4 $10K Invested 5 Yrs Ago $9,053

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.40 3.75 11.5 1,203.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$46.961 1.84 $0.72 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.01 36 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as solid business fundamentals and a strong customer base. We view AXP as able to withstand a major global or U.S. economic downturn. Although we look for AXP to remain profitable, the extent of writedowns is uncertain due to national home price declines and high unemployment.

80

40

20

10

Quantitative Evaluations

Vol. 246

Mil.

S&P Quality Ranking

90 60 30 0 5

D 4

3

4

3

2

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Rafay Khalid, CFA on October 22, 2010, when the stock traded at $ 39.56.

➤

➤

➤

We expect revenue growth of 12% in 2010 and 9% in 2011, reflecting our outlook for a gradual economic recovery to accelerate consumer and business spending. We expect AXP to remain cautious on customers' outstanding credit lines. We see sales increasing in all of AXP's divisions, with its U.S. card division posting the most robust gains. We project a pickup in expenses in 2010 and 2011, as we anticipate that marketing and promotional expenses will increase as AXP attempts to reinforce its brand presence. In addition, we foresee higher incentive compensation expense and technology spending, as we see the company investing in growth initiatives. However, we forecast a decline in loss provisions, reflecting our view of delinquency rates and unemployment stabilizing in 2010. Our EPS forecasts are $3.40 for 2010 and $3.75 for 2011. This compares to EPS of $1.55 in 2009, which included one-time items such as repayment of TARP funds and the repurchase of warrants.

AB

B+

A-

A

Relative Strength Rank

A+ WEAK

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

18

1

2007

C

We believe that consumers and businesses will increase their spending in an improving economic environment. We think loss provisions in the global commercial, U.S. card and international card businesses will decline in 2010 and 2011, reflecting our outlook for lower delinquencies. We think AXP will take some of the savings from lower loss provisions and reinvest them to gain market share. In October, the U.S. Department of Justice sued AXP in a civil antitrust action over the company's rules that prevent merchants from providing discounts to consumers. While we believe this litigation will take time to resolve based on prior antitrust cases, we think it will create an overhang on the stock. Risks to our recommendation and target price include a significant slowdown in consumer and business spending, an increase in loss provisions, a weakening macroeconomic environment, and a decline in credit quality. Our 12-month target price of $52 is based on a historical discount P/E ratio of 13.9X our 2011 EPS estimate. We believe this discount is warranted, given the U.S. government's civil antitrust lawsuit against AXP.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,606 6,858 2009 5,926 6,092 2008 8,105 8,340 2007 7,631 8,199 2006 6,319 6,850 2005 5,672 6,090

3Q -6,016 8,007 7,953 6,759 6,068

4Q -6,489 7,468 7,364 7,208 6,437

Year -26,730 31,920 31,557 27,136 24,267

Earnings Per Share ($) 2010 0.73 0.84 2009 0.32 0.09 2008 0.90 0.57 2007 0.88 0.88 2006 0.70 0.78 2005 0.59 0.69

E0.90 0.54 0.74 0.90 0.78 0.69

E0.93 0.59 0.27 0.71 0.76 0.60

E3.40 1.55 2.48 3.39 3.01 2.56

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.180 0.180 0.180 0.180

11/23 03/22 05/24 09/27

01/07 03/30 06/30 10/06

01/11 04/01 07/02 10/08

02/10/10 05/10/10 08/10/10 11/10/10

Dividends have been paid since 1870. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AXP

American Express Co Business Summary October 22, 2010 CORPORATE OVERVIEW. American Express is a leading global payments and travel company. Its businesses are organized into two customer-focused groups -- global consumer and global business-to-business. Accordingly, U.S. card services and international card services are aligned within the global consumer group and global commercial services and global network & merchant services are alligned within the global business-to-business group.

solution for companies looking to streamline their payment processes; vPayment technology, which provides fast and efficient payment for large ticket purchases and permits the processing of large transactions with effective fraud; and American Express Business Travel, which helps businesses manage and optimize their travel expenses through a variety of travel-related products, services and solutions.

U.S. Card Services includes the U.S. proprietary consumer card business, OPEN from American Express, the global Travelers Cheques and Prepaid Services business, and the American Express U.S. Consumer Travel Network.

Global Network & Merchant Services consists of the merchant services businesses and global network services. Global Network Services develops and manages relationships with third parties that issue American Express branded cards. The Global Merchant Services businesses develop and manage relationships with merchants that accept American Express branded cards; authorize and record transactions; pay merchants; and provide a variety of value-added point of sale and back office services. In addition, in particular emerging markets, issuance of certain proprietary cards is managed within the Global Network Services business.

International Card Services issues proprietary consumer and small business cards outside the U.S. Global Commercial Services offers global corporate payment and travel-related products and services to large and midsized companies. It offers five primary products and services: Corporate Card, issued to individuals through a corporate account established by their employer and designed primarily for travel and entertainment spending; Corporate Purchasing Solutions, an account established by corporations to pay for everyday business expenses such as office and computer supplies; Buyer Initiated Payment, an electronic Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.53 1.55 0.93 0.72 46% 42.25 9.71 27 6

2008 7.61 2.48 2.08 0.72 29% 52.63 16.55 21 7

2007 8.22 3.39 2.87 0.60 18% 65.89 50.37 19 15

2006 7.52 3.01 2.85 0.54 18% 62.50 49.73 21 17

2005 8.50 2.56 2.49 0.48 19% 59.50 46.59 23 18

2004 12.83 2.74 2.53 0.32 12% 57.05 47.32 21 17

2003 11.93 2.31 2.09 0.38 16% 49.11 30.90 21 13

2002 10.62 2.01 1.68 0.32 16% 44.91 26.55 22 13

2001 9.04 0.98 0.73 0.32 33% 57.06 24.20 58 25

2000 8.81 2.07 NA 0.32 15% 63.00 39.83 30 19

87.9 NA Nil 3,372 5,331 26,730 2,841 2,137 1,101

92.4 NA Nil 4,317 7,201 31,920 3,473 2,871 2,412

86.4 NA Nil 4,343 6,145 31,557 5,566 4,048 3,426

78.0 NA Nil 4,333 4,535 27,136 5,328 3,729 3,531

71.0 484,400 Nil 4,236 3,635 24,267 4,248 3,221 3,144

65.4 416,100 1,525 4,079 3,118 29,115 4,951 3,516 3,244

60.5 352,200 1,366 3,484 3,063 25,866 4,247 3,000 2,723

57.3 311,400 802 3,521 2,991 23,807 3,727 2,671 2,245

55.2 298,000 674 3,969 3,049 22,582 1,596 1,311 986

51.7 296,700 575 4,165 4,277 23,675 3,908 2,810 NA

Balance Sheet & Other Financial Data (Million $) Total Assets 124,000 Cash Items 16,000 Investment Assets:Bonds Nil Investment Assets:Stocks Nil Investment Assets:Loans 30,010 Investment Assets:Total 54,347 Accounts Receivable 38,204 Customer Deposits 26,289 Travel Cheques Outstanding 5,975 Debt 52,338 Common Equity 14,000 % Return on Assets 1.7 % Return on Equity 16.5

126,000 21,000 Nil Nil 40,659 53,185 36,571 15,486 6,433 69,034 12,000 2.0 24.3

149,830 14,036 Nil Nil 53,436 67,472 95,441 15,397 7,197 73,047 11,029 2.9 37.6

127,853 11,270 Nil Nil 50,248 61,518 89,099 24,656 7,215 57,909 10,511 3.1 35.4

113,960 7,126 Nil Nil 40,801 62,135 35,497 24,579 7,175 30,781 10,549 2.1 24.2

192,638 9,907 Nil Nil 35,942 60,809 34,650 21,091 7,287 33,061 16,020 1.9 22.4

175,001 5,726 Nil Nil 33,421 57,067 31,269 21,250 6,819 30,809 15,323 1.8 20.6

157,253 10,288 Nil Nil 29,003 53,638 29,087 18,317 6,623 16,819 13,861 1.7 20.6

151,100 7,222 Nil Nil 27,401 46,488 29,498 14,557 6,190 8,288 12,037 0.9 11.1

154,423 8,487 Nil Nil 26,884 43,747 30,543 13,870 6,127 5,211 11,684 1.9 25.8

Income Statement Analysis (Million $) Cards in Force Card Charge Volume Premium Income Commissions Interest & Dividends Total Revenue Net Before Taxes Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: World Financial Ctr, 200 Vesey Street, New York, NY 10285-4814. Telephone: 212-640-2000. Website: http://www.americanexpress.com Chrmn & CEO: K.I. Chenault

EVP & CFO: D.T. Henry EVP & General Counsel: L.M. Parent EVP & Cntlr: J. Amble Treas: D.L. Yowan

Investor Contact: R. Stovall (212-640-5574) Founded: 1868 Board Members: D. F. Akerson, C. Barshefsky, U. M. Domicile: New York Burns, K. I. Chenault, P. Chernin, T. J. Leonis, T. J. Employees: 58,300 Leonsis, J. Leschly, R. C. Levin, R. A. McGinn, E. D. Miller, Jr., S. S. Reinemund, R. D. Walter, R. A. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AIG | AIG is in the S&P 500

American International Group Inc S&P Recommendation HOLD

★★★★★

Price $41.56 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Multi-line Insurance

12-Mo. Target Price $43.00

Summary AIG provides property, casualty, and life insurance, as well as other financial services, in 130 countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $45.90– 21.54 Trailing 12-Month EPS $-13.78 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $345

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.17 5.20 8.0 135.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

3.76 NM A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

1-for-20

40 10

Vol. 390

MEDIUM

HIGH

AIG's outsized exposure (versus peers in the insurance industry) to the mortgage industry and the credit default swap market led to an emergency bailout by the Federal Reserve in 2008 and additional capital infusions in early 2009. Going forward, we believe there remains a high degree of execution risk as AIG seeks to restructure. We cannot rule out the need for additional capital infusions or further government intervention.

200

Mil.

LOW

Below Avg.

1000

223

60 40 20 0 5

$5.616 Nil Nil 54

Quantitative Evaluations S&P Quality Ranking

4

3

2

C

3

D

C

B-

B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for AIG has recently been changed to $43.00 from $45.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

➤

Relative Strength Rank

2010

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on AIG from MarketScope, see below. 10/22/10 11:19 am ET ... S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG 41.93***): AIG raised $17.8B from the initial public offering of AIA Group Ltd. The transaction resulted in AIG selling its 58% stake in AIA, or 7B shares, for HK$19.68, at the high end of the company's estimated range. We believe the transaction will increase AIG's book value given the capital gain from the sale. However, we continue to be concerned about the large amount of intangible assets on AIG's balance sheet, which we believe are vulnerable to impairment. We maintain our target price of $43, which assumes the shares trade at a discount to stated book value. /C. Seifert

STRONG 77

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 16,330 19,982 2009 20,458 29,525 2008 14,031 19,933 2007 30,645 31,150 2006 27,259 26,743 2005 27,202 27,903

3Q 4Q Year ---26,049 -- 96,004 898.0 -23,758 11,104 29,836 18,433 110,064 29,199 29,993 113,194 26,408 27,392 108,905

Earnings Per Share ($) 2010 -6.48 21.21 E0.85 E0.94 E5.17 2009 -39.60 2.30 0.68 -58.04 -86.30 2008 -61.80 -41.20 -181.00 -459.00 -756.80 2007 31.60 32.80 23.80 -41.40 47.80 2006 24.20 24.20 32.20 26.20 107.00 2005 29.00 34.20 13.20 3.40 79.80 Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid on the common shares since September 2008.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AIG

American International Group Inc Business Summary August 29, 2010 American International Group provides an array of insurance and financial services in 130 countries and territories. Investigations several years ago by the New York Attorney General and the SEC into AIG's use of non-traditional insurance products and certain assumed reinsurance transactions culminated in a number of events, including the resignation of AIG's long-time CEO Maurice Greenberg; a writedown against earnings from 2000-2004 of nearly $4 billion; and a writedown of shareholders' equity of $2.26 billion. During 2005, AIG also incurred after-tax charges totaling $1.15 billion to settle numerous regulatory issues and $1.19 billion to boost loss reserves. During 2007 and 2008, AIG was confronted with the downward spiral of the U.S. residential mortgage market and subsequent deterioration in broader credit market conditions. To help replenish its capital, AIG in May 2008 raised $20 billion of new capital that included the sale of 196,710,525 common shares for $7.47 billion. These moves proved insufficient, and in late September 2008, AIG was forced to accept an emergency line of credit from the Federal Reserve. To repay the Federal Reserve loan, AIG is undergoing a planned sale of its assets, including the December 2008 sale of Hartford Steam Boiler (HSB) to Munich Re for $742 million in cash and the assumption of $76 million of debt (less than the $1.2 billion AIG paid for HSB in 2000), the January 2009 sale of AIG Life Insurance Co. of Canada to BMO Financial Group for about $308 million in cash, and the June 2009 sale of 29.9 million shares of Transatlantic Holdings, Inc. (TRH) for

gross proceeds of $1.1 billion. As of March 2010, AIG had agreements to sell AIA Group to Prudential PLC for $35.5 billion, and American Life Insurance Co (ALICO) to MetLife, Inc. for $15.5 billion. The AIA sale to Prudential plc subsequently collapsed and AIG is reported to be preparing that unit for an initial public offering in Hong Kong. Subsequent revisions and additions to original terms have resulted in AIG receiving federal aid valued at approximately $173 billion and in trusts established for the benefit of the U.S. Treasury controlling approximately 77.9% of the voting power of AIG common stock. At December 31, 2009, total authorized and outstanding U.S. government support and assistance equaled $129.3 billion. Revenues totaled $96.0 billion in 2009, versus $6.9 billion in 2008, as an 18% drop in premiums was offset by a surge in net investment income; much lower realized capital losses (of $6.9 billion versus $52.7 billion); a turnaround in the value of the credit default swap portfolio; and $11.5 billion of other income (versus other losses of $1.8 billion). Following a 3.3% decline in benefits and expenses, AIG reported net losses from continuing operations of $11.8 billion ($86.30 a share) in 2009, versus $97.6 billion ($737.12 a share) in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 256.03 NA -86.30 -6.12 Nil Nil 55.90 8.22 NM NM

2008 347.20 NA -756.80 -388.40 12.40 NM 1188 25.00 NM NM

2007 683.00 NA 47.80 66.20 14.60 31% 1459 1017 31 21

2006 759.20 NA 107.00 107.20 12.60 12% 1459 1150 14 11

2005 602.60 NA 79.80 87.00 11.00 14% 1469 998.20 18 13

2004 554.60 NA 75.00 75.40 5.60 7% 1547 1086 21 14

2003 487.80 NA 70.60 77.80 4.40 6% 1327 858.40 19 12

2002 406.40 NA 42.00 52.60 3.56 8% 1600 952.20 38 23

2001 398.80 NA 41.40 41.20 3.16 8% 1966 1320 47 32

2000 339.60 49.00 48.20 NA 2.81 6% 2075 1048 43 22

2,341,042 27,318 30,664 25,239 96,004 -13,648 NA -10,383 -5,877

2,378,314 37,295 46,222 12,222 11,104 -108,761 NA -99,289 -51,166

2,312,045 33,627 45,682 28,619 110,064 8,943 NA 6,200 8,585

2,070,600 30,636 43,451 25,292 113,194 21,687 NA 14,014 14,018

1,852,833 29,400 41,872 22,165 108,905 15,213 105 10,477 11,396

1,858,094 28,082 40,607 18,434 97,987 14,950 NA 9,875 9,928

1,596,626 22,879 31,734 16,662 81,303 13,908 NA 9,265 10,208

1,324,451 20,320 24,269 15,034 67,482 8,142 NA 5,519 6,931

1,228,501 19,243 19,365 14,628 52,852 8,139 NA 5,499 5,476

583,059 13,610 17,407 9,824 40,717 8,349 5,737 5,636 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 9,552 Premiums Due 16,549 Investment Assets:Bonds 396,982 Investment Assets:Stocks 17,840 Investment Assets:Loans 27,461 Investment Assets:Total 601,165 Deferred Policy Costs 40,814 Total Assets 847,585 Debt 113,298 Common Equity 40.0 Combined Loss-Expense Ratio 108.0 % Return on Revenue NM % Return on Equity NM % Investment Yield 4.1

14,641 17,330 404,134 21,143 34,687 554,446 45,782 860,418 137,054 52,690 109.1 NM NM 2.0

8,871 18,395 428,935 41,646 33,727 755,596 43,150 1,060,505 162,935 95,801 90.3 5.6 6.3 3.9

7,681 17,789 417,865 30,222 28,418 719,685 37,235 979,414 186,866 101,677 89.1 12.4 14.9 3.8

7,624 15,333 385,680 23,588 24,909 614,759 33,248 853,370 78,625 86,317 104.7 9.6 12.6 3.7

7,597 15,137 365,677 17,851 22,463 494,592 29,736 798,660 66,850 80,607 100.1 10.1 13.1 3.9

5,881 14,166 309,254 9,584 21,249 449,657 26,398 678,346 57,877 71,253 92.4 11.4 14.2 4.1

1,165 13,088 243,366 7,066 19,928 339,320 22,256 561,229 50,076 59,103 106.0 8.2 9.9 4.8

698 11,647 200,616 7,937 18,092 357,602 17,443 492,982 34,503 52,150 100.7 10.5 11.0 4.5

256 11,832 102,010 7,181 12,243 140,910 10,189 306,577 5,801 39,619 96.7 13.8 15.5 7.4

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 70 Pine Street, New York, NY 10270-0094. Telephone: 212-770-7000. Website: http://www.aigcorporate.com Chrmn: R.S. Miller, Jr.

Pres & CEO: B. Benmosche EVP & CFO: D.L. Herzog EVP & General Counsel: T.A. Russo SVP & Chief Admin Officer: M.R. Cowan

Investor Contact: S.J. Bensinger Founded: 1967 Board Members: B. Benmosche, S. N. Johnson, L. T. Domicile: Delaware Koellner, D. H. Layton, C. S. Lynch, A. C. Martinez, G. L. Employees: 96,000 Miles, Jr., H. S. Miller, R. S. Miller, Jr., M. W. Offit, R. A. Rittenmeyer, D. M. Steenland

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AMT | AMT is in the S&P 500

American Tower Corp S&P Recommendation STRONG BUY

★★★★★

Price $50.22 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Wireless Telecommunication Services

12-Mo. Target Price $58.00

Investment Style Large-Cap Blend

Summary This company operates the largest independent portfolio of wireless communications and broadcast towers in North America.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.34– 36.15 Trailing 12-Month EPS $0.81 Trailing 12-Month P/E 62.0 $10K Invested 5 Yrs Ago $21,480

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.99 1.25 50.7 401.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.75 10 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's high total debt to total capitalization ratio, partly offset by our view of its steady cash flow and sufficient cash and investments to meet its working capital, capital expenditure and debt requirements.

60

40 30

Quantitative Evaluations

20

S&P Quality Ranking

Vol. Mil.

90

24 16 8 0 5

$20.145 Nil Nil 95

D

C

B-

B B

B+

A-

Relative Strength Rank

A+

MODERATE

50

5

4

A

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by James Moorman, CFA on August 12, 2010, when the stock traded at $ 45.92. Highlights ➤

➤

➤

Following an 8.2% revenue increase in 2009, we expect revenues to rise 11.9% in 2010 and 10.8% in 2011, reflecting higher lease activity per active tower and more new towers. We believe AMT will benefit from favorable tower industry trends, such as wireless carriers' demands to improve their network quality and coverage both in the U.S. and internationally. We are positive on AMT's operating discipline and look for operating expenses as a percentage of sales to decline in 2010 and 2011. We believe EBITDA margins, driven by higher tower utilization, will widen to 67.0% in 2010 and to 67.8% in 2011, up from 66.9% in 2009, which are levels well above the peer average. We believe this efficiency will enable free cash flow to increase to $789 million in 2010 and to $975 million in 2011, up from $641 million in 2009. We estimate EPS of $0.99 for 2010 and $1.25 for 2011, versus $0.61 posted in 2009. Our 2010 estimate includes projected stock option expense of $0.13.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

AMT is the market leader in the wireless tower industry, and we think further tower purchases will enable it to continue to achieve greater economies of scale. We believe the network upgrades to 4G, notably LTE and WiMAX, will provide an additional revenue boost over the next several years. AMT has an estimated 2010 net debt/EBITDA ratio of 3.1X, well below peers. We also expect AMT to continue to expand internationally in Mexico, Brazil, India, and Chile. AMT recently announced the planned purchase of an additional 4,450 towers in India. We consider the shares highly attractive for purchase and have a strong buy opinion on the shares. Risks to our recommendation and target price include slower demand in the tower lease business if carriers begin to cut back on spending. Another risk we see is the company's $4.2 billion of debt obligations. Our 12-month target price of $58 is largely based on 24X our free cash flow estimate for 2011, above the peer mean. Our target price also represents an enterprise value of 18.8X our 2011 EBITDA estimate, slightly above the industry average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 454.4 469.9 2009 408.7 423.4 2008 382.2 393.7 2007 352.5 358.4 2006 320.4 325.9 2005 184.4 188.1

3Q -444.1 409.3 367.6 333.5 264.8

4Q -448.0 408.3 378.1 337.7 307.6

Year -1,724 1,594 1,457 1,317 944.8

Earnings Per Share ($) 2010 0.24 0.25 2009 0.14 0.13 2008 0.10 0.12 2007 0.05 0.03 2006 -0.01 0.02 2005 -0.14 -0.14

E0.25 0.17 0.15 0.14 0.01 -0.06

E0.26 0.16 0.21 -0.01 0.04 0.13

E0.99 0.59 0.58 0.22 0.06 -0.44

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: AMT

American Tower Corp Business Summary August 12, 2010 CORPORATE OVERVIEW. American Tower Corp. operates the largest independent portfolio of wireless communications and broadcast towers in North America, based on the number of towers and revenue. The company's primary business is leasing antenna space on multi-tenant communications towers to wireless service providers and radio and television broadcast companies. The tower portfolio provides AMT with a recurring base of leased revenues from its customers and growth potential to add more tenants and equipment to these towers from its unused capacity. AMT also continues to expand its operations in Mexico, Brazil, and India, and plans to close on the acquisition of 4,450 towers in India in the third quarter. PRIMARY BUSINESS DYNAMICS. Rental and management of the antenna sites is AMT's principal business, and accounted for 97% of revenue in the second quarter of 2010. AMT operated a tower portfolio of about 28,035 multiuser sites in the U.S., Mexico, Brazil, and India, as of June 30, 2010. The company signs service providers to long-term leases of usually five to 10 years that contain annual lease rate escalations of 3%-5%. Sprint Nextel, AT&T Wireless, and Verizon Wireless accounted for roughly 52% of AMT's 2009 tower revenue, putting AMT in a prime position for further market expansion projects, in our view. AMT could also benefit from increased data usage that

will require service providers to add capacity to cell sites, as well as from carriers that expand their networks. Carriers such as Leap Wireless, MetroPCS, and Clearwire are currently expanding their networks, and we believe this will boost growth. In addition, U.S. carriers spent close to $20 billion on 700MHz spectrum, and we believe they will use the spectrum to deploy 4G service starting in 2010 and continuing for several years. International growth should benefit AMT in 2010, by our analysis. AMT has about 2,616 wireless towers and approximately 199 broadcast towers in Mexico, about 1,640 wireless towers in Brazil, approximately 2,871 sites in India, and 113 sites in Chile. Mexico, Brazil, and India accounted for roughly 15% of revenue in 2009. We expect Mexico and Brazil to conduct 3G spectrum auctions in 2010 and then to deploy 3G networks. We think these markets will continue to provide significant growth, as we believe they are also seeing significant data growth, which could lead to additional capacity requirements.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.60 0.59 0.59 Nil Nil 43.84 25.45 74 43

2008 NM 1.83 0.58 0.58 Nil Nil 46.10 19.35 79 33

2007 2.41 1.41 0.22 0.20 Nil Nil 46.53 36.34 NM NM

2006 0.88 1.28 0.06 0.05 Nil Nil 38.74 26.66 NM NM

2005 0.74 0.92 -0.44 -0.50 Nil Nil 28.33 16.28 NM NM

2004 NM 0.40 -1.07 -1.17 Nil Nil 18.75 9.89 NM NM

2003 0.28 0.34 -1.17 -1.35 Nil Nil 12.00 3.55 NM NM

2002 NM 0.01 -1.61 -1.60 Nil Nil 10.40 0.60 NM NM

2001 1.94 -0.05 -2.35 -2.50 Nil Nil 41.50 5.25 NM NM

2000 2.06 0.55 -1.13 NA Nil Nil 55.50 27.63 NM NM

1,724 NA 415 250 422 43.3% 238 238

1,594 1,020 527 254 372 36.4% 236 236

1,457 898 510 240 153 39.1% 92.7 85.6

1,317 803 528 217 70.9 58.9% 28.3 24.6

945 589 411 224 -130 NM -134 -154

707 423 329 264 -317 NM -239 -261

715 377 313 280 -305 NM -242 -281

788 312 317 257 -248 NM -315 -313

1,134 251 440 309 -567 NM -450 -480

735 196 283 186 -250 NM -190 NA

Balance Sheet & Other Financial Data (Million $) Cash 257 Current Assets 651 Total Assets 8,513 Current Liabilities 391 Long Term Debt 4,141 Common Equity 3,315 Total Capital 7,530 Capital Expenditures 250 Cash Flow 653 Current Ratio 1.7 % Long Term Debt of Capitalization 55.0 % Net Income of Revenue 13.8 % Return on Assets 2.9 % Return on Equity 7.6

145 474 8,212 303 4,331 2,991 7,326 243 763 1.6 59.1 14.8 2.9 7.9

94.0 246 8,130 317 4,240 3,022 7,309 154 603 0.8 58.6 6.4 1.1 2.5

281 486 8,613 570 3,289 4,382 7,678 127 556 0.9 42.9 2.2 0.3 0.6

113 226 8,768 453 3,451 4,527 7,988 88.6 277 0.5 43.2 NM NM NM

216 309 5,086 332 3,155 1,464 4,626 42.2 90.2 0.9 68.2 NM NM NM

105 412 5,332 295 3,284 1,706 5,008 61.6 71.0 1.4 65.6 NM NM NM

127 536 5,662 670 3,195 1,740 4,950 180 2.11 0.8 64.5 NM NM NM

130 522 6,830 343 3,549 2,869 6,433 568 -9.72 1.5 55.2 NM NM NM

128 471 5,661 298 2,457 2,877 5,350 549 93.1 1.6 45.9 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 116 Huntington Avenue, Boston, MA 02116. Telephone: 617-375-7500. Email: [email protected] Website: http://www.americantower.com

Chrmn, Pres & CEO: J.D. Taiclet, Jr. SVP, Chief Acctg Officer & Cntlr: R.J. Meyer, Jr. Founded: 1995 COO: W.H. Hess Investor Contact: M. Powell (617-375-7500) Domicile: Delaware EVP & CFO: T.A. Bartlett Board Members: G. L. Cantu, R. P. Dolan, R. Dykes, C. F. Employees: 1,420 EVP, Chief Admin Officer, Secy & General Counsel: E. Katz, J. A. Reed, P. D. Reeve, D. E. Sharbutt, J. D. DiSanto Taiclet, Jr., S. L. Thompson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AMP | AMP is in the S&P 500

Ameriprise Financial Inc S&P Recommendation HOLD

★★★★★

Price $51.02 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $45.00

Investment Style Large-Cap Growth

Summary This diversified financial services company, spun off from American Express in September 2005, provides insurance, investment and asset management services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.10– 34.14 Trailing 12-Month EPS $3.68 Trailing 12-Month P/E 13.9 $10K Invested 5 Yrs Ago $16,214

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.06 4.93 12.6 251.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.809 1.41 $0.72 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.03 21 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's significant franchise value, offset by our concerns that the loss of the widely recognized American Express name could negatively affect AMP's ability to raise and retain client assets.

80 50 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

57

Mil. 24 16 8 0 5

D

C

B-

NR B

B+

A-

A

Relative Strength Rank 4

3

3

2

A+ STRONG

80

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Matthew Albrecht on July 30, 2010, when the stock traded at $ 42.98. Highlights ➤

➤

➤

Investment Rationale/Risk

The recent Columbia Management acquisition is already helping the top line, and we think asset management and advice fees will grow nearly 40% this year. While we think relative fund performance has improved somewhat, sales trends remain uneven, particularly for domestic mutual funds. Variable annuity sales are helping to offset outflows from the fixed annuity business, which have been hurt by low interest rates, and sales of life, auto and home insurance products continue to improve. We expect revenues to rise more than 25% in 2010, helped by the acquisition, before more modest growth in 2011.

➤

We think the pretax margin will expand in 2010 despite rising distribution costs, as revenue growth outpaces the growth of core operating costs. We see further margin expansion in 2011 on efficiencies from the Columbia deal and revenue growth. We look for higher amortization of deferred acquisition costs too, though well below peak levels seen in 2008.

➤

We estimate EPS of $4.06 for 2010 and $4.93 for 2011.

➤

We believe AMP's focus on insurance products merits a lower valuation than some other asset managers. In our view, a rebound in client assets and improving relative fund performance should help average asset balances grow. We remain cautious on its investment portfolio, which includes residential and commercial mortgage securities and corporate debt and other asset-backed security holdings, but its outlook has improved. Asset balances are recovering, clients are re-engaging, and the Columbia acquisition should prove favorable to revenues and margins, but its valuation is appropriate. Risks to our recommendation and target price include potential market depreciation and greater regulatory concerns. AMP recently traded at 10.4X our 2010 EPS estimate, a discount to asset management peers. We expect the shares to trade at a peer discount due to AMP's revenue mix, with more reliance on insurance and annuity products. Our 12-month target price of $45 is equal to 9.5X our forward 12-month earnings estimate of $4.73.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,292 2,597 2009 1,716 1,874 2008 2,000 1,979 2007 2,096 2,204 2006 1,949 2,053 2005 1,847 1,895

3Q -1,946 1,641 2,227 1,977 1,873

4Q -2,269 1,350 2,319 2,161 1,869

Year -7,946 7,149 8,909 8,140 7,484

Earnings Per Share ($) 2010 0.81 0.98 2009 0.58 0.41 2008 0.82 0.93 2007 0.68 0.81 2006 0.57 0.57 2005 0.71 0.61

E1.05 1.00 -0.32 0.83 0.71 0.50

E1.22 0.90 -1.69 1.08 0.69 0.44

E4.06 2.95 -0.17 3.39 2.54 2.26

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.170 0.170 0.180 0.180

10/21 02/03 04/26 07/28

10/29 02/10 05/05 08/04

11/02 02/12 05/07 08/06

11/16/09 02/26/10 05/21/10 08/20/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AMP

Ameriprise Financial Inc Business Summary July 30, 2010 CORPORATE OVERVIEW. Ameriprise Financial completed its spinoff from American Express on September 30, 2005, and began trading on the New York Stock Exchange on October 3 under the symbol AMP. As of December 31, 2009, Ameriprise owned, managed and administered $458 billion of client assets and operated a network of more than 12,000 financial advisers. Ameriprise offers a broad assortment of products, including mutual funds, annuities and life insurance products. Ameriprise was originally named Investors Diversified Services before it was acquired by American Express in 1984. We think AMP will need to prove that it can grow and prosper without the benefits of its previous owner, American Express, which spun off the company in 2005. We believe the spinoff and marketing campaign have raised AMP's visibility among prospective clients and may also help attract and retain financial advisers. In terms of corporate governance, we view favorably the high proportion of independent directors on the board, but we would prefer that the company split the roles of chairman and CEO. Ameriprise has five operating segments. Advice and Wealth Management (41% of net revenues in 2009, pretax loss) provides financial advice and fullservice brokerage and banking services, primarily to retail clients, through its financial advisers. The Asset Management segment (18%, $60 million of pretax earnings) provides investment advice and investment products to retail

and institutional clients. Threadneedle Investments predominantly provides international investment products and services, and RiverSource Investments predominantly provides products and services in the U.S. for domestic customers. Its domestic products are primarily distributed through the Advice and Wealth Management segment and third parties, while international products are mostly distributed through third parties. The Annuities segment (29%, $648 million of pretax earnings) provides RiverSource Life variable and fixed annuity products to retail clients, primarily through the Advice and Wealth Management segment. The Protection segment (25%, $496 million of pretax earnings) offers a variety of protection products to address the identified protection and risk management needs of retail clients including life, disability income and property-casualty insurance. The Corporate and Other segment consists of net investment income on corporate level assets, including unallocated equity and other revenues from various investments as well as unallocated corporate expenses. This segment, including intersegment eliminations, reduced net revenues by over $1 billion and incurred a pretax loss in 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 30.75 3.45 2.95 2.92 0.68 23% 40.00 13.50 14 5

2008 22.41 -0.74 -0.17 1.98 0.64 NM 57.55 11.74 NM NM

2007 34.81 4.11 3.39 3.26 0.56 17% 69.25 51.31 20 15

2006 31.10 3.21 2.54 2.41 0.44 17% 55.79 40.30 22 16

2005 30.75 2.26 2.26 2.37 0.11 5% 44.78 32.00 20 14

2004 6.45 NA 2.80 3.02 NA NA NA NA NA NA

2003 NA 4.01 3.00 2.46 NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Income Interest Income Other Total Income General Expenses Interest Expense Depreciation Net Income S&P Core Earnings

2,704 5,242 7,946 6,758 268 120 722 715

2,899 4,250 7,149 7,028 288 204 -38.0 440

3,238 5,671 8,909 7,353 367 173 814 784

2,204 5,936 8,140 7,343 116 166 631 599

2,241 5,243 7,484 6,739 73.0 164 556 588

2,125 4,645 6,770 5,756 78.0 NA 708 762

NA NA 6,361 NA NA NA 738 622

NA NA 5,793 NA NA NA 674 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 3,097 Receivables 4,435 Cost of Investments 36,974 Total Assets 113,774 Loss Reserve Nil Short Term Debt Nil Capitalization:Debt 2,249 Capitalization:Equity 9,273 Capitalization:Total 12,125 Price Times Book Value:High 1.3 Price Times Book Value:Low 0.4 Cash Flow 842 % Expense/Operating Revenue 88.4 % Earnings & Depreciation/Assets 0.8

6,729 3,887 27,522 95,689 Nil Nil 2,027 6,191 8,218 2.6 0.5 166 105.2 0.2

7,037 7,244 30,625 109,230 Nil Nil 2,018 7,810 9,828 2.0 1.5 987 88.6 0.9

4,775 6,668 35,553 104,172 Nil Nil 2,225 7,925 10,150 1.7 1.2 759 90.2 0.1

2,474 2,172 39,100 93,121 Nil Nil 1,833 7,687 9,520 1.5 1.0 556 90.0 0.1

3,319 2,526 40,157 90,934 Nil Nil 1,878 8,058 9,936 NA NA NA 86.2 NA

1,869 NA NA 85,384 NA NA NA 7,288 NA NA NA 987 NA NA

NA NA NA NA NA NA NA NA NA NA NA 855 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 55 Ameriprise Financial Center, Minneapolis, MN 55474. Telephone: 612-671-3131. Website: http://www.ameriprise.com Chrmn & CEO: J. Cracchiolo

EVP & CFO: W. Berman EVP & General Counsel: J.C. Junek SVP, Chief Acctg Officer & Cntlr: D.K. Stewart SVP & Treas: J. Hamalainen

Investor Contact: L. Gagnon (612-671-2080) Founded: 1983 Board Members: J. Cracchiolo, W. D. Knowlton, W. W. Domicile: Delaware Lewis, S. S. Marshall, J. Noddle, H. Sarles, R. F. Sharpe, Employees: 9,793 Jr., W. H. Turner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ABC | ABC is in the S&P 500

AmerisourceBergen Corp S&P Recommendation BUY

★★★★★

Price $32.06 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Distributors

12-Mo. Target Price $36.00

Investment Style Large-Cap Blend

Summary This distributor of pharmaceutical products and related health care services was formed via the August 2001 merger of Amerisource Health Corp. and Bergen Brunswig Corp.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.27– 22.07 Trailing 12-Month EPS $2.16 Trailing 12-Month P/E 14.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.12 2.35 15.1 278.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.940 1.00 $0.32 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.64 14 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

MEDIUM

HIGH

Our risk assessment reflects what we view as ABC's improving financial performance, its ability to attract new accounts to more than compensate for account losses, and its healthy operating cash flow. However, we think the drug distribution arena is highly competitive, and that ABC is less diversified than many of its large health care distribution peers.

2-for-1

30

LOW

Below Avg.

25 20

15

Vol. 53

Mil. 24 16 8 0 5

Quantitative Evaluations S&P Quality Ranking D

4

3

4

C

B-

AB

B+

A-

A

Relative Strength Rank

1

MODERATE 60

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P

➤

➤

➤

We project revenue growth in FY 11 (Sep.) will slow to about 5%, from the 8% advance we forecast for FY 10, largely reflecting expected lower sales of generic Eloxatin (adversely affected by a recent litigation settlement), partly offset by sales of new generic versions of Lovenox and Gemzar. We see ABC's sales growth continuing to outpace the overall market, helped by new business, strong demand from ABC's largest customers, and generic drug launch timing. We see operating margins widening slightly on the positive impacts from generic drug and specialty drug penetration, increased fees from brand-name drug makers, and operating expense control. In our opinion, these positive factors should more than outweigh ABC's incremental spending on its enterprise resource planning software implementation. We estimate FY 11 operating EPS of $2.35, up from $2.12 indicated for FY 10 (excluding a $0.05 gain from the settlement of antitrust litigation). EPS comparisons should also benefit from share buybacks.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Herman B. Saftlas on July 30, 2010, when the stock traded at $ 29.91. Highlights

A+

4

3

We believe ABC has shown the resiliency to manage through this period of economic weakness and we expect it, like its peers, to benefit from health care reform. We also believe it has the wherewithal to hold its own and likely gain share in the competitive drug distribution market over the long haul. The company controls costs tightly, in our opinion, and we remain positive about its focus on generic and oncology drugs, which we view as among the fastestgrowing and most profitable revenue drivers in the pharmaceutical market. In addition, ABC views acquisitions as a key part of its growth strategy, and we believe it has the cash flow and balance sheet needed for such transactions. Risks to our opinion and target price include intensified competition and loss of one or more major clients. Possible changes in Medicare Part D could also affect the business. Our 12-month target price of $36 applies a modest premium-to-peers multiple of 15.3X to our $2.35 EPS estimate for FY 11. Using a PEG ratio of 1.1, assuming a three-year EPS CAGR of 14%, we derive a P/E of 15.4X, also yielding a value of $36.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 19,336 19,301 2009 17,338 17,312 2008 17,279 17,756 2007 16,725 16,513 2006 14,653 15,221 2005 13,639 13,192

3Q 19,602 18,394 17,997 16,446 15,686 13,832

4Q -18,716 17,158 16,390 15,643 13,918

Year -71,760 70,190 66,074 61,203 54,577

Earnings Per Share ($) 2010 0.52 0.63 2009 0.37 0.48 2008 0.33 0.41 2007 0.32 0.34 2006 0.24 0.31 2005 0.17 0.23

0.57 0.42 0.35 0.35 0.29 0.24

E0.45 0.44 0.37 0.32 0.31 0.05

E2.12 1.69 1.45 1.32 1.13 0.69

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.080 0.080 0.080 0.080

11/12 01/27 05/13 08/12

11/19 02/10 05/20 08/20

11/23 02/12 05/24 08/24

12/07/09 03/01/10 06/07/10 09/07/10

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ABC

AmerisourceBergen Corp Business Summary July 30, 2010 CORPORATE OVERVIEW. AmerisourceBergen Corp., one of the largest U.S. pharmaceutical distributors, began operation in August 2001, following the merger of Amerisource Health Corp. and Bergen Brunswig Corp. ABC accounted for the merger as an acquisition by Amerisource of Bergen.

care, mail order and specialty pharmaceuticals markets together comprise its institutional market segment (68%). Revenues generated from sales to pharmacy benefit manager Medco Health Solutions (MHS) accounted for 17% of its total revenue in FY 09.

The pharmaceutical distribution segment includes the AmerisourceBergen Drug Corporation (ABDC), AmerisourceBergen Specialty Group (ABSG) and the AmerisourceBergen Packaging Group (ABPG). ABDC distributes branded and generic pharmaceuticals, over-the-counter health care products, and home health care supplies and equipment to hospitals, pharmacies, mail order facilities, clinics, and alternate site facilities. ABSG ($15.6 billion of operating revenue in FY 09 (Sep.), versus $14.6 billion in FY 08) supplies goods and services to physicians and alternate care providers that specialize in disease states, such as oncology. ABPG repackages drugs from bulk to unit dose, unit of use, blister pack and standard bottle sizes.

The "Other" segment is PharMerica's workers' compensation-related business, which provides pharmacy services to chronically and catastrophically ill patients under workers' comp programs, and provides pharmaceutical claims administration services for payors. On July 31, 2007, ABC spun off the PharMerica segment's long-term care business, a national dispenser of pharmaceutical products and services to patients in long-term care facilities. In October 2008, it sold the workers' comp business, which had total revenues and a loss before income taxes of about $404 million and $216 million, respectively in FY 08.

National and retail drugstore chains, independent community drugstores, and pharmacy departments of supermarkets and mass merchandisers account for its retail market segment (32% of FY 09 total revenue), while the hospital/acute Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.99 1.69 1.70 0.21 12% 26.58 13.75 16 8

2008 NM 1.70 1.45 1.41 0.15 10% 24.30 13.33 17 9

2007 0.03 1.59 1.32 1.23 0.10 8% 28.28 21.11 22 16

2006 3.96 1.36 1.13 1.04 0.05 4% 24.48 20.08 22 18

2005 3.69 0.87 0.69 0.62 0.03 4% 21.09 13.24 31 19

2004 4.31 1.18 1.02 0.78 0.03 2% 16.00 12.44 16 12

2003 3.61 1.10 0.97 0.93 0.03 3% 18.36 11.41 19 12

2002 2.61 0.90 0.79 0.76 0.03 3% 20.71 12.55 26 16

2001 0.90 0.58 0.52 0.42 Nil Nil 18.00 10.03 34 19

2000 1.20 0.55 0.48 NA Nil Nil 13.42 3.00 28 6

71,760 992 90.0 63.5 824 37.9% 512 513

70,190 919 82.1 75.1 761 38.4% 469 456

66,074 912 104 32.0 7.85 37.1% 494 462

61,203 814 96.9 12.5 741 36.8% 468 429

54,577 723 81.2 57.2 469 37.7% 292 264

53,179 978 87.1 113 760 38.4% 468 356

49,657 963 71.0 145 726 39.2% 441 421

45,235 804 61.2 141 572 39.7% 345 333

16,191 302 21.6 45.7 202 38.6% 124 99.8

11,645 217 16.1 41.9 160 38.0% 99.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,009 Current Assets 9,954 Total Assets 13,573 Current Liabilities 9,480 Long Term Debt 1,177 Common Equity 2,716 Total Capital 3,894 Capital Expenditures 146 Cash Flow 602 Current Ratio 1.1 % Long Term Debt of Capitalization 30.2 % Net Income of Revenue 0.7 % Return on Assets 4.0 % Return on Equity 18.9

878 8,670 12,153 8,168 1,187 2,710 3,899 137 551 1.1 30.5 0.7 3.8 16.2

640 8,714 12,310 7,857 1,227 3,100 4,327 118 598 1.1 28.3 0.7 3.9 13.6

1,261 9,210 12,784 7,459 1,094 4,141 5,235 113 565 1.2 20.9 0.8 3.9 11.1

1,316 7,988 11,381 6,052 951 4,280 5,232 203 373 1.3 18.2 0.5 2.5 6.8

871 8,295 11,654 6,104 1,157 4,339 5,496 189 555 1.4 21.1 0.9 4.0 11.2

800 8,859 12,040 6,256 1,723 4,005 5,728 90.6 512 1.4 30.1 0.9 3.8 12.1

663 8,350 11,213 6,100 1,756 3,316 5,073 64.2 406 1.4 34.6 0.8 3.2 11.2

298 7,513 10,291 5,532 1,872 5,677 7,549 23.4 145 1.4 24.8 0.8 1.9 4.0

121 2,321 2,459 1,751 413 565 978 16.6 115 1.3 42.3 0.9 4.4 22.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1300 Morris Drive, Chesterbrook, PA 19087-5594. Telephone: 610-727-7000. Email: [email protected] Website: http://www.amerisourcebergen.com

Chrmn: R.C. Gozon Pres & CEO: R.D. Yost COO: D. Shane EVP, CFO & Chief Acctg Officer: M.D. Dicandilo

SVP, Secy & General Counsel: J.G. Chou Founded: 1985 Board Members: C. H. Cotros, R. W. Gochnauer, R. C. Domicile: Delaware Gozon, E. E. Hagenlocker, J. E. Henney, K. W. Hyle, M. Employees: 10,300 J. Long, H. W. McGee, R. D. Yost

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: AMGN | AMGN is in the S&P 500

Amgen Inc S&P Recommendation BUY

★★★★★

Price $57.55 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Biotechnology

12-Mo. Target Price $66.00

Investment Style Large-Cap Growth

Summary Amgen, among the world's leading biotech companies, has major treatments for anemia, neutropenia, rheumatoid arthritis, psoriatic arthritis, psoriasis, cancer and osteoporosis.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $61.26– 50.26 Trailing 12-Month EPS $4.71 Trailing 12-Month P/E 12.2 $10K Invested 5 Yrs Ago $7,844

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.01 5.27 11.5 958.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$55.160 Nil Nil 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.43 10 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that the company's products are sold in highly competitive markets and are subject to government regulation. Changes to government reimbursement policies could significantly affect AMGN's revenues and profitability. Although adoption has been mild thus far, we believe that generic versions of several of AMGN's drugs pose a long-term threat in Europe.

70 60

50

40

Vol. Mil.

134

Quantitative Evaluations

131

60 40 20 0 5

S&P Quality Ranking D 4

3

4

C

B-

B+ B

B+

A-

Relative Strength Rank

1

MODERATE

LOWEST = 1

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

We forecast 2010 revenues of $14.9 billion, 2% above 2009's $14.6 billion, and 2011 revenues of $15.4 billion, which would represent 3% growth. We see growth driven by the launch of Prolia in the U.S. and in Europe, more than offsetting higher Medicaid rebates resulting from U.S. health care reform. We see AMGN managing the impacts of declining Aranesp sales over regulatory safety restrictions, and slowing Enbrel growth due to increased competition. Over the long term, we expect expanded indications for cancer drug Vectibix to renew sales growth in that franchise. We expect 2010 and 2011 adjusted operating margins of approximately 40%, in line with recent results. We see AMGN as having longterm expense leverage to support EPS amid revenue instability, although we anticipate higher costs in the near term, particularly in SG&A, due to the launch of Prolia. We estimate adjusted EPS of $5.01 in 2010 and $5.27 in 2011, excluding acquisition and restructuring expenses. We anticipate AMGN aggressively repurchasing shares, deploying its robust cash flows.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Steven Silver on October 14, 2010, when the stock traded at $ 54.89. Highlights

A+

59

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

4

3

Despite near-term headwinds due to U.S. health care reform and volatile foreign exchange rates, we have a favorable outlook for Prolia, as we see its recent approval for postmenopausal osteoporosis in Europe and the U.S. shifting investor focus to AMGN's longterm pipeline. We do, however, see AMGN being reliant on Prolia adoption, given our view of modest growth prospects to AMGN's mature core product roster. Ultimately, we expect Prolia to be approved for several cancer-induced bone loss conditions, and we forecast more than $2 billion in peak sales. With $14.5 billion in cash, we see AMGN as well funded to support earnings growth through share repurchases and acquiring new growth assets. Risks to our recommendation and target price include failure to gain market acceptance for Prolia and regulatory approval in expanded cancer uses, further regulatory restrictions on anemia drug sales, and increased competition. Our 12-month target price of $66 applies a 12.5X multiple to our 2011 adjusted EPS estimate, a discount to the large-cap sector peer average, on our view of a slowing growth profile.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,592 3,804 2009 3,308 3,713 2008 3,613 3,764 2007 3,687 3,728 2006 3,217 3,491 2005 2,833 3,172

3Q -3,812 3,875 3,611 3,503 3,154

4Q -3,809 3,751 3,745 3,737 3,271

Year -14,642 15,003 14,771 14,268 12,430

Earnings Per Share ($) 2010 1.18 1.25 2009 0.98 1.25 2008 1.04 0.87 2007 0.94 0.90 2006 0.82 0.01 2005 0.67 0.82

E1.24 1.36 1.09 0.18 0.94 0.77

E1.15 0.92 0.91 0.77 0.71 0.66

E5.01 4.51 3.90 2.82 2.48 2.93

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: AMGN

Amgen Inc Business Summary October 14, 2010 CORPORATE OVERVIEW. Amgen, among the world's largest biotech companies, marketing five of the world's best-selling biotech drugs. Epogen is a genetically engineered version of human erythropoietin (EPO), a hormone that stimulates red blood cell production in bone marrow. Its primary market is dialysis patients suffering from chronic anemia. Epogen sales were $2.57 billion in 2009 ($2.46 billion in 2008). Aranesp, a recombinant protein that stimulates the production of red blood cells in pre-dialysis and dialysis patients, is approved to treat anemia associated with chronic renal failure and cancer patients with chemotherapy-induced anemia (CIA). Aranesp sales were $2.65 billion in 2009 ($3.14 billion in 2008). In 2007, Phase III trial data showed a higher rate of death when using Aranesp in treating anemia-of cancer (AoC) not associated with chemotherapy, an off-label prescribed use. Medicare removed AoC as a reimbursable use for Aranesp. During 2007, several studies emerged suggesting that Aranesp may foster tumor growth in several cancers when dosed at or above the approved 12 g/dl dose,

which has led to Medicare and FDA restrictions over its use. Neupogen stimulates neutrophils (white blood cells that defend against bacterial infection) production in cancer patients whose natural neutrophils were destroyed by chemotherapy. In 2002, the FDA approved Neulasta, a longacting white blood cell stimulant protecting chemo patients from infection. Total Neupogen and Neulasta 2009 sales were $4.64 billion ($4.66 billion in 2008). Enbrel, acquired through the purchase of Immunex, (co-marketed with Wyeth) had 2009 sales of $3.49 billion ($3.60 billion in 2008) and is approved to treat rheumatoid arthritis (RA), psoriatic arthritis, and adults with moderate to severe chronic plaque psoriasis.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.81 5.54 4.51 4.50 Nil Nil 64.76 44.96 14 10

2008 5.79 4.90 3.90 4.08 Nil Nil 66.51 39.16 17 10

2007 3.03 3.89 2.82 2.74 Nil Nil 76.95 46.21 27 16

2006 3.36 3.29 2.48 2.48 Nil Nil 81.24 63.52 33 26

2005 5.08 3.59 2.93 2.77 Nil Nil 86.92 56.19 30 19

2004 4.08 2.35 1.81 1.58 Nil Nil 66.88 52.00 37 29

2003 4.06 2.19 1.69 1.50 Nil Nil 72.37 48.09 43 28

2002 2.80 -0.82 -1.21 -1.46 Nil Nil 62.94 30.57 NM NM

2001 4.99 1.28 1.03 0.87 Nil Nil 75.06 45.44 73 44

2000 4.16 1.24 1.05 NA Nil Nil 80.44 50.00 77 48

14,642 6,658 1,049 578 5,204 11.5% 4,605 4,596

15,003 6,726 1,073 338 5,250 20.1% 4,196 4,390

14,771 6,631 1,202 305 3,961 20.1% 3,166 3,072

14,268 6,022 963 129 4,020 26.6% 2,950 2,951

12,430 5,689 841 99.0 4,868 24.5% 3,674 3,470

10,550 4,636 734 38.0 3,395 30.4% 2,363 2,074

8,356 3,758 686 31.5 3,173 28.8% 2,260 2,006

5,523 2,501 447 44.2 -684 NM -1,392 -1,683

4,016 2,003 266 13.6 1,686 33.6% 1,120 936

3,629 1,761 212 15.9 1,674 32.0% 1,139 NA

Balance Sheet & Other Financial Data (Million $) Cash 13,442 Current Assets 18,932 Total Assets 39,629 Current Liabilities 3,873 Long Term Debt 10,601 Common Equity 22,667 Total Capital 33,268 Capital Expenditures 530 Cash Flow 5,654 Current Ratio 4.9 % Long Term Debt of Capitalization 31.9 % Net Income of Revenue 31.5 % Return on Assets 12.1 % Return on Equity 21.4

9,552 15,221 36,443 4,886 9,176 20,386 29,792 672 5,269 3.1 30.8 28.0 11.8 21.9

7,151 13,041 34,639 6,179 11,177 17,869 27,526 1,267 4,368 2.1 33.9 21.4 9.3 17.2

6,277 11,712 33,788 7,022 7,134 18,964 26,465 1,218 3,913 1.7 27.0 20.7 9.4 15.0

5,255 9,235 29,297 3,595 3,957 20,451 25,571 867 4,515 2.6 15.5 29.6 12.6 18.3

5,808 9,170 29,221 4,157 3,937 19,705 24,936 1,336 3,097 2.2 15.8 22.4 8.5 12.1

5,123 7,402 26,177 2,246 3,080 19,389 23,930 1,357 2,946 3.3 12.9 27.0 8.9 12.0

4,664 6,404 24,456 1,529 3,048 18,286 22,927 658 -945 4.2 13.3 NM NM NM

2,662 3,859 6,443 1,003 223 5,217 5,440 442 1,386 3.8 4.1 27.9 18.9 23.5

2,028 2,937 5,400 862 223 4,315 4,538 438 1,350 3.4 4.9 31.4 24.0 31.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Amgen Center Drive, Thousand Oaks, CA 91320-1799. Telephone: 805-447-1000. Email: [email protected] Website: http://www.amgen.com

Chrmn & CEO: K.W. Sharer Pres & COO: R.A. Bradway SVP, Secy & General Counsel: D.J. Scott SVP & CIO: T.J. Flanagan

CFO: J.M. Peacock Founded: 1980 Investor Contact: A. Sood (805-447-1060) Domicile: Delaware Board Members: D. Baltimore, F. J. Biondi, Jr., J. D. Employees: 17,200 Choate, V. D. Coffman, F. W. Gluck, R. M. Henderson, F. C. Herringer, G. S. Omenn, J. C. Pelham, J. P. Reason, L. D. Schaeffer, K. W. Sharer, R. D. Sugar, F. de Carbonnel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: APH | APH is in the S&P 500

Amphenol Corp S&P Recommendation BUY

★★★★★

Price $50.04 (as of Oct 25, 2010)

GICS Sector Information Technology Sub-Industry Electronic Components

12-Mo. Target Price $63.00

Investment Style Large-Cap Growth

Summary This company makes connectors, cable, and interconnect systems for electronics, cable TV, telecommunications, aerospace, transportation, and industrial applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $50.44– 37.78 Trailing 12-Month EPS $2.58 Trailing 12-Month P/E 19.4 $10K Invested 5 Yrs Ago $24,772

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.70 3.15 18.5 173.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.693 0.12 $0.06 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.40 25 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's typically solid levels of cash flow and a strong business model, offset by the inherent cyclicality of APH's business.

60

40 30

Quantitative Evaluations 20

S&P Quality Ranking Vol.

D

B-

B

B+

A-

A

A+

39

Mil. 9 6 3 0 5

C

B+

Relative Strength Rank

STRONG 72

LOWEST = 1

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, P, Ph

Analysis prepared by Michael W. Jaffe on October 25, 2010, when the stock traded at $ 49.12. Highlights ➤

➤

➤

We forecast a 14% sales increase for 2011. Difficult economic conditions in the U.S., Western Europe, and elsewhere limited demand for APH's products for several quarters. However, on what now appear to be recovering U.S. and global economies, sales have revived over the past few quarters, and we see that trend continuing through 2011. We see the better sales trends that we forecast aiding margins in 2011. We also see profitability being assisted by APH's ongoing focus on proactive and aggressive cost controls. We expect these factors to outweigh the impact of higher commodity costs now being seen by Amphenol. APH's 32% year-to-year sales gain in 2010's third quarter reflected an ongoing upturn in demand in most of Amphenol's markets. Our forecast of continuing growth in 2011 sees APH's strongest gains continuing to come from military and aerospace, mobile devices and industrials markets. Our 2011 EPS forecast also compares with a 2010 period that excludes $0.11 of credits in the first nine months, with the onetime items related to tax benefits.

Investment Rationale/Risk ➤

➤

➤

We think the global economy has started to recover, and that Amphenol's business is in the midst of a revival. Moreover, we have a favorable outlook for APH's long-term prospects, on what we expect to be an ongoing expansion of the global communications infrastructure, increasing sophistication of military and space systems, and the use of more electronic devices in automobiles and other industrial products. Based on these factors and our relative P/ E analysis, we view APH as undervalued. Risks to our recommendation and target price include a reversal of the recent improvement in global economic trends and a resultant lack of demand for APH's products. The shares recently traded at about 16X our 2011 EPS estimate, in the bottom half of APH's range of the past decade. Based on our belief that APH is in the midst of a business upturn, we think a higher valuation is merited. Our 12-month target price of $63 is based on a 20X multiple on our 2011 estimate, in the middle of its valuation range of the past decade, but at the top of APH's historical valuation at the current stage of earnings recovery.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 771.0 884.8 2009 660.0 685.2 2008 770.7 846.8 2007 651.1 688.8 2006 569.0 606.6 2005 409.4 443.6

3Q 948.5 716.6 863.7 733.9 636.4 447.0

4Q -758.3 755.3 777.3 659.4 508.1

Year -2,820 3,236 2,851 2,471 1,808

Earnings Per Share ($) 2010 0.56 0.74 2009 0.43 0.43 2008 0.54 0.61 2007 0.43 0.46 2006 0.32 0.29 2005 0.26 0.29

0.78 0.47 0.63 0.50 0.37 0.29

E0.73 0.50 0.56 0.55 0.43 0.31

E2.70 1.83 2.34 1.94 1.40 1.14

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.015 0.015 0.015 0.015

10/26 01/28 04/29 07/29

12/14 03/15 06/14 09/13

12/16 03/17 06/16 09/15

01/06/10 04/07/10 07/07/10 10/06/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: APH

Amphenol Corp Business Summary October 25, 2010 CORPORATE OVERVIEW. Amphenol makes electrical, electronic and fiber optic connectors, interconnect systems, and coaxial and high-speed specialty cable. In 2009, APH derived 61% of its revenues from information technology and communications markets, 16% from industrial/automotive, and 23% from commercial aerospace and military. It derived 39% of its sales in North America, 19% in Europe, and 42% in Asia and elsewhere. APH makes a broad range of interconnect products and assemblies (91% of 2009 revenues) for voice, video and data communications systems, commercial aerospace and military systems, automotive and mass transportation applications, and industrial and factory automation equipment. Its connectors and interconnect systems are mostly used to conduct electrical and optical signals for sophisticated electronic applications. In communications, the company supplies connector and cable assembly products used in base stations for wireless communication systems and Internet networking equipment; smart card acceptor devices used in mobile telephones, set top boxes and other applications to facilitate reading data from smart cards; fiber optic connectors used in fiber optic transmissions; backplane and input/output connectors for servers and data storage devices, and

for linking PCs and peripheral equipment; and sculptured flexible circuits for integrating circuit boards. APH also makes radio frequency connector products and antennas used in telecommunications, computer and office equipment, instrumentation equipment, local area networks and automotive electronics. Radio frequency connectors are also used in base stations, mobile communications devices and other components of cellular and personal communication networks. The company believes it is the largest supplier of high-performance, militaryspecification, circular environmental connectors, generally used in sophisticated aerospace, military, commercial and industrial equipment. APH also makes industrial interconnect products, used in applications such as factory automation equipment, mass transportation applications and automotive safety products.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.73 2.39 1.83 1.87 0.06 3% 47.14 21.55 26 12

2008 0.35 2.86 2.34 2.27 0.06 3% 52.28 18.38 22 8

2007 1.00 2.38 1.94 1.97 0.08 4% 47.24 30.61 24 16

2006 NM 1.79 1.40 1.43 0.06 4% 35.25 21.94 25 16

2005 NM 1.42 1.14 1.14 0.06 5% 23.10 16.62 20 15

2004 NM 1.13 0.91 0.90 Nil Nil 18.76 13.95 21 15

2003 NM 0.80 0.59 0.57 Nil Nil 16.03 9.25 27 16

2002 NM 0.66 0.46 0.35 Nil Nil 12.94 6.87 28 15

2001 NM 0.76 0.49 0.36 Nil Nil 14.50 7.08 30 15

2000 NM 0.88 0.63 NA Nil Nil 17.59 7.58 28 12

2,820 587 98.5 36.6 447 26.7% 318 325

3,236 724 91.3 39.6 582 28.0% 419 408

2,851 635 82.3 36.9 501 29.5% 353 359

2,471 518 72.6 38.8 373 31.5% 256 261

1,808 394 50.7 24.1 308 33.0% 206 206

1,530 315 38.8 22.5 247 34.0% 163 161

1,240 241 37.0 29.5 158 34.0% 104 99.8

1,062 209 34.8 45.9 123 34.5% 80.3 60.0

1,104 229 46.7 56.1 135 38.2% 83.7 62.0

1,360 287 42.8 61.7 173 37.7% 108 NA

Balance Sheet & Other Financial Data (Million $) Cash 385 Current Assets 1,420 Total Assets 3,219 Current Liabilities 503 Long Term Debt 753 Common Equity 1,746 Total Capital 2,516 Capital Expenditures 59.8 Cash Flow 416 Current Ratio 2.8 % Long Term Debt of Capitalization 29.9 % Net Income of Revenue 11.3 % Return on Assets 10.2 % Return on Equity 20.5

215 1,336 2,994 635 786 1,349 2,153 107 510 2.1 36.8 13.0 14.8 32.1

184 1,224 2,676 520 722 1,265 1,986 104 435 2.4 36.4 12.4 14.5 32.6

74.1 935 2,195 448 677 903 1,580 82.4 328 2.1 42.9 10.3 12.4 32.1

38.7 710 1,933 336 766 689 1,455 57.1 257 2.1 52.6 11.4 12.7 35.2

30.2 529 1,307 278 432 482 914 44.3 202 1.9 47.3 10.7 13.1 40.6

23.5 451 1,181 218 532 323 856 30.2 141 2.1 62.2 8.4 9.2 42.4

20.7 389 1,079 236 566 167 733 18.8 115 1.6 77.2 7.6 7.6 59.3

28.0 370 1,027 203 661 104 765 38.6 130 1.8 86.4 7.6 8.2 125.7

24.6 413 1,004 243 700 29.2 729 53.1 151 1.7 96.0 7.9 11.7 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 358 Hall Avenue, Wallingford, CT 06492. Telephone: 203-265-8900. Email: [email protected] Website: http://www.amphenol.com

Chrmn: M.H. Loeffler Pres & CEO: R.A. Norwitt SVP, CFO & Chief Acctg Officer: D.G. Reardon Secy & General Counsel: E.C. Wetmore

Investor Contact: D. Reardon (203-265-8630) Board Members: R. P. Badie, S. L. Clark, E. G. Jepsen, A. E. Lietz, M. H. Loeffler, J. R. Lord, R. A. Norwitt, D. H. Secord

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1932 Domicile: Delaware Employees: 32,200

Stock Report | October 25, 2010 | NYS Symbol: APC | APC is in the S&P 500

Anadarko Petroleum Corp S&P Recommendation HOLD

★★★★★

Price $62.78 (as of Oct 25, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $60.00

Investment Style Large-Cap Blend

Summary One of the largest independent exploration and production companies in the world, this U.S. concern has associated businesses in marketing, trading and minerals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $75.07– 34.54 Trailing 12-Month EPS $2.23 Trailing 12-Month P/E 28.2 $10K Invested 5 Yrs Ago $15,031

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.30 2.22 27.3 494.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

40 30

MEDIUM

HIGH

Quantitative Evaluations

Vol. 126

Mil.

S&P Quality Ranking

45 30 15 0

D 4

3

4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Michael Kay on October 25, 2010, when the stock traded at $ 62.51.

APC has raised 2010 production targets and shifted capital from the Gulf of Mexico (GOM) to onshore projects due to the deepwater drilling ban. APC is seeing success at Haynesville, Marcellus and Eagle Ford shales, providing exposure to low-cost resources, and sees 5%-7% production growth in 2010 and 7%-9% through 2014. We see a significant portion of this growth coming from onshore assets and see upside from APC's Niobrara acreage. APC is working on 13 "mega-projects", with first production expected in 2011. Given the extent of its success in the GOM, APC should be one of the major beneficiaries of the recent lifting of the deepwater drilling ban, but expect several months before drilling in the GOM ramps.

Investment Rationale/Risk ➤

➤

APC plans capex of $5.3-$5.6 billion (vs. $4.7 billion) for 2010, with 36% for near-term projects, 22% for mega-projects, 20% for exploration, 11% for midstream, and 11% for shales. APC's cost structure and finding and development costs are improving, in our view. APC posted a 2009 per share loss of $2.13 ($0.97 non-cash loss). On production and price hikes, we see EPS of $2.30 (with a $0.31 non-cash gain) in 2010 and $2.22 in 2011.

➤

B-

B+ B

B+

A-

A

A+ STRONG 89

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

C

Relative Strength Rank

3

1

➤

LOW

Our risk assessment reflects our view of APC's aggressive financial profile, and a business profile limited by participation in the cyclical, competitive and capital-intensive exploration and production sector, and by U.S. and international oil and gas operations that carry heightened political and operational risk.

50

➤

1.34 -22 BBB-

Below Avg.

80

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

100

5

$31.072 0.57 $0.36 82

So far in 2010, focus has shifted to APC's 25% interest in the plugged Macondo well, where the Deepwater Horizon rig blew up and sank in April, and cleanup costs and compensation. Our hold recommendation is based on concerns and uncertainty over APC's liabilities. We expect APC to pursue all legal measures, as it has made clear its position that BP acted negligently. After a change in strategic focus fueled by acquisitions originally weakened its balance sheet and cost structure, APC has begun taken steps to lower debt levels and improve its cash position to over $3.3 billion. APC's growing domestic onshore oil and gas assets should help fund an active exploration program. Risks to our recommendation and target price include unfavorable changes in economic, industry or operating conditions, such as rising costs or difficulty in replacing reserves. We blend our NAV estimate of $63 with our DCF ($67; WACC 11%; terminal growth 3%) and peer-average relative metrics to arrive at our 12-month target price of $60. The shares have been under pressure in 2010, down over 20% since April 20, on concerns over financial liabilities related to the Gulf of Mexico oil spill.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,139 2,604 2009 1,796 1,913 2008 2,978 2,786 2007 2,683 3,313 2006 1,701 1,809 2005 1,526 1,592

3Q -2,874 6,149 3,030 3,498 1,737

4Q -2,417 3,810 3,062 3,179 2,245

Year -9,000 15,723 11,232 10,187 7,100

Earnings Per Share ($) 2010 1.43 -0.08 2009 -0.73 -0.48 2008 0.50 0.03 2007 0.17 1.38 2006 1.22 1.43 2005 1.03 1.06

E0.34 -0.40 4.62 1.10 2.98 1.26

E0.33 0.46 1.70 0.35 0.40 1.87

E2.30 -0.28 6.84 8.05 6.02 5.20

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.090 0.090 0.090 0.090

11/11 02/16 05/18 08/03

12/07 03/08 06/07 09/03

12/09 03/10 06/09 09/08

12/23/09 03/24/10 06/23/10 09/22/10

Dividends have been paid since 1986. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: APC

Anadarko Petroleum Corp Business Summary October 25, 2010 CORPORATE OVERVIEW. One of the largest independent E&P companies in the world, APC is engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and NGLs. Major areas of operation are onshore in the U.S., in the deepwater Gulf of Mexico (GOM), and Algeria. APC also has production in China and exploration programs in Ghana and Brazil.

praisal of the Vito prospect in the GOM. We expect about 20%, or $1.06-$1.12 billion, of 2010 capex to be spent on exploration, most of it focused on APC's worldwide deepwater exploration program, which plans to drill about 30 exploration/appraisal wells. Up to 13 wells will be drilled offshore West Africa, 7-10 wells in the Gulf of Mexico, 4-6 wells in Brazil, 4-6 wells in Mozambique, and 3-5 wells in southeast Asia.

Proved oil and gas reserves rose 1% to 2,304 billion barrels of oil equivalent (boe) in 2009 (70% developed; 56% natural gas, 44% liquids). Production of 220 MMBOE, or 604,000 BOE/day, was up 7% from 2008.

APC continues to advance current mega-projects in Ghana (Jubilee) and Algeria (El Merk), and expects each project to remain on schedule and within budget. The Jubilee field in Ghana is expected to start producing late this year, and in total, the three projects are expected to add more than 60,000 boe/d to APC production by 2012. APC plans to invest $1.17-$1.23 billion, or 22% of expected capex, on mega-projects in 2010.

CORPORATE STRATEGY. APC announced nine deepwater discoveries in three of the most attractive deepwater plays in the world in 2009. These results include five subsalt discoveries in the GOM, three offshore West Africa, and one in the pre-salt play offshore Brazil. Already in 2010, APC has announced a successful appraisal of the Tweneboa discovery offshore Ghana, a successful appraisal of the Lucius discovery in the GOM, a discovery offshore Mozambique at the Windjammer well in the Rovuma Basin, and a successful apCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 29.65 7.08 -0.28 -0.25 0.36 NM 69.37 30.88 NM NM

2008 29.40 14.13 6.84 5.13 0.36 5% 81.36 24.57 12 4

2007 23.89 14.23 8.05 1.65 0.36 4% 68.00 38.40 8 5

2006 21.95 10.28 6.02 6.09 0.36 6% 56.98 39.51 9 7

2005 21.06 8.04 5.20 5.22 0.36 7% 50.71 30.01 10 6

2004 16.45 6.05 3.18 3.27 0.28 9% 35.78 24.00 11 8

2003 13.97 5.01 2.46 2.47 0.22 9% 25.86 20.14 11 8

2002 11.01 3.74 1.61 1.53 0.16 10% 29.28 18.39 18 11

2001 9.59 2.09 -0.37 -0.49 0.11 NM 36.99 21.50 NM NM

2000 10.50 3.64 2.13 NA 0.10 5% 37.97 13.78 18 6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,210 NA 3,532 702 -108 4.63% -135 -121

14,640 8,578 3,417 742 5,429 40.0% 3,236 2,400

15,892 10,328 2,891 1,214 6,329 40.4% 3,770 773

10,187 6,945 1,976 655 4,238 34.0% 2,796 2,826

7,100 5,436 1,343 201 3,895 36.6% 2,471 2,478

6,067 4,400 1,447 352 2,477 35.2% 1,606 1,646

5,122 3,648 1,297 253 1,974 36.9% 1,245 1,248

3,860 2,585 1,121 203 1,207 31.2% 831 785

8,369 3,702 1,227 92.0 -390 NM -176 -243

5,686 2,190 593 Nil 1,426 42.2% 824 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,531 Current Assets 6,083 Total Assets 50,123 Current Liabilities 3,824 Long Term Debt 12,748 Common Equity 19,928 Total Capital 33,163 Capital Expenditures 4,352 Cash Flow 3,397 Current Ratio 1.6 % Long Term Debt of Capitalization 39.0 % Return on Assets NM % Return on Equity NM

2,360 5,375 48,953 5,536 10,867 18,856 39,997 4,801 6,614 1.0 27.2 6.6 18.4

1,268 4,516 48,481 5,257 14,747 16,319 39,929 4,246 6,658 0.9 44.9 7.0 24.2

491 4,614 58,844 16,758 11,520 15,201 39,673 1,086 4,769 0.3 28.8 6.9 21.3

739 2,916 22,588 2,403 3,555 10,967 19,330 3,408 3,809 1.2 18.4 11.5 24.4

874 2,502 20,192 1,993 3,671 9,219 17,393 3,064 3,048 1.3 21.1 7.9 17.9

62.0 1,324 20,546 1,715 5,058 8,510 17,909 2,772 2,537 0.8 28.2 6.4 16.1

34.0 1,280 18,248 1,861 5,171 6,673 15,578 2,388 1,946 0.7 33.2 4.7 12.8

37.0 1,201 16,771 1,801 4,638 6,262 14,454 3,316 1,044 0.7 32.1 NM NM

199 1,894 16,590 1,676 3,984 6,586 10,770 1,708 1,406 1.1 37.0 8.0 20.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1201 Lake Robbins Drive, The Woodlands, TX 77380-1124. Telephone: 832-636-1000. Website: http://www.anadarko.com Chrmn & CEO: J.T. Hackett

Pres & COO: R.A. Walker SVP & CFO: R.G. Gwin SVP, Chief Admin Officer & General Counsel: R.K. Reeves Chief Acctg Officer: M. Douglas

Investor Contact: J. Colglazier (832-636-2306) Founded: 1985 Board Members: R. J. Allison, Jr., J. R. Butler, Jr., L. R. Domicile: Delaware Corbett, H. P. Eberhart, P. J. Fluor, P. M. Geren, III, J. R. Employees: 4,300 Gordon, J. T. Hackett, P. R. Reynolds

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ADI | ADI is in the S&P 500

Analog Devices Inc. S&P Recommendation HOLD

★★★★★

Price $32.01 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $32.00

Investment Style Large-Cap Growth

Summary This company manufactures high-performance integrated circuits (ICs) used in analog and digital signal processing applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.83– 25.26 Trailing 12-Month EPS $1.96 Trailing 12-Month P/E 16.3 $10K Invested 5 Yrs Ago $10,312

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.31 2.46 13.9 298.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.542 2.75 $0.88 83

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.05 20 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that ADI is subject to the sales cycles of the semiconductor industry, offset by our view of relatively stable chip pricing owing to high proprietary design content, broad end-markets, a leading market share in key converter and amplifier product categories and what we consider a lack of debt.

40 30

20 15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

30 20 10 0

D 4

5

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Clyde Montevirgen on August 23, 2010, when the stock traded at $ 29.91. Highlights We expect revenues to rise about 8% in FY 11 (Oct.), compared to a projected 36% increase in FY 10. Although we are cautious of increasing inventory throughout the supply chain, we believe that growth will be supported by improving economic conditions and the greater usage of analog semiconductors as digital technology expands. We think recent design wins and increasing exposure to fast-growing segments within the automotive, industrial, and certain communications markets will aid top-line results. We are modeling a gross margin of 65% for FY 11, similar to the average result we expect for FY 10. We believe that benefits from higher plant utilization will balance changes in sales mix and products manufactured by foundries. We think that variable expenses, such as salesrelated compensation, will increase with improving business conditions, and we see the non-GAAP operating margin staying around 32% for both fiscal years. Our EPS estimates assumes an effective tax rate of around 21% and a modest increase in the diluted share count.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

64 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

Our hold recommendation reflects our view of fair profitability and valuations. We believe that the company has done a good job improving its fixed cost structure and seeking growth in fastgrowing segments, which should lead to aboveaverage growth in FY 10. Margins are and should remain above ADI's stated long-term model; and based on our projections, we think return on equity will hover around the industry average. However, we see growth slowing in FY 11 as annual comparisons become more difficult. The share price implies relative multiples that are already around the industry average, which we think is appropriate. Risks to our recommendation and target price include slower traction for new products, worse-than-anticipated economic conditions, and a less favorable sales mix. Our 12-month target price of $32 is based on a price-to-earnings multiple of around 13X, near the industry average to account for our view of ADI's relative growth, return on equity, and risk, applied to our calendar 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 603.0 668.2 2009 476.6 474.8 2008 613.9 649.3 2007 645.9 614.7 2006 621.3 643.9 2005 580.5 603.7

3Q 720.3 492.0 659.0 637.0 663.7 582.4

4Q -571.6 660.7 648.5 644.3 622.1

Year -2,015 2,583 2,511 2,573 2,389

Earnings Per Share ($) 2010 0.39 0.55 2009 0.08 0.18 2008 0.40 0.44 2007 0.45 0.37 2006 0.32 0.39 2005 0.28 0.31

0.65 0.22 0.44 0.44 0.39 0.32

E0.69 0.36 0.49 0.31 0.39 0.18

E2.31 0.85 1.77 1.51 1.48 1.08

Fiscal year ended Oct. 31. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.200 0.220 0.220

11/19 02/17 05/18 08/16

12/02 03/03 05/26 08/25

12/04 03/05 05/28 08/27

12/23/09 03/24/10 06/16/10 09/15/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ADI

Analog Devices Inc. Business Summary August 23, 2010 CORPORATE OVERVIEW. Analog Devices designs, manufactures, and markets a broad line of high-performance analog, mixed-signal and digital signal processing (DSP) integrated circuits (ICs) that address a wide range of realworld signal processing applications. Real-world phenomena that these applications are designed for include light, sound, temperature, .motion and pressure. These phenomena are specifically analog in nature, and are manipulated for use in digital applications. The expansion of broadband and wireless communications applications helps drive demand for analog and DSP chips. ADI's products are built into wireless telephones, base station equipment, and remote access servers, among others. The company's analog products are typically general purpose in nature and are used in a wide variety of equipment and systems. The company's chips are increasingly sold to PC and digital entertainment markets, as consumer equipment to handle voice, video and images becomes increasingly complex and sells to a wider audience.

tomer base is fairly broad: the 20 largest customers, excluding distributors, accounted for about 37% of sales in FY 09, and the largest customer, excluding distributors, accounted for approximately 5%. About 54% of FY 09 sales were derived from sales made through distributors. CORPORATE STRATEGY. Analog Devices is a leading provider of highperformance analog and mixed-signal, and DSP integrated circuits, two of the faster growing segments within the broader semiconductor industry. We believe that the higher-end analog space will continue to attract new entrants given its anticipated growth rate, relatively dispersed market share, stable pricing, higher-margin sales, and low capital expenditures. Lending to less risk, we think chipmakers in this segment generally post less variable operating results and more stable free cash flows than most semiconductor makers, which tend to experience volatile swings during various stages of the industry's business cycle.

Key markets are industrial, which accounted for approximately 52% of sales in FY 09 (Oct.), communications 25%, consumer 20%, and computer 3%. The cusCompany Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.78 1.32 0.85 0.84 0.80 94% 31.91 17.82 38 21

2008 7.46 2.28 1.77 1.74 0.76 43% 36.35 15.29 21 9

2007 6.71 1.97 1.51 1.45 0.70 46% 41.10 30.19 27 20

2006 9.17 1.95 1.48 1.46 0.56 38% 41.48 26.07 28 18

2005 9.61 1.49 1.08 0.29 0.32 30% 41.40 31.71 38 29

2004 9.66 1.84 1.45 0.91 0.20 14% 52.37 31.36 36 22

2003 8.42 1.22 0.78 0.20 Nil Nil 50.35 22.58 65 29

2002 7.50 0.90 0.28 -0.32 Nil Nil 48.84 17.88 NM NM

2001 7.20 1.48 0.93 0.44 Nil Nil 64.00 29.00 69 31

2000 5.90 2.00 1.59 NA Nil Nil 103.00 41.31 65 26

2,015 478 140 4.09 297 16.8% 247 246

2,583 782 153 Nil 666 21.2% 525 517

2,546 916 155 Nil 659 24.0% 501 481

2,573 771 172 0.05 664 17.1% 549 542

2,389 703 156 0.03 588 29.4% 415 113

2,634 852 153 0.22 733 22.1% 571 364

2,047 552 168 32.2 382 21.9% 298 74.2

1,708 405 238 44.5 140 25.0% 105 -118

2,277 675 210 62.5 507 29.7% 356 170

2,578 924 157 5.84 866 29.9% 607 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,816 Current Assets 2,491 Total Assets 3,404 Current Liabilities 387 Long Term Debt 489 Common Equity 2,529 Total Capital 3,018 Capital Expenditures 56.1 Cash Flow 387 Current Ratio 6.4 % Long Term Debt of Capitalization 12.9 % Net Income of Revenue 12.3 % Return on Assets 7.6 % Return on Equity 10.0

1,310 2,090 3,091 569 Nil 2,420 2,435 157 679 3.7 Nil 20.3 17.3 22.1

425 1,979 2,972 548 Nil 2,338 2,348 142 656 3.6 Nil 19.6 14.3 17.3

344 3,011 3,987 491 Nil 3,436 3,439 129 722 6.1 Nil 21.4 12.8 15.4

628 3,732 4,583 819 Nil 3,692 3,692 85.5 570 4.6 Nil 17.4 8.9 11.1

519 3,529 4,720 567 Nil 3,800 3,810 146 723 6.2 Nil 21.7 13.0 16.1

518 2,886 4,093 463 Nil 3,288 3,305 67.7 467 6.2 Nil 14.6 6.6 9.6

1,614 3,624 4,980 484 1,274 2,900 4,197 57.4 343 7.5 30.4 6.2 2.1 3.7

1,365 3,435 4,885 528 1,206 2,843 4,100 297 567 6.5 29.4 15.7 7.7 13.8

1,736 3,168 4,411 650 1,213 2,304 3,568 275 764 4.9 34.0 23.6 18.3 31.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Technology Way, Norwood, MA 02062-9106. Telephone: 800-262-5643. Email: [email protected] Website: http://www.analog.com

Chrmn: R. Stata Pres & CEO: J.G. Fishman CFO: D.A. Zinsner CTO: S.H. Fuller

Chief Acctg Officer & Cntlr: S. Brennan Investor Contact: M. Kohl (781-461-3759) Board Members: J. Champy, J. L. Doyle, J. G. Fishman, J. C. Hodgson, Y. Istel, N. S. Novich, F. G. Saviers, P. J. Severino, K. J. Sicchitano, R. Stata

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1965 Domicile: Massachusetts Employees: 8,300

Stock Report | October 23, 2010 | NYS Symbol: AON | AON is in the S&P 500

Aon Corp. S&P Recommendation HOLD

★★★★★

Price $40.02 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Insurance Brokers

12-Mo. Target Price $39.00

Investment Style Large-Cap Blend

Summary This global provider of insurance brokerage services also offers consulting services and risk and insurance advice.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.34– 35.10 Trailing 12-Month EPS $2.27 Trailing 12-Month P/E 17.6 $10K Invested 5 Yrs Ago $13,182

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.20 3.45 12.5 347.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.903 1.50 $0.60 64

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.50 7 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as the company's well diversified operations and solid balance sheet, with low debt, offset by the loss of contingent commissions, business restructuring, a soft insurance pricing environment, lower exposures, potential for elevated amortization of intangible assets, and execution risk related to the proposed acquisition of Hewitt Associates.

55 50 45 40 35

Vol. 65

Mil. 24 16 8 0 5

Quantitative Evaluations S&P Quality Ranking D

4

3

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 54

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights

➤

➤

We expect an organic brokerage revenue decline of 1%-2% in 2010, due to the difficult pricing environment and a decline in exposure units, partially offset by new business production. We forecast revenues increasing slightly, although we expect declining investment income to slow growth. We anticipate that the Asia-Pacific region will experience solid new business growth, and we expect 3% to 5% organic revenue growth. We see the adjusted margin for brokerage increasing to roughly 22%, helped by cost cuts and commission enhancements. We forecast organic revenue growth of up to 2% in consulting, despite challenging economic conditions. We believe AON is gaining market share in the business, fueled by recent key personnel additions, and we expect the improving economy to increase demand for its consulting services. We see the adjusted operating margin increasing to 16% on a lower cost structure and a more profitable business mix. We forecast adjusted EPS of $3.30 for 2010 and $3.60 for 2011. Our estimates exclude restructuring charges, integration expenses, and other items.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Bret Howlett on August 25, 2010, when the stock traded at $ 36.48.

➤

A+

3

Our hold recommendation reflects our opinion that AON will be adversely affected by the poor insurance pricing environment over the near term. We believe AON also faces considerable execution risk related to its proposed $4.9 billion acquisition of Hewitt Associates (HEW 49, Hold). While we think AON's business platform can drive organic growth in an unfavorable environment, we expect the company to face headwinds in brokerage in the U.S. and Europe as weak economies there pressure margins and volumes. We believe its aggressive costcutting initiatives, a share buyback program, exposure to reinsurance, and earnings contributions from the Asia-Pacific region will more than offset the impact from the difficult operating environment. Risks to our recommendation and target price include weaker organic revenue growth and margin pressure from a soft property and casualty market; currency risks; and potential additional contingent commission probes by international authorities. Our 12-month target price of $39 is about 10.8X our 2011 adjusted operating EPS estimate, below historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,904 1,898 2009 1,846 1,882 2008 1,932 1,980 2007 1,798 1,866 2006 2,165 2,208 2005 2,464 2,456

3Q -1,794 1,847 1,775 2,168 2,387

4Q -2,073 1,924 2,032 2,413 2,530

Year -7,595 7,631 7,471 8,954 9,837

Earnings Per Share ($) 2010 0.63 0.63 2009 0.80 0.51 2008 0.56 0.55 2007 0.51 0.57 2006 0.57 0.53 2005 0.58 0.54

E0.72 0.40 0.53 0.42 0.27 0.35

E0.85 0.49 0.43 0.11 0.57 0.42

E3.20 2.19 2.06 2.10 1.86 1.89

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

01/12 04/21 07/19 10/07

01/28 04/29 07/29 10/28

02/01 05/03 08/02 11/01

02/15/10 05/17/10 08/16/10 11/15/10

Dividends have been paid since 1950. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AON

Aon Corp. Business Summary August 25, 2010 CORPORATE OVERVIEW. Aon Corp. is a global provider of insurance brokerage services, insurance products, and risk and insurance advice, as well as other consulting services, conducting business in more than 120 countries and sovereignties. In 2009, AON was recognized by Business Insurance as the world's largest retail insurance broker as well as the largest worldwide reinsurance broker. AON classifies its businesses into two operating segments: risk and insurance brokerage, and consulting. The risk and insurance brokerage segment accounted for 83% of total revenue from continuing operations in 2009, and the consulting segment 17%. CORPORATE STRATEGY. AON employs a growth-through-acquisition strategy, which it believes has been vital in building its network of resources and capabilities. Over the past 21 years, AON has completed more than 443 acquisitions. In 2008, AON purchased a total of 31 companies, mostly related to its risk and insurance brokerage operations. However, in 2009, due to the challenging economic conditions and turmoil in the financial markets, AON completed only three major acquisitions.

Hold) for $4.9 billion. AON plans to finance the transaction using 50% cash and 50% stock, and the deal is expected to close in November 2010, subject to shareholder and regulatory approvals and customary closing conditions. The company believes the acquisition will be accretive to adjusted EPS in 2011 and GAAP EPS in 2012. We estimate cost synergies from the deal to exceed $360 million annually until 2013, and to result in AON's revenue mix changing to 60% insurance brokerage and 40% consulting. In August 2008, AON announced plans to acquire Benfield, a leading reinsurance intermediary, for $1.75 billion. The transaction closed in November 2008 for $1.43 billion, due to a strengthening of the U.S. dollar versus the British pound. In connection with the transaction, AON announced a global restructuring program. AON expects the restructuring program to result in $155 million in charges, of which $55 million was already recorded in 2009. The company expects $45 million in charges to be recorded in future earnings. The program is expected to save $84-$94 million, and $122 million of cumulative annualized savings by 2010.

IMPACT OF MAJOR DEVELOPMENTS. In July 2010, AON announced that its directors had approved an agreement to acquire Hewitt Associates (HEW 49, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.02 2.19 2.19 0.60 27% 46.19 34.81 21 16

2008 NM 2.74 2.06 1.22 0.60 29% 50.00 32.83 24 16

2007 4.37 2.67 2.10 1.66 0.60 29% 51.32 34.30 24 16

2006 2.14 2.54 1.86 2.03 0.75 40% 42.76 31.01 23 17

2005 2.48 2.69 1.89 2.10 0.60 32% 37.14 20.64 20 11

2004 0.76 2.62 1.72 2.29 0.60 35% 29.44 18.15 17 11

2003 NM 3.06 2.08 2.05 0.60 29% 26.79 17.41 13 8

2002 NM 2.57 1.64 1.00 0.83 50% 39.63 13.30 24 8

2001 NM 1.98 0.73 -0.06 0.90 123% 44.80 29.75 61 41

2000 NM 3.08 1.82 NA 0.87 48% 42.75 20.69 23 11

7,595 1,263 242 122 949 28.2% 636 637

7,631 1,536 204 126 863 28.0% 621 368

7,471 1,437 189 138 1,024 34.4% 672 531

8,954 1,426 244 129 920 32.0% 626 683

9,837 1,530 277 125 965 33.5% 642 709

10,172 1,545 309 136 880 34.4% 577 765

9,810 1,511 314 137 1,110 38.3% 663 652

8,822 1,195 263 158 793 38.6% 466 281

7,676 933 339 167 399 43.5% 203 -19.4

7,375 1,327 333 -180 854 40.9% 481 NA

Balance Sheet & Other Financial Data (Million $) Cash 639 Current Assets 13,989 Total Assets 22,958 Current Liabilities 12,640 Long Term Debt 1,998 Common Equity 5,379 Total Capital 7,439 Capital Expenditures 140 Cash Flow 878 Current Ratio 1.1 % Long Term Debt of Capitalization 26.9 % Net Income of Revenue 8.4 % Return on Assets 2.8 % Return on Equity 11.9

1,236 14,526 23,172 12,803 1,872 5,314 7,287 103 825 1.1 25.6 8.1 2.6 10.8

4,915 17,973 24,948 14,553 2,145 6,221 8,223 170 861 1.2 23.3 9.0 2.7 11.8

4,726 13,852 24,318 12,350 1,588 5,218 6,806 152 863 1.1 23.3 7.0 2.4 11.9

476 14,612 27,818 14,084 2,105 5,303 7,408 126 917 1.0 28.4 6.5 2.3 12.3

570 15,460 28,329 15,299 1,523 5,103 7,268 80.0 883 1.0 21.0 5.7 2.1 12.0

540 14,550 27,027 15,096 1,787 4,498 6,643 185 974 1.0 26.9 6.8 2.5 15.8

506 14,109 25,334 14,952 2,064 3,895 6,318 278 726 0.9 32.7 5.3 2.0 12.6

439 11,412 22,386 12,605 2,363 3,521 6,065 281 539 0.9 39.0 2.6 0.9 5.9

1,118 11,693 22,251 12,087 2,586 3,388 6,036 179 811 1.0 42.8 6.5 2.2 14.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 East Randolph Street, Chicago, IL 60601. Telephone: 312-381-1000. Website: http://www.aon.com Chrmn: L.B. Knight, III

Pres & CEO: G. Case COO: A.M. Appel EVP & CFO: C. Davies EVP, Chief Admin Officer & CIO: G.J. Besio

Investor Contact: S. Malchow (312-381-3983) Founded: 1919 Board Members: G. Case, F. Conti, C. A. Francis, J. C. Domicile: Delaware Green, E. D. Jannotta, P. J. Kalff, L. B. Knight, III, J. M. Employees: 36,200 Losh, R. E. Martin, A. J. McKenna, R. S. Morrison, R. B. Myers, R. C. Notebaert, J. W. Rogers, Jr., G. Santona, C. Y. Woo

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: APA | APA is in the S&P 500

Apache Corp S&P Recommendation STRONG BUY

★★★★★

Price $101.30 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $133.00

Investment Style Large-Cap Blend

Summary One of the largest independent exploration and production companies in the U.S., Apache explores for, develops and produces natural gas, crude oil and natural gas liquids.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $111.00– 81.94 Trailing 12-Month EPS $7.66 Trailing 12-Month P/E 13.2 $10K Invested 5 Yrs Ago $17,467

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

9.52 11.62 10.6 364.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$36.901 0.59 $0.60 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.19 1 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for APA reflects its participation in a highly capital-intensive industry that derives value based on commodity prices that can be highly volatile. APA is a super-large exploration and production company diversified across major producing regions, focused on exploiting North American reserves and growing capital internationally.

160 120

80 60

Vol.

Quantitative Evaluations

Mil. 30 20 10 0 5

S&P Quality Ranking 4

3

D

5

4

C

B-

AB

B+

A-

A

Relative Strength Rank

1

MODERATE 60

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

Production was up 9% in 2009, meeting APA's 6%-14% target, as international growth outweighed domestic declines on curtailed drilling activity as a result of lower prices. APA has a pipeline of about 10 projects set to begin production between 2009 and 2012, which should contribute about 150,000 boe/d of net new production. We see production from Van Gogh and Pyrenees in Australia, increased activity in the Granite Wash play and Horn River Basin, new processing capacity in Egypt, and Gulf of Mexico asset purchases from Devon Energy (DVN 64, Buy) boosting production 13% in 2010 and 20% in 2011. Production at Van Gogh and Pyrenees began in the first half of 2010. APA's 2009 capex was $4.1 billion, down close to 40%, on lower activity, and plans call for capex of $6 billion in 2010. Spending is expected to increase in every region and remain within cash flows. After operating EPS of $5.60 in 2009, down from 2008's $11.28, on lower prices, we see an advance to $9.52 in 2010 and $11.62 in 2011 on production and oil price gains. The debt-to-capital ratio is 22%, and the balance sheet remains one of the strongest among peers, in our view.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Michael Kay on August 11, 2010, when the stock traded at $ 92.80. Highlights

A+

APA is exploiting mature North American reserves and focusing capital on international development projects (offshore Australia, and the Salam gas plant in Egypt). We expect APA to protect its top-tier balance sheet, and we see cash flow funding projects. APA's pending acquisition of BP's assets in the Permian Basin, Canada and Egypt for $7 billion ($18/bbl of proved reserves, in line with recent deals) adds immense opportunity in three core operating regions. Investor concerns over a raised stake in the Gulf, from the pending $3.7 billion purchase of Mariner Energy (ME 23.50, Hold) have begun to subside, in our view, as we see little shelf impact, although we do see deepwater deferrals and higher costs. Risks to our opinion and target price include unfavorable changes to economic, industry and operating conditions, including increased costs, and difficulty replacing reserves. Our strong buy opinion reflects large crude oil projects, especially internationally, providing solid growth visibility. We blend our NAV estimate ($139) with DCF ($141; WACC of 11%, terminal growth of 3%) and relative metrics to derive our 12-month target price of $133.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,673 2,972 2009 1,634 2,093 2008 3,188 3,900 2007 1,997 2,468 2006 1,999 2,062 2005 1,662 1,759

3Q -2,332 3,365 2,499 2,261 2,061

4Q -2,570 1,937 3,014 1,967 2,102

Year -8,615 12,390 9,978 8,289 7,584

Earnings Per Share ($) 2010 2.08 2.53 2009 -5.25 1.31 2008 3.03 4.28 2007 1.47 1.89 2006 1.97 2.17 2005 1.67 1.76

E2.37 1.30 3.52 1.83 1.94 2.05

E2.61 1.72 -8.80 3.19 1.56 2.35

E9.52 -0.87 2.10 8.39 7.64 7.84

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

12/11 03/11 05/12 09/24

01/20 04/20 07/20 10/20

01/22 04/22 07/22 10/22

02/22/10 05/21/10 08/23/10 11/22/10

Dividends have been paid since 1965. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: APA

Apache Corp Business Summary August 11, 2010 CORPORATE OVERVIEW. One of the largest independent exploration and production (E&P) companies in the U.S., Apache Corp. (APA) explores for, develops and produces natural gas, crude oil and natural gas liquids (NGLs). In North America, APA's interests are focused on the Gulf of Mexico, the Gulf Coast, East Texas, the Permian Basin, the Anadarko Basin, and the Western Sedimentary Basin of Canada. Outside of North America, APA has interests in Egypt, offshore Western Australia, offshore the U.K. in the North Sea, and onshore Argentina. APA's North American asset base comprises the U.S. Central region, U.S. Gulf Coast region and Canada region. Oil and liquids production, mainly from the U.S. Permian Basin and the Gulf of Mexico, made up nearly 40% of North American production and 46% of North American yearend estimated proved reserves.

Egypt holds APA's largest acreage position, with more than 11 million gross acres that provide considerable exploration and development opportunities. In addition to being the largest acreage holder in Egypt's Western Desert, APA believes it is also the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the third largest in all of Egypt. In 2009, Egypt contributed 26% of total production and 13% of total estimated proved reserves. In Australia, exploration activity is focused in the offshore Carnarvon, Gippsland and Browse Basins, where APA holds 4.3 million net acres. In 2009, the region increased production 40% and accounted for approximately 7% of total production and 13% of year-end estimated proved reserves.

At year-end 2009, Canada held approximately 22% of the company's estimated proved reserves. APA and EnCana Corporation (ECA) are 50% partners and control more than 400,000 acres in the Horn River Basin shale-gas play in northeast British Columbia. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 46.34 6.57 -0.87 -0.87 0.60 NM 106.46 51.03 NM NM

2008 48.63 25.68 2.10 2.08 0.70 33% 149.23 57.11 71 27

2007 46.49 15.41 8.39 8.38 0.60 7% 109.32 63.01 13 8

2006 39.30 13.19 7.64 7.30 0.60 8% 76.25 56.50 10 7

2005 31.06 12.22 7.84 7.60 0.34 4% 78.15 47.45 10 6

2004 24.18 8.81 5.04 5.19 0.32 6% 55.16 36.79 11 7

2003 19.25 6.67 3.35 3.29 0.21 6% 41.68 26.26 12 8

2002 15.33 4.55 1.80 1.73 0.19 11% 28.88 21.12 16 12

2001 14.69 5.30 2.37 2.28 0.12 5% 31.55 16.56 13 7

2000 12.07 4.46 2.48 NA 0.09 4% 32.12 13.91 13 6

8,615 NA 2,500 242 326 187.1% -284 -292

12,390 8,988 7,952 166 932 23.6% 712 701

9,978 7,224 2,348 312 4,673 39.8% 2,812 2,805

8,289 5,753 1,816 158 4,010 36.3% 2,552 2,434

7,584 5,792 1,416 122 4,206 37.6% 2,624 2,539

5,333 4,119 1,222 120 2,663 37.3% 1,670 1,713

4,190 3,241 1,073 127 1,922 43.0% 1,095 1,069

2,560 1,048 844 133 899 38.3% 554 524

2,777 2,146 821 132 1,199 39.7% 723 681

2,284 1,310 584 109 1,204 40.1% 721 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,048 Current Assets 4,586 Total Assets 28,186 Current Liabilities 2,393 Long Term Debt 4,950 Common Equity 15,779 Total Capital 20,839 Capital Expenditures 3,631 Cash Flow 2,208 Current Ratio 1.9 % Long Term Debt of Capitalization 23.9 % Return on Assets NM % Return on Equity NM

1,973 4,451 29,186 2,615 4,809 16,509 24,484 5,973 8,658 1.7 19.6 2.5 4.5

126 2,752 28,635 2,665 4,227 15,280 23,315 5,807 5,154 1.0 20.7 10.6 19.8

141 2,490 24,308 3,812 2,020 13,093 18,830 3,892 4,363 0.7 13.3 11.7 21.6

229 2,162 19,272 2,187 2,192 10,443 12,733 3,716 4,034 1.0 17.2 15.1 28.2

111 1,349 15,502 1,283 2,588 8,106 10,793 2,456 2,887 1.1 24.0 12.0 22.9

33.5 899 12,416 820 2,327 6,434 8,860 1,595 2,163 1.1 26.3 10.0 19.4

51.9 767 9,460 532 2,159 4,826 7,083 1,037 1,387 1.4 30.5 6.0 12.2

35.6 698 8,934 522 2,244 4,112 7,655 1,525 1,525 1.3 29.3 8.8 18.6

37.2 630 7,482 553 2,193 3,448 5,948 1,011 1,284 1.1 36.9 11.1 24.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2000 Post Oak Blvd Ste 100, Houston, TX 77056-4400. Telephone: 713-296-6000. Website: http://www.apachecorp.com Chrmn & CEO: G.S. Farris

Pres & CFO: R.B. Plank COO: J.A. Crum COO: R.J. Eichler EVP & General Counsel: P.A. Lannie

Investor Contact: T. Chambers (713-296-6685) Founded: 1954 Board Members: F. M. Bohen, G. S. Farris, R. M. Domicile: Delaware Ferlic, E. C. Fiedorek, A. Frazier, Jr., P. A. Graham, J. A. Employees: 3,452 Kocur, G. D. Lawrence, Jr., F. H. Merelli, R. D. Patton, C. Pitman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AIV | AIV is in the S&P 500

Apartment Investment and Management Co S&P Recommendation BUY

★★★★★

Price $23.57 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Residential REITS

12-Mo. Target Price $25.00

Investment Style Large-Cap Value

Summary This real estate investment trust is one of the largest U.S. owners and managers of multi-family apartment properties.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.21– 11.80 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $12,355

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

1.40 1.50 16.8 117.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.759 1.70 $0.40 94

Beta 2.31 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -2 S&P Credit Rating BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for AIV reflects its a high level of financial leverage, offset by what we consider a manageable level of near-term debt maturities and improving operating performance.

40 20 10

Quantitative Evaluations

5

S&P Quality Ranking Vol.

D

C

B-

BB

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

STRONG 77

LOWEST = 1 3

HIGHEST = 99

4

3

2

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Royal F. Shepard, CFA on August 11, 2010, when the stock traded at $ 21.06. Highlights ➤

➤

➤

We think demand for apartments in many U.S. markets has turned positive, due to a declining home ownership rate and a limited amount of new supply. During the second quarter, AIV renewed existing leases at rates that were 1.9% above rents previously in place. Owing to an occupancy rate of 95.6%, as of June 30, we think the trust's pricing power will grow in coming periods. We estimate total revenues will decline about 10% in 2010, reflecting $1.3 billion in 2009 asset sales. We expect AIV to slow its disposition program in 2010, and begin considering new acquisitions in its core markets. We estimate the trust now derives more than 80% of operating income from its top 20 targeted markets. We anticipate new investments in coastal markets with limited competition from new construction activity. Our 2010 FFO per-share estimate of $1.40 reflects dilution from 2009 property sales and about a 1% decline in operating income on a same-property basis. We expect the trust to maintain the current annual dividend payout of $0.40 through 2010 in an effort to conserve cash.

Investment Rationale/Risk ➤

➤

➤

AIV holds what we view as a large and diversified portfolio of conventional and affordable residential properties. We think challenging economic conditions are beginning to ease for many apartment owners and may allow renewed rent growth in the second half of 2010. In our view, AIV has successfully repositioned its portfolio in attractive coastal markets. AIV also has recurring management fees that provide a degree of stability. We consider the shares undervalued, recently trading at 15.0X our 2010 FFO estimate of $1.40, a 20% discount to apartment REIT peers. Risks to our opinion and target price include slower-than-expected employment growth in AIV's markets, higher borrowing rates on floating rate debt, and a significant increase in new construction that creates competitive supply. Our 12-month target price of $25 is based partly on a multiple of 17.9X our 2010 FFO estimate of $1.40, a discount to peers and incorporating our view of AIV's below-average financial position. We blend in our net asset value model, based on recent transactions and a one-year cash return of 6.00%, leading to intrinsic value of $26.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 293.0 295.0 2009 297.5 299.1 2008 349.2 374.0 2007 413.1 426.4 2006 408.5 420.0 2005 361.6 372.3

3Q -296.4 375.1 426.7 423.9 386.8

4Q -302.8 359.6 455.0 438.6 400.9

Year -1,196 1,458 1,721 1,691 1,522

FFO Per Share ($) 2010 0.37 2009 0.42 2008 0.79 2007 0.74 2006 0.68 2005 0.63

E0.33 0.31 0.82 0.83 0.74 0.58

E0.34 0.25 -0.34 0.83 0.91 0.60

E1.40 1.55 1.45 3.17 3.07 2.48

0.49 0.44 0.83 0.88 0.73 0.67

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

10/29 12/18 04/29 07/29

11/18 12/29 05/19 08/18

11/20 12/31 05/21 08/20

11/30/09 01/29/10 06/01/10 08/31/10

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AIV

Apartment Investment and Management Co Business Summary August 11, 2010 CORPORATE OVERVIEW. Apartment Investment and Management Co. is one of the largest U.S. multi-family residential REITs in terms of units. At December 31, 2009, it owned, held an equity interest in, or managed a geographically diversified portfolio of 870 properties, including about 135,654 apartment units, located in 44 states, the District of Columbia and Puerto Rico. The trust conducts substantially all its business, and owns all its assets, through AIMCO Properties, L.P., of which AIV owns approximately a 91% interest. AIV operates in two segments: the ownership, operation and management of apartment properties; and the management of apartment properties for third parties and affiliates. MARKET PROFILE. The U.S. housing market is highly fragmented, and is characterized broadly by two types of housing units -- multi-family and single-family. At the end of 2009, the U.S. Census Bureau estimated that there were 130.59 million housing units in the country, an increase of 0.9% from 2008. Partially due to the high fragmentation since residents have the option of either being owners or tenants (renters), the housing market can be highly competitive. Main demand drivers for apartments are household formation and em-

ployment growth. We estimate that 0.5 million new households were formed in 2009. Supply is created by new housing unit construction, which could consist of single-family homes, or multi-family apartment buildings or condominiums. The U.S. Department of Housing estimates that 0.55 million total housing units were started in 2009, down about 39% from 2008. Multi-family starts, for structures with more than five units, fell an estimated 63%. With apartment tenants on relatively short leases compared to those of commercial and industrial properties, apartment REITs are generally more sensitive to changes in market conditions than REITs in other property categories. Results could be hurt by new construction that adds new space in excess of actual demand. Trends in home price affordability also affect both rent levels and the level of new construction, since the relative price attractiveness of owning versus renting is an important factor in consumer decision making.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.10 -2.34 -1.75 0.40 NM 17.09 4.57 NM NM

2008 5.51 -1.51 -1.51 1.20 NM 43.67 7.01 1458 NM

2007 9.82 -1.14 -1.12 2.40 NM 65.79 33.97 NM NM

2006 NA -1.29 -1.29 NA NM 59.17 37.76 NM NM

2005 NA -1.25 -1.25 NA NM 44.14 34.17 NM NM

2004 NA -0.39 -0.39 NA NM 39.25 26.45 NM NM

2003 NA -0.25 -0.32 NA NM 42.05 33.00 NM NM

2002 NA 0.94 0.89 NA NM 51.46 33.90 55 36

2001 18.90 0.23 0.19 3.12 NM 50.13 39.25 NM NM

2000 23.33 0.52 NA 2.80 NM 50.06 36.31 96 70

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

1,141 Nil 1,196 627 324 21.5 444 -217 -200

1,351 Nil 1,458 795 369 4.18 459 -129 -183

1,641 Nil 1,721 886 422 3.95 473 -48.1 -112

1,630 Nil 1,691 874 408 2.78 471 -42.7 -124

1,460 Nil 1,522 816 368 1.37 412 -27.9 -117

1,402 Nil 1,469 768 367 Nil 369 55.7 -35.5

1,446 Nil 1,516 729 373 Nil 328 70.7 -29.2

1,292 Nil 1,506 664 340 Nil 289 175 77.1

1,298 Nil 1,464 652 316 Nil 364 107 13.8

1,051 Nil 1,101 485 270 Nil 330 99.2 NA

Balance Sheet & Other Financial Data (Million $) Cash 81.3 Total Assets 7,906 Real Estate Investment 9,663 Loss Reserve Nil Net Investment 6,962 Short Term Debt Nil Capitalization:Debt 5,690 Capitalization:Equity 579 Capitalization:Total 7,342 % Earnings & Depreciation/Assets 2.6 Price Times Book Value:High 4.2 Price Times Book Value:Low 1.1

300 9,403 10,885 Nil 8,102 Nil 6,777 722 8,632 3.3 7.9 1.3

210 10,607 12,384 Nil 9,349 Nil 7,532 1,026 9,838 4.2 6.7 3.5

230 10,290 11,982 Nil 9,081 Nil 6,873 1,516 9,165 4.2 4.0 2.5

330 10,017 10,990 Nil 8,752 Nil 6,284 1,706 9,436 3.8 2.5 1.9

293 10,072 10,800 Nil 8,785 Nil 5,734 1,967 9,246 4.2 1.9 1.3

98.0 10,113 10,601 Nil 8,753 Nil 6,198 2,005 9,580 3.9 2.0 1.6

97.0 10,317 10,227 Nil 8,616 Nil 5,529 2,218 9,180 5.0 2.3 1.5

820 8,323 8,416 Nil 6,796 214 4,670 1,592 7,904 5.9 2.7 2.1

1,068 7,700 7,012 Nil 6,099 329 4,031 1,664 7,037 1.5 2.1 1.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4582 S Ulster St Pkwy Ste 1100, Denver, CO 80237-2662. Telephone: 303-757-8101. Email: [email protected] Website: http://www.aimco.com

Chrmn & CEO: T. Considine COO & Co-Pres: T.J. Beaudin EVP & CFO: E.M. Freedman EVP & Chief Admin Officer: M. Cortez

EVP & Treas: P.K. Fielding Investor Contact: J. Martin (303-691-4440) Board Members: J. N. Bailey, T. Considine, R. S. Ellwood, T. L. Keltner, J. Martin, R. A. Miller, K. M. Nelson, M. A. Stein

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1994 Domicile: Maryland Employees: 3,500

Stock Report | October 23, 2010 | NNM Symbol: APOL | APOL is in the S&P 500

Apollo Group Inc

★★★★★

S&P Recommendation HOLD

Price $36.00 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Education Services

12-Mo. Target Price $40.00

Investment Style Large-Cap Growth

Summary This provider of higher education programs for working adults offers educational programs and services throughout the U.S. and in a small number of foreign markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $75.10– 35.54 Trailing 12-Month EPS $3.62 Trailing 12-Month P/E 9.9 $10K Invested 5 Yrs Ago $6,027

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.20 4.40 8.6 147.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.294 Nil Nil 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.07 14 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects a lack of consistent conditions in the for-profit education market, and APOL's frequent transformations of its business model. In the corporate governance area, we have a negative view of the near 100% voting control held by insiders through separate voting shares. We believe these factors are offset by what we view as APOL's consistently solid levels of cash flow and a healthy balance sheet.

100 80 60 50 40

Vol. Mil.

59

51

Quantitative Evaluations

24 16 8 0 5

S&P Quality Ranking 4 2

3

4

D

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

5 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for APOL has recently been changed to $40.00 from $54.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on APOL from MarketScope, see below. 10/14/10 11:21 am ET ... S&P REITERATES HOLD OPINION ON SHARES OF APOLLO GROUP (APOL 37.2***): Aug-Q adjusted EPS of $1.31 vs. $1.10 meets our view. But APOL shares and peers are down sharply, as APOL sees a major decline in new students in the near-term, on proposed new government student lending rules. On top of new proposed regulations, APOL is near the 90% cut off point for revenues allowed from federal student loan usage, with an overall impact likely to be greater than we expected. We cut our FY 11 (Aug) EPS by $1.45 to $4.20, and start FY 12 at $4.40. We lower our target price by $14 to $40, 9.4X our calendar '11 estimate and low-end of APOL's historical range. /M.Jaffe

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,270 1,070 2009 971.0 876.1 2008 780.7 693.6 2007 667.8 608.7 2006 628.9 569.6 2005 534.9 505.7

3Q 1,337 1,051 835.2 733.4 653.6 619.0

4Q 1,259 1,076 831.4 713.9 624.2 591.8

Year 4,926 3,974 3,141 2,724 2,478 2,251

Earnings Per Share ($) 2010 1.54 0.67 2009 1.12 0.77 2008 0.83 -0.19 2007 0.65 0.35 2006 0.73 0.46 2005 0.58 0.47

1.16 1.26 0.85 0.75 0.77 0.77

0.32 0.59 1.43 0.60 0.54 0.58

3.72 3.75 2.87 2.35 2.35 2.39

Fiscal year ended Aug. 31. Next earnings report expected: Early January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: APOL

Apollo Group Inc Business Summary October 06, 2010 CORPORATE OVERVIEW. Historically, Apollo Group derived most of its revenues by providing higher education programs for working adults. It has several school units, but the large majority of its students have taken education programs at its University of Phoenix (UOP) unit. UOP offers its education programs at campuses, as well as through online programs. They consist mostly of associates, bachelors and masters degree programs in business, education, information technology, criminal justice and nursing. At May 31, 2010, APOL offered programs and services in 40 states, the District of Columbia, Puerto Rico, Canada, Latin America and Europe. Enrollment at UOP totaled 476,500 at May 31, 2010, up from 443,000 at August 31, 2009, 362,100 at August 31, 2008, and 313,700 at August 31, 2007. CORPORATE STRATEGY. After falling to 3.3% in FY 06's (Aug.) third quarter (from 27.7% in FY 04's fourth quarter), Apollo's enrollment growth has revived, and stood at 13.3% in FY 10's third quarter (but down from 22.3% in FY 09's fourth quarter, which was the peak in this period of reviving enrollments). We attribute the initial downturn to changing demographic trends, greater competition and more regulatory scrutiny. Until a few years ago, APOL focused almost entirely on students who were older than the traditional 18-to-22 yearold college student, chiefly baby boomers. Yet, with the youngest baby boomers now over the age of 40, APOL began to seek students in other demographic categories. As a result, it began to place much more concentration on

associate degrees, targeting younger students (with 45% of APOL's student count enrolled in associates programs at May 31, 2010). Yet, with persistence rates and loan repayment less favorable among its associates population, APOL has again moved back towards a focus on bachelors programs. Also, in an effort to boost student retention and student loan repayments, Apollo announced in June 2010, that it would soon require all prospective students with less than 24 credit hours to attend a free three week orientation program. In October 2007, Apollo formed a $1 billion joint venture (Apollo Global) with the Carlyle Group, a private equity firm, to invest in the foreign education services sector. APOL committed up to $801 million (funding $440.5 million of $511.8 million in cash contributions made to Apollo Global through FY 09 yearend), and owned 86.1% of the venture as of mid-October 2009. We view this as an important step for APOL to expand its global footprint. In July 2009, Apollo Global purchased U.K.-based BPP Holdings plc (revenues of $263 million and pretax profit of $31.2 million in calendar 2008), which provides education and training to legal and financial professionals, for $602 million, net of and including certain items. This followed two much smaller foreign acquisitions in 2008.

Company Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA 4.68 3.72 5.42 NA Nil 66.69 35.54 18 10

2009 44.33 4.38 3.75 4.08 Nil Nil 90.00 52.79 24 14

2008 4.56 3.35 2.87 2.87 Nil Nil 81.68 37.92 28 13

2007 3.62 2.77 2.35 2.35 Nil Nil 80.75 39.02 34 17

2006 3.40 2.74 2.35 2.42 Nil Nil 63.26 33.33 25 13

2005 3.73 2.68 2.39 2.30 Nil Nil 84.20 57.40 35 24

2004 4.89 1.79 0.77 0.72 Nil Nil 98.01 62.55 NM NM

2003 5.23 1.62 1.30 1.22 Nil Nil 73.09 40.72 56 31

2002 3.60 1.12 0.87 0.79 Nil Nil 46.15 28.13 53 32

2001 2.47 0.81 0.60 0.52 Nil Nil 33.31 19.33 56 32

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,926 1,520 147 11.9 1,001 NA 568 829

3,974 1,229 117 4.46 1,040 42.9% 129 651

3,141 829 79.7 Nil 783 39.2% 477 477

2,724 697 71.1 Nil 657 37.8% 409 409

2,478 738 67.3 Nil 668 37.9% 415 428

2,251 767 54.5 Nil 730 39.1% 445 427

1,798 481 43.2 Nil 456 39.1% 278 131

1,340 428 40.3 Nil 402 38.5% 247 218

1,009 293 35.2 Nil 266 39.4% 161 140

769 194 32.7 Nil 175 38.4% 108 90.1

Balance Sheet & Other Financial Data (Million $) Cash 1,285 Current Assets 2,253 Total Assets 3,601 Current Liabilities 1,794 Long Term Debt 168 Common Equity 1,356 Total Capital 1,557 Capital Expenditures 168 Cash Flow 715 Current Ratio 1.3 % Long Term Debt of Capitalization 10.8 % Net Income of Revenue 11.5 % Return on Assets 16.6 % Return on Equity 45.2

968 1,880 3,263 1,755 128 1,158 7,966 127 698 1.1 9.4 15.1 23.4 60.1

486 1,170 1,860 866 Nil 834 849 105 556 1.4 Nil 15.2 28.8 64.9

370 925 1,450 744 Nil 634 634 61.2 480 1.2 Nil 15.0 29.9 66.0

355 803 1,283 596 Nil 604 604 44.6 482 1.3 Nil 16.7 32.4 67.0

595 835 1,303 518 Nil 707 707 104 499 1.6 Nil 19.8 31.8 53.5

677 855 1,452 465 Nil 957 957 80.3 321 1.8 Nil 15.4 19.6 28.0

800 950 1,378 335 Nil 1,027 1,027 55.8 287 2.8 Nil 18.4 20.9 28.6

610 730 980 264 15.5 699 715 36.7 196 2.8 2.2 16.0 19.4 29.3

375 487 680 182 14.8 482 497 44.4 141 2.7 3.0 14.0 19.9 29.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4025 S. Riverpoint Pkwy, Phoenix, AZ 85040. Telephone: 480-966-5394. Website: http://www.apollogrp.edu Chrmn: J. Sperling

Pres & COO: J.L. D'Amico Vice Chrmn: P. Sperling Co-CEO: G.W. Cappelli Co-CEO: C.B. Edelstein

Investor Contact: J. Pasinski (800-990-2765) Board Members: T. C. Bishop, G. W. Cappelli, D. J. Deconcini, S. A. DiPiazza, Jr., C. B. Edelstein, S. J. Giusto, R. A. Herberger, Jr., A. Kirschner, K. S. Redman, J. R. Reis, M. F. Rivelo, J. Sperling, P. Sperling, G. Zimmer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1981 Domicile: Arizona Employees: 57,414

Stock Report | October 23, 2010 | NNM Symbol: AAPL | AAPL is in the S&P 500

Apple Inc S&P Recommendation STRONG BUY

★★★★★

Price $307.47 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Hardware

12-Mo. Target Price $375.00

Investment Style Large-Cap Growth

Summary This company is a prominent provider of hardware and software, including the Macintosh (Mac) computer, the iPod digital media player, and the iPhone.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $319.00– 185.57 Trailing 12-Month EPS $15.15 Trailing 12-Month P/E 20.3 $10K Invested 5 Yrs Ago $55,241

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

18.46 NA 16.7 913.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$280.893 Nil Nil 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.43 35 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of a seemingly ever-evolving market for consumer-oriented technology products, potential challenges associated with the company's growing size and offerings, and the critical importance to the company of founder and CEO Steve Jobs.

400 300 200 150 100

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

240 160 80 0

D 4

5

4

5

5

4

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Clyde Montevirgen on October 19, 2010, when the stock traded at $ 311.53. Highlights

➤

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

We estimate sales growth of 27% for FY 11 (Sep.), following a 52% advance in FY 10. We expect strong unit sales growth for iPhones, iPads, and MacBooks, and, consequently, we anticipate iTunes revenues advancing as AAPL's hardware sales promote downloads for Apps, music, and movies. We see iMac shipments rising modestly on product refreshes, but iPod units declining largely due to AAPL's large market share in this space and market saturation. We expect the gross margin to remain around 39% in FY 11, similar to FY 10 results. We believe the margins for the latest iPhone and iPad will improve slowly due to scale and costcutting efforts, balancing anticipated declining average selling prices for Macs and iPods. We look for expenses as a percentage of sales to remain around current levels as AAPL invests in new products, and we believe the operating margin will remain about 28%. Our FY EPS projections assume an effective tax rate around 26% and a modest increase in the share count.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

83

1

➤

C

Our strong buy opinion reflects our favorable view of AAPL's growth. We are cautious about demand for consumer electronics products during a fragile economic recovery, and we are also concerned about pricing pressure on computers and MP3 players, but we think AAPL's iPhone, iPad, and MacBook products will provide secular and above-peers growth. With earnings growth expected to lead most megaand large-cap technology companies, and considering AAPL's cash position, strong free cash flow generation, and relatively high return on equity (ROE), we believe multiples should be notably above those of the IT sector. Risks to our recommendation and target price include weak end-market demand, pricing pressure, competitive handset offerings, and poor execution of the iPad. Our 12-month target price of $375 is based on a P/E multiple of about 19X our calendar 2011 EPS estimate of $19.81, above the IT sector's to account for our view of relative growth, risk, and ROE. Our valuation is backed by our DCF model, which assumes a terminal growth rate of 4% and a weighted average cost of capital of around 12%, and yields a value of $400.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 15,683 13,499 2009 11,880 9,084 2008 9,608 7,512 2007 7,115 5,264 2006 5,749 4,359 2005 3,490 3,243

3Q 15,700 9,734 7,464 5,410 4,370 3,520

4Q 20,343 12,207 7,895 6,217 4,837 3,678

Year 65,225 42,905 32,479 24,006 19,315 13,931

Earnings Per Share ($) 2010 3.67 3.33 2009 2.50 1.79 2008 1.76 1.16 2007 1.14 0.87 2006 0.65 0.47 2005 0.35 0.34

3.51 2.01 1.19 0.92 0.54 0.37

4.64 2.77 1.26 1.01 0.62 0.50

15.15 9.08 5.36 3.93 2.27 1.56

Fiscal year ended Sep. 30. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 1996.

Stock Report | October 23, 2010 | NNM Symbol: AAPL

Apple Inc Business Summary October 19, 2010 CORPORATE OVERVIEW. Apple Inc. makes personal computers, mobile phones and portable digital music and video players and sells a variety of related software, services, peripherals and networking solutions.

iPhone revenues on a subscription basis, but has since changed its revenue recognition practice and is now recording most of the iPhone's value up front, which should inflate iPhone revenues versus prior periods.

Sales of Apple's computer, commonly known as Mac, made up approximately 35% of total revenues in calendar 2009. The company shipped over 11 million units of desktop and laptop computers, with laptop units selling roughly two times desktops. On a unit shipment basis, Macs grew around 13%, much faster than the mid-single digit growth that market researchers report for the PC industry. Mac revenues advanced as greater unit shipments offset deteriorating blended average selling prices, trends we believe will continue over the next couple of years.

The company's personal media players, iPods, made up around 20% of total 2009 sales. Apple sold over 52 million of these in calendar 2009, and it believes that it currently has over 70% of the MP3 player market. Considering that the company has a large majority of the MP3 market share, and that this is largely a mature market, we believe Apple will likely face declining unit shipments and price deterioration in this business in coming years.

AAPL's cellular phones, iPhones, made up over 26% of total 2009 revenues, with over 25 million iPhones sold. Compared to the 30% advance that market researchers reported for smartphone shipments in 2009, iPhone's 84% growth rate led to continued market share gains. This has been the fastest growing business over the past couple of years, and we see this trend continuing and becoming a larger proportion of total revenues. The company used to record

Music-related products, such as iTunes, made up roughly 10% of 2009 sales, while other peripherals/hardware and software/services comprised the remainder of 2009 total revenues.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA 16.26 15.15 NA NA Nil 319.00 190.25 21 13

2009 34.66 9.89 9.08 9.08 Nil Nil 213.95 78.20 24 9

2008 23.04 5.88 5.36 5.36 Nil Nil 200.26 79.14 37 15

2007 16.27 4.29 3.93 3.93 Nil Nil 202.96 81.90 52 21

2006 11.47 2.52 2.27 2.27 Nil Nil 93.16 50.16 41 22

2005 8.83 1.77 1.56 1.47 Nil Nil 75.46 31.30 48 20

2004 6.36 0.55 0.36 0.22 Nil Nil 34.79 10.59 98 30

2003 5.61 0.50 0.10 -0.17 Nil Nil 12.51 6.36 NM NM

2002 5.54 0.25 0.09 -0.19 Nil Nil 13.09 6.68 NM NM

2001 5.59 0.09 -0.06 -0.72 Nil Nil 13.56 7.22 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

65,225 19,412 1,027 NA 18,540 NA 14,013 NA

42,905 12,474 734 Nil 12,066 31.8% 8,235 8,235

32,479 6,748 473 Nil 6,895 29.9% 4,834 4,834

24,006 4,726 317 Nil 5,008 30.2% 3,496 3,496

19,315 2,645 225 Nil 2,818 29.4% 1,989 1,989

13,931 1,829 179 Nil 1,815 26.4% 1,335 1,259

8,279 499 150 3.00 383 27.9% 276 164

6,207 138 113 8.00 92.0 26.1% 68.0 -119

5,742 164 118 11.0 87.0 25.3% 65.0 -137

5,363 -231 102 16.0 -52.0 NM -37.0 -465

Balance Sheet & Other Financial Data (Million $) Cash 25,620 Current Assets 41,678 Total Assets 75,183 Current Liabilities 20,722 Long Term Debt NA Common Equity 47,791 Total Capital 47,791 Capital Expenditures 2,005 Cash Flow 15,040 Current Ratio 2.0 % Long Term Debt of Capitalization Nil % Net Income of Revenue 21.5 % Return on Assets 21.7 % Return on Equity 37.1

23,464 31,555 47,501 11,506 Nil 31,640 31,640 1,144 8,969 2.7 Nil 19.2 19.7 30.5

24,490 34,690 39,572 14,092 Nil 21,030 21,705 1,091 5,307 2.5 Nil 14.9 14.9 27.2

9,352 21,956 25,347 9,299 Nil 14,532 15,151 735 3,813 2.4 Nil 14.6 16.4 28.5

6,392 14,509 17,205 6,471 Nil 9,984 10,365 657 2,214 2.2 Nil 10.3 13.9 22.8

3,491 10,300 11,551 3,484 Nil 7,466 7,466 260 1,514 3.0 Nil 9.6 13.6 21.3

2,969 7,055 8,050 2,680 Nil 5,076 5,076 176 426 2.6 Nil 3.3 3.7 5.9

3,396 5,887 6,815 2,357 Nil 4,223 4,223 164 181 2.5 Nil 1.1 1.0 1.6

2,252 5,388 6,298 1,658 316 4,095 4,640 174 183 3.2 6.8 1.1 1.1 1.6

2,310 5,143 6,021 1,518 317 3,920 4,503 735 65.0 3.4 7.0 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. 2009 data as amended from SEC Form 10-K/A to reflect application of new accounting principles. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Infinite Loop, Cupertino, CA 95014. Telephone: 408-996-1010. Email: [email protected] Website: http://www.apple.com

CEO: S.P. Jobs COO: T.D. Cook Investor Contact: P. Oppenheimer (408-974-3123) SVP & CFO: P. Oppenheimer

SVP, Secy & General Counsel: B. Sewell Board Members: W. V. Campbell, M. S. Drexler, A. A. Gore, Jr., S. P. Jobs, A. Jung, A. Levinson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1977 Domicile: California Employees: 36,800

Stock Report | October 23, 2010 | NNM Symbol: AMAT | AMAT is in the S&P 500

Applied Materials Inc S&P Recommendation BUY

★★★★★

Price $12.13 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductor Equipment

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary This company is the world's largest manufacturer of wafer fabrication equipment for the semiconductor industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $14.94– 10.27 Trailing 12-Month EPS $0.45 Trailing 12-Month P/E 26.9 $10K Invested 5 Yrs Ago $7,728

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.82 1.32 14.8 1,336.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$16.200 2.31 $0.28 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.98 NM A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the historical cyclicality of the semiconductor equipment industry, a lack of visibility in the intermediate term, the dynamic nature of the change in semiconductor technology, and intense competition. This is offset by AMAT's market leadership, size, and what we see as its solid balance sheet.

20 16 12

8

Vol.

Quantitative Evaluations

Mil. 150 100 50 0 5

S&P Quality Ranking 4

3

D

5

4

C

B-

BB

B+

A-

A

Relative Strength Rank

1

MODERATE 57

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

We project sales to increase 16% in FY 11 (Oct.) following our outlook for an 84% rise in FY 10, as we see semiconductor customers investing in technology purchases and adding capacity. We expect semiconductor equipment sales to improve but at a slower pace going forward. We think flat panel display spending is being driven by improving consumer sentiment. We view solar as a large long-term growth driver and see segment sales being driven by China manufacturers expanding capacity. We believe some chipmakers are beginning to consider new fabs, which should lead to increased equipment spending in FY 11. We see gross margins of 45% in FY 11 versus our 39% margin projection in FY 10. We expect margins to benefit from higher volume and an ongoing manufacturing shift to Singapore. We anticipate margins being aided by a restructuring of AMAT's solar-related business, which we see resulting in annualized cost savings of at least $100 million upon completion in FY 11. We forecast operating EPS of $0.82 in FY 10, which excludes $0.17 of non-recurring charges, and $1.32 in FY 11. We model a tax rate of 31% for both FY 10 and FY 11.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Angelo Zino on August 19, 2010, when the stock traded at $ 11.42. Highlights

A+

4

We have a favorable view of AMAT's valuation as well as its diversified end markets relative to peers. We think both semiconductor and flat panel equipment spending are poised to experience modest growth near term, as customers appear to be running at elevated capacity utilization levels. We believe AMAT's silicon systems group will see orders begin to flatten, as rising bookings in flash memory is likely to be offset by softer DRAM orders. We project greater solar-related orders, and more importantly, see the segment as profitable in FY 11. We see increasing share gains in both etch and reticle inspection. We view AMAT's financial and market share positions as superior to its peers. Risks to our recommendation and target price include a greater-than-expected slowdown in the global economy, which could weaken demand for chips and increase pricing pressures. We derive our 12-month target price of $14 by applying a peer-average price/sales (P/S) multiple of 1.70X to our calendar year 2011 sales per share forecast of $8.13. This ratio is below the company's three- and five-year historical averages of 2.6X and 2.8X, respectively.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,849 2,296 2009 1,333 1,020 2008 2,087 2,150 2007 2,277 2,530 2006 1,858 2,248 2005 1,781 1,861

3Q 2,518 1,134 1,848 2,561 2,543 1,632

4Q -1,526 2,044 2,367 2,518 1,718

Year -5,014 8,129 9,735 9,167 6,992

Earnings Per Share ($) 2010 0.06 0.20 2009 -0.10 -0.19 2008 0.19 0.22 2007 0.29 0.29 2006 0.09 0.26 2005 0.17 0.18

0.09 -0.04 0.12 0.12 0.33 0.23

E0.30 0.10 0.17 0.30 0.30 0.15

E0.82 -0.23 0.70 1.20 0.97 0.73

Fiscal year ended Oct. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.060 0.070 0.070 0.070

12/08 03/08 06/09 09/14

02/22 05/24 08/23 11/22

02/24 05/26 08/25 11/24

03/17/10 06/16/10 09/15/10 12/15/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: AMAT

Applied Materials Inc Business Summary August 19, 2010 CORPORATE OVERVIEW. At the end of FY 09 (Oct.), Applied Materials (AMAT) was the worldwide leader in the manufacturing of semiconductor capital equipment. AMAT divides its business into four segments: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. The Silicon Systems Group, which accounted for 39% of FY 09 sales (49% in FY 08), is focused on developing and selling equipment for use in the front end of the semiconductor fabrication process. The silicon segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, and metrology and inspection. AMAT's equipment in the silicon segment addresses most of the primary steps in chip fabrication. The Applied Global Services segment, which represented 28% (29%) of FY 09 sales, provides solutions to optimize and increase productivity at customers fabs (semiconductor fabrication facilities). The segment includes products and services to improve the efficiency and reduce operating costs at semiconductor, display and solar customer factories. Applied Global Services products consist of spares, services, certain earlier generation products, and remanufactured equipment.

The Display segment, which comprised for 10% (12%) of FY 09 sales, develops equipment for the fabrication of flat panel displays. The segment develops equipment for manufacturing Liquid Crystal Displays (LCD's) for TVs, personal computers and other video-enabled devices. The Display segment also includes the design and manufacture of differentiated stand-alone equipment for the Applied SunFab Thin Film Line. The Energy and Environmental Solutions segment accounted for 23% (10%) of sales in FY 09, and involves products targeting the solar photovoltaic (PV) cell market and energy efficient glass. AMAT offers manufacturing solutions for both wafer-based crystalline silicon (c-Si) and glass-based thin film applications to enable customers to increase the conversion efficiency and yields of PV devices.

Company Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.19 -0.01 -0.23 -0.19 0.24 NM 14.22 8.19 NM NM

2008 4.50 0.93 0.70 0.69 0.24 34% 21.75 7.17 31 10

2007 4.65 1.39 1.20 1.20 0.22 18% 23.00 17.35 19 14

2006 5.80 1.14 0.97 0.97 0.16 16% 21.06 14.39 22 15

2005 5.30 0.91 0.73 0.54 0.06 8% 19.47 14.33 27 20

2004 5.33 0.99 0.78 0.59 Nil Nil 24.75 15.36 32 20

2003 4.62 0.14 -0.09 -0.33 Nil Nil 25.94 11.25 NM NM

2002 4.67 0.39 0.16 -0.04 Nil Nil 27.95 10.26 NM NM

2001 4.51 0.69 0.46 0.33 Nil Nil 29.55 13.30 65 29

2000 4.20 1.41 1.20 NA Nil Nil 57.50 17.06 48 14

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,014 53.4 291 21.3 -486 NM -305 -257

8,129 1,695 320 20.5 1,409 31.8% 961 936

9,735 2,665 268 38.6 2,440 29.9% 1,710 1,710

9,167 2,517 270 36.1 2,167 30.0% 1,517 1,511

6,992 1,748 300 37.8 1,582 23.5% 1,210 905

8,013 2,313 356 52.9 1,829 26.1% 1,351 1,017

4,477 440 382 46.9 -212 NM -149 -562

5,062 683 388 49.4 341 21.0% 269 -65.2

7,343 1,538 387 47.6 1,104 29.8% 775 558

9,564 3,149 362 51.4 2,948 30.0% 2,064 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,215 Current Assets 5,689 Total Assets 9,574 Current Liabilities 1,939 Long Term Debt 201 Common Equity 7,095 Total Capital 7,297 Capital Expenditures 248 Cash Flow -14.1 Current Ratio 2.9 % Long Term Debt of Capitalization 2.8 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

2,101 6,664 10,906 2,946 202 7,449 7,808 288 1,281 2.3 2.6 11.8 8.9 12.6

1,203 6,606 10,654 2,373 202 7,821 8,023 265 1,978 2.8 2.5 17.5 16.9 23.6

861 6,081 9,481 2,436 205 6,651 6,856 179 1,787 2.5 3.0 16.5 14.6 19.5

990 9,449 11,269 1,765 407 8,929 9,336 200 1,510 5.4 4.4 17.3 10.4 13.3

2,282 10,282 12,093 2,288 410 9,262 9,672 191 1,707 4.5 4.2 16.9 12.1 15.6

1,365 8,371 10,312 1,641 456 8,068 8,524 265 233 5.1 5.4 NM NM NM

1,285 8,073 10,225 1,501 574 8,020 8,594 417 657 5.4 6.7 5.3 2.7 3.4

1,356 7,782 9,829 1,533 565 7,607 8,172 711 1,162 5.1 6.9 10.5 7.6 10.5

1,648 8,839 10,546 2,760 573 7,104 7,677 383 2,426 3.2 7.5 21.6 23.5 35.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3050 Bowers Avenue, Santa Clara, CA, United States 95054-3298. Telephone: 408-727-5555. Email: [email protected] Website: http://www.appliedmaterials.com

Chrmn, Pres & CEO: M.R. Splinter EVP & CFO: G.S. Davis EVP & CTO: M. Pinto SVP, Secy & General Counsel: J.J. Sweeney

Chief Acctg Officer & Cntlr: T. Timko Board Members: S. R. Forrest, T. Iannotti, S. M. James, A. A. Karsner, G. H. Parker, D. D. Powell, W. P. Roelandts, J. E. Rogers, Jr., M. R. Splinter, R. H. Swan, A. J. de Geus

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Delaware Employees: 12,619

Stock Report | October 23, 2010 | NYS Symbol: ADM | ADM is in the S&P 500

Archer-Daniels-Midland Co S&P Recommendation HOLD

★★★★★

Price $33.54 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Agricultural Products

12-Mo. Target Price $33.00

Investment Style Large-Cap Blend

Summary This company is one of the world's leading agribusiness companies, with major market positions in agricultural processing and merchandising.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.72– 24.22 Trailing 12-Month EPS $3.00 Trailing 12-Month P/E 11.2 $10K Invested 5 Yrs Ago $15,265

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.94 3.10 11.4 639.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$21.443 1.79 $0.60 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.22 5 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to volatile commodity industry conditions, and moderately aggressive financial policies and leverage levels given the inherent cyclicality of the company's agricultural operations.

60 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

A B

B+

A-

A

Relative Strength Rank 4

3

4

3

4

A+ STRONG

71

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tom Graves, CFA on September 10, 2010, when the stock traded at $ 32.53. Highlights ➤

➤

➤

In FY 11 (Jun.), we look for net sales to increase about 5% from the $61.7 billion reported for FY 10. We expect global economies to improve in FY 11, contributing to increased demand for products and services offered by ADM. Also, we expect ADM to benefit from some shifting in world agricultural trade that should increase demand for services provided by ADM. Over time, we believe ADM's market position will benefit from investment in new plants and cargo capacity. In FY 10, ADM's total expenditures for property, plant and equipment amounted to $1.61 billion. Near term, we look for ADM to benefit from a relatively large U.S. harvest of some major crops. In FY 10, ADM's reported EPS of $3.00 included a net negative impact of $0.14 from special items, including $0.11 of start-up costs related to new plants, $0.07 of debt buyback costs, and a $0.04 benefit related to changing LIFO valuations. Excluding any future LIFO adjustments, we project FY 11 EPS of $2.94, which includes increased caution regarding ADM's bioproducts business. For FY 12, we estimate EPS of $3.10

Investment Rationale/Risk ➤

➤

➤

As an internationally diversified agribusiness company, we think ADM is well positioned to outperform its peers based on scale and integration opportunities for the long term. While we think that global economic softness has slowed demand for ADM products, we think the company is well positioned to benefit from long-term global population growth and economic expansion. Risks to our recommendation and target price include adverse changes in plantings, government farm programs and policies, and from economic, operational, and industry conditions, such as commodity prices. Our 12-month target price of $33 is based on our view that the stock should trade at about 11.2X our estimate of year-ahead EPS, which would be a discount to a median and an average forward P/E for the stock over much of the past decade. We think the discount is warranted by a relatively lackluster economic environment and some concern about prospective increases in ethanol industry production capacity and higher commodity prices. The stock recently had an indicated dividend yield of about 1.9%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 14,921 15,913 2009 21,160 16,673 2008 12,828 16,496 2007 9,447 10,976 2006 8,627 9,299 2005 8,972 9,064

3Q 15,145 14,842 18,708 11,381 9,123 8,484

4Q 15,703 16,532 21,784 12,214 9,547 9,424

Year 61,682 69,207 69,816 44,018 36,596 35,944

Earnings Per Share ($) 2010 0.77 0.88 2009 1.63 0.91 2008 0.68 0.73 2007 0.61 0.67 2006 0.29 0.56 2005 0.41 0.48

0.65 0.01 0.80 0.56 0.53 0.41

0.69 0.10 0.58 1.47 0.62 0.30

3.00 2.65 2.79 3.30 2.00 1.59

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.140 0.150 0.150 0.150

11/05 02/04 05/06 08/05

11/17 02/16 05/18 08/17

11/19 02/18 05/20 08/19

12/10/09 03/11/10 06/10/10 09/09/10

Dividends have been paid since 1927. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ADM

Archer-Daniels-Midland Co Business Summary September 10, 2010 CORPORATE OVERVIEW. The successor to Daniels Linseed Co., founded in 1902, Archer Daniels Midland (ADM) is one of the world's largest agricultural processors, with a global network of processing plants. The company operates in four business segments: Oilseeds Processing (in FY 10 (Jun.), 37% of what ADM calls net sales and other operating income; 43% of FY 10 segment operating profit), Corn Processing (13%; 22%), Agricultural Services (41%; 21%), and Other (8%; 14%). The Oilseeds Processing segment includes activities related to the processing of oilseeds, such as soybeans, cottonseed, sunflower seeds, canola, rapeseed, peanuts, and flaxseed, into vegetable oils and protein meals, principally for the food and feed industries. Partially refined oil is used to produce biodiesel or is sold to other manufacturers for use in chemicals, paints, and other industrial products, and refined oil can be further processed for use in the production of biodiesel. Cottonseed flour is sold primarily to the pharmaceutical industry, and cotton cellulose pulp is sold to the chemical, paper, and filter markets. Golden Peanut Co. LLC, a joint venture between ADM (50%) and Alimenta (U.S.A.) Inc., is a major supplier of peanuts to domestic and international markets. ADM's other ownership interests include a 16% ownership interest in Wilmar International Ltd., a leading agribusiness group in Asia.

age industry, as well as activities related to the production, by fermentation, of alcohol, amino acids, and other specialty food and feed ingredients. Also, corn gluten feed and meal, plus distillers grains, are produced for use as animal feed ingredients. Ethyl alcohol may be produced for use as ethanol. ADM owns a 50% interest in Almidones Mexicanos S.A., which operates a wet corn milling plant in Mexico, and a 50% interest in Eaststarch C.V. (Netherlands), which owns interests in companies that operate wet corn milling plants in Bulgaria, Hungary, Slovakia, and Turkey. The Agricultural Services segment utilizes the company's extensive grain elevator and transportation network to buy, store, clean and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as feed ingredients and as raw materials to the agricultural processing industry. Agricultural Services includes activities of A.C. Toepfer International (ADM has an 80% interest), a global merchandiser of agricultural commodities and processed products. Other operations include milling, processing, and financial activities.

The Corn Processing segment includes activities related to the production of syrup, starch, glucose, dextrose, and sweeteners used in the food and beverCompany Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 22.04 4.41 3.00 3.03 0.58 19% 33.72 24.22 11 8

2009 20.20 3.80 2.65 2.50 0.54 20% 33.00 23.13 12 9

2008 20.16 3.91 2.79 2.64 0.49 18% 48.95 13.53 18 5

2007 17.01 4.36 3.30 2.31 0.43 13% 47.33 30.20 14 9

2006 14.47 3.00 2.00 2.02 0.37 19% 46.71 24.05 23 12

2005 12.47 2.60 1.59 1.53 0.32 20% 25.55 17.50 16 11

2004 11.31 1.82 0.76 1.14 0.27 36% 22.55 14.90 30 20

2003 10.43 1.69 0.70 0.61 0.24 34% 15.24 10.50 22 15

2002 10.39 1.64 0.78 0.55 0.20 25% 14.85 10.00 19 13

2001 9.56 1.44 0.58 0.58 0.19 32% 15.80 10.24 27 18

61,682 3,357 912 422 2,585 NA 1,930 1,952

69,207 3,420 743 430 2,534 32.6% 1,707 1,615

69,816 3,188 721 529 2,624 31.3% 1,802 1,706

44,018 2,743 701 Nil 3,154 31.5% 2,162 1,508

36,596 2,450 657 365 1,855 29.3% 1,312 1,322

35,944 2,015 665 Nil 1,516 31.1% 1,044 1,001

36,151 1,432 686 Nil 718 31.1% 495 739

30,708 1,423 644 Nil 631 28.5% 451 397

23,454 1,424 567 356 719 28.9% 511 363

20,051 1,272 572 397 522 26.6% 383 382

Balance Sheet & Other Financial Data (Million $) Cash 1,046 Current Assets 10,279 Total Assets 23,693 Current Liabilities 374 Long Term Debt 7,174 Common Equity 14,631 Total Capital 21,805 Capital Expenditures 1,607 Cash Flow 2,842 Current Ratio 27.5 % Long Term Debt of Capitalization 32.9 % Net Income of Revenue 3.1 % Return on Assets 7.0 % Return on Equity 13.7

1,055 19,408 23,104 8,885 7,848 13,499 21,577 1,898 2,450 30.7 36.4 2.5 5.7 12.7

1,265 25,455 25,790 14,621 7,690 13,490 21,653 1,779 2,523 1.7 35.5 2.6 7.1 14.6

2,087 15,122 25,118 7,868 4,752 11,253 16,537 1,198 2,863 1.9 28.7 4.9 9.3 20.5

2,334 11,826 21,269 6,165 4,050 9,807 14,614 762 1,969 1.9 27.7 3.6 6.6 14.4

1,430 9,711 18,598 5,367 3,530 8,433 12,743 624 1,709 1.8 27.7 2.9 5.5 12.9

1,412 10,339 19,369 6,750 3,740 7,698 12,092 509 1,180 1.5 30.9 1.4 2.7 6.7

765 8,422 17,183 5,147 3,872 7,069 11,485 420 1,095 1.6 33.7 1.5 2.8 6.5

844 7,363 15,416 4,719 3,111 6,755 10,498 350 1,078 1.6 29.6 2.2 3.4 7.8

676 6,150 14,340 3,867 3,351 6,332 10,327 273 955 1.6 32.4 1.9 2.7 6.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4666 Faries Parkway, Decatur, IL 62525. Telephone: 217-424-5200. Website: http://www.admworld.com Chrmn, Pres & CEO: P. Woertz

EVP & CFO: S.R. Mills EVP, Secy & General Counsel: D.J. Smith Treas: V. Luthar Investor Contact: D. Grimestad (217-424-4586)

Board Members: G. W. Buckley, M. H. Carter, P. Founded: 1898 Dufour, D. E. Felsinger, V. F. Haynes, P. J. Moore, A. M. Domicile: Delaware Neto, T. F. O'Neill, K. R. Westbrook, P. Woertz Employees: 29,300

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AIZ | AIZ is in the S&P 500

Assurant Inc. S&P Recommendation HOLD

★★★★★

Price $41.37 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Multi-line Insurance

12-Mo. Target Price $43.00

Investment Style Large-Cap Value

Summary This company pursues a differentiated strategy of building leading positions in niche insurance markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $41.87– 28.94 Trailing 12-Month EPS $4.10 Trailing 12-Month P/E 10.1 $10K Invested 5 Yrs Ago $11,940

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.85 4.95 8.5 106.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.408 1.55 $0.64 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.51 7 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the difficult operating environment for Assurant's Health and Specialty Property segments. Also, AIZ's Solutions business remains vulnerable to weak consumer spending. However, AIZ has a solid track record of disciplined capital management, and we believe the company's balance sheet is more conservatively positioned versus peers due to less debt and more conservative investment holdings.

80 50 40 30 20

Vol. Mil. 12 8 4 0

Quantitative Evaluations

5

S&P Quality Ranking

4

3

NR

3

D

C

B-

B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

MODERATE

2010 Options: ASE, CBOE, P, Ph

66 LOWEST = 1

HIGHEST = 99

Analysis prepared by Bret Howlett on October 20, 2010, when the stock traded at $ 41.30. Highlights ➤

➤

➤

We expect premiums in the Solutions segment to fall 1%-3% in 2010, as weak consumer spending in the U.S. is only partially offset by international growth. We see earnings rising 4%-6% on an improved combined ratio, lower losses in the U.K., and expense reduction initiatives. We view favorably that Health has returned to profitability, and we believe that segment is on track to achieve a 4% after-tax margin by the end of the year. The Health segment has incurred sizable losses over the past year due to the recession, but pricing and plan design changes have improved results. We project earnings in Benefits to be up over 20% on higher margins from cost cuts and favorable underwriting results. Still, lower sales and enrollment should restrict revenue growth. We forecast modestly higher premiums in the Specialty Property segment on new business production and higher mortgage originations and average insured values. However, we are cautious longer term, due to the challenging housing market. We estimate operating EPS of $4.85 in 2010 and $4.95 in 2011, excluding realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

Our hold recommendation reflects our belief that AIZ shares are fairly valued at current levels. We also believe there is a lack of catalysts that could drive upside to our earnings expectations in 2011 and beyond. We forecast strong operating earnings growth for AIZ in 2010, due to expense reductions and our view that the economic recovery will provide a boost to its economically sensitive businesses. Although AIZ is likely to face some top-line headwinds, we believe the company is on track to achieve better returns in all of its businesses. We think AIZ's underwriting expertise is strong, and that it has a high level of expertise in the specialized lines it markets. In our view, AIZ maintains a solid financial position, and we expect the company to use excess capital toward repurchasing its shares. Risks to our recommendation and target price include a slower-than-expected economic recovery, losses in Health, catastrophe risks, a sharp drop in demand for homeowners' coverage, and elevated investment losses. Our 12-month target price of $43 is 8.7X our 2011 operating EPS estimate, below AIZ's average historical multiple.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,168 2,140 2009 2,088 2,274 2008 2,177 2,249 2007 2,057 2,065 2006 1,930 1,949 2005 1,862 1,874

3Q -2,157 1,955 2,148 1,984 1,879

4Q -2,182 2,221 2,183 2,208 1,882

Year -8,701 8,601 8,454 8,071 7,498

Earnings Per Share ($) 2010 1.34 1.46 2009 0.68 1.63 2008 1.57 1.59 2007 1.45 1.36 2006 1.22 1.16 2005 0.82 0.92

E1.03 1.22 -0.95 1.56 1.18 0.74

E1.10 0.10 1.55 1.01 2.01 1.03

E4.85 3.63 3.77 5.38 5.56 3.50

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.160 0.160

11/13 01/25 05/14 08/11

11/25 02/18 05/20 08/26

11/30 02/22 05/24 08/30

12/14/09 03/08/10 06/08/10 09/14/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AIZ

Assurant Inc. Business Summary October 20, 2010 CORPORATE OVERVIEW. Assurant Inc. provides specialized insurance products in North America and other selected markets. The company was indirectly wholly owned by Fortis N.V. until February 2004, when Fortis sold about 65% of its stake via an IPO. In January 2005, Fortis sold 27.2 million shares of AIZ in a secondary public offering at $30.60 per share. In conjunction with the offering, Fortis issued $774 million of 7.75% bonds that were mandatorily exchangeable for up to 23.0 million shares of AIZ, or the cash value thereof, by January 2008. Fortis distributed most of its remaining AIZ shares to the holders of these bonds in January 2008, leaving it with about a 3% interest in AIZ. In August 2008, AIZ purchased one million shares of its common shares from Fortis.

the number of subscribers and master contracts in force), and pre-funded funeral insurance (based on the face amount of new policies sold). On April 1, 2006, the company separated its Assurant Solutions unit into two business segments: Assurant Solutions and Assurant Specialty Property. In addition, with the creation of the new Assurant Solutions and Assurant Specialty Property segments, the company realigned the PreNeed segment under the new Assurant Solutions segment. In total, AIZ operates through four decentralized business segments: Assurant Solutions (35% of net earned premiums and other consideration in 2009); Assurant Specialty Property (26%); Assurant Health (25%); and, Assurant Employee Benefits (14%). AIZ also reports a fifth segment, Corporate and Other.

As of March 2010, AIZ believed it was a leader or was aligned with clients who were leaders in creditor-placed homeowners insurance (based on servicing volume), manufactured housing homeowners insurance (based on the number of homes built), debt protection administration (based on credit card balances outstanding), group dental plans sponsored by employers (based on Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 31.11 NA 3.63 4.18 0.74 20% 33.37 16.34 9 5

2008 19.06 NA 3.77 5.79 0.54 14% 71.31 12.52 19 3

2007 NM NA 5.38 5.60 0.46 9% 69.77 45.27 13 8

2006 28.46 NA 5.56 4.77 0.38 7% 56.78 42.72 10 8

2005 21.01 NA 3.50 3.49 0.31 9% 44.68 29.70 13 8

2004 18.90 NA 2.53 2.50 0.21 8% 31.29 22.00 12 9

2003 14.76 NA 1.70 1.72 NA NA NA NA NA NA

2002 NA NA 31.29 38.61 NA NA NA NA NA NA

2001 NA NA 11.81 15.43 NA NA NA NA NA NA

2000 NA NA 10.93 NA NA NA NA NA NA NA

123,383 3,460 4,091 699 8,701 710 NA 431 496

123,383 3,828 4,097 774 8,601 563 NA 448 689

136,530 4,061 3,347 799 8,454 1,011 NA 654 680

137,507 4,203 2,641 737 8,071 1,096 NA 716 613

157,203 4,595 1,926 687 7,498 656 NA 479 477

166,452 4,789 1,694 635 7,403 536 NA 351 345

169,787 4,565 1,591 607 7,066 259 NA 186 187

192,984 4,385 1,297 632 6,532 370 NA 260 320

203,660 4,215 1,027 712 6,187 206 NA 98.1 128

NA NA NA 691 6,212 194 NA 89.7 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 1,474 Premiums Due 508 Investment Assets:Bonds 9,967 Investment Assets:Stocks 513 Investment Assets:Loans 1,484 Investment Assets:Total 13,158 Deferred Policy Costs 2,505 Total Assets 25,842 Debt 972 Common Equity 4,853 Combined Loss-Expense Ratio 74.7 % Return on Revenue 5.0 % Return on Equity 10.1 % Investment Yield 5.5

1,185 513 8,591 475 1,565 12,067 2,651 24,515 972 3,710 76.4 5.2 11.5 1.2

954 580 10,126 636 1,491 13,747 2,895 26,750 972 4,089 92.0 7.7 16.5 6.1

1,125 612 9,118 742 1,325 12,429 2,398 25,165 972 3,833 91.4 8.9 18.7 5.7

NA 455 8,962 693 1,273 12,516 2,022 25,365 972 3,778 90.8 6.4 12.8 5.2

NA 435 9,178 527 1,119 13,472 1,648 24,504 972 3,768 92.4 4.9 10.6 5.2

NA 368 8,729 456 1,001 10,924 1,394 23,728 1,946 2,832 93.3 2.6 6.7 5.8

550 NA NA NA NA 10,029 NA 22,924 975 3,346 NA 4.0 NA 6.4

559 NA NA NA NA 9,601 NA 24,450 NA 3,452 NA 1.6 NA 14.8

NA NA NA NA NA NA NA NA NA NA NA 1.4 NA NA

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Chase Manhattan Plaza, 41st Floor, New York, NY 10005. Telephone: 212-859-7000. Website: http://www.assurant.com Chrmn: J.M. Palms

Pres & CEO: R.B. Pollock Vice Chrmn: E.D. Rosen EVP & CFO: M.J. Peninger EVP & Treas: C.J. Pagano

Investor Contact: M. Kivett (212-859-7029) Founded: 1969 Board Members: B. L. Bronner, H. L. Carver, J. N. Domicile: Delaware Cento, A. R. Freedman, L. V. Jackson, D. B. Kelso, C. J. Employees: 15,000 Koch, H. C. Mackin, J. M. Palms, R. B. Pollock, E. D. Rosen, J. A. Swainson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: T | T is in the S&P 500

AT&T Inc S&P Recommendation STRONG BUY

★★★★★

Price $28.29 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Integrated Telecommunication Services

12-Mo. Target Price $33.00

Investment Style Large-Cap Value

Summary AT&T Inc. (formerly SBC Communications) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.43– 23.78 Trailing 12-Month EPS $2.15 Trailing 12-Month P/E 13.2 $10K Invested 5 Yrs Ago $15,949

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.34 2.47 12.1 5,909.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$167.166 5.94 $1.68 57

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.68 5 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong balance sheet and its power over suppliers, offset by the competitive nature of the telecom business and the integration challenges of numerous acquisitions.

40 35 30 25

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

240 160 80 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

47

5

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Todd Rosenbluth on October 22, 2010, when the stock traded at $ 28.34. Highlights ➤

➤

➤

We forecast that revenue will rise 2.0% in 2011, following a projected gain of 1.5% in 2010. We look for wireless revenue to advance 8% in 2011 on customer additions and growth in wireless data services. Meanwhile, we look for smaller revenue gains in the broadband business, helping to outweigh competitive and economic pressures in consumer and business voice operations. We see operating margins widening slightly to 19% in 2011 from our forecast for 2010. Despite high wireless handset subsidies used to gain and retain smartphone customers and pending integration of a wireless asset purchase, we believe wireless data and U-verse are generating improved profitability, and we see further benefits from workforce reductions undertaken in the past year. During the third quarter of 2010, operating margin expansion was below our projection due to high wireless customer acquisition costs. We estimate EPS of $2.34 for 2010 and $2.47 for 2011, up from $2.12 posted in 2009. We expect cash to begin to be used for share repurchases in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We expect gains in consumer wireless and broadband to offset some wireline voice pressure, and we think the company's fundamentals will remain strong. The delayed recovery in enterprise is more dependent upon an improved labor market than T fixing its problems, in our opinion. Despite increased competition and risks that T could lose exclusivity of a key handset, we believe strong brand loyalty and an improved balance sheet are positives. We view T's above-average dividend as secure. Risks to our recommendation and target price include balance sheet weakness, increased competition that leads to unexpected customer losses, and worse-than-projected wireless services execution. We view T as undervalued, recently trading at a P/E of about 11.5X our 2011 estimate, a discount to the 13X for the broader market and the 14X of its telecom peers. Our 12-month target price of $33 is based on our relative analysis, which assumes a P/E of approximately 13X our 2011 EPS estimate to reflect T's strong industry leadership and above-average dividend yield. The dividend yield was recently about 6%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 30,649 30,808 2009 30,571 30,734 2008 30,744 30,866 2007 28,969 29,478 2006 15,756 15,770 2005 10,248 10,328

3Q -30,855 31,342 30,132 15,638 10,320

Earnings Per Share ($) 2010 0.42 0.68 2009 0.53 0.54 2008 0.57 0.63 2007 0.45 0.47 2006 0.37 0.46 2005 0.27 0.30

E0.63 0.54 0.55 0.50 0.56 0.38

4Q Year --30,858 123,018 31,076 124,028 30,349 118,928 15,891 63,055 12,966 43,862

E0.64 0.51 0.41 0.52 0.50 0.46

E2.34 2.12 2.16 1.94 1.89 1.42

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.420 0.420 0.420

12/18 03/26 06/25 09/24

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

02/01/10 05/03/10 08/02/10 11/01/10

Dividends have been paid since 1984. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: T

AT&T Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. AT&T Inc. (T) combined SBC Communications with the acquired assets of AT&T Corp. following a November 2005 acquisition. At the end of 2006, T closed on its acquisition of BellSouth (BLS) for $86 billion in stock. As of September 2010, the company had 24.9 million consumer voice connections (down 11% from a year earlier), and 14 million consumer broadband customers (up 4%) along with business voice connections. With the acquisition of BLS, T took full control of Cingular Wireless, now the second largest U.S. carrier with 93 million subscribers (up 14% from a year earlier), including 3.4 million via acquisition, and expanded its wireline presence into the southeastern U.S. In early 2007, Cingular was renamed AT&T. IMPACT OF MAJOR DEVELOPMENTS. In June 2006, T launched its new fiberbased network, which offers video and faster-speed broadband services. As of September 2010, the service, called U-verse, had been rolled out in part of T's operating territory with 2.7 million customers, up 51% from a year earlier. T has deployed the service to more than 26 million households and aims to deploy it to 30 million households by 2011. In April 2010, T said that it had signed up more than 22% of homes as customers with U-verse available for 30 months.

the smartphone to drive customer demand and revenue per user. During 2009, more than 10 million iPhones were activated onto T's network; more than 11 million more were activated in the first nine months of 2010. Even with faster revenue growth and supporting customer loyalty in a competitive market, we think the iPhone has been earnings dilutive following new releases given T's subsidy of the product. However, we think margins have and will benefit in future periods as these customers mature. We believe T has a broad lineup of appealing smartphones and integrated devices used currently by approximately 39 million of its post-paid customers. In the first nine months of 2010, T added 3.1 million emerging devices, such as e-readers and the iPad, to its wireless data network. COMPETITIVE LANDSCAPE. T faces competition in its consumer wireline and regional business operations from wireless, and has cable telephony overlapping with 75% of its overall wireline operations. We think this adds operating risk. Also, the weak U.S. economy has caused customers to reduce costs by dropping wireline and broadband connections.

In mid-2007, T became the exclusive U.S. provider of the iPhone. Since then, it has launched multiple, faster versions of the product. T has been subsidizing Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 5.44 2.12 2.11 1.64 77% 29.46 21.44 14 10

2008 NM 5.50 2.16 1.39 1.60 74% 41.94 20.90 19 10

2007 NM 5.43 1.94 1.66 1.42 73% 42.97 31.94 22 16

2006 NM 2.77 1.89 1.82 1.33 70% 36.21 24.24 19 13

2005 8.29 3.68 1.42 1.24 1.29 91% 25.98 21.75 18 15

2004 11.77 3.80 1.50 1.22 1.25 83% 27.73 22.98 18 15

2003 11.09 4.16 1.80 1.50 1.37 76% 31.65 18.85 18 10

2002 9.51 4.79 2.23 1.21 1.07 48% 40.99 19.57 18 9

2001 8.62 2.25 2.14 1.39 1.02 48% 53.06 36.50 25 17

2000 7.38 5.16 2.32 NA 1.01 43% 59.00 34.81 25 15

123,018 19,714 NA NA 32.4% 12,535 12,483

124,028 19,883 NA NA 35.4% 12,867 8,235

118,928 21,577 NA NA 34.0% 11,951 10,225

63,055 9,907 NA NA 32.4% 7,356 7,080

43,862 7,643 NA 36.0 16.3% 4,786 4,189

40,787 7,564 NA 31.0 30.5% 4,979 4,031

40,843 7,870 NA 37.0 32.9% 5,971 5,000

43,138 8,578 NA 58.0 28.5% 7,473 4,048

45,908 9,077 NA 119 36.1% 7,260 4,717

51,476 9,748 NA 81.0 38.2% 7,967 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 230,552 Net Property 100,093 Capital Expenditures 17,335 Total Capital 174,406 Fixed Charges Coverage 6.4 Capitalization:Long Term Debt 64,720 Capitalization:Preferred Nil Capitalization:Common 101,900 % Return on Revenue 10.2 % Return on Invested Capital 8.9 % Return on Common Equity 12.7 % Earned on Net Property 21.6 % Long Term Debt of Capitalization 38.8 Capital % Preferred Nil Capitalization:% Common 61.2

218,579 99,088 20,335 176,415 6.6 60,872 Nil 96,347 10.4 8.3 12.2 23.7 38.7 Nil 61.3

210,518 95,890 17,717 197,561 6.0 57,255 Nil 115,367 10.0 7.6 10.4 21.4 33.2 Nil 66.8

202,149 94,596 8,320 193,009 5.8 50,063 Nil 115,540 11.7 4.9 8.6 13.4 30.3 Nil 67.8

149,238 58,727 5,576 96,727 4.4 26,115 Nil 54,690 10.9 6.5 10.1 11.3 32.3 Nil 67.7

136,177 50,046 5,099 77,544 6.9 21,231 Nil 40,504 12.2 7.0 12.6 11.6 34.4 Nil 65.6

133,923 52,128 5,219 69,607 7.0 16,060 Nil 38,248 14.6 9.0 16.7 12.9 29.6 Nil 70.4

131,755 48,490 6,808 62,705 6.9 18,536 Nil 33,199 17.3 11.4 22.6 17.5 35.8 Nil 64.2

127,524 49,827 11,189 58,476 6.6 17,133 Nil 32,491 15.8 12.9 23.1 22.4 34.5 Nil 65.5

119,753 47,195 13,124 54,079 8.0 16,492 Nil 30,463 15.5 16.6 27.9 22.9 35.1 Nil 64.9

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2088 S Akard St, Dallas, TX 75202. Telephone: 210-821-4105. Website: http://www.att.com Chrmn, Pres & CEO: R.L. Stephenson

EVP, CFO & Chief Acctg Officer: R. Lindner EVP & General Counsel: D.W. Watts SVP & Secy: A.E. Meuleman SVP & Cntlr: J.J. Stephens

Investor Contact: D. Cessac (210-351-2058) Founded: 1983 Board Members: G. F. Amelio, R. V. Anderson, J. H. Domicile: Delaware Blanchard, J. Chico Pardo, J. P. Kelly, J. C. Madonna, L. Employees: 282,720 M. Martin, J. B. McCoy, J. M. Roche, M. K. Rose, R. L. Stephenson, L. D. Tyson, P. P. Upton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ADSK | ADSK is in the S&P 500

Autodesk Inc S&P Recommendation HOLD

★★★★★

Price $34.84 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Application Software

12-Mo. Target Price $29.00

Investment Style Large-Cap Growth

Summary This company develops, markets, and supports computer-aided design and drafting (CAD) software for use on desktop computers and workstations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.18– 22.50 Trailing 12-Month EPS $0.75 Trailing 12-Month P/E 46.5 $10K Invested 5 Yrs Ago $7,642

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.87 1.03 40.0 227.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.919 Nil Nil 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.11 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our concern about the financial crisis in Europe, the cyclical nature of ADSK's business, and intense competition in the computer-aided design market.

40 30 20

Quantitative Evaluations 10

S&P Quality Ranking

Vol.

D

B-

B B

B+

A-

A

A+

63

Mil. 24 16 8 0 5

C

5 3

3 1

Relative Strength Rank

STRONG 87

LOWEST = 1

HIGHEST = 99

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on August 17, 2010, when the stock traded at $ 27.66. Highlights ➤

➤

➤

We estimate total revenues in FY 11 (Jan.) will rise 11%, following a 26% decline in FY 10. Our outlook is based on our view of a modest improvement in IT spending, even though we are concerned about a slowing global economy. We forecast a 16% rise in license revenues in FY 11 due to pent-up demand, as customers resume spending on new projects. We project 4.3% growth in maintenance revenues, reflecting stronger license revenues and a stronger renewal rate as some customers upgrade software. We note that the growth in maintenance revenues tends to lag that of license revenues. We see gross margins of 89% in FY 11, the same as in FY 10. We look for total operating expenses to decrease as a percentage of revenue due to further cost savings. We estimate that operating margins will widen to 14% in FY 11 from 3.8% in FY 10. Our EPS estimate is $0.87 for FY 11, up from $0.25 in FY 10. We project low-teen revenue growth in FY 11, and believe earnings will increase on further cost reductions and lower restructuring costs.

Investment Rationale/Risk ➤

➤

➤

We recently upgraded our recommendation to hold, from sell, based on our projection for stronger license revenues. Despite economic uncertainty, ADSK continues to signs new customers. We believe ADSK has not experienced the impact of economic uncertainty in Europe due to its long sales cycles. Additionally, the company has been controlling its expenses. Although we expect foreign currency exchange to be less favorable in FY 11, ADSK has a hedging program that should mitigate the impact. Risks to our opinion and target price include a weaker-than-expected economic recovery, weaker IT spending, significant loss in market share, and lower-than-expected cost savings from restructuring. Our 12-month target price of $29 is based on a blend of our discounted cash flow (DCF) and enterprise value (EV)-to-sales valuations. Our DCF model assumes a 13% weighted average cost of capital and 3% terminal growth, yielding intrinsic value of $30. From our EV-to-sales analysis, we derive a value of $28, based on an EV-to-sales ratio of 2.8X, almost in line with the industry's average of 2.7X.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 474.6 472.8 2010 425.8 414.9 2009 598.8 619.5 2008 508.5 525.9 2007 436.0 449.6 2006 355.1 373.0

3Q -416.9 607.1 538.4 456.8 378.3

4Q -456.1 489.8 599.1 497.4 416.8

Year -1,714 2,315 2,172 1,840 1,523

Earnings Per Share ($) 2011 0.16 0.25 2010 -0.14 0.05 2009 0.41 0.39 2008 0.34 0.39 2007 0.20 0.36 2006 0.31 0.30

E0.22 0.13 0.45 0.35 0.24 0.38

E0.24 0.22 -0.47 0.40 0.40 0.33

E0.87 0.25 0.80 1.47 1.19 1.33

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Quarterly cash dividends were discontinued after April 2005.

Stock Report | October 23, 2010 | NNM Symbol: ADSK

Autodesk Inc Business Summary August 17, 2010 CORPORATE OVERVIEW. Autodesk (ADSK) develops software solutions that enable customers in the architectural, engineering, construction, manufacturing, infrastructure, media and entertainment markets to create, manage and share their data and designs digitally. ADSK's software helps its customers to improve their designs before they actually begin the building process, thus saving time and money. The company is organized into four reportable operating segments: Platform Solutions and Emerging Business, which accounted for 36% of net revenue in FY 10 (Jan.), Architecture, Engineering and Construction (30%), Manufacturing (23%), and the Media and Entertainment segment (11%). The targeted customers for its Platform Solutions and Emerging Business; Architecture, Engineering and Construction; and Manufacturing segments are those who design, build, manage or own building, manufacturing and infrastructure projects. Key products for these segments include AutoCAD, a general-purpose computer aided design (CAD) tool for design, modeling, drafting, mapping, rendering and facility management tasks; AutoCAD LT, a low-cost CAD package with 2D and basic 3D drafting capabilities; and Au-

todesk Inventor, a software that allows engineers to perform simulation and analysis on 3D models. Other products include Autodesk Mechanical Desktop, Autodesk Civil 3D, and Autodesk Revit products. The Media and Entertainment segment develops digital systems and software for creating 3D animation, color grading, visual effects compositing, editing and finishing. Its products are used for PC and console game development, animation, film, television, and design visualization. Products include Autodesk 3ds Max, a 3D modeling and animation software package; Autodesk Flame, a digital system used by professionals to create and edit special visual effects in real-time; and Autodesk Inferno, which provides all the features of flame with film tools, and increased image resolution and color control for digital film work.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.68 0.73 0.25 0.31 NA Nil 2009 27.97 11.70 NM NM

2009 2.89 1.24 0.80 1.18 Nil Nil 2008 49.71 12.45 62 16

2008 3.14 1.68 1.47 1.49 Nil Nil 2007 51.32 36.74 35 25

2007 3.07 1.37 1.19 1.19 0.02 2% 2006 44.75 29.56 38 25

2006 2.06 1.51 1.33 1.05 0.06 5% 2005 48.27 26.20 36 20

2005 2.07 1.11 0.90 0.67 0.06 7% 2004 38.98 12.10 43 13

2004 2.07 0.74 0.52 0.33 0.06 12% 2003 12.45 6.41 24 12

2003 1.84 0.35 0.14 -0.07 0.06 43% 2002 11.84 5.09 85 36

2002 2.20 0.68 0.40 0.09 0.06 15% 2001 10.55 6.05 26 15

2001 1.85 0.69 0.40 0.17 0.06 15% 2000 14.02 4.86 35 12

1,714 246 112 NA 84.7 31.5% 58.0 71.7

2,315 543 102 Nil 253 27.3% 184 271

2,172 539 49.8 Nil 470 24.2% 356 362

1,840 440 43.9 2.10 367 21.0% 290 292

1,523 414 43.7 Nil 383 14.1% 329 258

1,234 314 51.9 Nil 246 10.1% 222 161

952 0.16 50.3 Nil 117 NM 120 74.4

825 99.7 48.8 Nil 38.5 17.1% 31.9 -16.2

947 195 62.9 Nil 55.1 NM 90.3 19.5

936 208 68.8 Nil 41.7 NM 93.2 38.5

Balance Sheet & Other Financial Data (Million $) Cash 1,001 Current Assets 1,380 Total Assets 2,447 Current Liabilities 704 Long Term Debt NA Common Equity 1,474 Total Capital 1,474 Capital Expenditures 39.0 Cash Flow 170 Current Ratio 2.0 % Long Term Debt of Capitalization Nil % Net Income of Revenue 3.4 % Return on Assets 2.4 % Return on Equity 4.2

981 1,388 2,421 800 Nil 1,311 1,333 78.4 286 1.7 Nil 7.9 7.9 14.5

949 1,482 2,209 746 Nil 1,231 1,231 43.3 406 2.0 Nil 16.4 17.8 30.4

778 1,190 1,798 574 Nil 1,115 1,115 35.3 334 2.1 Nil 15.8 18.4 30.4

369 739 1,361 507 Nil 791 791 20.5 373 1.5 Nil 21.6 26.3 45.7

533 782 1,142 477 Nil 648 648 40.8 273 1.6 Nil 18.0 20.5 34.9

364 597 1,017 385 Nil 622 629 25.9 171 1.6 Nil 12.6 12.7 20.2

247 450 884 310 Nil 569 571 36.1 80.7 1.5 Nil 3.9 3.6 5.8

505 564 902 371 Nil 529 529 45.1 153 1.5 Nil 9.5 10.6 18.3

423 491 808 334 Nil 460 473 32.4 162 1.5 Nil 10.0 10.9 17.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 111 McInnis Parkway, San Rafael, CA 94903-2700. Telephone: 415-507-5000. Email: [email protected] Website: http://www.autodesk.com

Chrmn: C.W. Beveridge Pres & CEO: C. Bass COO & SVP: M. Chin EVP, CFO & Chief Acctg Officer: M.J. Hawkins

SVP, Secy & General Counsel: P.W. Di Fronzo Founded: 1982 Investor Contact: S. Pirri (415-507-6467) Domicile: Delaware Board Members: C. Bass, C. W. Beveridge, J. H. Employees: 6,800 Dawson, P. Halvorsen, S. Maloney, M. T. McDowell, C. Robel, S. M. West

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ADP | ADP is in the S&P 500

Automatic Data Processing Inc. S&P Recommendation BUY

★★★★★

Price $43.80 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $47.00

Investment Style Large-Cap Growth

Summary ADP, one of the world's largest independent computing services companies, provides a broad range of data processing services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $45.74– 26.46 Trailing 12-Month EPS $2.41 Trailing 12-Month P/E 18.2 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.44 2.59 18.0 492.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.59 5 AAA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as the company's strong balance sheet, steady cash inflow, and recurring revenue stream, offset by intense competition in payroll processing and the threat of new entrants into the marketplace.

50

40 35 30

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

$21.551 3.11 $1.36 75

C

B-

A B

B+

A-

A

Relative Strength Rank 5

4

A+

MODERATE 64

4

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Dylan Cathers on October 13, 2010, when the stock traded at $ 42.47. Highlights ➤

➤

➤

After revenue increased just 0.8% in FY 10 (Jun.), we look for a modest 3% rise in FY 11. We believe that the continued weak environment for employment will weigh on the company's core payroll and tax-filing business for the next few quarters at least. Levels of employment at clients remain muted, although there appear to be some improvements in retention rates. Revenue growth from Beyond Payroll should remain in the mid-single digits. The Dealer Services unit had some positive signs, as auto sales rebound. We see low prevailing interest rates reducing income from funds held for clients, but this should be partially offset by a slight increase in balances and lower borrowing costs. Operating margins narrowed in FY 10, and we do not expect any improvement in FY 11. We think modestly improving operational metrics and cost controls will be offset by investments in the sales force, new technologies, and recent acquisitions. Operating EPS was $2.37 in FY 10, excluding a tax benefit. We assume a modest level of share buybacks, and expect EPS of $2.44 in FY 11 and $2.59 in FY 12.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our buy opinion on the shares is based on valuation. We are seeing headwinds that will likely affect the company in the near term, namely low employment levels, continued weak U.S. vehicle sales, and low interest rates. However, we think conditions are improving. Further, over the longer term, we think the market for payroll outsourcing is relatively untapped, especially in the small and medium-sized business market and overseas, providing opportunities for future growth. Risks to our recommendation and target price include increased competition in the business process outsourcing market, an area into which ADP is venturing, which could lead to downward pressure on pricing and profit margins; a decrease in payrolls due to a weak economy; and failure of ADP to expand further into small and mid-sized businesses and international markets. Our 12-month target price of $47 is based on our relative valuation analysis, applying a roughly peer-average P/E of 18.8X to our calendar 2011 EPS estimate of $2.50.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,096 2,198 2009 2,182 2,203 2008 1,992 2,150 2007 1,755 1,874 2006 1,922 2,047 2005 1,855 1,994

3Q 2,443 2,375 2,427 2,171 2,439 2,349

4Q 2,190 2,108 2,207 2,000 2,474 2,302

Year 8,928 8,867 8,777 7,800 8,882 8,499

Earnings Per Share ($) 2010 0.56 0.62 2009 0.54 0.59 2008 0.45 0.53 2007 0.39 0.45 2006 0.36 0.44 2005 0.35 0.42

0.79 0.80 0.77 0.65 0.61 0.57

0.42 0.69 0.44 0.35 0.44 0.44

2.40 2.63 2.20 1.83 1.85 1.79

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.340 0.340 0.340 0.340

11/10 02/09 04/29 08/09

12/09 03/10 06/09 09/08

12/11 03/12 06/11 09/10

01/01/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1974. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: ADP

Automatic Data Processing Inc. Business Summary October 13, 2010 CORPORATE OVERVIEW. Automatic Data Processing (ADP) is the largest global provider of payroll outsourcing services based on revenue. The company also offers human resources outsourcing, tax filing, and benefits administration, with a broad range of data processing services in two business segments: employer and dealer. Employer Services provides payroll, human resource, benefits administration, time and attendance, and tax filing and reporting services to more than 570,000 clients in North America, Europe, Australia, Asia and Brazil. Dealer Services provides transaction systems, data products and professional services to automobile and truck dealers and manufacturers worldwide. MARKET PROFILE. The market for HR management services, which is the largest segment of ADP's Employer Services division, totaled $102.3 billion worldwide in calendar 2009, according to market researcher IDC. Between 2009 and 2014, IDC expects this area to expand at a compound annual growth rate (CAGR) of 4.6%, with the market in the U.S. increasing 4.3%, from $50.2 billion in 2009. For the more narrow processing services market, where ADP is the dominant company, IDC sees a CAGR of 3.7% in the U.S. between 2009 and 2014. In contrast, in the market for business process outsourcing (BPO) services, an area in which we see ADP expanding further, IDC expects a CAGR of

4.9% over the same time frame. IMPACT OF MAJOR DEVELOPMENTS. In April 2006, ADP completed the sale of its Claims Services business for $975 million in cash, netting $480 million after taxes. In August 2006, ADP announced its intention to spin off its Brokerage Services business. The new public company, Broadridge Financial Services, which began trading on April 2, 2007, had sales of about $2 billion in FY 07 (Jun.), a high level of recurring revenues, and a revenue growth rate in the mid-single digits. This growth rate is below what we think the remaining Employer Services and Dealer Services units are capable of, especially given what we believe are strong overseas prospects. Further, the disposition of the Brokerage business (as well as the Claims sale) allows management to better concentrate on its two remaining businesses, in our opinion. With the Brokerage business spin-off complete, the new company distributed $690 million to ADP, which it used primarily for share buybacks, acquiring 40 million shares at a cost of about $2 billion in FY 07.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 5.19 3.01 2.40 2.37 1.35 56% 45.74 26.46 19 11

2009 4.72 3.24 2.63 2.58 1.28 49% 44.50 32.03 17 12

2008 3.97 2.40 2.20 2.11 1.10 50% 45.97 30.83 21 14

2007 3.93 2.35 1.83 1.78 1.06 58% 51.50 43.89 28 24

2006 5.21 5.35 1.85 1.85 0.71 38% 49.94 42.50 27 23

2005 4.55 2.30 1.79 1.60 0.61 34% 48.11 40.37 27 23

2004 4.23 2.07 1.56 1.38 0.54 35% 47.31 38.60 30 25

2003 4.57 2.13 1.68 1.42 0.48 28% 40.81 27.24 24 16

2002 5.25 2.19 1.75 1.49 0.45 26% 59.53 31.15 34 18

2001 4.97 1.93 1.44 1.31 0.40 27% 63.56 41.00 44 28

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,928 2,081 309 8.60 1,863 NA 1,207 1,193

8,867 2,138 308 33.3 1,905 30.3% 1,328 1,302

8,777 1,832 106 80.5 1,812 35.9% 1,162 1,115

7,800 1,795 289 94.9 1,624 37.1% 1,021 992

8,882 1,967 289 72.8 3,486 19.2% 2,815 1,077

8,499 1,948 304 32.3 1,678 37.1% 1,055 940

7,755 1,745 307 Nil 1,495 37.4% 936 824

7,147 1,793 275 Nil 1,645 38.1% 1,018 857

7,004 1,952 279 21.2 1,787 38.4% 1,101 940

7,018 1,938 321 14.3 1,525 39.4% 925 842

Balance Sheet & Other Financial Data (Million $) Cash 1,671 Current Assets 22,317 Total Assets 26,862 Current Liabilities 20,052 Long Term Debt 39.8 Common Equity 5,479 Total Capital 5,519 Capital Expenditures 103 Cash Flow 1,517 Current Ratio 1.1 % Long Term Debt of Capitalization 0.7 % Net Income of Revenue 13.5 % Return on Assets 4.6 % Return on Equity 22.4

2,296 20,704 25,352 18,756 42.7 5,323 5,620 158 1,636 1.1 0.8 15.0 5.4 25.5

1,584 18,809 23,734 17,342 52.1 5,087 5,309 181 1,268 1.1 1.0 13.2 4.6 22.7

1,817 3,364 26,649 1,791 43.5 5,148 5,319 173 1,310 1.9 0.8 13.1 3.8 18.3

2,269 4,760 27,490 2,593 74.3 6,012 6,210 292 3,104 1.8 1.2 31.7 10.2 47.7

1,671 4,441 27,615 2,801 75.8 5,784 6,150 196 1,360 1.6 1.2 12.4 4.3 18.8

1,129 2,762 21,121 1,768 76.2 5,418 5,778 196 1,242 1.6 1.3 12.1 4.6 17.3

2,344 3,676 19,834 1,999 84.7 5,371 5,777 134 1,293 1.8 1.5 14.2 5.3 19.4

2,750 2,817 18,277 1,411 90.6 5,114 5,442 146 1,380 2.0 1.7 15.7 6.1 22.4

1,791 3,083 17,889 1,336 110 4,701 5,019 185 1,246 2.3 2.2 13.2 5.3 19.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Adp Blvd, Roseland, NJ 07068-1728. Telephone: 973-974-5000. Website: http://www.adp.com Chrmn: L.A. Brun

Pres & CEO: G.C. Butler CFO: F. Anderson, Jr. CFO: C.R. Reidy Chief Acctg Officer & Cntlr: A. Sheiness

Board Members: G. D. Brenneman, L. A. Brun, G. C. Founded: 1949 Butler, L. G. Cooperman, E. C. Fast, L. Gooden, R. G. Domicile: Delaware Hubbard, J. P. Jones, III, S. T. Rowlands, E. T. Salem, G. Employees: 47,000 L. Summe, H. Taub

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AN | AN is in the S&P 500

AutoNation Inc S&P Recommendation HOLD

★★★★★

Price $23.82 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Automotive Retail

12-Mo. Target Price $24.00

Investment Style Large-Cap Blend

Summary AutoNation, the largest U.S. retail auto dealer, owns and operates about 250 new vehicle franchises in 15 states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.05– 16.99 Trailing 12-Month EPS $1.33 Trailing 12-Month P/E 17.9 $10K Invested 5 Yrs Ago $12,855

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.55 1.79 15.4 146.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.31 21 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the automotive retailing industry, which is affected by interest rates, consumer confidence, and personal discretionary spending, offset by the company's highly variable cost structure.

20 12 8

Quantitative Evaluations

4

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

$3.487 Nil Nil 89

C

B-

BB

B+

A-

Relative Strength Rank

A

A+

MODERATE 54

4

3

3

2

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Efraim Levy, CFA on October 20, 2010, when the stock traded at $ 23.88. Highlights ➤

➤

➤

New vehicle sales in 2009 were hurt by the U.S. recession, weaker housing markets, and the credit crunch. In addition, several domestic branded AN dealerships were closed or received notices from automakers that they will be closed. We expect revenues to rise about 13% in 2010 and 11% in 2011, as the economy and consumer confidence should improve. For 2010, we project that higher industry volume and macroeconomic factors will bolster new and used vehicle sales. We expect new light vehicle sales volume to advance 10% in 2010, to 11.4 million units and rise further to 12.9 million units in 2011. Used vehicle sales prices have been rising in recent months. We believe SG&A expenses will increase as demand rebounds, but we also see cost-cutting positioning the company for improved profitability. We see AutoNation's 2010 and 2011 operating EPS rising on increased operating efficiencies. Although we expect a resurgence of capital spending in 2010 and 2011, we think cash flow will support share repurchases and expansion of the business internally and via acquisitions. Recent share repurchases contributed to our rising EPS forecast.

Investment Rationale/Risk ➤

➤

Revenue/Earnings Data

2010

The stock recently traded at P/E, price-to-free cash flow, and enterprise value-to-EBITDA multiples above peer averages, based on our 2011 estimates. We believe AN warrants a premium valuation given its above-peer-average net margins. Based on S&P's Core Earnings methodology, we believe AN's earnings quality for 2010 and 2011 will be high, as AutoNation does not offer its employees a pension plan. We view 2010 as the start of a multi-year uptrend in U.S. light vehicle sales. Risks to our recommendation and target price include lower multiples for automotive retailers, less-than-expected vehicle demand, and weaker pricing for new and used vehicles.

Revenue (Million $) 1Q 2Q 2010 2,847 3,109 2009 2,412 2,615 2008 3,970 3,885 2007 4,395 4,559 2006 4,612 4,959 2005 4,561 5,019

3Q -2,916 3,540 4,602 4,945 5,188

4Q -2,815 2,737 4,214 4,473 4,485

Year -10,758 14,132 17,692 18,989 19,253

Earnings Per Share ($) 2010 0.34 0.31 2009 0.30 0.30 2008 0.31 0.30 2007 0.39 0.38 2006 0.37 0.33 2005 0.33 0.40

E0.43 0.36 -7.95 0.39 0.40 0.45

E0.41 0.36 0.40 0.27 0.35 0.30

E1.55 1.32 -6.89 1.44 1.45 1.48

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤

Applying a P/E of about 15.8X, reflecting peer and historical P/E comparisons, to our 2011 EPS estimate of $1.79 leads to a value of about $28. Our DCF model, which assumes a weighted average cost of capital of 11.2%, a compound annual growth rate of 1.4% over the next 15 years, and terminal growth of 3%, calculates intrinsic value of approximately $19. Based on a weighted blend of these metrics, our 12-month target price is $24. We see cash flow remaining positive and sufficient to meet current needs.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AN

AutoNation Inc Business Summary October 20, 2010 CORPORATE OVERVIEW. AutoNation's vehicle retailing unit segment operates in saturated markets, in our view. Although the company is the largest U.S. auto retailer, it controls only about 2% of the $1 trillion U.S. new and used car market. About 75% of total U.S. vehicle sales are to replace existing autos. AN's new auto retailing operations (53% of 2009 revenues) consist of about 245 dealerships. The sale of used vehicles accounted for nearly 23% of revenues in 2009. Fixed operations provided 20% of sales, while finance and insurance and other accounted for the balance. As of July 2010, investor Edward Lampert's ESL Investments Inc. owned about 55% of AutoNation's common shares. In January 2009, the company's directors approved agreements with certain automakers to permit ESL and certain affiliates to acquire 50% or more of the company. ESL has agreed to vote all shares above 50% in proportion to all non-ESL shares voted. Bill Gates con-

trols about 12% of AutoNation's common shares through the Bill & Melinda Gates Foundation Trust and through Cascade Investment LLC. CORPORATE STRATEGY. The company plans to maximize the return on its investment by using cash flow to purchase dealerships and buy back common shares, although given the current economic environment we expect this activity to be below the level of recent years. It also plans to divest non-core stores. In addition, AN intends to increase its mix of higher volume import and premium luxury stores. In 2009, 71% of new vehicle sales revenues were generated by import and luxury franchises; domestic franchises accounted for 29%.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.84 1.76 1.32 1.27 Nil Nil 21.60 7.62 16 6

2008 4.93 -6.38 -6.89 1.32 Nil Nil 19.59 3.97 NM NM

2007 2.37 1.90 1.44 1.44 Nil Nil 23.19 14.65 16 10

2006 2.66 1.81 1.45 1.45 Nil Nil 22.94 18.95 16 13

2005 6.53 1.78 1.48 1.44 Nil Nil 22.84 17.91 15 12

2004 4.53 1.78 1.45 1.41 Nil Nil 19.33 15.01 13 10

2003 3.91 2.01 1.76 1.69 Nil Nil 19.19 11.61 11 7

2002 3.14 1.40 1.19 1.12 Nil Nil 18.73 9.05 16 8

2001 2.99 1.18 0.73 0.57 Nil Nil 13.07 4.94 18 7

2000 2.64 1.28 0.91 NA Nil Nil 10.75 4.63 12 5

10,758 464 77.5 78.7 351 33.3% 234 225

14,132 566 90.8 177 -1,423 NM -1,225 234

17,692 798 91.7 247 459 37.3% 288 288

18,989 879 82.9 267 542 38.9% 331 331

19,253 888 80.7 191 623 36.5% 396 385

19,425 861 89.7 159 607 34.7% 396 385

19,381 805 71.0 143 591 14.4% 506 486

19,479 786 69.7 125 618 38.3% 382 359

19,989 667 152 43.7 401 38.9% 245 192

20,610 855 134 248 525 37.5% 328 NA

Balance Sheet & Other Financial Data (Million $) Cash 174 Current Assets 2,251 Total Assets 5,407 Current Liabilities 1,863 Long Term Debt 1,105 Common Equity 2,303 Total Capital 3,416 Capital Expenditures 75.5 Cash Flow 312 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 2.2 % Return on Assets NA % Return on Equity NA

111 2,554 6,014 2,456 1,226 2,198 3,424 117 -1,135 1.0 35.8 NM NM NM

32.8 3,238 8,480 2,902 3,917 3,474 5,446 160 380 1.1 33.5 1.6 3.4 8.0

52.2 3,386 8,607 3,031 1,558 3,713 5,496 170 414 1.1 28.3 1.7 3.8 7.9

244 3,880 8,825 3,412 484 4,670 5,340 132 476 1.1 9.1 2.1 4.5 8.9

107 3,678 8,699 3,411 798 4,263 5,218 133 486 1.1 15.3 2.0 4.5 9.7

171 3,990 8,823 3,810 808 3,950 4,935 133 577 1.0 16.4 2.6 5.8 12.9

176 3,629 8,585 2,981 643 3,910 5,500 183 451 1.2 11.7 2.0 4.6 9.9

128 3,153 8,065 2,578 647 3,828 5,329 164 397 1.2 12.1 1.2 2.9 6.4

82.2 4,176 8,830 3,141 850 3,843 5,570 148 462 1.3 15.3 1.6 3.6 7.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 SW 1st Ave, Ft. Lauderdale, FL 33301. Telephone: 954-769-6000. Website: http://www.autonation.com Chrmn & CEO: M.J. Jackson

Pres & COO: M.E. Maroone EVP & CFO: M. Short EVP, Secy & General Counsel: J.P. Ferrando Chief Acctg Officer & Cntlr: M.J. Stephan

Board Members: R. J. Brown, R. L. Burdick, W. C. Founded: 1991 Crowley, D. B. Edelson, R. R. Grusky, M. J. Jackson, M. Domicile: Delaware Larson, M. E. Maroone, C. A. Migoya Employees: 18,000

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AZO | AZO is in the S&P 500

AutoZone Inc S&P Recommendation HOLD

★★★★★

Price $234.72 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Automotive Retail

12-Mo. Target Price $230.00

Investment Style Large-Cap Growth

Summary This retailer of automotive parts and accessories operates over 4,000 AutoZone stores throughout most of the U.S. and in Mexico.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $234.98– 135.13 Trailing 12-Month EPS $14.98 Trailing 12-Month P/E 15.7 $10K Invested 5 Yrs Ago $29,939

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

16.87 18.69 13.9 47.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.034 Nil Nil 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.47 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical and seasonal nature of the auto parts retailing industry, which is sensitive to various economic data points, offset by our view of the company's strong financial metrics and margins.

240 200 160 120

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

13

15

D

6 4 2 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

71 3

3

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Souers on September 24, 2010, when the stock traded at $ 222.64. Highlights ➤

➤

➤

We see sales growth of 4.2% in FY 11 (Aug.), following an 8.0% advance in FY 10. This reflects our forecast of approximately 200 new stores in the U.S. and Mexico, along with samestore sales growth of 2% to 3%. While macroeconomic pressures are putting a financial strain on consumers, likely inducing them to delay preventive maintenance on their vehicles, we continue to view industry-specific drivers favorably, including the stabilization in miles driven and the increased number of vehicles that are seven years or older on the road. We look for a 20 basis point widening of operating margins, as supply chain efficiencies and increased sales of private-label products are partially offset by an increasing percentage of lower-margin commercial sales in the mix. We expect a slight leveraging of SG&A expenses on a modest comp-store sales increase. After modestly higher interest expense, taxes at an effective rate of 36.5%, and about 7% fewer shares due to AZO's active share repurchase program, we forecast that FY 11 operating EPS will increase 13%, to $16.88 from the $14.97 the company earned in FY 10.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

AutoZone maintains an industry-leading salesto-square foot ratio, and sports higher gross, operating, and net margins than any of its peers in our coverage. In addition, we think long-term trends for the automotive aftermarket retail industry are extremely favorable, with an aging vehicle population and pent-up demand from recent maintenance deferrals. Near term, the recent stabilization in gasoline prices should help fuel spending on vehicle maintenance somewhat, and we believe AZO's recent comp performance has been quite impressive, given the macro challenges. However, following a significant recent increase in share price, we now find AZO appropriately valued.

➤

Risks to our recommendation and target price include a significant decline in consumer spending; a sharp rise in oil prices; a decrease in auto usage and miles driven; and declines in same-store-sales, which would cause expense deleverage.

➤

Our 12-month target price of $230, based on our DCF analysis, is equal to about 14X our FY 11 EPS estimate. Our DCF model assumes a weighted average cost of capital of 9.3% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,589 1,506 2009 1,478 1,448 2008 1,456 1,339 2007 1,393 1,300 2006 1,338 1,254 2005 1,286 1,204

3Q 1,822 1,658 1,517 1,474 1,417 1,338

4Q 2,445 2,232 2,211 2,003 1,939 1,882

Year 7,363 6,817 6,523 6,170 5,948 5,711

Earnings Per Share ($) 2010 2.82 2.46 2009 2.23 2.03 2008 2.02 1.67 2007 1.73 1.45 2006 1.48 1.25 2005 1.52 1.16

4.12 3.13 2.49 2.17 1.89 1.86

5.66 4.43 3.88 3.23 2.92 2.66

14.98 11.73 10.04 8.53 7.50 7.18

Fiscal year ended Aug. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: AZO

AutoZone Inc Business Summary September 24, 2010 CORPORATE OVERVIEW. AutoZone is the nation's leading specialty retailer and a leading distributor of automotive replacement parts and accessories, focusing primarily on do-it-yourself (DIY) consumers. As of August 29, 2009, the company operated 4,229 U.S. AutoZone stores, in 48 states, the District of Columbia and Puerto Rico, and 188 stores in Mexico. AZO also sells automotive diagnostic equipment and repair software through ALLDATA, and diagnostic and repair information, along with and parts and accessories, online at www.autozone.com. The company's 4,417 stores represented 28.6 million sq. ft., up from 4,240 stores and 27.3 million sq. ft. a year earlier. Each store's product line includes new and remanufactured automotive hard parts, such as alternators, starters, water pumps, brake shoes and pads, carburetors, clutches and engines; maintenance items, such as oil, antifreeze, transmission, brake and power steering fluids, engine additives, protectants and waxes; and accessories, such as car stereos and floor mats. Parts are carried for domestic and foreign cars, sport utility vehicles, vans, and light trucks.

gust 29, 2009, AutoZone stores were principally in the following locations: 525 stores in Texas, 447 in California, 219 in Ohio, 208 in Illinois, 196 in Florida, 175 in Georgia, 164 in North Carolina, 150 in Tennessee, 145 in Michigan, 137 in Indiana, 119 in Arizona, 114 in New York, 109 in Pennsylvania, 108 in Louisiana and 100 in Missouri, with the rest in other states. CORPORATE STRATEGY. AZO offers everyday low prices, and attempts to be the price leader in hard parts. Stores generally carry about 21,000 stockkeeping units. In addition to targeting the DIY customer, the company has a commercial sales program in the U.S. (AZ Commercial), which provides commercial credit and delivery of parts and other products to local, regional and national repair garages, dealers and service stations. As of August 29, 2009, 2,303 stores had commercial sales programs. The hub stores provide fast replenishment of key merchandise to support the DIY and commercial sales businesses. AZO does not perform repairs or installations.

Stores, generally in high-visibility locations, range in size from about 4,000 sq. ft. to 8,100 sq. ft., with new stores increasingly using a larger format. As of AuCompany Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA NA 14.98 NA NA Nil 234.98 152.32 16 10

2009 NM 14.96 11.73 11.58 Nil Nil 169.99 125.80 14 11

2008 NM 12.70 10.04 9.91 Nil Nil 143.80 84.66 14 8

2007 1.52 10.82 8.53 8.53 Nil Nil 140.29 103.40 16 12

2006 2.35 9.34 7.50 7.50 Nil Nil 120.37 83.81 16 11

2005 1.15 8.92 7.18 7.03 Nil Nil 103.94 77.76 14 11

2004 NM 7.79 6.56 6.40 Nil Nil 92.35 70.35 14 11

2003 0.90 6.47 5.34 5.09 Nil Nil 103.53 58.21 19 11

2002 3.87 5.10 4.00 3.87 Nil Nil 89.34 59.20 22 15

2001 5.13 2.70 1.54 1.45 Nil Nil 80.00 24.37 52 16

7,363 1,493 NA 159 1,161 NA 738 NA

6,817 1,357 180 148 1,034 36.4% 657 649

6,523 1,294 170 121 1,007 36.3% 642 633

6,170 1,215 159 119 936 36.4% 596 596

5,948 1,239 139 110 902 36.9% 569 569

5,711 1,114 138 104 873 34.6% 571 560

5,637 1,106 107 93.0 906 37.5% 566 553

5,457 1,028 110 84.8 833 37.9% 518 492

5,326 889 118 79.9 691 38.1% 428 415

4,818 646 131 101 287 38.8% 176 165

Balance Sheet & Other Financial Data (Million $) Cash 98.3 Current Assets 2,612 Total Assets 5,572 Current Liabilities 3,064 Long Term Debt 2,882 Common Equity -739 Total Capital 2,144 Capital Expenditures NA Cash Flow NA Current Ratio 0.9 % Long Term Debt of Capitalization 134.5 % Net Income of Revenue 10.0 % Return on Assets 13.6 % Return on Equity NM

92.7 2,562 5,318 2,707 2,727 -433 2,294 272 837 1.0 118.9 9.6 12.4 NM

242 2,586 5,257 2,519 2,250 230 2,480 244 811 1.0 90.7 9.8 12.8 202.8

86.7 2,270 4,805 2,286 1,936 403 2,339 224 755 1.0 82.8 9.7 12.8 136.5

91.6 2,119 4,526 2,055 1,857 470 2,327 264 709 1.0 79.8 9.6 13.0 132.3

74.8 1,929 4,245 1,811 1,862 391 2,253 283 709 1.1 82.6 10.0 14.0 203.1

76.9 1,756 3,913 1,818 1,869 171 2,046 185 673 1.0 91.3 10.0 14.7 207.7

6.74 1,585 3,680 1,676 1,547 374 1,921 182 627 0.9 80.5 9.5 14.5 97.4

6.50 1,450 3,478 1,534 1,195 1,378 2,573 117 546 0.9 46.4 8.0 12.4 27.5

7.29 1,329 3,433 1,267 1,225 866 2,092 169 307 1.0 58.6 3.6 5.2 18.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 123 South Front Street, Memphis, TN 38103-3607. Telephone: 901-495-6500. Email: [email protected] Website: http://www.autozone.com

Chrmn, Pres & CEO: W.C. Rhodes, III EVP, CFO & Treas: W.T. Giles EVP, Secy & General Counsel: H.L. Goldsmith SVP, Chief Acctg Officer & Cntlr: C. Pleas, III

SVP & CIO: J.A. Bascom Investor Contact: B. Campbell (901-495-7005) Board Members: W. C. Crowley, S. E. Gove, E. B. Graves, Jr., R. R. Grusky, J. R. Hyde, III, W. A. McKenna, G. R. Mrkonic, Jr., L. P. Nieto, Jr., W. C. Rhodes, III, T. W. Ullyot

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Nevada Employees: 60,000

Stock Report | October 23, 2010 | NYS Symbol: AVB | AVB is in the S&P 500

AvalonBay Communities Inc. S&P Recommendation HOLD

★★★★★

Price $110.08 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Residential REITS

12-Mo. Target Price $104.00

Investment Style Large-Cap Blend

Summary This real estate investment trust, formed via the 1998 merger of Bay Apartment Communities and Avalon Properties, specializes in upscale apartment communities.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $114.11– 66.90 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $16,756

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

3.92 4.19 28.1 85.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.375 3.24 $3.57 NM

Beta 1.36 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -4 S&P Credit Rating BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects AVB's geographically diverse asset base and strong dividend coverage ratio.

120

80

Quantitative Evaluations

60

S&P Quality Ranking

40

D

C

B-

AB

B+

A-

A

A+

Vol. 25

Mil.

Relative Strength Rank

12 8 4 0 5

MODERATE 56

LOWEST = 1

3

3

2

HIGHEST = 99

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Royal F. Shepard, CFA on August 11, 2010, when the stock traded at $ 102.67. Highlights ➤

➤

We expect improved pricing power for AVB's established properties in the second half of 2010. The trust's properties were full during the second quarter, at 96.5% occupancy. In our opinion, the strong demand reflects a trend away from home ownership, which hit a 10-year low in the second quarter according to the U.S. Census Bureau. Also, the competitive supply of new homes is modest, thanks to sharp drop in 2010 multi-family construction starts. We think AVB will move quickly to satisfy growing demand by reviving new development activities. As of June 30, 2010, it had seven communities under development at a total capital cost of $843.1 million. Moreover, in July, the trust started construction of three additional communities with 395 units at a total capital cost of $106.3 million. In our estimation, however, these properties will not contribute meaningfully to reported earnings until 2011.

Investment Rationale/Risk ➤

➤

➤ ➤

Our 2010 FFO per share forecast of $3.92, down from recurring FFO of $4.46 for 2009, reflects higher financing costs, inflationary increases in operating expenses, and about 4% more shares outstanding.

We expect a better balance between supply and demand will lead to renewed rental growth during the second half of 2010. AVB's focus on upscale projects, in our view, may still make it vulnerable to excess inventories of single-family homes for rent. However, we think the trust's large pipeline of development projects holds value and will begin to add to earnings when new properties reach stable occupancy levels. We view the shares, recently trading at 24.5X our 2011 FFO per share estimate of $4.19, a 20% premium to peers, as appropriately reflecting our view of its above-average growth profile. Risks to our recommendation and target price include the potential for slower-than-expected employment growth; increased competition from unsold inventories of single-family homes; and less liquid credit markets that decrease investor demand for real estate assets. Our 12-month target price of $104 is based on applying a multiple of 24.8X to our 2010 FFO per share estimate of $4.19, a premium to apartment REIT peers on average. Our valuation reflects our view of AVB's relatively strong financial position, high quality properties, and large development pipeline.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 215.8 220.9 2009 222.9 222.1 2008 204.2 211.2 2007 192.7 199.5 2006 175.2 180.7 2005 161.3 165.6

3Q -222.2 218.5 208.2 187.7 170.8

4Q -211.7 220.4 212.4 193.8 173.1

Year -853.0 854.2 812.7 737.3 670.7

FFO Per Share ($) 2010 0.96 2009 1.27 2008 1.24 2007 1.11 2006 1.15 2005 0.96

E0.95 1.09 1.28 1.19 1.11 0.91

E1.00 0.64 0.30 1.14 1.09 0.93

E3.92 3.89 4.07 4.61 4.38 3.77

1.04 0.90 1.26 1.17 1.03 0.97

Fiscal year ended Dec. 31. Next earnings report expected: Late October. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.893 0.893 0.893 0.893

12/10 02/10 05/19 09/07

12/29 03/29 06/28 09/29

12/31 03/31 06/30 10/01

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AVB

AvalonBay Communities Inc. Business Summary August 11, 2010 CORPORATE OVERVIEW. AvalonBay Communities (AVB) is a real estate investment trust (REIT) specializing in the ownership of multi-family apartment communities. At December 31, 2009, AVB owned or held an interest in 172 apartment communities containing 50,364 apartment homes in 10 states and the District of Columbia, of which seven communities were under construction and seven communities were under reconstruction. AVB also owned a direct or indirect ownership interest in rights to develop an additional 28 communities; if developed in the manner expected, these would contain an estimated 7,180 apartment homes. MARKET PROFILE. The housing market is highly fragmented and is broadly characterized by two types of housing units, multi-family and single-family. At the end of 2009, the U.S. Census Bureau estimated that there were 130.59 million housing units in the country, an increase of 0.9% from 2008. Partially on high fragmentation and the fact that residents have the option of either being owners or tenants (renters), the housing market can be highly competitive. Main demand drivers for apartments are household formation and employment growth. We estimate that 0.5 million new households were formed in 2009. Supply is created by new housing unit construction, which could consist

of single-family homes, or multi-family apartment buildings or condominiums. The U.S. Department of Housing estimates that 554,000 housing units were started in 2009, down about 39% from 2007. Multi-family starts, for structures with more than five units, dropped significantly more, falling approximately 63%. With apartment tenants on relatively short leases compared to those of commercial and industrial properties, we believe apartment REITs are generally more sensitive to changes in market conditions than REITs in other property categories. Results could be hurt by new construction that adds new space in excess of actual demand. Trends in home price affordability also affect both rent levels and the level of new construction, since the relative price attractiveness of owning versus renting is an important factor in consumer decision making.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 37.41 0.97 0.95 3.57 NM 87.82 38.34 91 40

2008 37.82 1.34 1.34 5.38 401% 113.07 41.43 84 31

2007 37.85 3.00 3.00 3.33 111% 149.94 88.94 50 30

2006 NA 2.27 2.12 NA 137% 134.60 88.95 59 39

2005 NA 1.34 1.34 NA NM 92.99 64.98 69 48

2004 NA 1.09 1.09 NA NM 75.93 46.72 65 40

2003 NA 1.30 1.27 NA NM 49.71 35.24 38 27

2002 31.88 1.48 1.22 NA 188% 52.65 36.38 35 24

2001 NA 3.12 3.07 2.56 82% 51.90 42.45 17 14

2000 29.31 2.53 NA 2.24 89% 50.63 32.63 20 13

844 Nil 852 374 150 Nil 210 77.8 76.1

848 Nil 854 436 115 Nil 194 114 104

807 Nil 813 346 97.5 Nil 180 248 239

731 Nil 737 236 111 Nil 163 180 159

666 Nil 671 376 127 Nil 159 108 98.9

648 Nil 648 368 131 Nil 152 86.3 76.7

Nil Nil 610 192 135 Nil 151 100 87.6

Nil Nil 639 247 121 Nil 144 121 85.7

637 Nil 642 229 103 Nil 130 249 213

572 Nil 573 203 83.6 Nil 123 211 NA

Balance Sheet & Other Financial Data (Million $) Cash 106 Total Assets 7,458 Real Estate Investment 8,311 Loss Reserve Nil Net Investment 6,833 Short Term Debt 125 Capitalization:Debt 3,850 Capitalization:Equity 3,050 Capitalization:Total 6,906 % Earnings & Depreciation/Assets 3.9 Price Times Book Value:High 2.3 Price Times Book Value:Low 1.0

259 7,173 5,297 Nil 6,650 310 3,365 2,916 6,290 8.7 3.0 1.1

210 6,736 5,038 Nil 6,297 514 2,694 3,027 5,534 6.8 4.0 2.3

146 5,813 5,662 Nil 4,562 Nil 2,705 2,631 5,194 6.2 4.0 2.7

48.0 5,165 5,874 Nil 4,946 Nil 2,177 2,542 4,738 5.2 2.8 2.0

4,921 5,068 NA NA 4,919 Nil 2,335 2,385 4,741 NA NA NA

4,744 4,910 5,431 Nil 4,736 Nil 2,337 2,311 2,336 5.1 1.5 1.1

4,813 4,952 5,369 Nil 4,800 165 2,307 2,194 4,579 5.5 1.7 1.1

4,479 4,664 4,838 Nil 4,391 101 1,983 2,314 4,353 8.4 1.6 1.3

4,286 4,397 4,875 Nil 4,212 14.1 1,716 2,442 4,208 7.8 1.7 1.1

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Ballston Tower, 671 North Glebe Road, Suite 800, Arlington, VA 22203. Telephone: 703-329-6300. Email: [email protected] Website: http://www.avalonbay.com

Chrmn & CEO: B. Blair Pres: T.J. Naughton COO: L.S. Horey EVP & CFO: T.J. Sargeant

SVP, Secy & General Counsel: E.M. Schulman Investor Contact: J. Christie (703-317-4747) Board Members: B. Blair, B. A. Choate, J. J. Healy, Jr., T. J. Naughton, L. R. Primis, P. S. Rummell, H. Sarles, W. E. Walter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1978 Domicile: Maryland Employees: 1,877

Stock Report | October 23, 2010 | NYS Symbol: AVY | AVY is in the S&P 500

Avery Dennison Corp S&P Recommendation BUY

★★★★★

Price $38.90 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Office Services & Supplies

12-Mo. Target Price $50.00

Investment Style Large-Cap Blend

Summary This company is a leading worldwide manufacturer of pressure-sensitive adhesives and materials, office products, labels, retail systems and specialty chemicals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $43.33– 30.22 Trailing 12-Month EPS $2.50 Trailing 12-Month P/E 15.6 $10K Invested 5 Yrs Ago $8,874

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.70 3.00 14.4 105.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.113 2.06 $0.80 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.45 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's leading market shares in pressure-sensitive adhesives and office products, and our view of above-average growth rates in key end markets and relatively strong cash flow, offset by current sluggish markets.

60 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

STRONG

4

3

A+

72 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Richard O'Reilly, CFA on July 30, 2010, when the stock traded at $ 36.04. Highlights ➤

We project sales to increase about 7.5% in 2010, reflecting recovering consumer staples and retail apparel markets for the pressuresensitive materials and retail information segments, higher selling prices, and unfavorable currency rates. The economically sensitive graphics and specialty tapes and films product lines should continue to recover on a healthier durable goods sector, but we expect the office products segment to stay soft in the second half of 2010, including for the back-to-school season.

Investment Rationale/Risk ➤

➤ ➤

➤

Margins in 2010 should be helped by better volumes and additional cost reductions, especially in retail information, although raw material costs will likely be higher in the second half. We project $70 million of additional restructuring savings this year on top of $115 million in 2009. We expect higher marketing spending in 2010, especially in office products, given new competitive pressures in labels. For 2010, we expect modestly lower interest expense but higher pension costs and a higher adjusted tax rate of about 22.5%, versus 12% in 2009. Our EPS estimate for 2010 excludes $0.25 of special charges in the first half.

➤

Our buy opinion is based on valuation. Organic sales declined through 2009, but rose 14% in the second quarter of 2010, as demand in end markets appears to be returning to prerecession levels. We believe long-term fundamentals remain sound, with growth driven by the increasing use of non-impact printing systems for computers and for product tracking and information needs. We see a proliferation of high-quality graphics spurring sales of pressure-sensitive labels.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,555 1,680 2009 1,426 1,455 2008 1,645 1,829 2007 1,390 1,524 2006 1,337 1,410 2005 1,346 1,419

3Q -1,549 1,725 1,680 1,418 1,363

4Q -1,522 1,512 1,714 1,411 1,364

Year -5,953 6,710 6,308 5,576 5,474

Earnings Per Share ($) 2010 0.51 0.79 2009 -8.99 0.38 2008 0.69 0.93 2007 0.80 0.87 2006 0.69 0.96 2005 0.58 0.89

E0.60 0.59 0.63 0.59 0.85 0.86

E0.55 0.47 0.43 0.81 1.01 0.57

E2.70 -7.21 2.70 3.07 3.51 2.90

Risks to our recommendation and target price include the potentially adverse impact of remaining antitrust investigations and related civil suits involving AVY, and an inability to introduce new products or raise selling prices in response to higher raw material costs.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price is $50. We value AVY shares using a P/E of about 18.5X our 2010 EPS projection, in line with the stock's historical premium to the S&P 500, reflecting what we view as a cyclical recovery in earnings. We believe AVY may raise its dividend and/or implement a stock buyback program.

0.200 0.200 0.200 0.200

10/22 01/28 04/22 07/22

11/30 03/01 05/28 08/30

12/02 03/03 06/02 09/01

12/16/09 03/17/10 06/16/10 09/15/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1964. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AVY

Avery Dennison Corp Business Summary July 30, 2010 CORPORATE OVERVIEW. Avery Dennison is the leading global manufacturer of pressure-sensitive technology and self-adhesive solutions for consumer products and label systems, including office products, product identification and control systems, and specialty tapes and chemicals. Foreign operations accounted for 66% of sales in 2009. The pressure-sensitive materials group (56% of sales and 72% of operating profits in 2009) includes Fasson- and JAC-brand pressure sensitive, selfadhesive coated papers, plastic films, metal foils, and fabrics in roll and sheet form; graphic and reflective decoration films and labels; and adhesives, protective coatings and electroconductive resins for industrial, automotive, aerospace, appliance, electronic, medical and consumer markets. The office and consumer products group (14% and 37%) consists of consumer and office products such as pressure-sensitive labels; copier, laser and inkjet printer labels and template software; presentation and organizing products (binders, sheet protectors, dividers); writing instruments and marking devices; security badge systems; and other products sold under the Avery, MarksA-Lot, and Hi-Liter brands for office, home, and school uses.

Retail information services (22% and -5%) sell a variety of price marking and brand identification products for retailers, apparel manufacturers, distributors and industrial customers. Products include woven and printed labels; heat transfers; graphic and barcode tags; patches; integrated tags; price tickets; customer hard and soft good packaging; barcode printers; software; plastics fastening; and applications devices for use in identification, tracking and control applications. The segment reported a 15% decline in sales in 2009. Other businesses (8% and -4%) consists of specialty fastening, bonding and sealing tapes sold in roll form; industrial and automotive labels, decoration films and graphics sold primarily to original equipment manufacturers; selfadhesive postal stamps and on-battery testing labels; and the radio frequency identification (RFID) business (inlays and labels). The RFID business had a net loss of about $30 million in each of 2005 and 2006, but the loss declined in both 2007 and 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NA -4.63 -7.21 -1.71 1.22 NM 40.14 17.02 NM NM

2008 NM 5.10 2.70 2.20 1.65 61% 55.00 24.30 20 9

2007 NM 5.13 3.07 2.98 1.61 52% 71.35 49.69 23 16

2006 8.84 5.50 3.51 3.48 1.57 45% 69.31 54.95 20 16

2005 6.74 4.95 2.90 2.66 1.53 53% 63.58 49.60 22 17

2004 5.85 4.66 2.78 2.51 1.49 54% 66.60 53.50 24 19

2003 4.08 4.22 2.43 2.05 1.45 60% 63.75 46.25 26 19

2002 2.53 4.12 2.59 2.02 1.35 52% 69.70 52.06 27 20

2001 4.70 4.05 2.47 1.81 1.23 50% 60.50 43.25 24 18

2000 3.94 4.41 2.84 NA 1.11 39% 78.50 41.13 28 14

5,953 585 267 85.3 -791 5.59% -747 -178

6,710 684 237 122 271 1.66% 266 217

6,308 787 204 111 375 19.1% 304 294

5,576 683 199 55.5 426 17.2% 353 348

5,474 690 202 57.9 367 20.4% 292 269

5,341 655 188 58.5 373 25.1% 280 251

4,763 602 179 57.7 335 27.5% 243 205

4,207 593 153 43.7 365 29.5% 257 201

3,803 566 156 50.2 360 32.4% 243 179

3,894 638 157 54.6 426 33.5% 284 NA

Balance Sheet & Other Financial Data (Million $) Cash 138 Current Assets 1,733 Total Assets 5,003 Current Liabilities 1,868 Long Term Debt 1,089 Common Equity 1,363 Total Capital 2,451 Capital Expenditures 72.2 Cash Flow -479 Current Ratio 0.9 % Long Term Debt of Capitalization 44.4 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

106 1,930 6,036 2,058 1,545 1,750 3,295 129 504 0.9 46.9 4.0 4.3 14.2

71.5 2,058 6,245 2,478 1,145 1,989 3,376 191 508 0.8 33.9 4.8 5.8 16.5

58.5 1,655 4,294 1,699 502 1,681 2,261 162 552 1.0 22.2 6.3 8.3 22.1

98.5 1,558 4,204 1,526 723 1,512 2,235 163 493 1.0 32.4 5.3 6.8 19.1

84.8 1,542 4,399 1,387 1,007 1,549 2,647 179 468 1.1 38.1 5.2 6.6 19.5

29.5 1,441 4,105 1,496 888 1,319 2,274 201 422 1.0 39.0 5.1 6.3 20.4

22.8 1,216 3,652 1,296 837 1,056 1,968 152 410 0.9 42.5 6.1 7.8 25.9

19.1 982 2,819 951 627 929 1,647 135 399 1.0 38.0 6.4 8.8 27.7

11.4 982 2,699 801 773 828 1,695 198 440 1.2 45.6 7.3 10.7 34.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 150 North Orange Grove Boulevard, Pasadena, CA 91103. Telephone: 626-304-2000. Email: [email protected] Website: http://www.averydennison.com

Chrmn, Pres & CEO: D.A. Scarborough SVP & CFO: M.R. Butier SVP, Secy & General Counsel: S.C. Miller SVP & CIO: R.W. Hoffman

CTO: D.N. Edwards Founded: 1935 Investor Contact: E.M. Leeds (626-304-2029) Domicile: Delaware Board Members: B. A. Alford, P. K. Barker, R. Employees: 31,300 Borjesson, J. T. Cardis, K. C. Hicks, P. W. Mullin, D. E. Pyott, D. L. Reed, D. A. Scarborough, P. T. Siewert, J. A. Stewart

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: AVP | AVP is in the S&P 500

Avon Products Inc. S&P Recommendation HOLD

★★★★★

Price $34.43 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Personal Products

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary This company is the world's leading direct marketer of cosmetics, toiletries, fashion jewelry, and fragrances and has more than 5 million sales representatives worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.39– 25.00 Trailing 12-Month EPS $1.47 Trailing 12-Month P/E 23.4 $10K Invested 5 Yrs Ago $14,682

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.02 2.30 17.0 429.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.769 2.56 $0.88 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.56 7 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that demand for personal care products is usually static and not generally affected by changes in the economy or geopolitical factors. However, certain product categories, such as fragrances, may be more susceptible to adverse factors.

40 30

20 15

Quantitative Evaluations Vol.

S&P Quality Ranking

66

Mil. 30 20 10 0 5

D

C

B-

A B

B+

A-

A

Relative Strength Rank

A+ STRONG

79

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on October 13, 2010, when the stock traded at $ 34.54. Highlights ➤

➤

➤

Investment Rationale/Risk

Our 2010 sales growth forecast is 8%, with modestly positive foreign currency. We expect growth to be led by Central & Eastern Europe, Western Europe/Middle East/Africa, and Latin America, with North America and China lagging. China appears to be having difficulty transitioning from beauty boutiques to the nowpermitted direct sales channel. AVP had an improving local currency quarterly sales trend overall in 2009.

➤

We expect more cost savings benefits in 2010 from AVP's 2005 and 2009 multi-year restructuring plans and other cost reduction programs, following significant savings in 2008 and 2009. Also, the operating margin in 2010 should benefit from better sales leverage and a swing to positive foreign currency transaction effects (excluding Venezuela). Transaction effects involve not just the U.S. dollar but also the sale of euro-cost product into Central and Eastern Europe and the U.K.

➤

Our 2010 EPS estimate is $2.02, up from 2009's operating EPS of $1.72, excluding restructuring charges and one-time charges from recent changes involving the Venezuela currency.

➤

AVP's various restructuring and rationalization plans, including one announced in February 2009, entail reorganizing and downsizing the organization, implementing global manufacturing, and increasing supply chain efficiencies. AVP plans to reinvest the savings from these plans in marketing and R&D, and incentivizing its sales force. However, the benefits in 2009 were masked by foreign exchange issues and difficult economic conditions in many markets. Risks to our recommendation and target price include renewed weakness in the U.S. market, political and economic instability in international markets, competition from various sales channels, significant changes in foreign exchange rates, and unfavorable consumer reception of new products. Our 12-month target price of $35 is a blend of our historical and relative analyses. Our historical analysis applies a multiple of 18.3X, a discount to the 10-year historical average, to our 2010 EPS estimate, implying a value of $37. Our peer analysis applies a P/E multiple of 16.8X, in line with the peer average, for a value of $34.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,490 2,679 2009 2,180 2,470 2008 2,502 2,736 2007 2,185 2,329 2006 2,003 2,080 2005 1,881 1,984

3Q -2,551 2,645 2,349 2,059 1,886

4Q -3,181 2,808 3,076 2,623 2,398

Year -10,383 10,690 9,939 8,764 8,150

Earnings Per Share ($) 2010 0.10 0.39 2009 0.27 0.19 2008 0.43 0.55 2007 0.34 0.26 2006 0.12 0.34 2005 0.36 0.69

E0.49 0.36 0.52 0.32 0.19 0.35

E0.72 0.62 0.54 0.30 0.41 0.40

E2.02 1.45 2.04 1.22 1.06 1.81

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.210 0.220 0.220 0.220

11/04 02/09 05/06 08/03

11/18 02/19 05/18 08/13

11/20 02/23 05/20 08/17

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1919. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: AVP

Avon Products Inc. Business Summary October 13, 2010 CORPORATE OVERVIEW. Avon Products, which began operations in 1886, is a global manufacturer and marketer of beauty and related products. Beginning in the fourth quarter of 2008, AVP changed its product categories from Beauty, Beauty Plus and Beyond Beauty to Beauty, Fashion and Home & Other. Beauty consists of cosmetics, fragrances, skin care and toiletries and accounted for 71% of sales in 2009. Fashion (17%) consists of fashion jewelry, watches, apparel, footwear, and accessories. Home & Other (12%) consists of gift and decorative products, housewares, entertainment & leisure, kids and nutrition. The company has operations in 65 countries and territories, including the U.S., and its products are distributed in 40 more. Geographically, 22% of 2009 sales were derived from North America, while Latin America accounted for 40%, Western Europe, the Middle East & Africa 12%, Central & Eastern Europe 14%, Asia-Pacific 9%, and China 3%. Operations outside North America accounted for 91% of segment operating profits in 2009. Sales are made to the ultimate customer mainly through a combination of direct selling and marketing by about 6.2 million independent Avon representatives.

CORPORATE STRATEGY. AVP embarked on a multi-year restructuring plan in November 2005 in an effort to drive revenue and profit growth. The plan entails reorganizing and downsizing the organization, implementing global manufacturing, and increasing supply chain efficiencies. AVP expects restructuring benefits to help fund an increase in consumer research, marketing, and product development, which, in turn, is expected to enhance sales and ultimately profits. In fact, we saw an improvement in the year-to-year sales growth rate starting in mid-2006, but savings from the plan were not large enough to offset increases in the expenses mentioned above until 2008. Also in 2005, Avon started to implement a global supply chain strategy, which includes the development of a new common systems platform, known as enterprise resource planning (ERP). In February 2009, AVP announced a new restructuring program, with implementation expected to start in the second half of 2009 and full implementation by 2012 to 2013.

In 2009, the number of active representatives rose 3% in North America, 10% in Latin America, 10% in Western Europe, the Middle East & Africa, 10% in Central & Eastern Europe, 6% in Asia-Pacific, 32% in China (from a low base), and 9% overall.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.16 1.88 1.45 1.53 0.84 58% 36.39 14.40 25 10

2008 0.76 2.41 2.04 1.94 0.80 39% 45.34 17.45 22 9

2007 1.66 1.55 1.22 1.25 0.74 61% 42.51 31.95 35 26

2006 1.79 1.42 1.06 1.16 0.70 66% 34.25 26.16 32 25

2005 1.68 2.10 1.81 1.80 0.66 36% 45.66 24.33 25 13

2004 2.02 2.05 1.77 1.80 0.70 40% 46.65 30.81 26 17

2003 0.79 1.63 1.39 1.37 0.42 30% 34.88 24.47 25 18

2002 NM 1.34 1.11 0.95 0.40 36% 28.55 21.75 26 20

2001 NM 1.10 0.90 0.77 0.38 42% 25.06 17.78 28 20

2000 NM 1.20 1.01 NA 0.37 37% 24.88 12.63 25 12

10,383 1,370 181 105 926 32.2% 626 654

10,690 1,558 158 105 1,238 29.3% 875 833

9,939 1,176 145 125 796 33.0% 531 549

8,764 1,146 160 99.6 704 31.8% 478 518

8,150 1,289 140 54.1 1,124 24.0% 848 845

7,748 1,361 135 33.8 1,188 27.8% 846 859

6,876 1,162 124 33.3 994 32.1% 665 652

6,228 1,029 125 52.0 836 35.0% 535 455

5,995 951 109 71.1 666 34.7% 430 367

5,715 886 97.1 84.7 691 29.2% 485 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,312 Current Assets 4,189 Total Assets 6,833 Current Liabilities 2,275 Long Term Debt 2,308 Common Equity 1,273 Total Capital 3,620 Capital Expenditures 297 Cash Flow 806 Current Ratio 1.8 % Long Term Debt of Capitalization 63.7 % Net Income of Revenue 6.0 % Return on Assets 9.7 % Return on Equity 64.3

1,105 3,557 6,074 2,912 1,456 675 2,205 381 1,034 1.2 66.1 8.2 14.9 126.3

963 3,515 5,716 3,053 1,168 712 2,089 279 676 1.2 62.1 5.3 9.7 70.7

1,199 3,334 5,238 2,550 1,171 790 2,028 175 637 1.3 58.8 5.4 9.6 60.3

1,059 2,921 4,763 2,502 766 794 1,595 207 987 1.2 48.1 10.4 19.0 97.2

770 2,506 4,148 1,526 866 950 1,829 250 981 1.6 47.4 10.9 21.9 128.0

694 2,226 3,562 1,588 878 371 1,300 163 788 1.4 67.5 9.7 19.3 545.8

607 2,048 3,328 1,976 767 -128 712 127 659 1.0 107.8 8.6 16.4 NM

509 1,889 3,193 1,461 1,236 -74.6 1,192 155 539 1.3 103.7 7.2 14.3 NM

123 1,546 2,826 1,359 1,108 -216 954 194 582 1.1 116.1 8.5 18.1 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1345 Avenue Of The Americas, New York, NY 10105-0196. Telephone: 212-282-5000. Email: [email protected] Website: http://www.avoninvestor.com

Chrmn & CEO: A. Jung SVP, Secy & General Counsel: K.K. Rucker SVP & CIO: D. Herlihy CFO: C.W. Cramb

Chief Acctg Officer & Cntlr: S. Ibbotson Founded: 1886 Investor Contact: A.L. Chasen (212-282-5320) Domicile: New York Board Members: W. D. Cornwell, V. A. Hailey, F. Employees: 41,000 Hassan, A. Jung, M. E. Lagomasino, A. S. Moore, P. S. Pressler, G. M. Rodkin, P. Stern, L. A. Weinbach

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BHI | BHI is in the S&P 500

Baker Hughes Inc S&P Recommendation HOLD

★★★★★

Price $46.57 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Equipment & Services

12-Mo. Target Price $52.00

Investment Style Large-Cap Growth

Summary This company is one of the world's largest oilfield services companies, providing products and services to the energy industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $54.80– 35.62 Trailing 12-Month EPS $1.08 Trailing 12-Month P/E 43.1 $10K Invested 5 Yrs Ago $9,441

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.92 2.84 24.3 431.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$20.076 1.29 $0.60 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.52 33 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects BHI's exposure to volatile crude oil and natural gas prices, capital spending decisions by its exploration and production customers, and political risk associated with operating in frontier regions. Offsetting these risks is BHI's strong position in drilling and completion products.

120 80 60 40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 5

4

4

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Stewart Glickman, CFA on August 27, 2010, when the stock traded at $ 37.59. Highlights In late April, BHI completed its acquisition of the former BJ Services, adding a significant presence in the pressure pumping market and complementing its other existing oilfield services portfolio. We think the deal will enable BHI to better compete for international oilfield services contracts, given a broader set of offerings. However, we also see near-term challenges from the acquisition, including integration risk as well as a domestic pressure pumping market that may see pricing and utilization difficulties given chronically weak natural gas prices - although the uptick in interest in liquids-rich shale plays appears to be a positive. Long term, we see strong growth opportunities outside of North America and view this as a primary potential catalyst for BHI. With oil prices remaining fairly resilient so far this year for upstream operators, we expect capital spending growth in 2010, in contrast to the pullback in 2009, which should augur well for BHI's expansion plans. For 2010, we estimate EPS of $1.92, rising to $2.84 in 2011 on improved margin expectations.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

79 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

In 2011, we think BHI's growth prospects will improve. Recent stability in oil prices in the $70 per barrel range should help build overseas enthusiasm by upstream customers, and we also note a modestly improving U.S. rig count (albeit mainly on the strength of oil-directed activity). We expect BHI to undertake a more aggressive push into international markets, and now view BHI as better positioned to win integrated project management tenders. Risks to our recommendation and target price include lower energy prices; reduced drilling activity in international markets; slowerthan-planned infrastructure build; higherthan-expected cost inflation; and integration risks associated with the recently completed BJ Services acquisition. Our discounted cash flow model, which assumes free cash flow growth of 11% per year for 10 years, and 3% thereafter, shows intrinsic value of about $48. Using multiples of 10X projected 2010 EBITDA and 11.5X estimated 2010 cash flows (below peers, which we see as merited on below-average projected 2010 ROIC), and blending these results with our DCF model, our 12-month target price is $52.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,539 3,374 2009 2,668 2,336 2008 2,670 2,998 2007 2,473 2,538 2006 2,062 2,203 2005 1,643 1,768

3Q -2,232 3,010 2,678 2,309 1,785

4Q -2,428 3,186 2,740 2,453 1,989

Year -9,664 11,864 10,428 9,027 7,186

Earnings Per Share ($) 2010 0.41 0.23 2009 0.63 0.28 2008 1.27 1.23 2007 1.17 1.09 2006 0.93 4.14 2005 0.53 0.64

E0.50 0.18 1.39 1.22 1.09 0.64

E0.61 0.27 1.41 1.26 1.02 0.76

E1.92 1.36 5.30 4.73 7.21 2.56

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

01/20 04/22 07/22 10/22

01/28 05/06 07/29 10/28

02/01 05/10 08/02 11/01

02/12/10 05/21/10 08/13/10 11/12/10

Dividends have been paid since 1987. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BHI

Baker Hughes Inc Business Summary August 27, 2010 CORPORATE OVERVIEW. Baker Hughes was formed through the 1987 merger of Baker International Corp. and Hughes Tool Co. In 1998, it acquired seismic and wireline logging company Western Atlas, creating the third largest oilfield services company. BHI has operations in over 90 countries. North America accounted for 37% of total revenues in 2009, followed by the Europe, CIS and Africa region (30%) and the Middle East and Asia-Pacific region (21%). In 2005, the company reorganized its seven product-line focused divisions into three operating segments: Drilling & Evaluation; Completion & Production; and Western Geco (which provides reservoir imaging, monitoring and development services). In April 2006, however, BHI sold its 30% minority stake in seismic company Western Geco to the majority joint venture partner, Schlumberger. We like the deal for BHI, as we think it should enable BHI to focus on its core oilfield operations of drilling, completion and production. The Drilling & Evaluation segment (48% of 2009 total oilfield revenues and 31% of 2009 total oilfield segment income) consists of four operating divisions: Baker Hughes Drilling Fluids, Hughes Christensen, INTEQ, and Baker Atlas. The products and services in this segment are typically used in the drilling of crude oil and natural gas wells.

environmental services. Fluids are used in order to control downhole pressure, clean the bottom of the well, and to cool and lubricate the drill bit and drill string. Hughes Christensen manufactures drill bit products, primarily Tricone roller cone drill bits and polycrystalline diamond compact (PDC) fixed cutter bits. INTEQ supplies directional and horizontal drilling services, coring services, subsurface surveying, logging-while-drilling, and measurementwhile-drilling services. Baker Atlas provides formation evaluation and perforating services for oil and natural gas wells. Formation evaluation involves measuring and analyzing specific physical properties of the rock in the vicinity of the wellbore to determine a reservoir's boundaries, hydrocarbon volume, and ability to produce fluids to the surface. Perforating services involve puncturing a well's steel casing and cement sheath with explosive charges; this creates a fracture in the formation, and provides a path for the hydrocarbons in the formation to enter the wellbore.

Baker Hughes Drilling Fluids provides drilling and completion fluids, and fluid Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 18.18 NA 1.36 1.38 0.60 44% 48.19 25.69 35 19

2008 16.89 7.35 5.30 5.33 0.56 11% 90.81 24.40 17 5

2007 15.14 6.36 4.73 4.70 0.52 11% 100.29 62.26 21 13

2006 11.58 8.85 7.21 4.24 0.52 7% 89.30 60.60 12 8

2005 9.42 3.68 2.56 2.47 0.48 19% 63.13 40.73 25 16

2004 7.35 2.69 1.57 1.50 0.46 29% 45.30 31.56 29 20

2003 5.87 1.59 0.40 0.62 0.46 115% 36.15 26.90 90 67

2002 6.05 1.56 0.66 0.55 0.46 70% 39.95 22.60 61 34

2001 5.69 2.32 1.31 1.17 0.46 35% 45.29 25.76 35 20

2000 4.64 2.14 0.31 NA 0.46 148% 43.38 19.63 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

9,664 NA NA 131 611 31.1% 421 427

11,864 3,075 637 89.0 2,319 29.5% 1,635 1,645

10,428 2,799 521 66.1 2,257 32.9% 1,514 1,504

9,027 2,417 434 68.9 3,737 35.8% 2,399 1,393

7,186 1,616 382 72.3 1,279 31.6% 874 842

6,104 1,195 374 83.6 780 32.3% 528 506

5,293 957 349 103 328 45.1% 180 209

5,020 856 302 111 380 41.2% 224 186

5,382 1,077 345 126 662 33.7% 439 393

5,234 1,076 612 173 236 56.7% 102 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,595 Current Assets 6,225 Total Assets 11,439 Current Liabilities 1,613 Long Term Debt 1,785 Common Equity 7,284 Total Capital 9,084 Capital Expenditures NA Cash Flow NA Current Ratio 3.9 % Long Term Debt of Capitalization 19.7 % Return on Assets 3.6 % Return on Equity 6.0

1,955 7,145 11,861 2,511 1,775 6,807 8,966 1,303 2,272 2.9 19.8 15.1 24.9

1,054 5,456 9,857 1,618 1,069 6,306 7,791 1,127 2,035 3.4 13.7 16.3 26.2

750 4,968 8,706 1,622 1,074 5,243 6,617 922 2,832 3.1 16.2 29.1 48.3

697 3,840 7,807 1,361 1,078 4,698 6,004 478 1,257 2.8 18.0 12.0 20.4

319 2,967 6,821 1,236 1,086 3,895 5,214 348 902 2.4 20.8 8.0 14.6

98.4 2,524 6,302 1,302 1,133 3,350 4,611 405 529 1.9 24.6 2.8 5.3

144 2,556 6,401 1,080 1,424 3,397 4,988 317 525 2.4 28.6 3.4 6.7

45.4 2,697 6,676 1,212 1,682 3,328 5,221 319 783 2.2 32.2 6.7 13.8

34.6 2,487 6,453 988 2,050 3,047 5,255 599 714 2.5 39.0 1.5 3.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2929 Allen Pkwy Ste 2100, Houston, TX 77019-2118. Telephone: 713-439-8600. Website: http://www.bakerhughes.com Chrmn & CEO: C.C. Deaton

Pres & COO: M. Craighead SVP & CFO: P.A. Ragauss SVP & General Counsel: A.R. Crain, Jr. CTO: D. Mathieson

Board Members: L. D. Brady, II, C. P. Cazalot, Jr., C. C. Deaton, E. P. Djerejian, A. G. Fernandes, C. W. Gargalli, P. Jungels, I, J. A. Lash, J. L. Nichols, J. L. Payne, H. J. Riley, Jr., J. W. Stewart, C. L. Watson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1972 Domicile: Delaware Employees: 34,400

Stock Report | October 23, 2010 | NYS Symbol: BLL | BLL is in the S&P 500

Ball Corp S&P Recommendation BUY

★★★★★

Price $61.38 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Metal & Glass Containers

12-Mo. Target Price $65.00

Investment Style Large-Cap Blend

Summary Ball, one of the largest producers of metal beverage cans in the world, derives nearly 10% of its revenues from sales of hi-tech equipment to the aerospace industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $62.68– 46.70 Trailing 12-Month EPS $3.53 Trailing 12-Month P/E 17.4 $10K Invested 5 Yrs Ago $17,947

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.55 5.05 13.5 91.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

30

MEDIUM

HIGH

Quantitative Evaluations

Vol. 16

Mil.

S&P Quality Ranking

6 4 2 0

D 4

4

3

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 58

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Stewart Scharf on August 09, 2010, when the stock traded at $ 58.82. Highlights We project mid single-digit sales growth for 2010, with modestly higher growth for 2011, driven primarily by increased demand for metal beverage containers in China, Brazil, and Western Europe. We also see steady growth for food cans, while aerosol can volume advances in the high-single digits. In our view, demand for energy and soft drink specialty cans should pick up, while aerospace segment bookings rebound. In our view, gross margins (before D&A) will widen somewhat in 2010, from 17.3% in 2009, reflecting supply chain initiatives, a better mix, and the elimination of higher-priced metal inventories. We look for EBITDA margins to widen further in 2010, from near 13% in 2009, based on improved productivity and synergies from plant acquisitions, which should offset a negative effect from a weak euro. Interest expense should rise due to additional debt resulting from acquiring AB InBev's plants. We project a higher effective tax rate of 32% for 2010, and estimate operating EPS of $4.55 (before a net $0.17 gain), and then an advance to $5.05 for 2011 (and assuming fewer shares).

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects the seasonality and cyclicality inherent in the beverage can business, volatile raw material prices, and our view of BLL's high debt levels. These factors are offset by BLL's improving balance sheet, with solid credit quality and liquidity, and our expectations for solid cash flow.

40

➤

0.61 12 BB+

Below Avg.

50

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

5

$5.621 0.65 $0.40 77

Our buy opinion is based on our valuation metrics, as well as our view of improving trends for beverage cans in emerging markets, a better cost structure, and strong free cash generation. We expect BLL to focus on its metal can operations following the pending sale of its plastics business. Risks to our recommendation and target price include negative foreign currency exchange; a decline in sales of imported beer and, to some extent, domestic soft drinks; cost pressures in Europe and China; supply disruptions due to strikes at facilities; integration problems; and, sharply higher raw material costs. At 13X our 2010 EPS estimate, the stock was recently trading modestly above BLL's closest peers and slightly below our projected P/E for the S&P 500 Index. Based on our relative metrics, including below-peer PEG (P/E-to-growth) and enterprise value-to-EBITDA ratios, we value the stock at $62. Our DCF model, which assumes a 3% perpetuity growth rate and a weighted average cost of capital of 7%, derives an intrinsic value of $68. Blending these valuations, our 12-month target price is $65.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,706 2,008 2009 1,586 1,926 2008 1,740 2,080 2007 1,694 2,033 2006 1,365 1,843 2005 1,324 1,552

3Q -1,969 2,008 1,992 1,822 1,584

4Q -1,864 1,733 1,756 1,592 1,291

Year -7,345 7,562 7,475 6,622 5,751

Earnings Per Share ($) 2010 0.84 1.55 2009 0.73 1.40 2008 0.85 1.02 2007 0.78 1.03 2006 0.43 1.23 2005 0.51 0.71

E1.45 1.09 1.05 0.59 1.02 0.73

E0.85 0.85 0.36 0.33 0.46 0.42

E4.55 4.08 3.29 2.74 3.14 2.38

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

10/28 01/27 04/28 07/28

11/27 02/25 05/27 08/30

12/01 03/01 06/01 09/01

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1958. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BLL

Ball Corp Business Summary August 09, 2010 CORPORATE OVERVIEW. Ball Corp. primarily manufactures rigid packaging products for beverages and foods. Two beverage companies account for a substantial part of its packaging sales: SABMiller plc and PepsiCo. BLL is comprised of five segments: Metal Beverage Packaging (Americas/Asia); Metal Beverage Packaging (Europe); Metal Food & Household Packaging (Americas); Plastic Packaging (Americas); and Aerospace and Technologies. The Aerospace and Technologies segment provides products and services to the defense and commercial markets, with U.S. government agencies accounting for 94% of the segment's sales in 2009. In June 2010, the company completed the purchase of the remaining 65% stake in JFP's Sanshui, China metal beverage can facility for $90 million in cash and assumed debt. The company recorded a $22 million ($0.24 a share) gain on the transaction. BLL produced more than 31 billion recyclable beverage cans in the U.S. and Canada in 2009, about 31% of the total market. Aluminum and steel beverage cans accounted for 63% of the company's net sales and 77% of EBIT in 2009.

tal in 2009 ($289 million of pretax earnings); Metal Beverage Packaging (Europe) 24% ($215 million); Metal Food and Household Packaging (Americas) 19% ($128 million); Plastic Packaging (Americas) 8.6% ($3.2 million loss); and Aerospace and Technologies 9.4% ($61 million). BLL entered the plastics business in 1995, when it began to make polyethylene terephthalate (PET) bottles. Sales volumes of metal food containers in North America tend to be highest from June through October due to seasonal vegetable and salmon packs. BLL believes this accounts for more than 30% of all North American metal beverage can shipments. In 2009, no customer accounted for more than 10% of sales. Sales outside of the U.S. account for about 30% of the total. In 2009, BLL recorded a $0.32 gain on the sale of its stake in DigitGlobe in the second quarter, and a $0.12 charge mainly for closing two plastic packaging plants and costs related to its acquisition of AB InBev's plants.

The company's packaging products include aluminum and steel two-piece beverage cans, and two- and three-piece steel food cans. Metal Beverage Packaging (Americas and Asia) segment net sales represented 39% of the toCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 7.09 4.08 3.92 0.40 10% 52.46 36.50 13 9

2008 NM 6.36 3.29 2.78 0.40 12% 56.20 27.37 17 8

2007 NM 5.47 2.74 3.31 0.40 15% 56.05 43.51 20 16

2006 NM 5.55 3.14 2.30 0.40 13% 45.00 34.16 14 11

2005 NM 4.30 2.38 2.54 0.40 17% 46.45 35.06 20 15

2004 NM 4.49 2.60 2.67 0.35 13% 45.20 28.26 17 11

2003 NM 3.81 2.01 2.12 0.24 12% 29.88 21.15 15 11

2002 NM 2.68 1.38 1.10 0.18 13% 27.25 16.30 20 12

2001 1.27 0.44 -0.93 -0.88 0.15 NM 18.03 9.52 NM NM

2000 1.81 1.81 0.54 NA 0.15 28% 11.98 6.50 22 12

7,345 945 285 117 551 29.5% 388 371

7,562 926 297 145 467 31.5% 320 270

7,475 914 281 156 377 25.4% 281 340

6,622 729 253 134 462 28.5% 330 242

5,751 697 214 116 362 27.5% 262 280

5,440 739 215 104 436 31.9% 296 304

4,977 663 206 126 331 30.2% 230 242

3,859 458 149 75.6 245 34.3% 159 127

3,686 127 153 88.3 -110 NM -99.2 -96.0

3,665 445 159 95.2 110 38.9% 68.2 NA

Balance Sheet & Other Financial Data (Million $) Cash 211 Current Assets 1,923 Total Assets 6,488 Current Liabilities 1,429 Long Term Debt 2,284 Common Equity 1,583 Total Capital 3,867 Capital Expenditures 187 Cash Flow 673 Current Ratio 1.4 % Long Term Debt of Capitalization 59.1 % Net Income of Revenue 5.3 % Return on Assets 6.0 % Return on Equity 29.1

127 2,165 6,369 1,862 2,107 1,086 3,342 307 617 1.2 63.0 4.2 5.2 26.3

152 1,843 6,021 1,513 2,182 1,343 3,525 309 562 1.2 61.9 3.8 4.7 22.4

152 1,761 5,841 1,454 2,270 1,165 3,437 280 582 1.2 66.1 5.0 6.5 32.7

61.0 1,226 4,343 1,176 1,473 835 2,314 292 475 1.0 63.7 4.5 5.9 27.2

199 1,246 4,478 996 1,538 1,087 2,631 196 511 1.3 58.5 5.4 6.9 31.2

36.5 924 4,070 861 1,579 808 2,393 137 435 1.1 66.0 4.6 5.6 35.4

259 1,225 4,132 1,069 1,854 493 2,353 158 309 1.1 78.8 4.1 4.9 32.0

83.1 794 2,314 575 949 504 1,463 68.5 51.3 1.4 64.9 NM NM NM

25.6 969 2,650 659 1,012 640 1,709 98.7 225 1.5 59.2 1.9 2.5 10.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 10 Longs Peak Dr, Broomfield, CO 80021-2510. Telephone: 303-469-3131. Website: http://www.ball.com Chrmn & CEO: R.D. Hoover

Pres & COO: J.A. Hayes SVP & CFO: S.C. Morrison Chief Admin Officer & Secy: D.A. Westerlund Treas: J.A. Knobel

Investor Contact: A.T. Scott (303-460-3537) Board Members: R. W. Alspaugh, H. C. Fiedler, J. A. Hayes, R. D. Hoover, J. F. Lehman, G. R. Nelson, J. Nicholson, G. M. Smart, T. M. Solso, S. A. Taylor, II, E. H. Van Der Kaay

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1880 Domicile: Indiana Employees: 14,500

Stock Report | October 25, 2010 | NYS Symbol: BAC | BAC is in the S&P 500

Bank of America Corp S&P Recommendation HOLD

★★★★★

Price $11.16 (as of Oct 25, 2010)

GICS Sector Financials Sub-Industry Other Diversified Financial Services

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary This banking company, with operations in all 50 states and the District of Columbia, also provides international corporate financial services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.86– 11.07 Trailing 12-Month EPS $-0.77 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $3,259

S&P Oper. EPS 2010E 0.05 S&P Oper. EPS 2011E 1.62 P/E on S&P Oper. EPS 2010E NM Common Shares Outstg. (M) 10,033.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.29 NM A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects weak U.S. consumer trends, exposure to residential lending and credit cards, and a lower-than-historical tangible capital ratio, offset by what we see as a strong U.S. presence with a robust customer base.

40 20

8 4

Quantitative Evaluations S&P Quality Ranking

Vol. 3664

Mil. 1200 800 400 0

$111.978 0.36 $0.04 63

D

C

B-

B B

B+

A-

A

Relative Strength Rank 5

WEAK

7

5

4

5

A+

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Erik Oja on October 21, 2010, when the stock traded at $ 11.75. Highlights ➤

➤

➤

Checking and debit card fees have declined sharply in the last year, due to a decision by BAC to make its products and fee structures more customer-friendly, in response to Regulation E and to the recent passing of US financial reform. However, we expect mortgage banking fees to remain strong in the final quarter of 2010, and likely into 2011, based on the volume of refinancing activity reported nationwide. This should help BAC's total noninterest income remain in the $15 billion per year range. Average earning assets will likely continue to decline due to poor loan demand from qualified borrowers. We look for trading results to remain volatile, and for investment banking and brokerage revenues to improve, albeit slowly. Overall, we expect revenues to decline 6.5% in 2010, but see modest growth in 2011. We forecast loan loss provisions of $31.0 billion in 2010, down from $48.6 billion in 2009. For 2011, we expect provisions to fall to $23.4 billion, and to remain the key driver of earnings growth at BAC in the 2010 to 2011 period. We expect EPS of $0.05 in 2010 and forecast $1.62 in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

BAC faces significant challenges related to its 2008 acquisition of Countrywide Financial, which are manifesting themselves in large repurchase requests from holders of mortgages that were securitized years ago by both companies. We think BAC will be able to work its way through this issue in an orderly way, but we are not sure of how this will affect capital and earnings in the next few years; thus our caution on the shares. In addition, the foreclosure crisis has cast a bright light on the banking industry's foreclosure practices, which may have been rushed, and which may lead to extensive delays in sales of nonperforming assets. However, we think BAC will remain well capitalized by new regulatory standards. Risks to our recommendation and target price include worse-than-expected credit conditions, greater-than-expected securities writedowns, and more onerous regulation. Our 12-month target price of $14 equates to about 1.15X our year-end projection for BAC's tangible book value, a discount to its historical levels.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 38,099 35,384 2009 45,417 40,736 2008 28,871 29,721 2007 30,447 32,409 2006 27,026 28,895 2005 19,168 21,222

3Q 14,265 33,135 30,175 29,347 30,739 21,621

4Q -31,162 24,176 26,987 30,357 22,280

Year -150,450 113,106 119,190 117,017 83,980

Earnings Per Share ($) 2010 0.28 0.27 2009 0.44 0.33 2008 0.23 0.72 2007 1.16 1.28 2006 1.07 1.19 2005 1.07 1.17

-0.77 -0.26 0.15 0.82 1.18 0.95

E0.27 -0.60 -0.48 0.05 1.16 0.88

E0.05 -0.29 0.55 3.30 4.59 4.04

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

01/27 04/28 07/28 10/25

03/03 06/02 09/01 12/01

03/05 06/04 09/03 12/03

03/26/10 06/25/10 09/24/10 12/24/10

Dividends have been paid since 1903. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: BAC

Bank of America Corp Business Summary October 21, 2010 CORPORATE OVERVIEW. Bank of America has operations in all 50 states, the District of Columbia and more than 40 foreign countries. In the U.S., it has about 6,000 retail banking centers and more than 18,000 ATMs. BAC reports the results of its operations through six business segments: Deposits, Global Card Services, Home Loans & Insurance, Global Banking, Global Markets, and Global Wealth & Investment Management. Deposits includes the results from a comprehensive suite of products offered to consumers and small businesses, and generated 12% of revenues in 2009. Global Card Services mainly provides credit cards and related products to consumers and small businesses, and generated 24% of revenues in 2009. The Home Loans & Insurance segment provides consumer real estate products and services and a range of insurance products, and generated 14% of revenues in 2009. Global Banking provides a range of lending- and banking-related services to institutional clients around the globe, generating 19% of revenues in 2009. The Global Markets segment offers services to support institutional clients' investment and trading activities, and generated 17% of revenues in 2009. The Global Wealth & Investment Management group offers a range of banking, investment and brokerage services through its brokerage

force. The segment also includes BAC's 34% ownership in asset manager BlackRock (BLK 148, Hold), and generated 15% of revenues in 2009. IMPACT OF MAJOR DEVELOPMENTS. On September 15, 2008, BAC agreed to acquire Merrill Lynch & Co., Inc. in a $50 billion all-stock transaction. The deal ultimately closed at a $29 billion purchase price due to the decline in BAC's stock. We think the deal is a good fit for BAC, particularly as it added 20,000 financial advisers and created cross-selling opportunities, but integration will likely be difficult. On July 1, 2008, BAC acquired Countrywide Financial in a stock deal valued at $2.5 billion. Although the acquisition makes BAC a top U.S. mortgage originator, we believe it increased BAC's risk profile due to Countrywide's loan portfolio, which had a high proportion of option arm loans.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.09 -0.29 -0.29 0.04 NM 19.10 2.53 NM NM

2008 7.14 0.55 0.35 2.24 407% 45.08 10.01 82 18

2007 11.54 3.30 3.26 2.40 73% 54.21 40.61 16 12

2006 12.18 4.59 4.47 2.12 46% 55.08 40.93 12 9

2005 13.18 4.04 4.06 1.90 47% 47.44 41.13 12 10

2004 12.41 3.69 3.75 1.70 46% 47.47 38.51 13 10

2003 12.34 3.57 3.54 1.44 40% 42.45 32.13 12 9

2002 12.59 2.96 2.70 1.22 41% 38.54 26.98 13 9

2001 11.65 2.09 1.96 1.14 55% 32.77 22.50 16 11

2000 10.66 2.26 NA 1.03 46% 30.50 18.16 13 8

47,109 1,291 72,534 48,570 55.8% 4,360 NM 6,276 2.65 -2,239

45,360 1,194 27,422 26,825 57.1% 4,428 9.48% 4,008 2.98 1,656

34,433 1,749 31,706 8,385 56.0% 20,924 28.4% 14,982 2.60 14,615

34,591 1,224 38,432 5,010 47.9% 31,973 33.9% 21,133 2.82 20,568

30,737 832 26,438 4,014 50.4% 24,480 32.7% 16,465 2.84 16,499

28,797 716 20,097 2,769 54.5% 21,221 33.4% 14,143 3.26 14,308

21,464 643 16,422 2,839 52.2% 15,861 31.8% 10,810 3.36 10,708

20,923 588 13,571 3,697 63.1% 12,991 28.8% 9,249 3.75 8,452

20,290 343 14,348 4,287 59.8% 10,117 32.9% 6,792 3.68 6,384

18,442 322 14,489 2,535 63.7% 11,788 36.2% 7,517 3.22 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 396,341 Investment Securities 311,411 Commercial Loans 322,564 Other Loans 577,564 Total Assets 2,223,299 Demand Deposits 275,104 Time Deposits 716,507 Long Term Debt 438,521 Common Equity 194,236 % Return on Assets 0.3 % Return on Equity 3.8 % Loan Loss Reserve 3.8 % Loans/Deposits 99.0 % Equity to Assets 8.3

251,570 277,589 342,767 588,679 1,817,943 217,998 664,999 268,292 139,351 0.2 2.9 2.5 105.5 8.0

303,389 214,056 325,143 551,201 1,715,746 192,227 612,950 197,508 142,394 0.9 10.8 1.3 105.5 8.7

302,482 192,846 240,785 465,705 1,459,737 184,808 508,689 146,000 132,421 1.5 18.1 0.4 304.3 8.5

294,292 221,603 218,334 355,457 1,291,803 186,736 447,934 100,848 101,262 1.4 16.3 1.4 87.4 8.4

197,308 195,073 193,930 327,907 1,110,457 169,899 448,671 98,078 99,374 1.5 19.2 1.7 84.4 8.0

153,090 68,240 131,304 240,159 736,445 121,530 292,583 75,343 47,926 1.5 22.0 1.7 89.7 7.0

115,687 69,148 145,170 197,585 660,458 124,359 262,099 67,176 50,261 1.4 18.7 2.0 88.4 7.7

81,384 85,499 163,898 165,255 621,764 113,934 259,561 68,026 48,455 1.1 14.1 2.1 97.8 7.6

76,544 65,838 203,542 188,651 642,191 100,645 263,599 72,502 47,556 1.2 16.3 1.7 107.7 7.2

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 N Tryon St, Charlotte, NC 28255. Telephone: 704-386-8486. Website: http://www.bankofamerica.com Chrmn: C.O. Holliday, Jr.

Pres & CEO: B.T. Moynihan EVP & CFO: C.H. Noski CTO: M. Gordon Treas: M.D. Linsz

Investor Contact: K. Stitt (704-386-5667) Founded: 1874 Board Members: S. S. Bies, W. P. Boardman, F. P. Domicile: Delaware Bramble, V. W. Colbert, C. K. Gifford, C. O. Holliday, Employees: 302,000 Jr., D. P. Jones, Jr., M. Lozano, W. E. Massey, T. J. May, B. T. Moynihan, D. E. Powell, C. O. Rossotti, T. M. Ryan, R. W. Scully

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BK | BK is in the S&P 500

Bank of New York Mellon Corp (The) S&P Recommendation BUY

★★★★★

Price $25.27 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $33.00

Investment Style Large-Cap Blend

Summary This company is a leader in securities processing, and also provides a complete range of banking, asset management and other financial services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.65– 23.78 Trailing 12-Month EPS $-0.54 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $8,860

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.18 2.84 11.6 1,214.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.70 NM AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as solid fundamentals and diverse business lines. BK recently settled a $22.5 billion lawsuit by the Russian government alleging money laundering; it also significantly reduced the riskiest exposure of its securities portfolio. BK has provided stable earnings over the long term, and we believe it would be able to weather a prolonged economic downturn.

50 40 30

20

$30.679 1.42 $0.36 80

0.9434-for

Vol. 183

Mil.

130

Quantitative Evaluations

60 40 20 0 5

S&P Quality Ranking 4

3

3

4

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ WEAK

22 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for BK has recently been changed to $33.00 from $30.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on BK from MarketScope, see below. 10/19/10 11:47 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF BANK OF NEW YORK MELLON (BK 26.42****): Q3 EPS of $0.51, vs. a loss per share of $2.04, misses our $0.59 estimate, on higher than expected noninterest expenses. However revenues were better than we expected, driven by strong results in securities servicing and higher assets under management. On Q3 results, we reduce our '10 EPS estimate to $2.18 from $2.26. However, we keep our target price of $33, based on a premium to peers 3.7X estimate on our year-end tangible book value per share estimate of $8.90. This equals a peer-equivalent 11.6X multiple on our unchanged '11 EPS estimate of $2.84. /E. Oja

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 --2009 3,136 -2008 3,745 4,078 2007 2,496 2,893 2006 2,074 2,276 2005 1,917 2,077

3Q --4,262 3,600 2,219 2,126

4Q --3,367 3,044 2,493 2,230

Year --16,339 9,031 9,062 8,312

Earnings Per Share ($) 2010 0.50 0.55 2009 0.28 0.23 2008 0.65 0.26 2007 0.60 0.59 2006 0.50 0.55 2005 0.52 0.55

E0.51 -2.04 0.27 0.56 0.41 0.54

E0.62 0.59 0.05 0.61 0.59 0.56

E2.18 -0.93 1.22 2.38 2.05 2.15

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.090 0.090 0.090 0.090

01/20 04/20 07/20 10/19

01/28 04/28 07/28 10/27

02/01 04/30 07/30 10/29

02/09/10 05/11/10 08/10/10 11/09/10

Dividends have been paid since 1785. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BK

Bank of New York Mellon Corp (The) Business Summary July 20, 2010 CORPORATE OVERVIEW. Bank of New York Mellon provides a comprehensive array of services that enable institutions and individuals to move and manage their financial assets in more than 100 markets worldwide. The company has several core competencies: institutional services, private banking, and asset management. Its global client base includes a broad range of leading financial institutions, corporations, government entities, endowments, and foundations. Key products include advisory and asset management services to support the investment decision, trade execution, clearance and settlement capabilities, custody, securities lending, accounting, and administrative services for investment portfolios, sophisticated risk and performance measurement tools for analyzing portfolios, and services for issuers of both equity and debt securities. CORPORATE STRATEGY. BK's strategy over the past decade has been to focus on scalable, fee-based securities servicing and fiduciary businesses, and it has achieved a top-three market share in most of its major product lines. The company attempts to distinguish itself competitively by offering products and services around the investment lifecycle.

ferred partner in helping its clients succeed in the world's rapidly evolving financial markets. The company's key objectives include achieving positive operating leverage on an annual basis, successful integration of acquisitions and increasing the percentage of revenue and income derived from outside the U.S. To achieve its top objectives, BK has grown both through internal reinvestments as well as the execution of strategic acquisitions to expand product offerings and increase market share in its scale businesses. Internal reinvestment occurs mainly through increased technology spending, staffing levels, marketing/branding initiatives, quality programs, and product development. The company invests in technology to improve the breadth and quality of its product offerings, and to increase economies of scale. BK has acquired over 90 businesses over the past 10 years, almost exclusively in its securities servicing and asset management areas.

By providing integrated solutions for clients' needs, BK strives to be the preCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.42 -0.93 -0.99 0.51 NM 33.62 15.44 NM NM

2008 3.06 1.22 1.05 0.96 79% 49.90 20.49 40 17

2007 5.83 2.38 2.33 0.95 40% 50.26 38.30 21 16

2006 11.50 2.05 2.01 0.91 45% 42.98 32.66 21 16

2005 7.48 2.15 2.11 0.87 40% 35.71 28.55 17 13

2004 6.84 1.96 1.83 0.84 43% 36.94 28.88 19 15

2003 5.93 1.61 1.55 0.81 50% 35.50 20.40 22 13

2002 6.00 1.31 1.07 0.81 61% 49.29 22.10 37 17

2001 6.14 1.92 1.65 0.76 40% 61.61 31.53 32 16

2000 8.80 2.04 NA 0.70 34% 62.94 31.53 31 15

2,915 18.0 10,141 332 73.2% -2,208 NM -814 1.82 -1,179

2,951 22.0 12,329 131 75.8% 1,939 25.6% 1,442 1.92 1,217

2,300 12.0 9,232 -10.0 70.4% 3,225 31.0% 2,227 2.08 2,179

1,499 NA 5,337 20.0 68.6% 2,170 32.0% 1,476 2.01 1,452

1,909 29.0 4,888 15.0 65.7% 2,367 33.6% 1,571 2.36 1,536

1,645 30.0 4,613 15.0 65.6% 2,199 34.5% 1,440 2.07 1,350

1,609 35.0 3,971 155 65.9% 1,762 34.3% 1,157 2.22 1,097

1,665 49.0 3,261 685 55.3% 1,372 34.3% 902 2.62 728

1,681 60.0 3,386 375 54.4% 2,058 34.7% 1,343 2.57 1,159

1,870 54.0 2,959 105 51.4% 2,251 36.5% 1,429 2.96 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 65,838 Investment Securities 56,049 Commercial Loans 3,797 Other Loans 32,892 Total Assets 212,224 Demand Deposits 33,477 Time Deposits 101,573 Long Term Debt 17,234 Common Equity 28,977 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 1.4 % Loans/Deposits 27.2 % Equity to Assets 8.8

52,228 39,435 7,205 35,774 237,009 55,816 103,857 13,991 25,264 0.7 5.3 0.9 29.0 12.6

49,840 48,698 4,766 43,465 197,656 32,372 85,753 16,873 29,403 1.5 10.9 0.6 49.3 13.6

23,830 21,106 5,925 31,868 103,370 19,554 45,992 8,773 11,593 1.4 13.7 0.8 60.8 10.5

16,999 27,326 13,252 27,474 102,074 18,236 46,188 Nil 9,876 1.6 16.4 1.0 63.2 9.7

18,527 23,802 12,624 23,157 94,529 17,442 41,279 Nil 9,290 1.5 16.3 1.7 60.9 9.5

18,521 22,903 13,646 21,637 92,397 14,789 41,617 Nil 8,428 1.4 15.3 1.9 62.6 8.9

13,798 18,300 20,335 11,004 77,564 13,301 42,086 Nil 6,684 1.1 13.9 2.7 56.6 8.2

19,684 12,862 19,034 16,713 81,025 12,635 43,076 Nil 6,317 1.7 21.5 1.7 64.2 7.9

23,178 7,401 21,327 14,934 77,114 13,255 43,121 4,536 6,151 1.9 25.3 1.7 64.3 7.4

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Wall Street, New York, NY 10286. Telephone: 212-495-1784. Email: [email protected] Website: http://www.bankofny.com

Chrmn & CEO: R.P. Kelly Pres: G.L. Hassell Vice Chrmn: C. Arledge COO, EVP & CTO: K.D. Woetzel

EVP & CFO: T. Gibbons Founded: 1784 Board Members: C. Arledge, R. E. Bruch, N. M. Domicile: Delaware Donofrio, G. L. Hassell, E. F. Kelly, R. P. Kelly, R. J. Employees: 42,200 Kogan, M. J. Kowalski, J. A. Luke, Jr., R. Mehrabian, M. A. Nordenberg, C. A. Rein, W. C. Richardson, S. C. Scott, III, J. P. Surma, Jr., W. W. von Schack

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BCR | BCR is in the S&P 500

Bard (C.R.) Inc S&P Recommendation HOLD

★★★★★

Price $83.01 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $88.00

Investment Style Large-Cap Growth

Summary This diversified maker of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology and specialty surgical markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $90.00– 74.87 Trailing 12-Month EPS $4.91 Trailing 12-Month P/E 16.9 $10K Invested 5 Yrs Ago $13,557

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.54 6.15 15.0 93.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

Our risk assessment reflects the highly competitive environment in which BCR operates. In addition, hospital customers generate a large portion of revenues from Medicare, and are therefore subject to reimbursement risks that could reduce prices paid to suppliers. However, we believe BCR's product line is largely focused on areas that have not been subject to intense pricing pressure, and we think management has a solid track record in terms of identifying and integrating acquisitions.

80

70

Vol. Mil. 6 4 2 0

Quantitative Evaluations 4

3

5

4

3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

Analysis prepared by Phillip M. Seligman on July 29, 2010, when the stock traded at $ 77.80. Highlights

➤

We expect net sales in 2010 to climb about 8%, to $2.74 billion. Drivers we see include growth of about 13% in the vascular category, on gains in electrophysiology systems, angioplasty catheters and biopsy products; under 4% in urology, on easy comps, given distributor destocking in 2009 and increased sales of catheter stabilization devices offset by weak sales of Foley catheters; more than 6% in oncology, on improved sales of ports and the vascular access ultrasound product line tempered by slower PICC (peripherally inserted central catheters) sales; and about 11% in surgical specialties on demand for soft tissue repair products. We see sales growth also aided by acquisitions. We forecast that gross margins in 2010 will be flat with 2009's 62%, as the benefits of cost improvements are offset by lower production to reduce inventory in the first quarter. We also expect higher SG&A and R&D costs as a percentage of sales. Excluding restructuring charges, our 2010 EPS estimate is $5.52, partly reflecting the dilutive impact of a recent acquisition, versus 2009's $5.09. We look for $6.15 in 2011.

Investment Rationale/Risk ➤

We maintain our hold recommendation on BCR shares, given the slower EPS growth (8%-9%) we see in 2010, versus 14% annual growth achieved in recent years. We think BCR must pick up the pace of new product offerings and, in this regard, we are encouraged by its product pipeline and planned growth in R&D investment. We also view operating cash flow as healthy, which should enable BCR to make additional acquisitions. Nonetheless, we see a sustained decline in elective surgical procedure rates and hospital spending and increased regulatory requirements that appear to us to be extending the time before a product can launch.

➤

Risks to our recommendation and target price include intensified competition, reduced reimbursement, and failure to commercialize new products in a timely fashion.

➤

Despite the slower three-year EPS growth rate we project, it is still modestly above peers and, hence, we believe a small premium valuation is appropriate. Applying a forward P/E to earnings growth ratio of 1.45X to our three-year projected growth rate of 11% and our 2010 EPS estimate, our 12-month target price is $88.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

48

Options: ASE, CBOE, P, Ph

➤

HIGH

Below Avg.

90

➤

0.30 11 A

Qualitative Risk Assessment

100

5

$7.774 0.87 $0.72 87

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 650.8 673.9 2009 596.4 624.6 2008 584.0 617.1 2007 528.2 545.7 2006 467.5 498.2 2005 428.6 447.4

3Q -637.0 616.8 544.8 498.9 443.3

4Q -676.9 634.2 583.3 520.9 452.0

Year -2,535 2,452 2,202 1,986 1,771

Earnings Per Share ($) 2010 1.24 1.29 2009 1.10 1.11 2008 0.76 0.76 2007 0.95 0.91 2006 0.76 0.76 2005 0.75 0.79

E1.40 1.31 1.09 0.96 0.82 0.83

E1.48 1.08 1.47 1.01 0.21 0.75

E5.54 4.60 4.06 3.84 2.55 3.12

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.170 0.170 0.180 0.180

12/09 04/21 06/09 10/13

01/21 04/29 07/22 10/21

01/25 05/03 07/26 10/25

02/05/10 05/14/10 08/06/10 11/05/10

Dividends have been paid since 1960. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BCR

Bard (C.R.) Inc Business Summary July 29, 2010 CORPORATE OVERVIEW. C.R. Bard offers a range of medical, surgical, diagnostic and patient care devices. Sales in 2009 came from urology (28%), vascular (27%), oncology (27%), surgical specialties (15%) and other (3%) products.

Oncology products include specialty access catheters and ports; gastroenterological products (endoscopic accessories, percutaneous feeding devices and stents); biopsy devices; and a suturing system for gastroesophageal reflux disease.

Bard's vascular products include percutaneous transluminal angioplasty catheters, guide wires, introducers and accessories, peripheral stents, vena cava filters and biopsy devices; electrophysiology products such as lab systems, and diagnostic therapeutic and temporary pacing electrode catheters; and fabrics, meshes and implantable vascular grafts.

Surgical specialties products include meshes for hernia and other soft tissue repairs; irrigation devices for orthopedic, laparoscopic and gynecological procedures; and topical hemostatic devices. In January 2003, Bard introduced the VentralexT hernia patch, a simplified intra-abdominal hernia repair technology characterized by minimal suturing, small incisions, and potentially shorter recovery times. In December 2007, Bard entered into a license agreement with Genzyme Corp. to manufacture and market the Sepramesh IP hernia repair product line and incorporate the related Sepra coating technology into the development of future hernia repair applications.

Urological diagnosis and intervention products include Foley catheters, procedure kits and trays, and related urine monitoring and collection systems; urethral stents; and specialty devices for incontinence, endoscopic procedures, and stone removal. Newer products include the Infection Control Foley catheter that reduces the rate of urinary tract infections; a collagen implant and sling materials used to treat urinary incontinence; and brachytherapy services, devices, and radioactive seeds to treat prostate cancer.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.34 5.59 4.60 4.80 0.66 14% 88.43 68.94 19 15

2008 11.62 4.95 4.06 3.96 0.62 15% 101.61 70.00 25 17

2007 10.73 4.59 3.84 3.86 0.58 15% 95.33 76.61 25 20

2006 9.46 3.25 2.55 2.96 0.54 21% 85.72 59.89 34 23

2005 10.39 3.71 3.12 2.86 0.50 16% 72.79 60.82 23 19

2004 7.26 3.33 2.82 2.29 0.47 17% 65.13 40.09 23 14

2003 5.35 2.03 1.60 1.73 0.45 28% 40.80 27.02 25 17

2002 4.84 1.87 1.47 1.27 0.43 29% 31.97 22.05 22 15

2001 3.97 1.89 1.38 1.21 0.42 31% 32.47 20.43 24 15

2000 2.53 1.53 1.04 NA 0.41 39% 27.47 17.50 26 17

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,535 825 93.5 11.8 672 31.3% 460 475

2,452 735 90.9 12.1 550 24.3% 417 407

2,202 638 79.8 11.9 577 29.6% 406 409

1,986 550 74.9 16.9 348 21.7% 272 317

1,771 503 63.8 12.2 450 25.0% 337 309

1,656 418 54.7 12.7 414 26.9% 303 244

1,433 333 44.7 12.5 223 24.5% 169 182

1,274 295 42.3 12.6 211 26.5% 155 134

1,181 266 53.2 14.2 205 30.1% 143 126

1,099 244 49.6 19.3 154 30.6% 107 NA

Balance Sheet & Other Financial Data (Million $) Cash 674 Current Assets 1,492 Total Assets 2,907 Current Liabilities 282 Long Term Debt 150 Common Equity 2,194 Total Capital 2,356 Capital Expenditures 48.1 Cash Flow 554 Current Ratio 5.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 18.2 % Return on Assets NA % Return on Equity NA

592 1,354 2,666 273 150 1,977 2,151 50.6 507 5.0 7.0 17.0 16.2 21.8

571 1,242 2,476 282 150 1,848 2,018 50.7 486 4.4 7.4 18.5 17.1 22.9

416 1,134 2,277 296 151 1,698 1,871 70.4 347 3.8 8.1 13.7 12.0 16.8

754 1,264 2,266 641 0.80 1,536 1,544 97.2 401 2.0 0.1 19.0 15.8 23.3

541 1,054 2,009 390 151 1,360 1,534 74.0 358 2.7 9.9 18.3 16.4 25.2

417 875 1,692 422 152 1,046 1,197 72.1 213 2.1 12.7 11.8 10.8 17.5

23.1 758 1,417 317 152 880 1,033 41.0 197 2.4 14.7 12.2 11.5 18.6

30.8 647 1,231 235 156 789 945 27.4 196 2.8 16.5 12.1 12.3 20.4

21.3 527 1,089 225 204 614 818 19.4 157 2.3 25.0 9.7 9.6 18.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 730 Central Avenue, Murray Hill, NJ 07974. Telephone: 908-277-8000. Website: http://www.crbard.com Chrmn & CEO: T.M. Ring

Pres & COO: J.H. Weiland SVP & CFO: T.C. Schermerhorn Chief Acctg Officer & Cntlr: F. Lupisella, Jr. Treas: S.T. Lowry

Investor Contact: E.J. Shick (908-277-8413) Founded: 1907 Board Members: D. M. Barrett, M. C. Breslawsky, T. K. Domicile: New Jersey Dunnigan, H. L. Henkel, J. C. Kelly, T. E. Martin, G. K. Employees: 11,000 Naughton, T. M. Ring, T. G. Thompson, J. H. Weiland, A. Welters, T. L. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BAX | BAX is in the S&P 500

Baxter International Inc S&P Recommendation BUY

★★★★★

Price $51.12 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $58.00

Investment Style Large-Cap Growth

Summary This global medical products and services company provides critical therapies for people with life-threatening conditions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $61.88– 40.25 Trailing 12-Month EPS $2.59 Trailing 12-Month P/E 19.7 $10K Invested 5 Yrs Ago $14,758

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.98 4.30 12.8 584.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$29.873 2.27 $1.16 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

MEDIUM

HIGH

Our risk assessment reflects BAX's operations in a highly competitive business characterized by rapid technological change and new market entrants. In addition, the business entails regulatory and reimbursement risks, as well as liability risk from malfunctioning products. This is offset by our belief that health care products are largely immune to economic cycles, and that long-term demand should benefit from demographic growth of the elderly and a greater penetration of developing global markets.

60

50

40 Vol. 90

Mil.

LOW

Below Avg.

70

30 20 10 0

Quantitative Evaluations

5

4

3

4

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

S&P Quality Ranking D

C

B-

A B

B+

A-

A

Relative Strength Rank

STRONG

LOWEST = 1

Highlights The 12-month target price for BAX has recently been changed to $58.00 from $50.00. The Highlights section of this Stock Report will be updated accordingly.

A+

80

Options: ASE, CBOE, P, Ph

➤

0.50 7 A+

HIGHEST = 99

Investment Rationale/Risk ➤

➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on BAX from MarketScope, see below. 10/21/10 12:50 pm ET ... S&P REITERATES BUY OPINION ON SHARES OF BAXTER INTERNATIONAL (BAX 50.94****): Q3 adjusted EPS rose 16% to $1.01, $0.04 ahead of our estimate. Excluding FX, sales increased 4%, lifted by gains in BioScience, Medication Delivery, and Renal Care. Margins benefited from improved SG&A and R&D cost ratios. We believe BAX is executing well on strategies aimed at improving market share in key franchises. We also see synergies from the planned combination of the Medication Delivery and Renal units. We are raising our target price by $8 to $58, applying a peer level P/E of 13.5X to our '11 EPS estimate of $4.30 (raised by $0.04). The dividend yields 2.3%. /H.Saftlas

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,140 3,194 2009 2,824 3,123 2008 2,877 3,189 2007 2,675 2,829 2006 2,409 2,649 2005 2,383 2,577

3Q -3,145 3,151 2,750 2,557 2,398

4Q -3,470 3,131 3,009 2,763 2,491

Year -12,562 12,348 11,263 10,378 9,849

Earnings Per Share ($) 2010 0.86 0.90 2009 0.83 0.96 2008 0.67 0.85 2007 0.61 0.65 2006 0.43 0.47 2005 0.36 0.51

E0.97 0.87 0.74 0.61 0.57 0.18

E1.11 0.94 0.91 0.74 0.66 0.46

E3.98 3.59 3.16 2.61 2.13 1.52

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.290 0.290 0.290 0.290

11/10 02/16 05/04 07/27

12/08 03/08 06/08 09/08

12/10 03/10 06/10 09/10

01/05/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1934. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BAX

Baxter International Inc Business Summary July 27, 2010 CORPORATE OVERVIEW. Founded in 1931 as the first producer of commercially prepared intravenous (IV) solutions, Baxter International makes and distributes medical products and equipment, with a focus on the blood and circulatory system. In 2007, international sales accounted for 57% of the total. In March 2007, the company divested its Transfusion Therapies business. The BioSciences unit (44% of 2009 sales) produces plasma-based and recombinant clotting factors for hemophilia, as well as biopharmaceuticals for immune deficiencies, cancer, and other disorders. It also offers biosurgery products for hemostasis, tissue sealing and tissue regeneration, vaccines, and blood processing and storage systems used by hospitals, blood banks and others. In addition, BAX sells a meningitis C vaccine, and is developing cell culture-derived vaccines for influenza, smallpox, Severe Acute Respiratory Syndrome and other diseases. Its most important Biosciences product is Advate, a recombinant blood-clotting agent produced without adding human or animal proteins in the cell culture, purification or final formulation process.

products such as critical-care generic injectable drugs, anesthetic agents, and nutrition and oncology products. The products work with devices such as drug-reconstitution systems, IV infusion pumps, nutritional compounding equipment, and medication management systems to provide fluid replenishment, general anesthesia, parenteral nutrition, pain management, antibiotic therapy, and chemotherapy. Renal Care products (18%) comprise dialysis equipment and other products and services provided for kidney failure patients. BAX sells products for peritoneal dialysis (PD), including solutions, container systems and automated machines that cleanse patients' blood overnight while they sleep. The company also makes dialyzers and instrumentation for hemodialysis (HD). Another renal care product is Extraneal (icodextrin) solution, which facilitates increased fluid removal from the bloodstream during dialysis.

The Medication Delivery unit (38%) makes IV solutions and various specialty Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.08 4.63 3.59 3.66 1.07 30% 60.99 45.46 17 13

2008 6.79 4.11 3.16 2.99 0.91 29% 71.53 47.41 23 15

2007 7.53 3.46 2.61 2.68 0.72 28% 61.09 46.07 23 18

2006 6.42 3.01 2.13 2.24 0.58 27% 48.54 35.12 23 16

2005 3.61 2.45 1.52 1.38 0.58 38% 41.07 33.08 27 22

2004 2.45 1.59 0.62 0.52 0.58 94% 34.84 27.10 56 44

2003 1.74 2.42 1.52 1.25 0.58 38% 31.32 18.18 21 12

2002 1.53 2.38 1.67 1.30 0.58 35% 59.90 24.07 36 14

2001 3.44 1.81 1.09 0.53 0.58 53% 55.90 40.06 51 37

2000 2.43 1.91 1.24 NA 0.15 12% 45.13 25.88 37 21

12,562 3,594 638 117 2,734 19.0% 2,205 2,248

12,348 3,333 606 165 2,451 17.8% 2,014 1,906

11,263 2,913 558 136 2,114 19.3% 1,707 1,757

10,378 2,479 575 101 1,746 19.9% 1,398 1,467

9,849 2,110 580 166 1,444 33.7% 958 864

9,509 2,039 601 99.0 430 10.9% 383 323

8,916 2,161 545 118 1,150 19.8% 922 756

8,110 2,168 439 71.0 1,397 26.1% 1,033 794

7,663 1,934 441 108 964 31.1% 664 313

6,896 1,673 405 124 946 22.0% 738 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,811 Current Assets 8,271 Total Assets 17,354 Current Liabilities 4,464 Long Term Debt 3,440 Common Equity 7,191 Total Capital 11,542 Capital Expenditures 1,014 Cash Flow 2,843 Current Ratio 1.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 17.6 % Return on Assets NA % Return on Equity NA

2,131 7,148 15,405 3,635 3,362 6,229 9,597 954 2,620 2.0 35.1 16.3 13.1 30.6

2,539 7,555 15,294 3,812 2,664 6,916 9,580 692 2,265 2.0 27.8 15.2 11.4 25.9

2,485 6,970 14,686 3,610 2,567 6,272 8,839 526 1,973 1.9 29.0 13.5 10.2 26.4

841 5,116 12,727 4,165 2,414 4,299 6,713 444 1,538 1.2 36.0 9.7 7.1 23.9

1,109 6,019 14,147 4,286 3,933 3,705 7,638 558 984 1.4 51.5 4.0 2.8 10.8

927 5,437 13,779 3,819 4,421 3,323 7,744 789 1,467 1.4 57.1 10.3 7.0 29.4

1,169 5,160 12,478 3,851 4,398 2,939 7,366 734 1,472 1.3 59.7 12.7 9.1 30.9

582 3,977 10,343 3,294 2,486 3,757 6,461 669 1,105 1.2 38.5 8.7 7.0 20.7

579 3,651 8,733 3,372 1,726 2,659 4,545 101 1,143 1.1 38.0 10.7 8.0 24.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Baxter Parkway, Deerfield, IL 60015. Telephone: 847-948-2000. Website: http://www.baxter.com Chrmn, Pres & CEO: R.L. Parkinson, Jr.

CFO & Treas: R.J. Hombach CSO: N.G. Riedel Chief Acctg Officer & Cntlr: M.J. Baughman Secy: S.A. Shinn

Investor Contact: M. Ladone (847-948-3371) Founded: 1931 Board Members: W. E. Boomer, B. E. Devitt, J. D. Domicile: Delaware Forsyth, G. D. Fosler, J. Gavin, III, P. S. Hellman, W. T. Employees: 49,700 Hockmeyer, J. Martin, R. L. Parkinson, Jr., C. J. Shapazian, T. T. Stallkamp, K. J. Storm, A. P. Stroucken

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BBT | BBT is in the S&P 500

BB&T Corp S&P Recommendation BUY

★★★★★

Price $22.62 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This financial holding company operates more than 1,800 financial centers in the Carolinas and several other states, mostly in the Southeast.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.72– 21.72 Trailing 12-Month EPS $1.06 Trailing 12-Month P/E 21.3 $10K Invested 5 Yrs Ago $6,975

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.18 2.82 19.2 693.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$15.675 2.65 $0.60 51

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.96 33 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's large-cap valuation, our view of the strong credit quality of its loan portfolio, and its history of profitability, offset by its exposure to the banking industry's current issues regarding funding and credit quality.

40 30

20 15

Quantitative Evaluations Vol.

B+

122

60 40 20 0 5

S&P Quality Ranking

159

Mil.

D

C

B-

B

B+

A-

A

Relative Strength Rank 4

4

3

4

3

A+ WEAK

14 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for BBT has recently been changed to $26.00 from $38.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on BBT from MarketScope, see below.

➤

10/21/10 10:11 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF BB&T (BBT 23.0****): Q3 EPS of $0.30, vs. $0.23, misses our $0.53 estimate, on a higher than expected loan loss provision, partly offset by better than expected noninterest income, driven by securities gains. On results, we are reducing our '10 EPS estimate to $1.18 from $1.42. However, we see strong signs of improving credit quality, in low formation of new nonperforming loans. To reflect peer multiples, we cut our target price by $12 to $26 based on a slight premium to peers 1.7X our year-end tangible book value per share estimate of $15.20. /E. Oja

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,623 2,858 2009 2,740 2,633 2008 2,655 2,617 2007 2,543 2,690 2006 2,165 2,319 2005 1,760 1,918

3Q -2,685 2,585 2,719 2,463 2,036

4Q -2,790 2,536 2,747 2,468 2,118

Year -10,818 10,404 10,668 9,414 7,831

Earnings Per Share ($) 2010 0.27 0.30 2009 0.48 0.20 2008 0.78 0.78 2007 0.77 0.83 2006 0.79 0.79 2005 0.71 0.70

E0.30 0.23 0.65 0.80 0.77 0.80

E0.31 0.27 0.51 0.75 0.46 0.78

E1.18 1.15 2.71 3.14 2.81 3.00

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

02/23 06/22 06/22 08/24

04/07 07/07 09/02 10/13

04/09 07/09 09/07 10/15

05/03/10 08/02/10 08/02/10 11/01/10

Dividends have been paid since 1903. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BBT

BB&T Corp Business Summary July 26, 2010 CORPORATE OVERVIEW. BBT has bank operations providing loan, deposit and financial products primarily in the Southeast. BBT has seven reportable business segments: Banking Network, Mortgage Banking, Trust Services, Insurance Services, Investment Banking and Brokerage, Specialized Lending, and Treasury. MARKET PROFILE. As of June 30, 2009, which is the latest available FDIC branch-level data, BBT had 1,820 branches and $114.4 billion in deposits, including, on a pro forma basis, the acquisition of Colonial Bancorp in August 2009. BBT's footprint is relatively concentrated, as 61% of deposits are in North Carolina, Virginia and Florida. In North Carolina, BBT had 356 branches, $33.7 billion of deposits, and a deposit market share of 11.1%, ranking third. In Virginia, BBT had 390 branches, $20.0 billion of deposits, and a deposit market share of about 9.4%, ranking fourth. In Florida, BBT had 307 branches, $16.4 billion of deposits, and a deposit market share of about 4.1%, ranking fifth. These figures include $12.0 billion and 200 branches from the Colonial acquisition.

In Georgia, BBT had 172 branches, $11.1 billion of deposits, and a deposit market share of about 6.0%, ranking fifth. In Maryland, BBT had 128 branches, $6.6 billion of deposits, and a deposit market share of about 6.1%, ranking seventh. In South Carolina, BBT had 115 branches, $6.3 billion of deposits, and a deposit market share of about 9.1%, ranking third. In Alabama, including the Colonial acquisition, BBT had 88 branches, $5.8 billion of deposits, and a deposit market share of about 7.0%, ranking fourth. Almost all of BBT's current Alabama presence resulted from the Colonial transaction. In addition, BBT had a number one market ranking in West Virginia, was third in Kentucky, seventh in DC, and sixth in Tennessee. Finally, BBT had a small presence in Texas, Nevada and Indiana.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.77 1.15 1.15 1.24 108% 29.81 12.90 26 11

2008 11.86 2.71 2.54 1.86 67% 45.31 18.71 17 7

2007 12.73 3.14 3.09 1.76 56% 44.30 30.36 14 10

2006 11.04 2.81 2.79 1.60 57% 44.74 38.24 16 14

2005 11.76 3.00 2.90 1.46 49% 43.92 37.04 15 12

2004 12.26 2.80 2.75 1.34 48% 43.25 33.02 15 12

2003 11.66 2.07 1.97 1.22 59% 39.69 30.66 19 15

2002 12.04 2.70 2.59 1.10 41% 39.47 31.03 15 11

2001 13.50 2.12 2.02 0.98 46% 38.84 30.24 18 14

2000 11.91 1.55 NA 0.86 55% 38.25 21.69 25 14

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

4,844 119 3,934 2,811 56.2% 1,036 15.4% 853 3.66 728

4,238 83.0 3,197 1,445 54.4% 2,069 26.6% 1,519 3.63 1,406

3,880 68.0 2,777 448 54.6% 2,570 32.5% 1,734 3.52 1,707

3,708 NA 2,594 240 55.8% 2,473 38.2% 1,528 3.74 1,514

3,525 82.7 2,326 217 53.4% 2,467 33.0% 1,654 3.89 1,608

3,348 NA 2,113 249 57.6% 2,322 32.9% 1,558 4.04 1,529

3,082 21.2 1,782 248 63.6% 1,617 34.1% 1,065 4.06 1,012

2,747 151 1,522 264 54.0% 1,791 27.8% 1,293 4.25 1,241

2,434 19.1 1,256 224 60.1% 1,360 28.4% 974 4.17 927

2,018 130 996 127 56.0% 906 30.8% 626 3.56 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 1,065 Investment Securities 34,545 Commercial Loans 49,820 Other Loans 56,387 Total Assets 165,764 Demand Deposits 22,365 Time Deposits 92,600 Long Term Debt 21,376 Common Equity 16,191 % Return on Assets 0.5 % Return on Equity 5.9 % Loan Loss Reserve 2.5 % Loans/Deposits 90.2 % Equity to Assets 10.1

1,101 33,219 50,480 48,189 152,015 16,225 82,388 18,032 16,037 1.1 10.6 1.6 98.6 9.0

1,067 23,428 44,870 46,037 132,618 14,260 72,506 18,693 448 1.3 14.0 1.1 103.6 9.6

688 22,868 41,300 41,611 121,351 14,726 66,245 12,604 11,745 1.3 13.4 1.1 103.2 9.9

697 20,489 37,655 36,739 109,170 13,477 60,805 13,119 11,129 1.6 15.0 1.1 99.0 10.5

1,244 19,173 34,321 33,228 100,509 12,246 55,453 11,420 10,874 1.6 15.0 1.2 100.7 10.9

604 16,317 12,429 49,151 90,467 11,098 48,252 10,808 9,935 1.2 12.3 1.3 105.0 10.1

591 17,655 7,061 44,079 80,217 7,864 43,416 13,588 7,388 1.7 19.1 1.4 104.4 9.0

458 16,662 6,551 38,985 70,870 6,940 37,794 11,721 6,150 1.4 16.8 1.4 106.1 8.4

379 13,851 5,894 33,561 59,340 5,064 32,951 8,355 4,786 1.1 14.2 1.3 106.0 7.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 West Second Street, Winston-Salem, NC 27101. Telephone: 336-733-2000. Website: http://www.bbandt.com Chrmn, Pres & CEO: K.S. King

COO & EVP: C.L. Henson EVP & CFO: D.N. Bible EVP, Chief Acctg Officer & Cntlr: C.B. Powell Treas: J. Nichols

Investor Contact: T. Gjesdal (336-733-3058) Founded: 1968 Board Members: J. A. Allison, IV, J. S. Banner, K. D. Domicile: North Carolina Boyer, Jr., A. R. Cablik, R. E. Deal, B. J. Fitzpatrick, J. L. Employees: 32,400 Glover, Jr., L. V. Hackley, J. P. Helm, J. P. Howe, III, K. S. King, J. H. Maynard, A. O. McCauley, J. H. Morrison, N. R. Qubein, T. E. Skains, T. N. Thompson, S. T. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BDX | BDX is in the S&P 500

Becton, Dickinson and Co S&P Recommendation BUY

★★★★★

Price $76.40 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $87.00

Investment Style Large-Cap Growth

Summary This company provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $80.56– 66.20 Trailing 12-Month EPS $5.11 Trailing 12-Month P/E 15.0 $10K Invested 5 Yrs Ago $16,291

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.08 5.45 15.0 232.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

BDX's markets are competitive, and new product introductions by current and future competitors have the potential to significantly affect market dynamics. In addition, changes in domestic and foreign health care industry practices and regulations may result in increased pricing pressures and lower reimbursements for some of its products. However, we believe BDX's product line has more favorable demand and pricing characteristics than those in the medical equipment industry in general.

70 60

Vol. Mil. 12 8 4 0

Quantitative Evaluations 5

4

3

4

3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

A B

B+

Analysis prepared by Jeffrey Loo, CFA on August 13, 2010, when the stock traded at $ 71.06. Highlights We expect revenues to rise 5% in FY 10 (Sep.) and 6% in FY 11, inclusive of a neutral foreign exchange impact. We see the medical segment growing 6.6% and 5.4%, respectively, on global demand for diabetes care products, partially offset by slower H1N1 supply sales as the swine flu pandemic concerns has lessened. We believe diagnostics revenues will rise 4% and 5% on infectious disease testing products, but adversely affected by lower physician office visits, and see the biosciences revenues growing 5% in both years on solid cell analysis sales and aided partially by U.S. stimulus funding, which has been slow to roll out. We see gross margins declining 110 and 50 basis points (bps), mainly on higher resin costs, and but see operating margins declining 90 bps and 40 bps, aided by leverage.

Investment Rationale/Risk ➤

➤

In August, BDX sold its ophthalmic systems unit and its surgical blades product platform. The assets generated approximately $200 million in annual revenue. ➤

➤

Our FY 10 and FY 11 EPS estimates are $5.08 and $5.45, respectively.

We believe the shares, recently trading at 12.8X our FY 11 EPS estimate, well below historical levels, are undervalued. We see steady growth from BDX's diversified product offering, and we are encouraged by strong global demand for BDX's safety, diabetes-care and disease-testing products, which we view as sustainable for the long term. In this regard, we note that the EU is working on safety legislation that could be adopted by member states in three years' time. Meanwhile, we view positively recent growth in the biosciences segment, driven by supplemental government funding for stem-cell research in Japan and increased demand for cell analysis products in the U.S. Risks to our opinion and target price include a slower-than-expected recovery in key life science markets, continued cutbacks in spending by the company's hospital customers, adverse patent litigation, and unfavorable foreign currency fluctuations. Our 12-month target price of $87 is derived by applying a multiple of 16X to our FY 2011 EPS estimate, slightly below historical levels.

A-

A

Relative Strength Rank

A+

MODERATE 59

Options: CBOE, P, Ph

➤

HIGH

Below Avg.

80

➤

0.58 8 AA-

Qualitative Risk Assessment

100

5

$17.736 1.94 $1.48 81

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,917 1,845 2009 1,734 1,741 2008 1,706 1,747 2007 1,502 1,576 2006 1,414 1,449 2005 1,288 1,366

3Q 1,878 1,820 1,868 1,631 1,484 1,381

4Q -1,898 1,836 1,651 1,488 1,379

Year -7,161 7,156 6,360 5,835 5,415

Earnings Per Share ($) 2010 1.30 1.24 2009 1.26 1.06 2008 1.07 1.09 2007 0.51 0.92 2006 0.85 0.61 2005 0.74 0.71

1.29 1.38 1.18 0.95 0.81 0.73

E1.23 1.25 1.13 0.98 0.69 0.47

E5.08 4.92 4.46 3.36 2.95 2.66

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.370 0.370 0.370 0.370

11/24 02/02 05/25 07/27

12/10 03/08 06/07 09/07

12/14 03/10 06/09 09/09

01/04/10 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1926. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BDX

Becton, Dickinson and Co Business Summary August 13, 2010 Becton, Dickinson traces its roots to a concern started by Maxwell Becton and Fairleigh Dickinson in 1897. One of the first companies to sell U.S.-made glass syringes, BDX was also a pioneer in the production of hypodermic needles. The company now manufactures and sells medical supplies, devices, lab equipment and diagnostic products used by health care institutions, life science researchers, clinical laboratories, industry and the general public. In FY 09 (Sep.), 60% of the company's sales were generated from non-U.S. markets. Major products in the core medical systems division (52% of FY 09 revenues) include hypodermic syringes and needles for injection, insulin syringes and pen needles for diabetes care, infusion therapy devices, prefillable drug delivery systems, and surgical blades and scalpels. The segment also markets specialty blades and cannulas for ophthalmic surgery procedures, anesthesia needles, critical care systems, elastic support products, and thermometers. The blood glucose monitoring and test strip business was sold in December 2006. The diagnostics segment (31%) provides a range of products designed for the safe collection and transport of diagnostic specimens and instrumentation for analysis across a wide range of infectious disease testing, including health care-associated infections (HAIs). Its principal products and services include

integrated systems for specimen collection; an extensive line of safetyengineered blood collection products and systems; plated media; automated blood culturing systems; molecular testing systems for sexually transmitted diseases and HAIs; microorganism identification and drug susceptibility systems; liquid-based cytology systems for cervical cancer screening; and rapid diagnostic assays. The segment also includes consulting services and customized, automated bar-code systems for patient identification and pointof-care data capture. The biosciences unit (17%) provides research tools and reagents to clinicians and medical researchers studying genes, proteins and cells in order to better understand disease, improve diagnosis and disease management, and facilitate the discovery and development of novel therapeutics. Products include instrument systems for cell sorting and analysis, monoclonal antibody reagents and kits for diagnostic and research use, tools to aid in drug discovery and vaccine development, molecular biology products, fluid handling, cell growth and screening products.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 16.52 6.39 4.92 4.93 1.32 27% 79.97 60.40 16 12

2008 15.38 5.89 4.46 4.22 1.14 26% 93.24 58.14 21 13

2007 13.41 5.09 3.36 3.38 0.98 29% 85.89 69.30 26 21

2006 11.96 4.52 2.95 2.99 0.86 29% 74.25 58.08 25 20

2005 10.28 4.36 2.66 2.75 0.72 27% 61.17 49.71 23 19

2004 9.28 3.57 2.21 2.39 0.60 27% 58.18 40.90 26 19

2003 8.82 3.54 2.07 2.01 0.40 19% 41.82 28.82 20 14

2002 6.06 2.92 1.79 1.57 0.39 22% 38.60 24.70 22 14

2001 5.35 2.76 1.63 1.38 0.38 23% 39.25 29.96 24 18

2000 3.80 2.58 1.49 NA 0.37 25% 35.31 23.75 24 16

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,161 2,060 365 69.8 1,639 26.0% 1,213 1,216

7,156 1,912 360 66.2 1,554 27.4% 1,128 1,068

6,360 1,644 441 46.0 1,204 28.8% 856 863

5,835 1,456 405 66.0 1,035 27.0% 756 766

5,415 1,419 387 55.7 1,005 31.1% 692 714

4,935 1,244 357 29.6 753 22.6% 583 628

4,528 1,094 344 73.1 710 22.9% 547 523

4,033 1,002 305 33.3 629 23.6% 480 417

3,754 952 306 47.1 577 24.0% 438 364

3,618 861 288 78.3 520 24.4% 393 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,946 Current Assets 4,647 Total Assets 9,305 Current Liabilities 1,777 Long Term Debt 1,488 Common Equity 5,143 Total Capital 6,831 Capital Expenditures 591 Cash Flow 1,578 Current Ratio 2.6 % Long Term Debt of Capitalization 21.8 % Net Income of Revenue 16.9 % Return on Assets 14.1 % Return on Equity 24.1

1,030 3,615 7,913 1,417 953 4,936 5,924 602 1,488 2.6 16.1 15.8 14.1 24.3

511 3,131 7,329 1,479 956 4,362 5,318 556 1,297 2.1 17.9 13.4 12.0 20.8

1,000 3,185 6,825 1,576 957 3,836 4,793 459 1,161 2.0 20.0 12.9 11.7 21.2

1,043 2,975 6,072 1,299 1,061 3,284 4,345 318 1,080 2.3 24.4 12.8 11.7 21.9

719 2,641 5,753 1,050 1,172 3,037 4,328 266 940 2.5 27.1 11.8 10.3 19.7

520 2,339 5,572 1,043 1,184 2,863 4,200 261 889 2.2 28.2 12.1 10.3 20.5

243 1,929 5,040 1,252 803 2,450 3,396 260 783 1.5 23.6 11.9 9.8 20.2

82.1 1,763 4,802 1,265 1,902 2,288 4,321 371 742 1.4 44.0 11.7 9.4 20.8

49.2 1,661 4,505 1,354 780 1,912 2,823 376 679 1.2 27.6 10.9 8.8 21.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Becton Drive, Franklin Lakes, NJ 07417-1880. Telephone: 201-847-6800. Email: [email protected] Website: http://www.bd.com

Chrmn & CEO: E.J. Ludwig Pres & COO: V.A. Forlenza EVP & CFO: D.V. Elkins SVP & CTO: S.P. Bruder

SVP, Chief Acctg Officer & Cntlr: W.A. Tozzi Founded: 1897 Investor Contact: P.A. Spinella (201-847-5453) Domicile: New Jersey Board Members: B. L. Anderson, H. P. Becton, Jr., E. F. Employees: 29,116 DeGraan, C. M. Fraser-Liggett, C. I. Jones, M. O. Larsen, E. J. Ludwig, A. Mahmoud, G. A. Mecklenburg, C. Minehan, J. F. Orr, W. J. Overlock, Jr., B. L. Scott, A. Sommer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: BBBY | BBBY is in the S&P 500

Bed Bath & Beyond Inc S&P Recommendation BUY

★★★★★

Price $44.02 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Homefurnishing Retail

12-Mo. Target Price $52.00

Investment Style Large-Cap Growth

Summary This company operates a nationwide chain of more than 900 Bed Bath & Beyond superstores selling better-quality domestics merchandise and home furnishings. It also has retail stores under the names Christmas Tree Shops, Harmon and buybuy BABY.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.52– 26.50 Trailing 12-Month EPS $2.66 Trailing 12-Month P/E 16.6 $10K Invested 5 Yrs Ago $11,296

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.76 3.08 15.9 259.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.406 Nil Nil 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.15 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the home furnishings retail industry, which relies heavily on consumer spending, and, to a lesser extent, housing turnover, offset by significant growth we see in major domestic metro markets and Canada.

50 40

25 20

Quantitative Evaluations Vol.

S&P Quality Ranking

68

Mil. 30 20 10 0 5

D

C

B-

B+ B

B+

A-

Relative Strength Rank 4

3

2

2

3

4

A+

MODERATE 68

LOWEST = 1

1

A

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Michael Souers on September 24, 2010, when the stock traded at $ 43.40. Highlights ➤

➤

➤

We expect sales to rise 8.7% in FY 11 (Feb.), following an 8.6% advance in FY 10. This reflects the projected addition of about 25 new Bed Bath & Beyond stores and a 5% same-store sales increase. We also anticipate the opening of approximately 10 new Christmas Tree Shops and 15 buybuy BABY stores. We see samestore sales reflecting slight increases in both foot traffic and average ticket. We expect gross margins to widen slightly, driven by a decrease in coupon redemptions and improved inventory management, partially offset by a negative product mix shift. We forecast a 120 basis point increase in operating margins, driven by gross margin improvement and continued cost-cutting efforts in payroll and advertising. In addition, we think BBBY will leverage fixed expenses on a solid expected comp-store sales increase. After slightly lower projected interest income, an anticipated effective tax rate of 38.7%, and a slightly lower diluted share count, we estimate FY 11 EPS of $2.76, a 20% increase from the $2.30 the company earned in FY 10. We see EPS of $3.08 in FY 12.

Investment Rationale/Risk ➤

➤

➤

We think BBBY shares are attractively priced, trading at about 14X our FY 12 EPS estimate, a discount to peers. In addition, we note the company's balance sheet includes over $6 of net cash per share. We expect continued market share gains for BBBY, with better merchandising and execution than peers. On the flip side, while we think the home furnishings industry is in the midst of reaching a cyclical bottom, plagued by cash-strapped consumers and a weak housing market, we expect it will take years for a solid recovery to build. BBBY is about 75% of the way to reaching its long-term goal of 1,300 stores, so we expect square footage growth to gradually slow. Risks to our recommendation and target price include an unexpected decline in consumer spending, an unanticipated shift in spending away from home-centric products, and miscues in BBBY's store expansion strategy. Our 12-month target price of $52, or about 17X our FY 12 EPS estimate, is based on our discounted cash flow analysis, which assumes a weighted average cost of capital of 10.3% and a terminal growth rate of 3.5%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 1,923 2,137 2010 1,694 1,915 2009 1,648 1,854 2008 1,553 1,768 2007 1,396 1,607 2006 1,244 1,431

3Q -1,975 1,783 1,795 1,619 1,449

4Q -2,244 1,923 1,933 1,995 1,685

Year -7,829 7,208 7,049 6,617 5,810

Earnings Per Share ($) 2011 0.52 0.70 2010 0.34 0.52 2009 0.30 0.46 2008 0.38 0.55 2007 0.35 0.51 2006 0.33 0.47

E0.64 0.58 0.34 0.52 0.50 0.45

E0.91 0.86 0.55 0.66 0.72 0.67

E2.76 2.30 1.64 2.10 2.09 1.92

Fiscal year ended Feb. 28. Next earnings report expected: Early January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: BBBY

Bed Bath & Beyond Inc Business Summary September 24, 2010 CORPORATE OVERVIEW. Bed Bath & Beyond operates one of the largest U.S. chains of superstores selling domestics merchandise and home furnishings. BBBY stores predominantly range in size from 20,000 sq. ft. to 50,000 sq. ft., with some encompassing 100,000 sq. ft. The company has grown rapidly, from 34 stores at the end of FY 93 (Feb.) to 965 Bed Bath & Beyond stores in 49 states, the District of Columbia, Puerto Rico and Canada at year-end FY 10. BBBY opened 35 net new Bed Bath & Beyond Stores stores in FY 10, after opening 49 stores in FY 09; it expects to open 30 new stores in FY 11. During FY 10, total square footage of Bed Bath & Beyond stores grew 5.0%, to 33.7 million sq. ft., from 32.1 million sq. ft. Company stores are principally located in suburban areas of medium- and large-sized cities. These stores are situated in strip and power strip shopping centers, as well as in major off-price and conventional malls, and freestanding buildings.

In June 2003, BBBY acquired Christmas Tree Shops, a retailer of home decor, giftware, housewares, food, paper goods and seasonal products, for approximately $194.4 million, net of cash acquired. The company operated 61 Christmas Tree Shops in 15 states at year-end FY 10, ranging in size from 30,000 to 50,000 sq. ft. In March 2007, BBBY acquired buybuy BABY, a retailer of infant and toddler merchandise, for approximately $67 million, net of cash acquired. The company operated 29 buybuy BABY stores in 14 states at year-end FY 10, ranging in size from 28,000 to 60,000 square feet. Bed Bath & Beyond is also a partner in a joint venture that operates two stores in the Mexico City market under the name "Home & More".

In March 2002, the company acquired Harmon Stores, Inc., a health and beauty care retailer. The Harmon chain had 45 stores in three states at February 27, 2010, ranging in size from approximately 5,000 to 9,000 sq. ft.

Company Financials Fiscal Year Ended Feb. 28 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 13.02 3.01 2.30 2.30 Nil Nil 2009 40.23 19.11 17 8

2009 10.67 2.32 1.64 1.64 Nil Nil 2008 34.73 16.23 21 10

2008 11.34 2.69 2.10 2.10 Nil Nil 2007 43.32 27.96 21 13

2007 9.56 2.56 2.09 2.09 Nil Nil 2006 41.72 30.92 20 15

2006 8.05 2.29 1.92 1.87 Nil Nil 2005 46.99 35.50 24 18

2005 6.99 1.96 1.65 1.55 Nil Nil 2004 44.43 33.88 27 21

2004 6.14 1.59 1.31 1.23 Nil Nil 2003 45.00 30.18 34 23

2003 4.93 1.25 1.00 0.92 Nil Nil 2002 37.90 26.70 38 27

2002 3.75 0.94 0.74 0.67 Nil Nil 2001 35.70 18.70 48 25

2001 2.84 0.75 0.59 0.53 Nil Nil 2000 27.31 11.00 46 19

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,829 1,165 184 NA 985 39.1% 600 600

7,208 850 176 Nil 683 37.8% 425 425

7,049 996 158 Nil 865 35.0% 563 563

6,617 1,026 136 Nil 933 36.3% 594 594

5,810 990 111 Nil 915 37.4% 573 557

5,148 890 97.5 Nil 811 37.8% 505 470

4,478 724 84.6 Nil 650 38.5% 399 370

3,665 555 74.8 Nil 491 38.5% 302 277

2,928 409 62.5 Nil 357 38.5% 220 200

2,397 319 46.7 Nil 282 39.0% 172 155

Balance Sheet & Other Financial Data (Million $) Cash 1,528 Current Assets 3,563 Total Assets 5,152 Current Liabilities 1,150 Long Term Debt NA Common Equity 3,653 Total Capital 3,653 Capital Expenditures 154 Cash Flow 784 Current Ratio 3.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 7.7 % Return on Assets 12.7 % Return on Equity 18.0

670 2,563 4,269 953 Nil 3,000 3,000 216 601 2.7 Nil 5.9 10.5 15.3

224 2,080 3,844 1,014 Nil 2,562 2,562 358 721 2.1 Nil 8.0 14.4 21.6

988 2,699 3,959 1,145 Nil 2,649 2,649 318 731 2.4 Nil 9.0 16.2 24.2

652 2,072 3,382 990 Nil 2,262 2,262 220 684 2.1 Nil 9.9 17.4 25.7

851 2,097 3,200 874 Nil 2,204 2,204 191 602 2.4 Nil 9.8 16.7 24.1

867 1,969 2,865 770 Nil 1,991 1,991 113 484 2.6 Nil 8.9 15.8 23.2

617 1,594 2,189 680 Nil 1,452 1,452 135 377 2.3 Nil 8.2 15.8 23.7

429 1,227 1,648 511 Nil 1,094 1,094 121 282 2.4 Nil 7.5 15.4 23.0

239 886 1,196 353 Nil 817 817 140 219 2.5 Nil 7.2 16.7 25.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 650 Liberty Avenue, Union, NJ 07083. Telephone: 908-688-0888. Website: http://www.bedbathandbeyond.com Co-Chrmn: L. Feinstein

Co-Chrmn & Secy: W. Eisenberg Pres: A. Stark CEO: S.H. Temares COO & CTO: K. Wanner

Investor Contact: R. Curwin (908-688-0888) Board Members: D. S. Adler, S. F. Barshay, W. Eisenberg, K. Eppler, L. Feinstein, P. R. Gaston, J. Heller, V. A. Morrison, S. H. Temares

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1971 Domicile: New York Employees: 41,000

Stock Report | October 23, 2010 | NYS Symbol: BMS | BMS is in the S&P 500

Bemis Co Inc S&P Recommendation BUY

★★★★★

Price $33.52 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Paper Packaging

12-Mo. Target Price $36.00

Investment Style Large-Cap Blend

Summary This company is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.25– 25.42 Trailing 12-Month EPS $1.38 Trailing 12-Month P/E 24.3 $10K Invested 5 Yrs Ago $16,531

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.20 2.50 15.2 109.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.658 2.74 $0.92 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.80 15 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment partly reflects challenging global economic conditions, volatile raw material prices and possible difficulty in integrating acquisitions. BMS has an S&P Quality Ranking of B+, which indicates average long-term earnings and dividend growth.

35 30 25

20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

STRONG

4

3

A+

72 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Stewart Scharf on October 19, 2010, when the stock traded at $ 33.44. Highlights ➤

We expect organic sales (before Alcan's Food Americas unit and positive foreign currency) to advance in the mid-single digits in 2010, driven by increased demand for flexible packaging products in the Americas, and improving pressure-sensitive materials sales. We see innovative new products and recent acquisitions adding to total growth, with contributions from meat and cheese, and health and hygiene.

Investment Rationale/Risk ➤

➤ ➤

➤

In our view, gross margins will expand during 2010 and into 2011, from 20% in 2009, based on an improved sales mix from new higher-margin products, and better margins for graphics and technical pressure-sensitive products. Following a lag, pricing pass-throughs should offset higher, albeit stabilizing, resin costs. We look for operating margins (EBITDA) to widen modestly from 13.2% in 2009, as a decline in overhead costs due to accelerated synergies outweighs lower margins from Food Americas. We project an effective tax rate for 2010 of 36%, and operating EPS of $2.20 (before at least $0.27 of acquisition-related and other charges), advancing 14% to $2.50 in 2011.

➤

Our buy recommendation is based on our valuation metrics, along with what we see as the company's favorable cash flow and capital structure. Although BMS's debt ratio has risen due to financing related to its Alcan unit acquisition, we believe the deal will be a good strategic fit and cash generation will be sufficient to pay down debt. Risks to our recommendation and target price include another surge in commodity prices, softer global demand, and negative foreign exchange rates. We have some corporate governance concerns based on the CEO being a party to one or more related-party transactions. With the stock's recent dividend yield of 2.8%, versus 2% for the S&P 500 Index, and BMS's solid earnings track record, we apply an above five-year historical forward P/E of 18X to our 2010 EPS estimate to derive a value of $40. Based on our DCF analysis, the stock has an intrinsic value of $32, assuming a 3% terminal growth rate and an 8.3% weighted average cost of capital. Blending these valuations, we arrive at our 12-month target price of $36.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,022 1,270 2009 843.4 866.4 2008 947.3 980.0 2007 909.1 921.8 2006 901.7 933.8 2005 831.9 879.9

3Q -898.9 984.3 905.7 903.3 870.1

4Q -905.9 867.9 912.7 900.6 892.1

Year -3,515 3,779 3,649 3,639 3,474

Earnings Per Share ($) 2010 0.27 0.52 2009 0.36 0.47 2008 0.42 0.46 2007 0.45 0.47 2006 0.35 0.46 2005 0.30 0.38

E0.58 0.33 0.44 0.40 0.45 0.41

E0.56 0.26 0.33 0.42 0.39 0.42

E2.20 1.40 1.65 1.74 1.65 1.51

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.225 0.230 0.230 0.230

10/29 02/04 05/06 07/29

11/12 02/11 05/13 08/11

11/16 02/16 05/17 08/13

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1922. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BMS

Bemis Co Inc Business Summary October 19, 2010 CORPORATE OVERVIEW. Bemis Co., a leading North American producer of flexible packaging products, as well as pressure-sensitive materials, focuses primarily on the food industry (about 60% of sales). BMS expects combined food packaging sales going forward following the acquisition of Food Americas to range from 65% to 70% of total sales. Markets also include the chemicals, agribusiness, pharmaceutical, personal care products, electronics, automotive and graphic industries. BMS has 50 manufacturing plants (five leased) in 13 U.S. states and 10 countries.

The Pressure Sensitive Materials segment (15%; $14 million in operating profits) produces printing products, decorative and sheet products, and technical products.

Although BMS focuses on marketing its products in the U.S. (65% of 2009 net sales) and Europe (16%), it has broadened its reach to South America (17%), as well as Southeast Asia and Mexico, due to strong demand for barrier films to extend the shelf life of perishable foods. Canada accounted for 0.3% of sales, while 2.7% came from other regions.

In January 2005, the company acquired majority ownership of Brazil-based Dixie Toga, a leading South American packaging company, for $250 million in cash (less than 6X Dixie's 2004 EBITDA). Dixie had annual sales of over $450 million in 2005. BMS controls 85% of Dixie's preferred shares.

The Flexible Packaging Products segment (85% of net sales in 2009; $385 million of operating profits) produces a wide range of consumer and industrial packaging products, including high barrier, polyethylene and paper products. High barrier products, which comprise more than 50% of net sales, include flexible polymer film structures and barrier laminates for food, medical and personal care products.

Flexible packaging competitors include Sealed Air, Sonoco Products, Amcor and Hood Packaging. Pressure-sensitive materials competitors include Avery Dennison, Acucote, Minnesota Mining and Manufacturing (3M), Ricoh, FLEXcon and Spinnaker Industries.

BMS contributed $30 million to its U.S. pension plans in the second quarter of 2009, reflecting a lower funded status due to lower assets and increased liabilities. It contributed $15 million to the plan in early 2010, with no additional contributions likely during the year.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.90 2.96 1.40 1.39 0.90 64% 31.41 16.85 22 12

2008 6.72 3.26 1.65 1.40 0.66 40% 29.70 20.62 18 12

2007 9.70 3.28 1.74 1.67 0.84 48% 36.53 25.53 21 15

2006 7.31 3.08 1.65 1.64 0.76 46% 34.99 27.86 21 17

2005 6.29 2.98 1.51 1.48 0.72 48% 32.50 23.20 22 15

2004 7.48 2.88 1.67 1.65 0.64 38% 29.49 23.24 18 14

2003 5.81 2.56 1.37 1.32 0.56 41% 25.58 19.67 19 14

2002 4.11 2.65 1.54 1.28 0.52 34% 29.12 19.70 19 13

2001 4.39 2.49 1.32 1.02 0.50 38% 26.24 14.34 20 11

2000 4.76 2.24 1.22 NA 0.48 39% 19.66 11.47 16 9

3,515 464 159 42.1 245 36.5% 150 144

3,779 443 163 42.0 269 35.9% 166 142

3,649 468 159 54.5 290 36.0% 182 174

3,639 492 152 49.3 289 37.8% 176 176

3,474 472 151 38.7 282 40.3% 163 160

2,834 420 131 15.5 294 38.7% 180 179

2,635 384 128 12.6 240 38.4% 147 142

2,369 401 119 15.4 268 37.9% 166 137

2,293 384 124 30.3 228 38.2% 140 108

2,165 363 108 31.6 212 38.2% 131 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,066 Current Assets 2,005 Total Assets 3,929 Current Liabilities 525 Long Term Debt 1,228 Common Equity 1,807 Total Capital 3,105 Capital Expenditures 89.2 Cash Flow 306 Current Ratio 3.9 % Long Term Debt of Capitalization 39.5 % Net Income of Revenue 4.3 % Return on Assets 4.5 % Return on Equity 9.5

48.3 983 2,827 422 660 1,342 2,147 121 329 2.3 30.7 4.4 5.5 11.5

147 1,137 3,191 535 843 1,562 2,533 179 341 2.1 32.6 5.0 5.8 12.0

112 1,094 3,039 555 722 1,472 2,358 159 329 2.0 30.6 4.8 5.9 12.5

91.1 988 2,965 474 790 1,349 2,336 187 313 2.1 33.8 4.7 6.0 12.2

93.9 874 2,487 375 534 1,308 2,019 135 311 2.3 26.4 6.3 7.5 14.7

76.5 752 2,293 316 583 1,139 1,878 106 275 2.4 31.1 5.6 6.5 14.0

56.4 722 2,257 326 718 959 1,788 91.0 285 2.2 40.2 7.0 7.9 17.9

35.1 587 1,923 238 595 886 1,606 117 264 2.5 37.1 6.1 7.4 16.7

28.9 640 1,889 495 438 799 1,342 100 239 1.3 32.6 6.0 7.6 17.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Neenah Center, 4th Floor PO Box 669, Neenah, WI 54957-0669. Telephone: 920-727-4100. Website: http://www.bemis.com Chrmn: J.H. Curler

Pres & CEO: H.J. Theisen CFO: S.B. Ullem CTO: R. Germonprez Chief Acctg Officer & Cntlr: S.A. Jaffy

Investor Contact: M.E. Miller (920-527-5045) Board Members: W. J. Bolton, J. H. Curler, D. S. Haffner, B. L. Johnson, T. Manganello, R. D. O'Shaughnessy, P. S. Peercy, E. N. Perry, W. J. Scholle, H. J. Theisen, H. A. Van Deursen, P. G. Weaver, G. C. Wulf

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1858 Domicile: Missouri Employees: 20,400

Stock Report | October 23, 2010 | NYS Symbol: BRK.B | BRK.B is in the S&P 500

Berkshire Hathaway Inc. S&P Recommendation HOLD

★★★★★

Price $83.34 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $88.00

Investment Style Large-Cap Blend

Summary This holding company has interests in insurance, energy, financial services, publishing, retailing and manufacturing. Its investment portfolio included more than $59 billion of marketable equitable securities as of December 31, 2009.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $85.86– 64.72 Trailing 12-Month EPS $5.00 Trailing 12-Month P/E 16.7 $10K Invested 5 Yrs Ago $14,941

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.63 5.00 18.0 1,007.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$211.354 Nil Nil 22

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.52 NM AA+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our positive view of the company's diversified revenue and earnings base and strong management team, offset by its exposure to catastrophe and investment losses. We also view chairman and CEO Warren Buffett's advanced age as a risk factor for the shares.

100 80

60 50

50-for-1

Quantitative Evaluations Vol.

S&P Quality Ranking

336

Mil. 24 16 8 0

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank

5

A+

MODERATE

48

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Cathy A. Seifert on August 04, 2010, when the stock traded at $ 80.76. Highlights ➤

➤

➤

We expect operating revenues in 2010 to advance by approximately 6%, as contributions from recent acquisitions are offset by economic-driven weakness in other areas (particularly in the first half of the year). We look for revenue growth in the insurance area (Berkshire's largest unit) to be above industry averages, primarily reflecting market share gains at GEICO and increased writings at certain reinsurance units. We project underwriting margins at GEICO to remain under pressure in 2010, reflecting a higher level of policy acquisition costs and some mixed claim trends. Underwriting margins in catastrophe-exposed lines of business may also come under some pressure in 2010 amid a forecasted resumption of "normal" levels of catastrophe losses. Margin improvements at other units (largely due to cost cuts) will likely enhance operating profits. We forecast operating earnings of $4.50 per share in 2010 and $5.00 per share in 2011, versus the $3.25 a share of operating earnings we calculate the company reported in 2009.

Investment Rationale/Risk ➤

➤

➤

Our Hold opinion reflects our view that the shares are appropriately valued on both a price/earnings and price/tangible book value basis. At current levels, the shares are trading at a premium to many of the company's closest peers (though peer comparisons are difficult given Berkshire's conglomerate-like business mix) and at the upper end of historical ranges. Risks to our opinion and target price include significant erosion in claim and premium pricing trends, and a more prolonged economic downturn, which would likely continue to dampen demand for many of Berkshire's products. Our 12-month target price of $88 assumes that the shares will trade at 19.6X our 2010 operating EPS forecast. This represents the upper end of Berkshire's historical average multiple, and is a premium to most of the company's insurance and reinsurance peers. We believe this premium is warranted in light of what we see as Berkshire's superior financial strength. Our target price also assumes the shares will trade at more than 2X estimated 2010 tangible book value per share.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 32,037 31,709 2009 22,784 29,607 2008 25,175 30,093 2007 32,918 27,347 2006 22,763 24,185 2005 17,634 18,128

3Q -29,904 27,926 25,387 2,536 20,533

Earnings Per Share ($) 2010 1.51 0.80 2009 -0.66 1.42 2008 0.40 1.24 2007 1.12 1.35 2006 1.00 1.01 2005 0.59 0.63

E1.21 1.39 0.45 1.96 1.20 0.25

4Q Year --30,198 112,493 24,592 107,786 28,043 118,245 26,231 98,539 25,368 81,663

E1.25 1.31 0.05 1.27 1.55 2.22

E4.63 3.46 2.15 5.70 4.76 3.69

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

50-for-l

11/03

--

--

01/21/10

Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BRK.B

Berkshire Hathaway Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. Berkshire Hathaway is an insurance-based conglomerate. During 2009, segment operating revenues totaled $110.8 billion (down from $115.3 billion in 2008) and were derived as follows: GEICO Corp. 12%, General Re 5%, Berkshire Hathaway Reinsurance Group 6%, Berkshire Hathaway Primary Group 2%, investment income 5%, financial products 4%, Marmon 5%, McLane Company 28%, MidAmerican 10%, Shaw Industries 4%, and other businesses 19%. The company has grown through acquisitions. On February 12, 2010, it acquired the 77.5% of Burlington Northern Santa Fe Corporation (BNSF) it did not already own for $100 a share (60% in cash and 40% in stock) for total consideration of $26.5 billion. One of its more significant transactions was the December 1998 acquisition of General Re Corp., the largest U.S.-based reinsurance group, in a stock transaction valued at about $22 billion. Among the more significant transactions in 2006 were the March purchase of PacifiCorp (a regulated electric utility) for $5.1 billion in cash and the July acquisition of 80% of Iscar Metalworking Companies for approximately $5 billion in cash. Berkshire acquired 60% of Marmon Holdings, Inc. (a private conglomerate) for $4.5 billion in March 2008. Berkshire acquired another 4.4% interest in Marmon in April 2008 for $329 million, and plans to acquire the remaining 35.6% of Marmon between 2011 and 2014. In late 2008, Berkshire invested $6.5 billion in

subordinated notes and preferred stock of Wm. Wrigley, Jr. Co. in connection with Mars, Inc's. acquisition of Wrigley. Berkshire's common equity holdings had a market value of more than $59 billion at year-end 2009. The largest holdings were Coca-Cola (with a market value of $11.4 billion), Wells Fargo ($9.0 billion), American Express Co. ($6.1 billion) and Procter and Gamble ($5 billion). In October 2008, the company paid $8 billion to acquire newly issued 10% perpetual preferred stock of Goldman Sachs Group (GS) and General Electric (GE); and warrants (expiring in October 2013) to acquire up to 43.5 million GS common shares at $115 per share and up to 134.8 million GE common shares at $22.25 a share. In March 2009, Berkshire acquired a 12% convertible perpetual capital instrument without maturity and redemption date, issued by Swiss Re for $2.7 billion that is convertible into 120 million Swiss Re common shares. In April 2009, Berkshire acquired 3 million series A cumulative convertible perpetual preferred shares of Dow Chemical Co. (DOW) for $3 billion. Each share is convertible into 24.201 DOW common shares, subject to certain conditions.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 41.72 NA 3.46 4.28 Nil Nil 71.38 44.82 21 13

2008 32.49 NA 2.15 2.21 Nil Nil 97.16 49.02 45 23

2007 37.84 NA 5.70 4.20 Nil Nil 101.18 69.20 18 12

2006 32.91 NA 4.76 4.30 Nil Nil 76.50 56.78 16 12

2005 29.35 NA 3.69 2.06 Nil Nil 61.34 52.24 17 14

2004 27.24 NA 3.17 2.67 Nil Nil 63.90 53.70 20 17

2003 23.70 NA 3.54 2.72 Nil Nil 56.48 40.30 16 11

2002 18.13 NA 1.86 1.70 Nil Nil 52.40 38.50 28 21

2001 15.94 NA 0.35 -0.02 Nil Nil 50.50 39.54 NM NM

2000 18.72 NA 1.46 NA Nil Nil 47.50 27.02 33 19

27,884 7,131 77,478 112,493 11,979 NA 8,055 9,947

25,525 6,756 75,505 107,786 7,574 NA 4,994 5,127

31,783 6,696 79,766 118,245 20,161 NA 13,213 9,739

23,964 NA 74,575 98,539 16,778 NA 11,015 9,954

21,997 NA 59,666 81,663 12,791 NA 8,528 4,767

21,085 NA 53,297 74,382 10,936 NA 7,308 6,148

NA 4,191 59,668 63,859 12,020 NA 8,151 6,275

19,182 NA 17,984 42,353 6,435 NA 4,286 3,919

17,905 2,765 16,998 37,668 1,469 -47.0 795 -43.1

19,343 2,686 11,947 33,976 5,587 936 3,328 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 30,558 Premiums Due 5,295 Investment Assets:Bonds 37,131 Investment Assets:Stocks 56,562 Investment Assets:Loans 13,989 Investment Assets:Total 140,282 Deferred Policy Costs NA Total Assets 297,119 Debt 37,909 Common Equity 131,102 Property & Casualty:Loss Ratio 77.0 Property & Casualty:Expense Ratio 18.2 Property & Casualty Combined Ratio 95.2 % Return on Revenue 7.2 % Return on Equity 6.7

25,539 4,961 31,632 49,073 13,942 116,182 NA 267,399 36,882 109,267 74.8 17.9 92.7 4.6 4.3

44,329 4,215 31,571 74,999 12,359 118,929 NA 273,160 33,826 120,733 72.2 18.4 90.6 11.2 11.5

43,743 NA 28,312 61,533 NA 87,738 NA 248,437 27,450 108,419 NA NA 88.1 11.2 11.0

44,660 NA 30,855 46,721 NA 79,269 NA 198,325 12,523 91,484 NA NA 87.9 10.4 9.6

43,427 NA 31,305 37,717 NA 66,876 NA 188,874 7,192 85,900 NA NA 89.1 9.8 8.9

35,957 NA 26,116 35,287 NA 78,029 NA 180,559 9,119 77,596 NA NA 94.2 12.8 11.5

12,748 NA NA NA NA 87,356 NA 169,544 18,270 64,037 NA NA 93.8 10.1 7.0

5,313 NA 36,509 28,675 Nil 67,158 NA 162,752 1,230 57,950 79.9 16.5 96.4 2.1 1.3

5,263 NA 32,567 37,619 NA 71,823 NA 135,792 1,392 61,724 85.7 18.3 104.0 9.8 5.6

Income Statement Analysis (Million $) Premium Income Net Investment Income Other Revenue Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Tangible book value per share based on combined A & B shares. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3555 Farnam St, Omaha, NE 68131. Telephone: 402-346-1400. Website: http://www.berkshirehathaway.com Chrmn & CEO: W.E. Buffett

Vice Chrmn: C. Munger SVP & CFO: M.D. Hamburg Chief Acctg Officer & Cntlr: D.J. Jaksich Secy: F.N. Krutter

Investor Contact: M. Hamburg (402-346-1400) Board Members: H. G. Buffett, W. E. Buffett, S. B. Burke, S. Decker, W. H. Gates, III, D. S. Gottesman, C. Guyman, D. R. Keough, C. Munger, T. S. Murphy, R. L. Olson, W. Scott, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1889 Domicile: Delaware Employees: 222,000

Stock Report | October 23, 2010 | NYS Symbol: BBY | BBY is in the S&P 500

Best Buy Co. Inc. S&P Recommendation BUY

★★★★★

Price $42.74 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Computer & Electronics Retail

12-Mo. Target Price $50.00

Investment Style Large-Cap Growth

Summary This leading retailer of consumer electronics and entertainment software operates approximately 4,000 stores in the U.S., Canada, China and Europe.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.83– 30.90 Trailing 12-Month EPS $3.32 Trailing 12-Month P/E 12.9 $10K Invested 5 Yrs Ago $10,310

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.60 3.91 11.9 397.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.004 1.40 $0.60 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.46 8 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as BBY's strong balance sheet, sizable market share, numerous suppliers and buyers, and a history of profitability, offset by a highly competitive environment for consumer electronics retailing, with numerous rivals and strong price competition.

60

40 30

20

Quantitative Evaluations

Vol. Mil. 45 30 15 0

S&P Quality Ranking D 5

4

5

4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Michael Souers on September 17, 2010, when the stock traded at $ 36.94. Highlights

➤

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

We view BBY as the best-of-class U.S. consumer electronics retailer, based on its digital product focus, knowledgeable sales staff, and effective marketing campaigns. We think BBY's focus on advanced TVs, notebook computers, video gaming devices and mobile phones will support solid revenue growth near term. We project a 4.5% increase in revenues for FY 11 (Feb.), following a 10% advance in FY 10. We expect this growth to be driven by the opening of approximately 50-55 net new Best Buy stores worldwide, 75-100 Best Buy Mobile standalone stores and 10-15 Five Star stores in China. We also project an approximately 1% increase in comparable-store sales, given our forecast that consumer spending will remain pressured by macro factors. We expect a modest increase in operating margins, driven by a product mix shift and solid expense management. After taxes at an effective rate of 38.0% and flat interest expense, we project FY 11 EPS of $3.60, a 14% increase from the $3.15 the company earned in FY 10, excluding a restructuring charge. We see FY 12 EPS of $3.91.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

85

1

➤

C

We favor BBY's recent decision to curb capital spending and strictly manage SG&A expenses in the current challenging macroeconomic environment. We also expect continued market share gains as BBY's customer-centric model should enable the company to continue to differentiate itself in a competitive marketplace. However, we are concerned that the industry faces a potential saturation of flat-panel TVs in the near term, and we think mass adoption of revolutionary products such as 3-D TVs may be several years away. Following a recent decline in the stock price, we think the shares are attractively valued at under 10X our FY 12 EPS estimate, a modest discount to historical averages and to the S&P 500. Risks to our recommendation and target price include sharp deterioration in the economic climate and consumer confidence, and failure to successfully execute strategic objectives. Our 12-month target price of $50, about 13X our FY 12 EPS projection, is based on our DCF analysis, which assumes a weighted average cost of capital of 10.9% and a terminal growth rate of 3.5%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 10,787 11,339 2010 10,095 11,022 2009 8,990 9,801 2008 7,927 8,750 2007 6,959 7,603 2006 6,118 6,702

3Q -12,024 11,500 9,928 8,473 7,335

4Q -16,553 14,724 13,418 12,899 10,693

Year -49,694 45,015 40,023 35,934 30,848

Earnings Per Share ($) 2011 0.36 0.60 2010 0.36 0.37 2009 0.43 0.48 2008 0.39 0.48 2007 0.47 0.47 2006 0.34 0.37

E0.67 0.53 0.13 0.53 0.31 0.28

E1.98 1.82 1.35 1.71 1.55 1.29

E3.60 3.10 2.39 3.12 2.79 2.27

Fiscal year ended Feb. 28. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.140 0.140 0.150

03/26 06/16 06/24

04/13 07/01 10/01

04/15 07/06 10/05

05/06/10 07/27/10 10/26/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BBY

Best Buy Co. Inc. Business Summary September 17, 2010 CORPORATE OVERVIEW. This leading consumer electronics retailer operated, as of February 27, 2010, 1,069 Best Buy stores, 74 Best Buy Mobile stand-alone stores, 35 Pacific Sales showrooms, eight Magnolia Audio Video stores and six Geek Squad stand-alone stores in the U.S. BBY also operated 887 Carphone Warehouse and 1,566 The Phone House Stores in Europe, 64 Canada Best Buy stores, 144 Future Shop stores in Canada, 158 Five Star stores in China, six Best Buy China stores, five Best Buy Mexico stores and one Best Buy Turkey store as of February 27, 2010. U.S. Best Buy stores average approximately 39,000 retail square feet, and offer products in six revenue categories: consumer electronics (39% of FY 10 (Feb.) revenues), home office (34%), entertainment software (16%), appliances (4%), services (6%), and other (1%). Best Buy's largest category, consumer electronics, includes products such as televisions, digital cameras and accessories, digital camcorders and accessories, e-readers, DVD players, MP3 players and accessories, musical instruments, navigation products, home the-

ater audio systems and components, and mobile electronics including car stereo and satellite radio products. CORPORATE STRATEGY. BBY's business strategy centers on meeting individual consumer electronics needs with end-to-end solutions, which involves greater employee involvement and increased services. BBY is committed to scaling BBY customer-centricity across the organization, and completed the transition of all remaining stores to the customer-centric operating model in FY 08. In FY 11, BBY plans to open 50-55 new Best Buy stores, the majority of which will be in the U.S., 75-100 small-format stores, primarily Best Buy Mobile stand-alone stores, and 10-15 Five Star stores in China.

Company Financials Fiscal Year Ended Feb. 28 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 8.19 5.25 3.10 3.10 0.56 18% 2009 45.55 23.97 15 8

2009 4.70 4.25 2.39 2.77 0.54 23% 2008 52.98 16.42 22 7

2008 7.99 4.40 3.12 3.12 0.46 15% 2007 53.90 41.85 17 13

2007 10.82 3.80 2.79 2.76 0.36 13% 2006 59.50 43.32 21 16

2006 9.60 3.16 2.27 2.27 0.31 14% 2005 18.03 14.84 14 11

2005 7.91 2.76 1.86 1.77 0.50 38% 2004 41.47 29.25 22 16

2004 5.97 2.41 1.63 1.45 0.27 17% 2003 41.80 15.77 26 10

2003 4.70 1.91 1.27 1.11 Nil Nil 2002 35.83 11.33 28 9

2002 3.65 1.91 1.18 1.08 Nil Nil 2001 33.42 12.36 28 10

2001 3.07 1.18 0.83 0.76 Nil Nil 2000 39.50 9.33 48 11

49,694 3,213 926 94.0 2,196 36.5% 1,317 1,317

45,015 2,807 793 94.0 1,707 39.5% 1,003 1,163

40,023 2,746 585 62.0 2,225 36.6% 1,407 1,407

35,934 2,508 509 Nil 2,130 35.3% 1,377 1,364

30,848 2,100 456 30.0 1,721 33.8% 1,140 1,140

27,433 1,901 459 44.0 1,443 35.3% 934 873

24,547 1,699 385 31.0 1,296 38.3% 800 704

20,946 1,320 310 25.0 1,014 38.7% 622 538

19,597 1,246 309 2.00 936 39.1% 570 512

15,327 772 167 6.90 642 38.3% 396 361

Balance Sheet & Other Financial Data (Million $) Cash 1,916 Current Assets 10,566 Total Assets 18,302 Current Liabilities 8,978 Long Term Debt 1,104 Common Equity 6,964 Total Capital 8,103 Capital Expenditures 615 Cash Flow 2,243 Current Ratio 1.2 % Long Term Debt of Capitalization 13.6 % Net Income of Revenue 2.7 % Return on Assets 7.7 % Return on Equity 22.7

498 8,192 15,826 8,435 1,126 4,643 6,071 1,303 1,796 1.0 18.6 2.2 7.0 22.0

1,438 7,342 12,758 6,769 627 4,484 5,151 797 1,992 1.1 12.2 3.5 10.7 26.3

1,205 9,081 13,570 6,301 590 6,201 6,826 733 1,886 1.4 8.6 3.8 10.8 24.0

681 7,985 11,864 6,056 178 5,257 5,435 648 1,596 1.3 3.3 3.7 10.3 23.5

470 6,903 10,294 4,959 528 4,449 4,977 502 1,393 1.4 10.6 3.4 9.9 23.7

2,600 5,724 8,652 4,501 482 3,422 3,904 545 1,185 1.3 12.3 3.3 9.8 26.0

1,914 4,867 7,663 3,793 828 2,730 3,558 725 932 1.3 23.3 3.0 8.3 23.8

1,855 4,611 7,375 3,730 813 2,521 3,334 627 925 1.2 24.4 2.9 9.3 26.2

747 2,929 4,840 2,715 181 1,822 2,003 658 563 1.1 9.0 2.6 10.1 27.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7601 Penn Avenue South, Richfield, MN 55423-3683. Telephone: 612-291-1000. Email: [email protected] Website: http://www.bestbuy.com

Chrmn: R.M. Schulze CEO: B.J. Dunn EVP & CFO: J.L. Muehlbauer EVP & Chief Admin Officer: T.R. Sheehan

SVP & Treas: R. Robinson Founded: 1966 Investor Contact: J. Driscoll (612-291-6110) Domicile: Minnesota Board Members: L. M. Caputo, B. J. Dunn, K. J. Employees: 180,000 Higgins, R. James, E. S. Kaplan, S. Khosla, G. L. Mikan, III, M. H. Paull, R. M. Rebolledo, R. M. Schulze, H. Tyabji, G. R. Vittecoq

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BIG | BIG is in the S&P 500

Big Lots Inc S&P Recommendation BUY

★★★★★

Price $33.50 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry General Merchandise Stores

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary This leading broadline closeout retailer has over 1,370 Big Lots stores in 47 states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $41.42– 23.04 Trailing 12-Month EPS $2.81 Trailing 12-Month P/E 11.9 $10K Invested 5 Yrs Ago $28,979

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.85 3.20 11.8 75.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.14 15 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our expectation of improving company fundamentals, supported by BIG's new merchandising and cost reduction initiatives, offset by what we see as a challenging retail environment that could hinder a turnaround.

40 30

20 15

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

$2.531 Nil Nil NM

C

B-

BB

B+

Relative Strength Rank

A-

A

A+

MODERATE

38 4

4

4

3

3

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: P, Ph

Analysis prepared by Jason N. Asaeda on August 25, 2010, when the stock traded at $ 30.34. Highlights ➤

➤

➤

In FY 11 (Jan.), we anticipate an increased focus on traffic-driving brand-name closeouts and "treasure hunt" items, and improved product quality and in-stock levels, particularly on consumables. We also look for a recovery in consumer demand for more discretionary-purchase categories to support a 4% same-store sales increase. In addition, we expect modest growth in selling square footage based on BIG's plan to open 80 new stores (40 net of closings), up from 52 new stores (22 net of closings) opened in FY 10. We believe the company will focus new store openings in its most successful trade areas in an effort to achieve high sales productivity. All told, we project net sales of $5.04 billion in FY 11. While BIG anticipates rising domestic and import freight costs and higher debit card fees in FY 11, operating margins are likely to widen on disciplined inventory management; planned advertising, utility and health care cost-saving initiatives; and expense leverage off projected same-store sales growth. Factoring in planned share repurchases, we see FY 11 EPS of $2.85, a 20% increase over FY 10's $2.37, before one-time items.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

Our buy recommendation is based on valuation. We look for BIG to weather a tough retail environment and to maintain strong cash flow in FY 11, supported by its efforts to raise sales productivity and lower its cost structure by better aligning products with customer preferences, by increasing the number of new stores in locations with better co-tenant mixes and/or demographics, and by building customer loyalty with the new Buzz Club Rewards program, which already has over 5 million members. Given what we see as its strong price-value proposition on brand-name merchandise, we also see potential for the company to gain incremental business as an increasing number of costconscious consumers seek out better deals on more discretionary-purchase goods.

➤

Risks to our recommendation and target price include sales shortfalls due to problems with merchandise availability and increased promotional activity by competitors.

➤

Our 12-month target price of $38 is based on a peer-discounted forward P/E multiple of 13.4X, which we believe is justified due to BIG's higher proportion of discretionary goods in its sales mix, applied to our FY 11 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,235 1,142 2010 1,142 1,087 2009 1,152 1,105 2008 1,128 1,085 2007 1,092 1,057 2006 1,099 1,051

3Q -1,035 1,022 1,031 1,050 1,041

4Q -1,463 1,367 1,412 1,545 1,395

Year -4,727 4,645 4,656 4,743 4,430

Earnings Per Share ($) 2011 0.68 0.48 2010 0.44 0.35 2009 0.42 0.32 2008 0.26 0.32 2007 0.13 0.04 2006 0.07 -0.12

E0.26 0.37 0.15 0.14 0.02 -0.17

E1.43 1.28 1.00 0.97 0.83 0.33

E2.85 2.44 1.89 1.47 1.01 0.14

Fiscal year ended Jan. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Proceeds from the sale of rights amounting to $0.01 a share were distributed in 2001.

Stock Report | October 23, 2010 | NYS Symbol: BIG

Big Lots Inc Business Summary August 25, 2010 CORPORATE OVERVIEW. Big Lot's strategy is to position itself as a preferred shopping destination for middle-income consumers seeking savings on brandname closeouts and other value-priced merchandise. The company's product offerings range from everyday essentials such as food and other consumables, to more discretionary-purchase items, including furniture, holiday assortments, electronics, apparel, and small appliances. In our view, FY 07 (Jan.) was a transitional year for BIG, as the company slowed chain expansion in order to better focus on implementing operational changes to reverse a twoyear trend of declining operating profits. Since then, we have seen BIG apply successful new merchandising and marketing strategies to further strengthen its financial performance. The company has over 1,370 Big Lots stores in 47 states. CORPORATE STRATEGY. BIG's primary growth driver is expansion. The company seeks to build on its leadership position in broadline closeout retailing by expanding its market presence in both existing and new markets. From FY 00 through FY 05, the company increased its selling square footage at a compound annual growth rate (CAGR) of about 6% as it expanded its store count

from 1,230 to 1,502. In FY 06, BIG continued to expand its store base, adding 73 new stores. However, the company also accelerated the closure of underperforming locations as part of its What's Important Now (WIN) turnaround strategy, which was announced in November 2005. BIG closed 174 stores in FY 06, ending the fiscal year with 1,401 stores in 47 states. WIN is aimed at improving BIG's financial performance via changes in the company's merchandising, cost structure, and real estate. As its first steps, BIG is attempting to raise the productivity of its chain by closing low-volume stores located mainly in small, rural, or weaker performing markets, and by moving from an opportunistic real estate strategy to one focused on its most successful trade areas. These areas include California, Arizona, Washington, New York and New Jersey. Between FY 07 and FY 09, the company closed 101 underperforming stores and opened only 39 new stores.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 12.35 3.30 2.44 2.40 NA Nil 2009 29.75 12.62 12 5

2009 9.61 2.84 1.89 1.86 Nil Nil 2008 35.33 12.40 19 7

2008 13.34 2.34 1.47 1.38 Nil Nil 2007 36.15 15.35 25 10

2007 11.10 1.91 1.01 1.06 Nil Nil 2006 26.36 11.83 26 12

2006 9.47 1.15 0.14 0.05 Nil Nil 2005 14.29 10.06 NM NM

2005 9.54 1.17 0.27 0.25 Nil Nil 2004 15.62 11.05 58 41

2004 9.51 1.56 0.77 0.78 Nil Nil 2003 18.39 9.92 24 13

2003 8.83 1.38 0.65 0.60 Nil Nil 2002 19.90 9.75 31 15

2002 8.11 0.37 -0.25 -0.32 Nil Nil 2001 15.75 7.15 NM NM

2001 8.28 1.44 0.87 0.83 Nil Nil 2000 16.38 8.25 19 9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,727 388 74.9 1.84 323 37.7% 201 198

4,645 334 78.6 5.28 250 38.0% 155 153

4,656 315 88.5 2.51 239 36.8% 151 142

4,743 276 101 0.68 170 34.0% 113 118

4,430 141 115 6.27 20.9 24.8% 15.7 4.93

4,375 172 104 24.8 43.3 29.8% 30.4 27.8

4,174 222 93.7 16.4 113 20.6% 89.9 91.6

3,869 231 85.7 21.0 125 39.5% 75.7 70.7

3,433 43.4 72.0 20.5 -48.7 NM -29.5 -36.7

3,277 249 64.5 23.6 161 39.5% 97.6 92.6

Balance Sheet & Other Financial Data (Million $) Cash 284 Current Assets 1,123 Total Assets 1,669 Current Liabilities 543 Long Term Debt NA Common Equity 1,001 Total Capital 1,001 Capital Expenditures 78.7 Cash Flow 273 Current Ratio 2.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 4.3 % Return on Assets 13.0 % Return on Equity 22.7

34.8 871 1,432 515 3.64 775 837 88.7 233 1.7 0.4 3.3 10.8 21.9

37.1 891 1,444 500 165 638 804 60.4 240 1.8 20.6 3.3 9.6 17.1

282 1,149 1,721 474 Nil 1,130 1,130 35.9 214 2.4 Nil 2.4 6.7 10.2

1.71 994 1,625 437 5.50 1,167 1,173 68.5 130 2.3 0.5 0.4 0.9 1.4

2.52 1,035 1,734 413 159 1,075 1,235 135 135 2.5 12.9 0.7 1.7 2.8

174 1,134 1,801 416 204 1,109 1,313 170 184 2.7 15.5 2.2 5.2 8.4

160 NA 1,656 NA 204 1,020 1,224 110 161 NA 16.7 2.0 4.8 7.8

NA NA 1,470 NA 204 923 1,127 NA 42.5 NA 18.1 NM NM NM

NA NA 1,528 NA 268 924 1,192 NA 162 NA 22.5 3.0 5.3 8.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 300 Phillipi Road, Columbus, OH 43228-5311. Telephone: 614-278-6800. Website: http://www.biglots.com Chrmn, Pres & CEO: S.S. Fishman

EVP, CFO & Chief Acctg Officer: J.R. Cooper EVP, Secy & General Counsel: C.W. Haubiel, II SVP & CIO: L.M. Bachmann Investor Contact: T.A. Johnson (614-278-6622)

Board Members: J. Berger, S. S. Fishman, P. J. Hayes, D. T. Kollat, B. J. Lauderback, P. E. Mallott, R. Solt, J. R. Tener, D. B. Tishkoff

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1983 Domicile: Ohio Employees: 35,600

Stock Report | October 23, 2010 | NNM Symbol: BIIB | BIIB is in the S&P 500

Biogen Idec Inc S&P Recommendation SELL

★★★★★

Price $58.75 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Biotechnology

12-Mo. Target Price $53.00

Investment Style Large-Cap Growth

Summary This major biopharmaceutical concern develops and markets targeted therapies for the treatment of multiple sclerosis, non-Hodgkin's lymphoma, and rheumatoid arthritis.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $60.28– 41.75 Trailing 12-Month EPS $3.93 Trailing 12-Month P/E 15.0 $10K Invested 5 Yrs Ago $15,029

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.72 4.95 12.4 241.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.213 Nil Nil 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.69 10 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that Biogen Idec sells products in competitive markets, and its biggest near-term growth driver faces safety concerns, requiring a comprehensive risk minimization program. The company also is engaged in the development of new drugs in new markets, outside of its core multiple sclerosis area of expertise.

70 60 50 40

Vol. 64

Mil.

Quantitative Evaluations

52

24 16 8 0 5

S&P Quality Ranking D 3

3

3

2

3

2

1

C

B-

B B

B+

A-

Relative Strength Rank

MODERATE

LOWEST = 1

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

We estimate revenues to increase by about 6% in 2010 to $4.6 billion, with 2011 revenue growth of a modest 2% to $4.7 billion, due to new multiple sclerosis (MS) competition. We expect Tysabri to remain BIIB's key growth driver over the near-term as Avonex sales have moderated, relying on price hikes to offset slowing unit and share growth. However, we see a recently issued new Avonex patent extending to 2026, supporting core franchise cash flows. We forecast moderating Rituxan revenue growth, as ex-U.S. royalty agreements expire and competition increases. We expect operating expenses of 48% to 49% of total revenues in 2010 and 2011, compared to 50% in 2009. We see BIIB ramping expenses to support a more aggressive push to re-ignite Avonex usage. We are encouraged by its aggressive share repurchases of more than $2 billion since October 2009, with nearly 21 million shares repurchased during the second quarter of 2010. BIIB had $1.5 billion in cash and securities as of June 30, 2010. Our adjusted 2010 and 2011 EPS estimates of $4.72 and $4.95, respectively, exclude amortization of intangible assets.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Steven Silver on October 15, 2010, when the stock traded at $ 56.98. Highlights

A+

61

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

We view the share price as overvalued amid a rise in confirmed cases of brain infection PML to 68 in Tysabri patients, as of September 2010, and the recent FDA approval of Gilenya, an orally dosed therapy for multiple sclerosis. We remain wary of Tysabri's higher risk for PML as therapy duration increases, and expect Tysabri and Avonex's market share to be pressured by Gilenya's oral formulation. Although BIIB cited a favorable new patient trend for Tysabri in the second quarter of 2010, we see potential for more patients to take therapy breaks until an assay under development to stratify PML risk can ease safety concerns. We also see limited near-term pipeline catalysts, despite our view of several promising programs. Risks to our recommendation and target price include accelerating use of Tysabri due to easing safety concerns, slowing MS market competition, and BIIB successfully advancing its clinical pipeline. Our 12-month target price of $53 applies a 10.7X multiple to our 2011 EPS estimate, a discount to the large cap sector peer average, given our view of competitive and drug safety overhangs.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,109 1,213 2009 1,037 1,093 2008 942.2 993.4 2007 715.9 773.2 2006 611.2 660.0 2005 587.8 605.6

3Q -1,121 1,093 789.2 703.5 596.2

4Q -1,127 1,069 893.3 708.3 632.9

Year -4,377 4,098 3,172 2,683 2,423

Earnings Per Share ($) 2010 0.80 1.12 2009 0.84 0.49 2008 0.54 0.70 2007 0.38 0.54 2006 0.35 -0.50 2005 0.12 0.10

E1.17 0.95 0.70 0.41 0.45 0.08

E1.21 1.06 0.70 0.67 0.32 0.16

E4.72 3.35 2.65 1.99 0.62 0.47

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: BIIB

Biogen Idec Inc Business Summary October 15, 2010 CORPORATE OVERVIEW. Formed through the 2003 merger of IDEC Pharmaceuticals and Biogen, Biogen Idec researches, develops and markets therapeutics to treat cancer and autoimmune diseases. BIIB's core franchise has been in autoimmune disorder multiple sclerosis, led by Avonex, approved by the FDA in 1996 to treat relapsing multiple sclerosis (MS), and in Europe in 1997. Avonex sales were $2.32 billion in 2009, up 8% from $2.2 billion in 2008. However, recent growth has been driven by price increases, as competition has slowed prescription growth. A new Avonex method of use patent issued in 2009 expires in 2026, extending the prior 2013 deadline. In May 2010, BIIB filed a lawsuit against rivals marketing similar beta interferons like Avonex, seeking sales royalties due to patent infringement. Rituxan is a monoclonal antibody that binds to and eliminates CD-20 protein positive B-cells. The drug is approved for refractory non-Hodgkin's lymphomas (NHL) and rheumatoid arthritis, and is co-marketed in the U.S. with Roche; BIIB receives joint business revenues on a percentage of sales basis, and royalties on ex-U.S. sales. Rituxan produced revenues to BIIB of about $1.09 billion in 2009, about 3% below 2008's $1.13 billion as ex-U.S. royalties began to expire. Rituxan is being explored for several new uses, but failed in progressive MS and lupus during 2008. A next-generation anti-CD20 candidate

under co-development, ocrelizumab, showed positive Phase III results for rheumatoid arthritis, but was discontinued in May 2010 due to safety concerns. BIIB would have received a lower royalty rate on ocrelizumab compared to Rituxan. Tysabri, developed with Elan Corp., was approved for treating relapsing MS in late 2004. However, three cases of progressive multifocal leukoencephalopathy (PML) -- a rare, fatal nervous system disorder -- in 2005 prompted its removal from the market. Following safety evaluations and further data analyses, Tysabri was re-launched in the U.S. and Europe in 2006, with a stringent distribution program. As of June 30, 2010, BIIB cited more than 52,000 patients on Tysabri worldwide. As of September 2010, there have been 68 confirmed cases of PML in Tysabri patients, and the drug's label in the U.S. and Europe reflects higher PML risk as therapy duration passes two years. BIIB and Elan are developing an assay to identify patients with JC virus, which causes PML, for which data are expected in 2012. BIIB recognized $776 million of Tysabri revenues in 2009, 32% higher than the $588 million in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.69 4.82 3.35 3.32 Nil Nil 55.34 41.75 17 12

2008 8.70 4.22 2.65 2.76 Nil Nil 73.59 37.21 28 14

2007 6.44 3.18 1.99 2.01 Nil Nil 84.75 42.86 43 22

2006 9.60 1.71 0.62 0.69 Nil Nil 52.72 40.24 85 65

2005 8.38 1.63 0.47 0.16 Nil Nil 70.00 33.18 NM NM

2004 7.08 1.35 0.07 -0.06 Nil Nil 68.13 36.60 NM NM

2003 6.85 -4.57 -4.92 -5.13 Nil Nil 42.15 27.80 NM NM

2002 7.25 0.88 0.85 0.54 Nil Nil 71.40 20.76 84 24

2001 6.22 0.62 0.59 0.34 Nil Nil 75.00 32.63 NM NM

2000 4.63 0.39 0.36 NA Nil Nil 77.65 18.54 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,377 1,723 428 35.8 1,333 26.7% 970 961

4,098 1,832 462 75.2 1,149 31.8% 783 816

3,172 1,260 380 50.6 852 32.0% 638 642

2,683 1,117 376 Nil 492 56.6% 214 237

2,423 756 402 Nil 256 37.3% 161 56.6

2,212 483 439 18.9 64.1 60.9% 25.1 -21.6

679 14.6 61.3 15.2 -881 NM -875 -914

404 285 10.2 16.1 232 36.0% 148 93.4

273 137 6.31 7.30 162 37.1% 102 61.4

155 60.6 4.74 7.05 69.3 17.2% 57.4 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,264 Current Assets 2,481 Total Assets 8,552 Current Liabilities 715 Long Term Debt 1,080 Common Equity 6,222 Total Capital 7,362 Capital Expenditures 166 Cash Flow 1,396 Current Ratio 3.5 % Long Term Debt of Capitalization 14.7 % Net Income of Revenue 22.2 % Return on Assets 11.4 % Return on Equity 16.1

1,342 2,458 8,479 923 1,085 5,806 7,248 276 1,244 2.7 15.0 19.1 9.2 13.8

1,187 2,368 8,629 2,189 1,563 5,534 6,108 284 1,017 1.1 0.9 20.1 7.4 10.1

2,315 1,713 8,553 583 96.7 7,150 7,890 198 590 2.9 1.2 8.0 2.5 3.0

851 1,618 8,367 583 43.4 6,906 7,712 318 563 2.8 0.6 6.6 1.8 2.3

1,058 1,931 9,166 1,261 102 6,826 7,850 361 465 1.5 1.3 1.1 0.3 0.4

836 1,839 9,504 405 887 7,053 9,049 301 -814 4.5 9.8 NM NM NM

373 978 2,060 56.2 866 1,110 1,976 166 158 17.4 43.8 36.6 9.3 14.3

426 700 1,141 35.3 136 956 1,092 0.07 108 19.8 12.4 37.3 10.2 12.3

401 631 856 23.0 129 695 824 31.4 62.1 27.4 15.7 37.1 9.9 13.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 14 Cambridge Center, Cambridge, MA 02142. Telephone: 617-679-2000. Website: http://www.biogenidec.com Chrmn: W.D. Young

CEO: G.A. Scangos COO: R. Hamm EVP & CFO: P.J. Clancy EVP & Secy: S.H. Alexander

Investor Contact: R. Jacobson (617-679-3710) Board Members: A. J. Denner, C. D. Dorsa, C. C. Icahn, N. L. Leaming, R. C. Mulligan, R. W. Pangia, S. Papadopoulos, B. S. Posner, E. K. Rowinsky, G. A. Scangos, L. Schenk, S. A. Sherwin, W. D. Young

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1985 Domicile: Delaware Employees: 4,750

Stock Report | October 23, 2010 | NNM Symbol: BMC | BMC is in the S&P 500

BMC Software Inc S&P Recommendation HOLD

★★★★★

Price $44.22 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $41.00

Investment Style Large-Cap Blend

Summary This company provides systems management software that improves the availability, performance and recovery of applications and data.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.68– 34.24 Trailing 12-Month EPS $2.24 Trailing 12-Month P/E 19.7 $10K Invested 5 Yrs Ago $22,573

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.26 2.44 19.6 178.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.899 Nil Nil 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.68 9 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for BMC Software reflects our concern about the economic uncertainty in Europe and increased competition in its mainframe business from hardware vendors, offset by the company's cost-cutting measures.

40

30 25

Quantitative Evaluations 20

S&P Quality Ranking

Vol. Mil.

D

15 10 5 0 5

C

B-

C B

B+

A-

A

Relative Strength Rank

A+ STRONG

83 4

3

2

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on September 27, 2010, when the stock traded at $ 40.30. Highlights ➤

➤

➤

We expect revenues to increase 3.2% in FY 11 (Mar.), following a 2.1% advance in FY 10. Although we expect IT spending to rise about 5% in 2010, we think BMC and other software companies will grow slower than the IT industry. We believe most of the increased spending will be on hardware due to the severity of its decline during the downturn. We project flat revenues in the Mainframe Service Management segment and mid-single digit growth in the Enterprise Service Management business segment in FY 11. We think BMC will benefit from the growing interest in virtualization software, but this area currently accounts for a small portion of total revenues. We forecast gross margins of 78% in FY 11, down from 79% in FY 10. We expect operating expenses as a percentage of revenue to decline to 51%, from 52%, due to cost-saving initiatives and lower acquisition-related expenses. We believe operating margins in FY 11 will widen to 27%, from 26% in FY 10. Our EPS estimate for FY 11 is $2.26, up from $2.17 in FY 10, as a result of higher revenues and improved operating margins.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our hold recommendation reflects our concern about BMC's slow revenue growth. Although we expect IT spending to rise in 2010, sales cycles on large contracts remained elongated, as customers negotiate for more favorable terms. We also think revenues will be hurt by foreign currency exchange headwinds in FY 11. On the positive side, we think BMC can gain market share. Additionally, we project expanding operating margins, as the company has been effectively controlling its operating expenses. Risks to our recommendation and target price include a weaker-than-expected recovery in the global economy, heightened competition from large platform vendors, a decline in corporate spending on information technology, and greater pricing pressures. Our 12-month target price of $41 is based on a blend of our discounted cash flow (DCF) and P/ E analyses. Our DCF model assumes an 11% weighted average cost of capital and 3% terminal growth, and yields an intrinsic value of $45. From our P/E analysis, we derive a value of $37 based on an industry P/E-to-growth ratio of 1.8X, or 16X our FY 11 EPS estimate of $2.26.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 460.9 -2010 450.0 461.8 2009 437.5 466.7 2008 385.0 420.7 2007 361.4 386.7 2006 348.3 361.8

3Q -508.1 488.4 459.0 412.9 380.3

4Q -491.3 479.3 466.9 419.4 407.9

Year -1,911 1,872 1,732 1,580 1,498

Earnings Per Share ($) 2011 0.50 E0.53 2010 0.44 0.50 2009 0.01 0.36 2008 0.27 0.38 2007 0.15 0.28 2006 -0.19 0.19

E0.62 0.59 0.45 0.45 0.30 0.22

E0.61 0.64 0.45 0.46 0.30 0.31

E2.26 2.17 1.25 1.57 1.03 0.47

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: BMC

BMC Software Inc Business Summary September 27, 2010 CORPORATE OVERVIEW. BMC Software is a leading provider of systems management, service management and automation solutions primarily for large enterprises. The company's software, called Business Service Management (BSM), helps customers increase productivity and reduce costs by automating IT processes and improving IT responses to business decisions and challenges. The company's products and services are used by over 16,000 companies, including 90% of the Fortune 100. BMC's software business is organized in two segments. The Enterprise Service Management (ESM) business segment targets non-mainframe computing and addresses broad categories of IT management issues including Service Support, Service Assurance and Service Automation. ESM license revenue accounted for 57%, 61% and 54% of total software revenue in FY 10 (Mar.), FY 09 and FY 08, respectively.

MSM license revenue accounted for 43%, 39% and 46% of total software revenue in FY 10, FY 09 and FY 08, respectively. BMC competes in a highly competitive industry. Its main competitors include International Business Machines Corporation, CA, Inc. and Hewlett-Packard. BMC sells its software directly through its sales force and indirectly through resellers, distributors and systems integrators. The company also provides maintenance and support, which give customers the right to receive product upgrades. Product license and maintenance revenues accounted for 93% and 92% of total revenues in FY 10 and FY 09, respectively. BMC also provides professional services, which include implementation, integration and education services and contributed 7% and 8% of total revenues in FY 10 and FY 09, respectively.

The Mainframe Service Management (MSM) segment includes automated tools that enhance the performance and availability of database management systems on mainframe platforms. This segment includes BMC's mainframe performance monitoring and management product line, MAINVIEW. It also includes the management and recovery of IBM's DB2 and IMS databases. Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 2.78 2.17 2.15 Nil Nil 2009 40.73 24.76 19 11

2009 NM 1.89 1.25 1.28 Nil Nil 2008 40.87 20.58 33 16

2008 0.41 2.01 1.57 1.54 Nil Nil 2007 37.05 24.77 24 16

2007 1.66 1.79 1.03 1.00 Nil Nil 2006 33.67 19.90 33 19

2006 2.31 1.40 0.47 0.29 Nil Nil 2005 21.68 14.44 41 27

2005 2.60 1.33 0.34 -0.03 Nil Nil 2004 21.87 13.70 64 40

2004 3.11 1.03 -0.12 -0.56 Nil Nil 2003 19.84 13.18 NM NM

2003 3.70 1.25 0.20 -0.01 Nil Nil 2002 23.00 10.85 NM NM

2002 5.49 0.78 -0.75 -0.94 Nil Nil 2001 33.00 11.50 NM NM

2001 5.67 1.42 0.17 -0.19 Nil Nil 2000 86.63 13.00 NM NM

1,911 622 176 21.3 504 19.5% 406 401

1,872 573 121 18.7 364 34.6% 238 243

1,732 464 88.2 16.9 434 27.8% 314 308

1,580 413 161 1.50 301 28.2% 216 211

1,498 334 205 1.70 204 50.0% 102 63.9

1,463 264 222 2.00 98.2 23.3% 75.3 -5.94

1,419 162 259 1.10 -29.4 NM -26.8 -128

1,327 349 248 Nil 69.3 30.7% 48.0 -3.42

1,289 400 376 0.40 -231 NM -184 -232

1,504 336 315 11.3 60.4 29.8% 42.4 -46.6

Balance Sheet & Other Financial Data (Million $) Cash 1,434 Current Assets 1,905 Total Assets 4,138 Current Liabilities 1,361 Long Term Debt 341 Common Equity 1,388 Total Capital 1,729 Capital Expenditures 22.1 Cash Flow 519 Current Ratio 1.4 % Long Term Debt of Capitalization 19.7 % Net Income of Revenue 21.3 % Return on Assets 10.4 % Return on Equity 33.3

1,097 1,561 3,698 1,333 314 1,049 1,362 28.0 359 1.2 23.0 12.7 6.8 23.3

1,351 1,803 3,346 1,289 6.30 994 994 38.4 402 1.4 Nil 18.1 9.5 30.7

1,296 1,790 3,260 1,233 Nil 1,049 1,049 33.7 377 1.5 Nil 13.7 6.7 20.1

1,063 1,506 3,211 1,202 Nil 1,099 1,099 24.1 307 1.3 Nil 6.8 3.1 8.6

929 1,440 3,298 1,085 Nil 1,262 1,262 57.7 297 1.3 Nil 5.1 2.4 6.1

909 1,425 3,045 987 Nil 1,215 1,215 50.4 233 1.4 Nil NM NM NM

1,015 1,098 2,846 839 Nil 1,383 1,383 23.6 296 1.3 Nil 3.6 1.7 3.3

546 997 2,676 681 Nil 1,507 1,507 64.3 192 1.5 Nil NM NM NM

146 903 3,034 829 Nil 1,815 1,815 183 357 1.1 Nil 2.8 1.4 2.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2101 Citywest Boulevard, Houston, TX 77042-2827. Telephone: 713-918-8800. Email: [email protected] Website: http://www.bmc.com

Chrmn, Pres & CEO: R.E. Beauchamp Investor Contact: S.B. Solcher SVP & CFO: S.B. Solcher SVP, Secy & General Counsel: D.M. Clolery

Chief Admin Officer: H.S. Castro Founded: 1980 Board Members: J. E. Barfield, R. E. Beauchamp, G. L. Domicile: Delaware Bloom, M. K. Gafner, M. J. Hawkins, S. A. James, P. T. Employees: 6,100 Jenkins, L. J. Lavigne, Jr., K. O'Neil, T. C. Tinsley

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BA | BA is in the S&P 500

Boeing Co (The) S&P Recommendation BUY

★★★★★

Price $71.26 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $82.00

Investment Style Large-Cap Growth

Summary This company is the world's second largest manufacturer of both commercial jets (behind Airbus) and military weapons (behind Lockheed Martin).

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $76.00– 47.18 Trailing 12-Month EPS $4.67 Trailing 12-Month P/E 15.3 $10K Invested 5 Yrs Ago $12,092

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.95 4.45 18.0 733.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$52.275 2.36 $1.68 73

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.29 -3 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects BA's participation in highly cyclical, very competitive and capital-intensive businesses, offset by what we see as its long-term government contracts, its solid cash position and typically strong free cash flow generation, and a healthy backlog of business.

120 80 60 40

Quantitative Evaluations

Vol. Mil. 45 30 15 0

S&P Quality Ranking D 5

4

5

4

3

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Richard Tortoriello on October 22, 2010, when the stock traded at $ 71.50. Highlights We estimate a sales drop of 5.9% in 2010 on declines of 4% in aircraft shipments and 5% in defense sales, on cuts in programs including Brigade Combat Team Modernization, missile defense, and the C-17. For 2011, we project a 6% sales increase, driven entirely by Commercial Airplanes, on production increases for the 737 and 777 and the expected service entry of the 787. We project defense sales to remain flat in 2011. We note that third quarter 2010 Commercial Airplanes backlog rose 0.5%, the first rise in seven quarters, and Defense, Space, & Security backlog grew 2.9%, aided by a large FA-18/EA-18G order from the Navy. We estimate operating margins of 7.9% in 2010, down from 8.4% in 2009, on lower defense margins. For 2011 we expect a slight margin increase, to 8.1%, but see continued pressure on commercial margins due to initial production of the 787 and potential first delivery of the 747-8 Freighter. We estimate EPS of $3.95 for 2010 and $4.45 in 2011. We expect free cash flow of near zero in 2010, as Boeing increases inventory due to work on the 787 and 747-8, but project about $3 billion in 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

72 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

We see several factors benefiting the shares. We expect emerging economies in Asia and the Middle East to continue to improve, which should sustain demand for narrow-body aircraft, supporting Boeing's total backlog of about 3,400 aircraft as of September 2010. In addition, U.S. airlines continue to take deliveries to improve fuel efficiency of aging fleets. Further, we expect the first quarter 2011 delivery of the 787 (first flight was in December 2009) to act as a catalyst for the stock, with about 850 aircraft recently on order. Finally, we view valuations, which are at or below historical averages, as attractive given our view that current income levels are depressed. Risks to our opinion and target price include a worsening financing or economic environment, further delays on major programs, and manufacturing issues. Our 12-month target price of $82 is based on an enterprise value-to-EBITDA multiple of 8.5X our 2011 EBITDA estimate. This compares favorably with BA's 20-year historical average EVto-EBITDA multiple of 11.5X, and is slightly above a recent peer average multiple of 8.0X.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 15,216 15,573 2009 16,502 14,296 2008 15,990 16,962 2007 15,365 17,028 2006 14,264 14,986 2005 12,987 15,025

3Q 16,967 16,688 15,293 16,517 14,739 12,629

4Q -17,937 12,664 17,477 17,541 14,204

Year -68,281 60,909 66,387 61,530 54,845

Earnings Per Share ($) 2010 0.70 1.06 2009 0.87 1.41 2008 1.61 1.16 2007 1.12 1.35 2006 0.88 -0.21 2005 0.64 0.70

1.12 -2.22 0.94 1.43 0.89 1.26

E1.06 1.77 -0.12 1.35 1.28 0.59

E3.95 1.87 3.65 5.26 2.84 3.19

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.420 0.420 0.420

12/14 12/14 04/26 06/21

02/03 02/03 05/05 08/04

02/05 02/05 05/07 08/06

03/05/10 03/02/10 06/04/10 09/03/10

Dividends have been paid since 1942. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BA

Boeing Co (The) Business Summary October 22, 2010 CORPORATE OVERVIEW. Boeing is a global aerospace and defense giant that conducts business through three operating segments. Boeing Commercial Airplanes (BCA; 50% of revenues and 47% of operating profits in 2009) and EADS's Airbus division are the world's only makers of 150-plus seat passenger jets. Boeing Defense, Space & Security (49%, 51%) is the world's third largest military contractor behind Lockheed Martin Corp and England's BAE Systems. Boeing Capital Corp. (1%, 2%) primarily finances Boeing aircraft for airlines. BCA's commercial jet aircraft family includes the 737 Next-Generation narrow body model and the 747, 767, 777 and 787 wide body models. The 787 (Dreamliner) is Boeing's newest model, and is scheduled for first delivery, following a more than two-year delay, in the final quarter of 2010. Boeing's upgraded 747-8 Freighter is also slated for delivery in the fourth quarter of 2010, with the passenger version scheduled for a year later. BCA also offers aviation support, aircraft modifications, spare parts, training, maintenance documents, and technical advice. Boeing had a commercial aircraft backlog at year-end 2009 of $251 billion.

copters; unmanned systems; missiles; space systems; missile defense systems; satellites and satellite launch vehicles; and communication, information and battle management systems. BDS's primary customer is the U.S. Department of Defense (80% of 2009 sales), but it also sells to NASA, international defense customers, civilian markets, and commercial satellite markets. Major programs include the AH-64 Apache and CH-47 Chinook helicopters, the C-17 Globemaster military transport, the V-22 Osprey tiltrotor aircraft, F/A-18E/F Super Hornet and F-15 Eagle fighter jets, as well as commercial and military satellites. MARKET PROFILE. Based on total unit orders of 150-plus seat jetliners in the three years through 2009, Boeing and Airbus each control about half of the large commercial aircraft market. Demand for jetliners is driven primarily by growth in international air travel. Since 2002, passenger air traffic has grown by an average of over 6% annually. Although passenger air traffic declined 3.5% in 2009, the International Air Transport Agency predicts a 5.6% rise in 2010.

Defense, Space & Security (BDS -- formerly Integrated Defense Systems) designs, develops and supports military aircraft, including fighters, transports, tankers, intelligence surveillance and reconnaissance aircraft, and heliCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 4.21 1.87 2.02 1.68 90% 56.56 29.05 30 16

2008 NM 5.26 3.65 0.87 1.60 44% 88.29 36.17 24 10

2007 3.78 7.18 5.26 5.41 1.40 27% 107.83 84.60 20 16

2006 NM 4.76 2.84 3.90 1.20 42% 92.05 65.90 32 23

2005 10.33 5.08 3.19 3.05 1.00 31% 72.40 49.52 23 16

2004 10.08 4.00 2.24 1.99 0.77 34% 55.48 38.04 25 17

2003 6.17 2.68 0.89 1.33 0.68 76% 43.37 24.73 49 28

2002 4.53 2.46 2.87 0.26 0.68 24% 51.07 28.53 18 10

2001 5.23 5.52 3.41 -0.06 0.68 20% 69.85 27.60 20 8

2000 6.63 4.14 2.44 NA 0.56 23% 70.94 32.00 29 13

68,281 3,537 1,666 339 1,731 22.9% 1,335 1,442

60,909 5,107 1,179 524 4,033 33.5% 2,684 619

66,387 7,090 1,486 196 6,118 33.6% 4,058 4,177

61,530 5,176 1,545 593 1,218 NM 2,206 3,042

54,845 3,707 1,503 653 2,819 9.12% 2,562 2,450

52,457 3,405 1,509 685 1,960 7.14% 1,820 1,616

50,485 3,198 1,450 800 550 NM 718 1,074

54,069 5,447 1,497 730 1,353 63.6% 492 203

58,198 6,467 1,750 650 3,565 20.7% 2,827 284

51,321 4,996 1,479 445 2,999 29.0% 2,128 NA

Balance Sheet & Other Financial Data (Million $) Cash 11,223 Current Assets 35,275 Total Assets 62,053 Current Liabilities 32,883 Long Term Debt 12,217 Common Equity 2,128 Total Capital 15,149 Capital Expenditures 1,186 Cash Flow 3,001 Current Ratio 1.1 % Long Term Debt of Capitalization 80.7 % Net Income of Revenue 2.0 % Return on Assets 2.3 % Return on Equity NM

3,279 25,964 53,801 30,925 6,952 -1,264 5,658 1,674 3,833 0.8 122.9 4.4 4.8 NM

7,042 27,280 58,986 31,538 7,455 9,004 17,649 1,731 5,544 0.9 42.2 6.1 7.3 59.0

6,118 22,983 51,794 29,701 8,157 4,739 12,896 1,681 3,751 0.8 63.3 3.6 3.9 27.9

5,412 21,968 60,058 28,188 9,538 11,059 22,664 1,547 4,065 0.8 42.1 4.7 4.4 22.9

3,204 15,100 53,963 20,835 10,879 11,286 23,255 978 3,329 0.7 46.8 3.5 3.4 18.7

4,633 17,258 53,035 18,448 13,299 8,139 21,438 741 2,168 0.9 62.0 1.4 1.4 9.1

2,333 16,855 52,342 19,810 12,589 7,696 20,285 1,001 1,989 0.9 62.1 0.9 1.0 5.3

633 16,206 48,343 20,486 10,866 10,825 21,868 1,068 4,577 0.8 49.7 4.9 6.2 25.9

1,010 15,864 42,028 18,289 7,567 11,020 18,587 932 3,607 0.9 40.7 4.1 5.4 18.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 North Riverside Plaza, Chicago, IL 60606-1596. Telephone: 312-544-2000. Website: http://www.boeing.com Chrmn, Pres & CEO: W.J. McNerney, Jr.

COO & CTO: J.J. Tracy EVP & CFO: J.A. Bell EVP & General Counsel: J.M. Luttig Chief Admin Officer: R.D. Stephens

Investor Contact: R. Young (312-544-2140) Founded: 1916 Board Members: J. H. Biggs, J. E. Bryson, D. L. Domicile: Delaware Calhoun, A. D. Collins, Jr., L. Z. Cook, W. M. Daley, K. M. Employees: 157,100 Duberstein, E. P. Giambastiani, Jr., E. M. Liddy, J. F. McDonnell, W. J. McNerney, Jr., S. C. Schwab, M. Zafirovski

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BXP | BXP is in the S&P 500

Boston Properties Inc S&P Recommendation BUY

★★★★★

Price $90.50 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Office REITS

12-Mo. Target Price $92.00

Investment Style Large-Cap Blend

Summary This real estate investment trust primarily owns office buildings in the Boston, Washington, DC, New York City, San Francisco and Princeton markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $91.23– 57.19 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $17,735

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

4.28 4.20 21.1 139.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.611 2.21 $2.00 99

Beta 1.53 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -1 S&P Credit Rating A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as BXP's large and diverse asset portfolio, its relatively unleveraged balance sheet, and consistent cash distribution.

120 80 60

Quantitative Evaluations

40

S&P Quality Ranking Vol.

D

B-

B+ B

B+

A-

A

A+

31

Mil. 15 10 5 0 5

C

Relative Strength Rank

STRONG 74

LOWEST = 1 4

3

HIGHEST = 99

4

3

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Royal F. Shepard, CFA on October 04, 2010, when the stock traded at $ 83.25. Highlights ➤

➤

We believe BXP is experiencing higher interest from tenants looking to lock in attractive rents at its high-quality properties, particularly in New York City and Washington, DC. We estimate occupancy will remain at close to 92.5% in 2010, above most rivals. Just under 14% of BXP's total space is subject to lease expiration by the end of 2011, a level we consider manageable. We estimate that total revenues will rise about 1%, absent any acquisitions, due to higher management fees and revenues from newly developed properties. BXP has built a large cash cushion, which it has begun to deploy toward acquisitions. In September 2010, it acquired 510 Madison Avenue in New York for $275 million. The trust has also agreed to acquire two properties in the Boston market, including the landmark John Hancock Tower for $930 million.

Investment Rationale/Risk ➤

➤

➤ ➤

Our 2010 FFO per share estimate of $4.28 reflects steady occupancy and higher third-party management fees, offset by dilution from recent debt and equity financing. BXP has initiated an "at the market" stock offering program for the sale of up to $400 million of common shares.

In view of low tenant turnover, we think BXP's high-quality portfolio will hold up reasonably well in challenging market conditions. The trust faces minimal tenant turnover through 2011, which should limit any pressure on rents as leases renew. The potential of future fees from new development projects appears more limited until credit market conditions improve. On the other hand, we expect BXP to become more aggressive in closing acquisition opportunities as leasing metrics stabilize. We believe BXP's recent valuation of 19.5X our 2010 FFO per share estimate, a premium to peers, is warranted by its long-term growth potential. Risks to our recommendation and target price include national employment growth lagging our expectations, and lower-than-anticipated regional economic strength in BXP's markets. Our 12-month target price of $92 is based primarily on applying a multiple of 21.5X to our 2010 FFO per share estimate, a premium to office REITs serving less attractive suburban markets. We arrive at a $95 estimate of net asset value (NAV), based on recent market transactions and a one-year cash yield of 5.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 386.0 396.0 2009 377.5 389.5 2008 370.6 366.3 2007 360.7 372.2 2006 356.1 370.4 2005 356.2 360.6

3Q -377.3 357.1 368.6 372.5 361.8

4Q -377.9 201.9 380.8 378.7 366.3

Year -1,522 1,287 1,482 1,502 1,438

FFO Per Share ($) 2010 1.23 2009 1.11 2008 1.18 2007 0.42 2006 0.27 2005 0.23

E1.01 1.31 1.13 0.32 0.32 0.16

E1.08 1.05 0.05 1.22 0.32 0.24

E4.28 4.61 3.49 4.64 4.17 4.31

1.12 1.32 1.19 0.32 0.39 0.16

Fiscal year ended Dec. 31. Next earnings report expected: Late October. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.500 0.500 0.500 0.500

12/17 03/18 06/17 09/16

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/29/10 04/30/10 07/30/10 10/29/10

Dividends have been paid since 1997. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BXP

Boston Properties Inc Business Summary October 04, 2010 CORPORATE OVERVIEW. Boston Properties, founded in 1970, is a real estate investment trust (REIT) that develops, acquires, manages, operates, and is one of the largest U.S. owners of, Class A office properties. BXP conducts substantially all of its business through its limited partnership, of which it is the sole general partner, and holds an 84% economic interest. At December 31, 2009, the property portfolio consisted of 146 properties, totaling 50.5 million net rentable sq. ft. and structured parking facilities for vehicles containing approximately 12.8 million sq. ft. The properties included 140 inservice office buildings and one hotel in Cambridge, Massachusetts. In addition, BXP had six buildings under development totaling 3.0 million sq. ft. MARKET PROFILE The market for office leases is inherently cyclical. Local economic conditions, particularly the employment level, play an important role in determining competitive dynamics. Non-farm monthly payrolls declined through 2009, with an increase in the unemployment rate above 10%, from 7.2% as of December 2008.

ing forward, we believe vacancy levels will continue to rise in 2010 due to a recessionary economic environment. In our opinion, BXP's principal markets, including Washington, DC, Manhattan, Boston, and San Francisco, are among the nation's strongest due to limited new construction activity in recent years. However, layoffs in the financial services sector, particularly in New York City, have pressured rents in recent months. In total, as of December 31, 2009, BXP had an office occupancy rate at established properties of 92.4%, much better than the national averages. Leases will expire on only about 9.1% of existing office space in 2010, limiting the trust's exposure to declining market rents. Competition for leasing real estate is high. In addition, we believe that competition for the acquisition of new properties is intensifying from other REITs, private real estate funds, financial institutions, insurance companies and others. As a result, we think BXP could have difficulty finding new assets at attractive prices.

The U.S. office market tends to track the overall economy on a lagged basis. At the end of December 2009, we believe the national vacancy rate was about 17.0%, an increase from a cyclical low of about 12.5% at the end of 2007. GoCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 32.01 1.76 1.76 2.18 124% 72.23 29.30 41 17

2008 29.14 1.03 1.03 1.52 NM 50.63 19.69 60 23

2007 30.72 9.06 9.06 2.72 30% 133.02 87.78 15 10

2006 27.45 7.46 7.46 2.72 36% 118.22 72.98 16 10

2005 25.92 3.46 3.46 5.19 150% 76.67 56.66 22 16

2004 26.61 2.35 2.34 2.58 110% 64.90 42.99 28 18

2003 22.51 2.94 2.88 2.50 85% 48.47 34.80 16 12

2002 20.79 4.40 4.37 2.41 55% 41.55 32.95 9 7

2001 19.34 2.26 2.20 2.27 100% 43.88 34.00 19 15

2000 19.02 2.01 NA 1.96 96% 44.88 29.00 22 14

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

1,453 Nil 1,522 601 323 Nil 322 231 231

1,402 Nil 1,488 588 272 Nil 304 125 125

1,334 Nil 1,482 554 286 Nil 286 1,098 1,094

1,344 Nil 1,502 557 298 Nil 277 874 874

1,339 Nil 1,438 545 308 Nil 267 393 393

1,293 Nil 1,400 528 306 Nil 252 255 254

1,219 Nil 1,310 498 299 Nil 210 290 284

1,174 Nil 1,235 464 272 Nil 186 420 413

1,008 Nil 1,033 351 223 Nil 150 215 203

859 Nil 879 300 217 Nil 133 153 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,449 Total Assets 12,349 Real Estate Investment 11,100 Loss Reserve Nil Net Investment 9,066 Short Term Debt 310 Capitalization:Debt 6,608 Capitalization:Equity 4,446 Capitalization:Total 11,732 % Earnings & Depreciation/Assets 4.8 Price Times Book Value:High 2.3 Price Times Book Value:Low 0.9

242 10,912 10,618 Nil 8,850 100 6,172 3,531 10,302 3.9 4.5 1.3

1,716 11,193 10,250 Nil 8,718 Nil 5,492 3,669 9,216 13.3 4.3 2.9

752 9,695 9,552 Nil 8,160 Nil 4,559 3,223 8,406 12.3 4.3 2.7

377 8,902 9,151 Nil 7,886 Nil 4,679 2,917 8,335 7.3 3.0 2.2

345 9,063 9,291 Nil 8,148 Nil 4,733 2,936 8,455 5.8 2.4 1.6

133 8,551 8,983 Nil 7,981 Nil 5,005 2,400 8,235 5.9 2.1 1.5

199 8,427 8,671 Nil 7,848 Nil 3,336 2,160 6,340 7.7 2.0 1.6

201 7,254 7,458 Nil 6,738 282 4,033 1,754 6,732 5.4 2.3 1.8

378 6,226 6,113 Nil 5,526 194 3,415 1,648 6,040 4.9 2.4 1.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 800 Boylston St Ste 1900, Boston, MA 02199-8103. Telephone: 617-236-3300. Email: [email protected] Website: http://www.bostonproperties.com

Chrmn & CEO: M.B. Zuckerman Pres: D.T. Linde COO & EVP: E.M. Norville SVP, CFO & Treas: M.E. LaBelle

SVP, Secy & General Counsel: F.D. Burt Founded: 1970 Investor Contact: M. Walsh (617-236-3300) Domicile: Delaware Board Members: L. S. Bacow, Z. Baird, C. B. Einiger, J. Employees: 700 A. Frenkel, D. T. Linde, A. J. Patricof, M. Turchin, D. A. Twardock, M. B. Zuckerman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BSX | BSX is in the S&P 500

Boston Scientific Corp S&P Recommendation HOLD

★★★★★

Price $6.30 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $7.00

Investment Style Large-Cap Growth

Summary This manufacturer of minimally invasive medical devices acquired its device rival Guidant Corp. in April 2006 for $27 billion in cash and stock.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.79– 5.04 $-1.76 NM $2,637

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.38 0.44 16.6 1,516.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

MEDIUM

6

Vol. 563

351

120 80 40 0

Quantitative Evaluations 3

2

4

3

2

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

S&P Quality Ranking D

C

B-

C B

Analysis prepared by Phillip M. Seligman on July 27, 2010, when the stock traded at $ 5.93. Highlights

➤

We see revenues declining less than 5% in 2010. We believe BSX lost some share from the recent, temporary implantable cardioverter defibrillator (ICD) recall, and we see the potential for permanent share loss in this market. We expect the ICD and stent markets to be challenging this year, and we think BSX will experience further margin erosion on a mix shift from its Taxus stent to the lower-margin PROMUS stent (due to the license and royalty agreement under which PROMUS is produced). We expect gross margins to contract, as the benefits of restructuring are outweighed by pricing pressures and product mix shift. We think R&D spending will be stable as a percentage of sales, but the SG&A cost ratio will rise as expenses are spread over a smaller base, BSX compensates personnel for commissions lost during its ICD recall, and the company increases investments in growth initiatives. We see adjusted EPS of $0.33 in 2010 and $0.43 in 2011, including amortization expense, given the ongoing recurring nature of such charges recorded by BSX in recent years.

Investment Rationale/Risk ➤

➤

While BSX realized faster-than-expected growth of ICD sales in the second quarter, following the lifting of the recall, it was not a full recovery. Moreover, we think the recall and the company's recent advisory on three ICD models no longer sold (as reported in the Wall Street Journal) may have hurt its reputation and, hence, its ability to regain market share. We see this being offset by BSX's licensing agreement to market its PROMUS version of the successful XIENCE drug-eluting stent, its product pipeline -- which we view as promising despite recent launch delays -- and its planned emerging markets expansion. But we also see headwinds, including continued pricing pressures and deferral of procedures. Risks to our recommendation and target price include unfavorable litigation outcomes, a worse-than-expected product mix, intensified competition, and slow commercialization of new, key products.

B+

A-

Relative Strength Rank

Our 12-month target price of $7.00 reflects a discount-to-peers 12X our 2010 cash EPS estimate of $0.59, before amortization expense of $0.26. We view this valuation as appropriate given the impact of BSX's ICD problems.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

A+

MODERATE

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,960 1,928 2009 2,010 2,074 2008 2,046 2,024 2007 2,086 2,071 2006 1,620 2,110 2005 1,615 1,617

3Q -2,025 1,978 2,048 2,206 1,511

4Q -2,079 2,002 2,152 2,065 1,540

Year -8,188 8,050 8,357 7,821 6,283

Earnings Per Share ($) 2010 -1.05 0.06 2009 -0.01 0.10 2008 0.22 0.07 2007 0.08 0.08 2006 0.40 -3.21 2005 0.42 0.24

E0.07 0.13 -0.04 -0.18 0.05 -0.33

E0.10 -0.71 -1.62 -0.31 0.19 0.40

E0.38 -0.68 -1.38 -0.33 -2.81 0.75

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤

A

70

Options: ASE, CBOE, P, Ph

➤

HIGH

Our risk assessment reflects the company's operations within intensely competitive areas of the health care industry, and its dependence for growth on the development and commercialization of new products. In addition, a large percentage of customers are reimbursed by the federal Medicare program, and we believe the government is likely to reduce the pace of expenditure growth by lowering reimbursement rates for expensive medical devices such as defibrillators and cardiac stents.

8

Mil.

LOW

Below Avg.

12

➤

1.01 0 BBB-

Qualitative Risk Assessment

16

5

$9.556 Nil Nil 86

Stock Report | October 23, 2010 | NYS Symbol: BSX

Boston Scientific Corp Business Summary July 27, 2010 CORPORATE OVERVIEW. Boston Scientific develops and markets minimally invasive medical devices that are used in a broad range of interventional medical specialties, including interventional cardiology, cardiac rhythm management, peripheral intervention, electrophysiology, gynecology, oncology, urology and neuromodulation. Within the cardiovascular market, the company sells products used to treat coronary vessel disease known as arteriosclerosis. The majority of BSX's cardiovascular products are used in percutaneous transluminal coronary angioplasty (PTCA) and percutaneous transluminal coronary rotational atherectomy. These products include PTCA balloon catheters, rotational atherectomy systems, guide wires, guide catheters, diagnostic catheters, and, more recently, a cutting balloon catheter. Other products include thrombectomy catheters, peripheral vascular stents, embolic protection filters, blood clot fil-

ter systems, and electrophysiology products. BSX also sells balloon-expandable and self-expanding coronary stent systems. In early 2004, BSX launched Taxus, an Express stent coated with a polymer embedded with the anticancer compound paclitaxel. In January 2005, BSX launched its next-generation Taxus Liberte paclitaxel-eluting coronary stent in 18 Inter-Continental countries and in Europe. Taxus Liberte was launched in the U.S. in 2008. Through an agreement with Abbott Labs, BSX also sells the PROMUS everolimus-eluting stent system in the U.S. During 2009, drug-coated coronary stents accounted for 23% of total revenues.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM -0.13 -0.68 0.49 Nil Nil 11.77 6.08 NM NM

2008 NM -0.78 -1.38 -0.16 Nil Nil 14.22 5.41 NM NM

2007 NM 0.30 -0.33 0.16 Nil Nil 18.69 11.27 NM NM

2006 NM -1.90 -2.81 -2.75 Nil Nil 26.56 14.43 NM NM

2005 0.67 1.12 0.75 1.39 Nil Nil 35.50 22.80 47 30

2004 0.82 1.60 1.24 1.27 Nil Nil 46.10 31.25 37 25

2003 0.49 0.79 0.56 0.50 Nil Nil 36.85 19.10 66 34

2002 0.12 0.64 0.45 0.33 Nil Nil 22.15 10.24 49 23

2001 NM 0.22 -0.07 -0.10 Nil Nil 13.95 6.63 NM NM

2000 0.33 0.68 0.46 NA Nil Nil 14.59 6.09 32 13

8,188 2,141 834 407 -1,308 21.6% -1,025 744

8,050 2,159 864 468 -2,062 NM -2,072 -231

8,357 2,158 939 570 -569 NM -495 240

7,821 -2,383 781 435 -3,535 NM -3,577 -3,498

6,283 2,338 314 90.0 891 29.5% 628 1,162

5,624 1,989 275 64.0 1,494 28.9% 1,062 1,082

3,476 945 196 46.0 643 26.6% 472 423

2,919 757 161 43.0 549 32.1% 373 269

2,673 614 232 59.0 44.0 NM -54.0 -77.0

2,664 819 181 70.0 527 29.2% 373 NA

Balance Sheet & Other Financial Data (Million $) Cash 864 Current Assets 4,061 Total Assets 25,177 Current Liabilities 3,022 Long Term Debt 5,915 Common Equity 12,301 Total Capital 18,216 Capital Expenditures 312 Cash Flow -191 Current Ratio 1.3 % Long Term Debt of Capitalization 32.5 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,641 5,452 27,080 3,233 6,743 13,138 22,143 362 -1,172 1.7 30.5 NM NM NM

1,452 5,921 31,197 3,250 8,161 15,097 25,314 363 444 1.8 34.5 NM NM NM

1,688 4,901 31,096 2,630 8,895 15,298 26,977 341 -2,796 1.9 33.0 NM NM NM

848 2,631 8,196 1,479 1,864 4,282 6,408 341 942 1.8 29.1 10.0 7.7 15.1

1,640 3,289 8,170 2,605 1,139 4,025 5,423 274 1,337 1.3 21.0 18.9 15.3 30.8

671 1,880 5,699 1,393 1,172 2,862 4,185 188 668 1.3 28.0 13.6 9.3 17.7

277 1,208 4,450 923 847 2,467 3,414 112 534 1.3 24.8 12.8 8.9 16.6

180 1,106 3,974 831 973 2,015 2,988 121 178 1.3 32.6 NM NM NM

54.0 992 3,427 819 562 1,935 2,497 76.0 554 1.2 22.5 14.0 10.7 20.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Boston Scientific Pl, Natick, MA 01760-1537. Telephone: 508-650-8000. Email: [email protected] Website: http://www.bostonscientific.com

Chrmn: P.M. Nicholas, Jr. Pres & CEO: J.R. Elliott COO & EVP: S.R. Leno EVP & CFO: J.D. Capello

EVP, Chief Admin Officer, Secy & General Counsel: T.A. Pratt Board Members: J. E. Abele, K. T. Bartlett, B. L. Byrnes, N. J. Connors, J. R. Elliott, M. A. Fox, R. Groves, E. Mario, N. J. Nicholas, Jr., P. M. Nicholas, Jr., U. E. Reinhardt, J. E. Sununu

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Delaware Employees: 26,000

Stock Report | October 23, 2010 | NYS Symbol: BMY | BMY is in the S&P 500

Bristol-Myers Squibb Co S&P Recommendation BUY

★★★★★

Price $26.96 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $30.00

Investment Style Large-Cap Value

Summary Bristol-Myers Squibb is a leading global drugmaker, with strengths in cardiovascular, anti-infective and anticancer therapeutics.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.00– 21.67 Trailing 12-Month EPS $5.72 Trailing 12-Month P/E 4.7 $10K Invested 5 Yrs Ago $15,879

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.18 2.35 12.4 1,714.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

Vol. 333

Mil.

LOW

HIGH

Quantitative Evaluations 5

5

3

5

4

3

3

4

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

S&P Quality Ranking D

Analysis prepared by Herman B. Saftlas on August 19, 2010, when the stock traded at $ 26.01. Highlights We expect total sales from continuing operations in 2010 to rise about 5% from 2009's $18.8 billion, excluding sales of the Mead Johnson business, which was split off to shareholders in late 2009. Looking at the pharmaceutical portfolio, we see modestly higher sales of Plavix, with projected gains in the U.S. more than offsetting the impact of generic erosion abroad. Volume should also be augmented by gains in Abilify, Reyataz, oncology drugs, and new products such as Orencia for arthritis and Onglyza for type 2 diabetes. We see gross margins in 2010 similar to 2009's 73.3%. While we expect a ramp-up in R&D expenses on stepped-up new drug development, we see tight discipline on the SG&A line. We expect cost efficiencies to temper an anticipated negative impact of $0.12 a share from new health care reform legislation. We also expect EPS accretion of $0.05 from the Mead Johnson split-off. After an estimated tax rate of 23.5%, versus 22.2% in 2009, and a projected 14% decline in average shares, we forecast operating EPS of $2.18 for 2010. We see further EPS progress to $2.35 in 2011.

Investment Rationale/Risk ➤

In mid-August, the FDA granted priority review status for ipilimumab treatment for advanced melanoma, with an action scheduled for Dec. 25, 2010. The novel drug, which BMY obtained the 2009 purchase of Medarex, is also under review by European regulatory authorities. We believe the drug will likely obtain marketing clearance by the end of 2010, and achieve peak sales of close to $1 billion within five years. Earlier, BMY released favorable data on Sprycel, which showed that drug more effective than rivals in treating chronic myeloid leukemia. We see these drugs enhancing BMY's oncology franchise, which should help offset the effects of patent expirations on Plavix and other products.

➤

Risks to our recommendation and target price include increased competitive pressures in key product lines, and possible pipeline setbacks.

➤

Our 12-month target price of $30 is derived by applying a modest premium-to-peers P/E of 12.8X to our 2011 EPS estimate. Our DCF model, which assumes a WACC of 9.1% and terminal growth of 1%, also indicates intrinsic value near $30. The dividend recently yielded 4.8%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

39

Options: ASE, CBOE, P, Ph

➤

MEDIUM

In common with other large capitalization drugmakers, BMY is subject to generic challenges to its branded drugs, as well as risks associated with new drug development and regulatory approval. While we see promise in BMY's recent efforts to expand its pharmaceutical portfolio, we remain unsure if new products will be sufficient to offset the loss of patent protection on several key drugs over the 2011-2012 period. However, cost restructurings should help the bottom line.

25

➤

0.65 6 A+

Below Avg.

30

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

35

90 60 30 0

$46.232 4.75 $1.28 69

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,807 4,768 2009 4,322 4,665 2008 4,891 5,203 2007 4,317 4,757 2006 4,676 4,871 2005 4,532 4,889

3Q -4,788 5,254 4,893 4,154 4,767

4Q -5,033 5,249 5,381 4,213 5,019

Year -18,808 20,597 19,348 17,914 19,207

Earnings Per Share ($) 2010 0.43 0.53 2009 0.33 0.44 2008 0.32 0.36 2007 0.33 0.33 2006 0.36 0.34 2005 0.27 0.50

E0.53 0.45 0.30 0.41 0.17 0.49

E0.55 0.41 0.61 -0.07 -0.07 0.26

E2.18 1.63 1.59 0.99 0.81 1.52

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.320 0.320 0.320 0.320

12/21 03/02 06/09 09/07

12/30 03/30 06/30 09/29

01/04 04/04 07/02 10/01

02/01/10 05/03/10 08/02/10 11/01/10

Dividends have been paid since 1900. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BMY

Bristol-Myers Squibb Co Business Summary August 19, 2010 CORPORATE OVERVIEW. Bristol-Myers Squibb is a major global drugmaker, offering a wide range of prescription drugs. With the late 2009 split-off of the Mead Johnson nutritional products business, BMY is now solely a biopharmaceuticals company. In recent years, BMY also divested other non-core operations, including beauty care, orthopedic devices and imaging products. Foreign operations accounted for 36% of sales from continuing operations in 2009, down from 40% in 2008. The company's largest selling drug is Plavix (sales of $6.1 billion in 2009), a platelet aggregation inhibitor for the prevention of stroke, heart attack and vascular disease. Plavix is produced through a joint venture with French drugmaker Sanofi-Aventis SA. Another important heart drug is Avapro/Avalide ($1.3 billion), an angiotensin II receptor blocker for hypertension.

Key anti-infective drugs are HIV/AIDS treatments such as Reyataz ($1.4 billion), Sustiva ($1.3 billion), and Baraclude ($734 million). BMY also offers Cefzil, Tequin, Maxipime, and other antibiotics. Other important drugs are Orencia, a treatment for rheumatoid arthritis ($602 million); Onglyza, a drug for type 2 diabetes; and Sinemet for Parkinson's disease. In late December 2009, BMY completed the split-off of its Mead Johnson subsidiary (MJN 49, Hold) to BMY shareholders. Under terms of the deal, BMY's remaining 170 million MJN shares (an 83% interest) were exchanged for some 269 million BMY shares. BMY sold an initial 17% interest in Mead Johnson through an IPO, raising close to $1 billion. During 2008, BMY sold its ConvaTec ostomy and wound care and its medical imaging businesses for a combined total of $4.5 billion in cash.

The company's second biggest drug is Abilify ($2.6 billion), a psychotic agent used to treat schizophrenia and bipolar disorder. It is also used to treat major depression in combination with antidepressants. Principal oncology drugs are Erbitux ($683 million), a treatment for colorectal and head & neck cancers; Sprycel for leukemia ($421 million); and Ixempra ($109 million), a drug for advanced breast cancer. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.80 1.93 1.63 1.59 1.25 77% 26.62 17.23 16 11

2008 3.17 1.94 1.59 1.24 1.24 27% 27.37 16.00 17 10

2007 2.14 1.39 0.99 1.02 1.12 113% 32.35 25.73 33 26

2006 1.68 1.28 0.81 0.88 1.12 138% 26.41 20.08 33 25

2005 2.28 1.98 1.52 1.43 1.12 74% 26.60 20.70 17 14

2004 1.76 1.66 1.21 1.24 1.12 93% 31.30 22.22 26 18

2003 1.62 1.99 1.59 1.57 1.12 70% 29.21 21.00 18 13

2002 0.88 1.43 1.05 1.07 1.12 107% 51.95 19.49 49 19

2001 1.70 1.68 1.29 0.67 1.10 85% 73.50 48.50 57 38

2000 3.96 2.42 2.36 NA 0.98 42% 74.88 42.44 32 18

18,808 5,819 647 184 5,602 21.1% 3,239 3,149

20,597 5,152 728 333 5,471 24.1% 3,155 2,465

19,348 4,309 776 457 3,534 22.7% 1,968 2,024

17,914 3,483 927 498 2,635 23.1% 1,585 1,727

19,207 4,880 929 349 4,516 20.6% 2,992 2,808

19,380 5,373 909 310 4,418 34.4% 2,378 2,448

20,894 5,726 779 277 4,694 25.9% 3,106 3,043

18,119 4,851 735 410 2,647 16.4% 2,034 2,076

19,423 7,034 781 182 2,986 15.4% 2,527 1,321

18,216 6,732 746 108 5,478 25.2% 4,096 NA

Balance Sheet & Other Financial Data (Million $) Cash 8,514 Current Assets 13,958 Total Assets 31,008 Current Liabilities 6,313 Long Term Debt 6,130 Common Equity 14,843 Total Capital 20,915 Capital Expenditures 730 Cash Flow 3,817 Current Ratio 2.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 17.2 % Return on Assets NA % Return on Equity NA

8,265 14,763 29,552 6,710 6,585 12,241 18,885 941 3,883 2.2 34.9 15.3 11.4 27.7

2,225 10,348 26,172 8,644 4,381 10,562 14,943 843 2,744 1.2 29.3 10.2 7.6 19.2

4,013 10,302 25,575 6,496 7,248 9,991 17,307 762 2,512 1.6 42.0 8.8 5.9 15.0

5,799 12,283 28,138 6,890 8,364 11,208 19,572 738 3,921 1.8 42.7 15.6 10.2 27.9

7,474 14,801 30,435 9,843 8,463 10,202 18,665 676 3,287 1.5 45.3 12.3 8.2 23.8

5,457 11,918 27,471 7,530 8,522 19,572 28,094 937 3,885 1.6 30.3 14.9 11.8 16.8

3,989 9,975 24,874 8,220 6,261 8,967 15,228 997 2,769 1.2 41.1 11.2 7.7 22.5

5,654 12,349 27,057 8,826 6,237 10,736 16,973 1,023 3,308 1.4 36.7 13.0 11.3 25.4

3,385 9,824 17,578 5,632 1,336 9,180 10,516 589 4,842 1.7 12.7 22.5 23.6 46.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 345 Park Ave , New York, NY 10154-0037. Telephone: 212-546-4000. Website: http://www.bms.com Chrmn: J.M. Cornelius

Pres, CEO & COO: L. Andreotti EVP & CSO: E. Sigal SVP, Secy & General Counsel: S. Leung CFO: C. Bancroft

Investor Contact: J. Elicker (212-546-3775) Board Members: L. Andreotti, L. B. Campbell, J. M. Cornelius, L. J. Freeh, L. H. Glimcher, M. Grobstein, L. Johansson, A. J. Lacy, V. L. Sato, T. D. West, Jr., R. S. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1887 Domicile: Delaware Employees: 28,000

Stock Report | October 23, 2010 | NNM Symbol: BRCM | BRCM is in the S&P 500

Broadcom Corp S&P Recommendation HOLD

★★★★★

Price $37.55 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary This company provides semiconductors for broadband communications markets, including cable set-top boxes, cable modems, office networks, and home networking.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.47– 25.76 Trailing 12-Month EPS $1.19 Trailing 12-Month P/E 31.6 $10K Invested 5 Yrs Ago $13,365

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.02 2.11 18.6 503.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$16.834 0.85 $0.32 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.41 34 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Broadcom's exposure to the sales cycles of the semiconductor industry, dependence on foundry partners for production, and greater reliance than most companies on stock-based compensation. This is partially offset by our view of a lack of debt and a broadening base of end users.

40 30

20 15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

90 60 30 0 5

D 4

3

4

3

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Clyde Montevirgen on August 17, 2010, when the stock traded at $ 31.86. Highlights

➤

BB

B+

A-

A

Relative Strength Rank

A+ STRONG

We anticipate sales will rise 46% in 2010 and 10% in 2011. Although we are concerned about rising inventory in the supply chain, we see expansion of broadband services and IT spending providing long-term growth opportunities for BRCM's broadband communication and enterprise networking businesses. We think that recent design wins for various combination wireless and mobile handset products will help boost mobile and wireless networking sales as its customers ramp production of new products. Generally, we believe BRCM has a welldiversified and innovative product portfolio, which has expanded its served available market and should lead to higher market share. We see the gross margin remaining in the 52% to 53% range over the next two years. Although varying sales mix could impact results, we believe that BRCM's fabless structure will help to keep gross margins relatively stable. Similarly, we expect the operating margin to be around 17% in 2010 and 2011, as sales growth balances higher expenses to support new products. Our 2011 earnings projections assume a 10% effective tax rate and a modest increase in the share count.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

73

1

➤

C

Our hold recommendation reflects our view of improving fundamentals balanced by fair valuations. Through its focus on making integrated and multifunctional chips, we believe that BRCM is taking market share in relatively fast growing markets, which should lead to aboveindustry growth. The top-line advances should provide operating leverage and lead to improving profitability, in our opinion. Considering anticipated return on equity that should reach multi-year highs, we think relative multiples deserve to be above the industry average, which is already the case. Risks to our recommendation and target price include lower than anticipated enterprise spending, slower than anticipated orders for handset chips, and rising operating expenses. Our 12-month target price of $38 is based on a P/E multiple of 18X, above the peer average to account for our view of BRCM's relative earnings growth, return metrics, and risk, applied to our 2011 EPS estimate. Our DCF model, which assumes a WACC of around 11% and a terminal growth rate of 4%, implies an intrinsic value of $44.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,462 1,604 2009 853.4 1,040 2008 1,032 1,201 2007 901.5 897.9 2006 900.7 941.1 2005 550.3 604.9

3Q -1,254 1,298 950.0 902.6 695.0

4Q -1,343 1,127 1,027 923.5 820.6

Year -4,490 4,658 3,776 3,668 2,671

Earnings Per Share ($) 2010 0.40 0.52 2009 -0.19 0.03 2008 0.14 0.25 2007 0.10 0.06 2006 0.20 0.18 2005 0.13 0.03

E0.57 0.16 0.31 0.05 0.19 0.23

E0.54 0.11 -0.32 0.16 0.08 0.33

E2.02 0.13 0.41 0.37 0.64 0.73

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.080 0.080 0.080

01/27 05/20 08/12

02/17 06/02 08/25

02/19 06/04 08/27

03/08/10 06/21/10 09/13/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: BRCM

Broadcom Corp Business Summary August 17, 2010 CORPORATE OVERVIEW. Founded in 1991, Broadcom is a global provider of semiconductors for wired and wireless communications. The company's products enable the delivery of voice, video, data and multimedia to and throughout the home, the office and the mobile environment. Broadcom's diverse product portfolio includes solutions for digital cable, satellite and Internet Protocol (IP) set-top boxes and media servers; high definition television (HDTV); high definition DVD players and personal video recording (PVR) devices; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; System I/O server solutions; broadband network and security processors; wireless and personal area networking; cellular communications; global positioning system (GPS) applications; mobile multimedia and applications processors; mobile power management; and Voice over Internet Protocol (VoIP) gateway and telephony systems.

band communications and consumer electronics systems-on-a-chip (SoCs) that enable voice, video and data services over residential wired and wireless networks. Enterprise Networking enables a robust, scalable, secure and easy-to-manage network infrastructure for the carrier/service provider, data center, enterprise and small-to-medium-sized business, or SMB, markets. Its solutions aim to enable these networks to offer higher capacities and faster, more cost-efficient transport and management of voice, data and video traffic across wired and wireless networks. Mobile and Wireless Networking allows manufacturers to develop leading-edge mobile devices, enabling end-to-end wireless opportunities for the home, business and mobile markets. In 2009, net revenue by major target market was 34% broadband communications; 24% enterprise networking; and 38% mobile and wireless, with All Other making up the remainder.

Revenues can be separated into three main target markets: Broadband Communications, Enterprise Networking, and Mobile and Wireless Networking. Broadband Communication products offer manufacturers a range of broadCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.97 0.33 0.13 0.19 Nil Nil 32.29 15.31 NM NM

2008 4.63 0.60 0.41 0.62 Nil Nil 29.91 12.98 73 32

2007 4.86 0.48 0.37 0.37 Nil Nil 43.07 25.70 NM NM

2006 5.43 0.73 0.64 0.64 Nil Nil 50.00 21.98 78 34

2005 3.79 0.85 0.73 -0.04 Nil Nil 33.28 18.25 46 25

2004 2.59 0.59 0.42 -0.70 Nil Nil 31.37 16.83 75 40

2003 1.43 -1.98 -2.19 -2.31 Nil Nil 25.10 7.91 NM NM

2002 0.94 -5.20 -5.57 -5.07 Nil Nil 35.57 6.35 NM NM

2001 2.19 -4.87 -7.19 -6.87 Nil Nil 93.00 12.27 NM NM

2000 3.31 -1.59 -2.09 NA Nil Nil 183.17 49.83 NM NM

4,490 265 105 NA 72.2 9.60% 65.3 97.5

4,658 490 97.5 Nil 222 3.38% 215 319

3,776 148 62.0 Nil 219 2.70% 213 215

3,668 309 47.6 Nil 367 NM 379 379

2,671 557 68.5 Nil 392 NM 412 -25.7

2,401 450 91.7 Nil 294 25.7% 219 -330

1,610 -30.4 90.9 Nil -935 NM -960 -1,011

1,083 -442 147 3.60 -1,939 NM -2,237 -2,039

962 -573 889 5.00 -2,799 NM -2,742 -2,617

1,096 -169 165 0.33 -692 NM -688 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,929 Current Assets 2,914 Total Assets 5,127 Current Liabilities 1,148 Long Term Debt NA Common Equity 3,892 Total Capital 3,892 Capital Expenditures 66.6 Cash Flow 170 Current Ratio 2.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 1.5 % Return on Assets 1.4 % Return on Equity 1.7

1,898 2,751 4,393 717 Nil 3,607 3,607 82.8 312 3.8 Nil 4.6 4.7 5.6

2,329 3,054 4,838 758 Nil 4,036 4,036 160 275 4.0 Nil 5.6 4.3 5.1

2,680 3,352 4,877 679 Nil 4,192 4,192 92.5 427 4.9 Nil 10.3 8.8 10.3

1,733 2,336 3,752 595 Nil 3,145 3,145 41.8 480 3.9 Nil 15.4 12.4 14.9

1,183 1,584 2,886 497 Nil 2,366 2,366 49.9 310 3.2 Nil 9.1 8.9 11.3

606 996 2,018 504 Nil 1,490 1,490 47.9 -869 2.0 Nil NM NM NM

503 722 2,216 534 1.21 1,645 1,646 75.2 -2,090 1.4 0.1 NM NM NM

540 674 3,623 412 4.01 3,207 3,211 71.4 -1,853 1.6 0.1 NM NM NM

524 876 4,678 203 Nil 4,475 4,475 80.7 -523 4.3 Nil NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5300 California Avenue, Buildings 1-8, Irvine, CA 92617. Telephone: 949-926-5000. Email: [email protected] Website: http://www.broadcom.com

Chrmn: J.E. Major Pres & CEO: S.A. McGregor COO: N.Y. Kim EVP & CFO: E.K. Brandt

EVP, Secy & General Counsel: A. Chong Investor Contact: T.P. Andrew (949-926-5663) Board Members: J. Amble, N. H. Handel, E. Hartenstein, J. E. Major, S. A. McGregor, W. T. Morrow, J. A. Swainson, R. E. Switz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1991 Domicile: California

Stock Report | October 23, 2010 | NYS Symbol: BF.B | BF.B is in the S&P 500

Brown-Forman Corp S&P Recommendation HOLD

★★★★★

Price $61.93 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Distillers & Vintners

12-Mo. Target Price $64.00

Investment Style Large-Cap Growth

Summary This leading distiller and importer of alcoholic beverages markets Jack Daniel's, Southern Comfort, Finlandia, Korbel and Bolla brands.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $65.05– 47.40 Trailing 12-Month EPS $2.96 Trailing 12-Month P/E 20.9 $10K Invested 5 Yrs Ago $14,687

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.06 3.39 20.2 146.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 7 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Brown-Forman is a large-cap competitor in an industry that has historically demonstrated relative stability. However, we believe the company's dual-class structure and the majority representation of insiders on its board of directors pose corporate governance concerns.

70 60 50

35

Quantitative Evaluations

5-for-4 Vol. Mil.

S&P Quality Ranking

6

3 2 1 0 5

$5.548 1.94 $1.20 51

D

C

B-

A B

B+

A-

A

Relative Strength Rank 4

A+

MODERATE

41

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Esther Y. Kwon, CFA on September 23, 2010, when the stock traded at $ 60.99. Highlights ➤

➤

➤

Investment Rationale/Risk

We forecast net sales growth (excluding excise taxes) of 1% in FY 11 (Apr.), on easier comparisons in the first half due to inventory drawdowns at distributors, more than reversing FY 10's 0.5% decline to approximately $2.5 billion. In constant currency, we see Jack Daniel's branded product sales rising, but we expect a decline in Southern Comfort, while Finlandia should continue to rise despite a negative foreign exchange impact. Long term, with 53% of FY 10 net sales from outside the U.S., we see Finlandia and, secondarily, Jack Daniel's driving more than 50% of net sales growth.

➤

We look for stable gross margins on cost efficiencies, offset by a lower-margin product and geographic mix and a continued high level of value added pack promotions. We forecast an uptick in operating expenses as BF elects to build out its own distribution in certain international markets, offset somewhat by lower media and advertising costs due to a greater emphasis on off-premise promotions.

➤

We estimate FY 11 EPS of $3.06. In June, directors authorized the repurchase of up to $250 million of shares through December 1, 2010.

➤

Long term, we look for continued strength in the global market, and we think spirits will continue to make successful inroads in the 21- to 27-year-old demographic. BF should continue to capitalize on what we see as positive industry trends with its strong portfolio of spirits and international reach, particularly with its Jack Daniel's brand. In the near term, however, we see an uneven recovery in the spirits category as we believe consumers will continue to selectively trade down and consumption shifts more rapidly to the lower-margin off-premise channel from on-premise. Risks to our recommendation and target price include an unexpected slowdown in the growth of top-performing brands. Also, we view BF's dual-class structure and the majority representation of insiders on its board of directors as corporate governance concerns. Our 12-month target price of $64 is supported by our P/E analysis, which applies a multiple of 21.0X, a premium to the stock's historical average of 19.6X and a premium to peers and the S&P 500, to our FY 11 EPS estimate of $3.06. We think a premium is fair given the company's higher international exposure.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 569.4 -2010 570.8 698.8 2009 790.0 935.0 2008 739.0 893.0 2007 633.0 727.0 2006 547.0 666.0

3Q -637.4 784.0 877.0 754.8 637.0

4Q -561.9 683.0 772.0 690.8 594.0

Year -2,469 3,192 3,282 2,218 2,444

Earnings Per Share ($) 2011 0.76 E0.95 2010 0.81 0.99 2009 0.58 0.94 2008 0.58 0.83 2007 0.61 0.80 2006 0.57 0.73

E0.84 0.73 0.81 0.74 0.72 0.78

E0.51 0.49 0.53 0.65 0.45 0.49

E3.06 3.02 2.87 2.85 2.58 2.56

Fiscal year ended Apr. 30. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.300 0.300 0.300 0.300

11/16 01/28 05/27 07/22

12/03 03/04 06/03 09/02

12/07 03/08 06/07 09/07

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1960. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BF.B

Brown-Forman Corp Business Summary September 23, 2010 CORPORATE OVERVIEW. Brown-Forman Corp.'s origins date back to 1870. It is the world's fourth largest producer of distilled spirits. With a portfolio of well known brands, the company is best known for its popular Jack Daniel's Tennessee Whiskey, which continues to be its largest sales and profit producer. Although many alcoholic beverage companies have moved in recent years to reduce their dependence on the highly mature brown spirits market, BF has remained whiskey-oriented. Its product line is stocked with well known whiskies, bourbons, vodkas, tequilas, rums, and liqueurs. Brands include Jack Daniel's, Southern Comfort, Tequila Herradura, el Jimador Tequila, and Canadian Mist. Global depletions of Jack Daniel's in FY 10 (Apr.) increased 2%, compared to 1% in FY 09. Statistics based on case sales rank Jack Daniel's as the largest selling American whiskey in the world, Canadian Mist as the second largest selling Canadian whiskey in the U.S. and the third largest in the world, and Southern Comfort as the largest selling domestic proprietary liqueur in the U.S. Other major alcoholic beverage lines include Fetzer and Bolla wines, Finlandia vodka, Chambord liqueur, and Korbel Champagnes.

creased to 53% of total net revenues in FY 10 from 52% in FY 09. Beverage growth in recent years has come primarily from international markets for the company's spirits brands. The key export markets for brands include the U.K., Australia, Mexico, Poland, Germany, France, Spain, Italy, South Africa, China, Japan, Canada and Russia. Until year-end FY 05, the consumer durables segment consisted of the Lenox Inc. subsidiary, which produced and marketed china, crystal and giftware under the Lenox and Gorham trademarks. The segment also included Dansk, a producer of tableware and giftware, Gorham, Kirk Steiff, and Hartmann Luggage. In July 2005, following a strategic review, the company agreed to sell Lenox. On September 1, 2005, BF consummated the sale of substantially all of Lenox to Department 56 for $196 million. Consumer durables was eliminated as a segment, and in May 2007, the sale of substantially all of the assets of Hartmann to Clarion Capital Partners was completed.

International sales, consisting principally of exports of wines and spirits, inCompany Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.81 3.06 3.02 3.03 NA NA 2009 55.47 34.97 18 12

2009 3.03 3.23 2.87 2.62 0.81 28% 2008 63.02 40.46 22 14

2008 2.24 3.18 2.85 2.82 2.25 79% 2007 63.90 50.54 22 18

2007 1.42 2.89 2.58 2.54 0.62 24% 2006 66.04 52.22 26 20

2006 6.79 2.88 2.56 2.52 0.73 29% 2005 57.92 37.30 23 15

2005 4.55 2.38 2.02 1.90 0.64 32% 2004 40.07 34.24 20 17

2004 3.43 1.83 1.69 1.66 0.58 34% 2003 38.05 24.10 23 14

2003 1.93 1.76 1.45 1.24 0.58 40% 2002 32.22 23.48 22 16

2002 6.17 1.64 1.33 1.11 0.54 41% 2001 28.80 23.06 22 17

2001 5.40 1.72 1.36 1.22 0.51 38% 2000 27.70 16.75 20 12

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,469 715 5.00 28.0 682 NA 449 450

2,481 730 55.0 37.0 630 31.1% 434 397

3,282 735 52.0 49.0 644 31.7% 440 438

2,806 627 44.0 34.0 586 31.7% 400 393

2,444 560 44.0 18.0 559 29.3% 395 389

2,729 513 58.0 21.0 476 35.3% 308 289

2,577 473 56.0 21.0 388 33.5% 258 252

2,378 429 55.0 8.00 373 34.3% 245 209

1,958 408 55.0 8.00 348 34.5% 228 190

1,924 438 64.0 16.0 366 36.3% 233 208

Balance Sheet & Other Financial Data (Million $) Cash 232 Current Assets 1,527 Total Assets 3,383 Current Liabilities 546 Long Term Debt 508 Common Equity 1,895 Total Capital 2,406 Capital Expenditures 34.0 Cash Flow 454 Current Ratio 2.8 % Long Term Debt of Capitalization 21.1 % Net Income of Revenue 18.2 % Return on Assets 13.1 % Return on Equity 24.2

340 1,574 3,475 836 509 1,816 2,405 49.0 490 1.9 21.2 17.5 12.6 24.5

119 1,456 3,405 984 417 1,725 2,231 41.0 492 1.5 18.7 13.4 12.7 26.7

283 1,635 3,551 1,347 422 1,672 2,150 58.0 444 1.2 19.6 14.3 12.7 24.7

475 1,610 2,728 569 351 1,563 2,047 52.0 439 2.8 17.1 16.2 14.7 27.5

295 1,317 2,624 638 352 1,310 1,794 49.0 366 2.1 19.6 11.3 12.3 25.6

68.0 1,083 2,376 369 630 1,085 1,837 56.0 314 2.9 34.3 10.0 11.1 26.8

72.0 1,068 2,264 548 629 840 1,547 119 300 1.9 40.7 10.3 11.4 22.8

116 1,029 2,016 495 40.0 1,311 1,409 71.0 283 2.1 2.8 11.6 11.5 18.3

86.0 994 1,939 538 40.0 1,187 1,289 96.0 297 1.8 3.1 12.1 12.5 20.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 850 Dixie Highway, Louisville, KY 40210-1038. Telephone: 502-585-1100. Website: http://www.brown-forman.com Co-Chrmn: G.G. Brown, IV

Co-Chrmn & CEO: P.C. Varga Vice Chrmn: J.S. Welch, Jr. COO & EVP: M.I. McCallum EVP & CFO: D.C. Berg

Investor Contact: T. Graven (502-774-7442) Founded: 1870 Board Members: P. Bousquet-Chavanne, G. G. Brown, Domicile: Delaware IV, M. S. Brown, Jr., B. L. Byrnes, J. D. Cook, S. A. Employees: 3,900 Frazier, R. P. Mayer, W. E. Mitchell, W. M. Street, D. B. Stubbs, P. C. Varga, J. S. Welch, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: COG | COG is in the S&P 500

Cabot Oil & Gas Corp S&P Recommendation HOLD

★★★★★

Price $30.88 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary Cabot is an independent oil and gas company engaged in development, exploration and production in North America.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $46.46– 26.62 Trailing 12-Month EPS $1.20 Trailing 12-Month P/E 25.7 $10K Invested 5 Yrs Ago $14,465

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.01 0.25 30.6 104.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.216 0.39 $0.12 NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.15 -52 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that COG operates in a very capital-intensive industry that is cyclical and derives value from producing a commodity whose price is extremely volatile.

60

40 30

Quantitative Evaluations 20

S&P Quality Ranking Vol.

D

B-

B+ B

B+

A-

A

A+

25

Mil. 12 8 4 0 5

C

Relative Strength Rank

MODERATE

41 LOWEST = 1 3

2

4

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on October 15, 2010, when the stock traded at $ 30.71. Highlights ➤

Production was up 8% to 103 Bcfe in 2009, on success at the Marcellus Shale, where gross production is over 200 Mmcf/d. COG is currently operating 7 horizontal rigs at Marcellus, where it has drilled 106 wells, completed 76 and plans to drill 75 wells in 2010. COG recently drilled its second Haynesville well, de-risking some of its acreage in the play. COG has been leasing acreage in the Eagle Ford Shale oil window to increase exposure to crude. We see a ramp in second-half volume as 30 Marcellus wells await completion. COG expects gross Marcellus production to surpass 250 Mmcf/d by year end and production growth of 21%-25%.

Investment Rationale/Risk ➤

➤ ➤

➤

In our view, a transformed asset base has lowered portfolio risk and improved drilling success. We expect focus in 2010 on Marcellus, but COG will also target the Haynesville and Eagle Ford shales, Cotton Valley Taylor Sands, James Lime, Hossten and Pettet formations. Operating EPS was $1.66 in 2009, down 28% on plunging gas prices. We see EPS of $1.01 in 2010 and $0.25 in 2011, reflecting higher production offset by lower realized prices due to less attractive hedges. COG sees 2010 capex at $725 million, versus $640 million in 2009.

➤

COG's core operating areas are performing well, with horizontal drilling programs in the Marcellus Shale and Texas moving ahead nicely, in our view. We see strong potential for its large undeveloped acreage at Marcellus, Haynesville and now Eagle Ford. In April, the Pennsylvania Department of Environmental Protection (DEP) issued a modified agreement to the consent order entered in November 2009 concerning environmental issues and alleged contamination of 14 water wells in Susquehanna County. We expect minimal effect on current drilling, as COG has no rigs in the area. Risks to our recommendation and target price include declining oil and gas prices, difficulty replacing reserves, and production declines. We believe the shares discount the potential from the Marcellus, Haynesville and Eagle Ford shales, but we are cautious on natural gas prices and see reduced upside potential for the shares. We blend our proved reserve NAV estimate ($42) with a target 7X enterprise value to 2011 EBITDA ($33) multiple, a premium to peers on expected double-digit production growth, and our DCF model ($32; 11% WACC, 3% terminal growth), for a 12-month target price of $35.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 212.6 195.5 2009 233.9 204.8 2008 219.7 248.9 2007 191.6 175.8 2006 214.8 190.8 2005 144.1 151.9

3Q -207.0 244.8 170.9 184.7 161.8

4Q -233.5 232.5 193.9 171.7 225.1

Year -879.3 945.8 732.2 762.0 682.8

Earnings Per Share ($) 2010 0.28 0.21 2009 0.46 0.24 2008 0.46 0.55 2007 0.50 0.42 2006 0.55 0.47 2005 0.21 0.36

E0.22 0.37 0.64 0.36 1.92 0.34

E0.28 0.34 0.42 0.43 0.33 0.59

E1.01 1.42 2.10 1.71 3.32 1.50

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.030 0.030 0.030 0.030

10/26 01/14 04/28 07/22

11/06 02/01 05/07 08/03

11/11 02/03 05/11 08/05

11/25/09 02/17/10 05/25/10 08/19/10

Dividends have been paid since 1990. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: COG

Cabot Oil & Gas Corp Business Summary October 15, 2010 CORPORATE OVERVIEW. Cabot Oil & Gas Corp. is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties in North America. In 2009, COG restructured operations, combining Rocky Mountain and Appalachia areas to form the North Region and combining the Anadarko Basin with the Texas and Louisiana areas to form the South Region. In 2009, COG sold substantially all of its Canadian properties. In the North Region, activity is concentrated in northeast Pennsylvania and West Virginia in Appalachia, and in the Green River and Washakie Basins in Wyoming and the Paradox Basin in Colorado. COG spent $380 million, or 60% of 2009 capex, on the North Region, and has budgeted $447 million for 2010. Average daily production from the region in 2009 was 136.6 MMcfe/day, or 48% of total COG production. The South Region is concentrated in east and south Texas, Oklahoma and Louisiana, with principal producing intervals in the Cotton Valley, Haynesville Shale, Pettet and James Lime formations. COG spent $238 million, or 37% of 2009 capex, on the South Region, and has budgeted $201 million for 2010. Average daily production from the region in 2009 was 145.5 MMcfe/day, or 52% of total COG production.

COG's proved reserves totaled 2,060 Bcfe at December 31, 2009, of which 98% was natural gas, up 6% from year-end 2008. In 2009, capital and exploration spending was $640 million, compared to $1.5 billion (including acquisitions) of total capex in 2008. At the end of 2009, 64% of total proved reserves were developed, and we estimate COG's reserve life to be 20 years. Production increased 8% in 2009, to 103 Bcfe, compared to 95 Bcfe in 2008, due to increased production from the Marcellus Shale and from East Texas properties acquired in 2008, partly offset by sold Canadian assets and reduced activity in Oklahoma and Wyoming. COG's interests are mainly held under customary mineral leases. These leases generally allow for the development of oil and gas on the properties, with terms ranging from 3-10 years. COG owns leasehold rights on about 2.9 million gross acres. COG's two largest fields are Branchfield Southeast in East Texas and Dimock in Susquehanna County, Pennsylvania. Additionally, COG is focusing on the acquired Angie field in East Texas. These three fields account for 43% of total proved reserves.

CORPORATE STRATEGY. In 2009, COG drilled 143 gross wells, with a success rate of 95%, compared to 432 gross wells with a success rate of 97% in 2008. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.49 3.99 1.42 1.47 0.12 8% 46.26 17.84 33 13

2008 NA 4.31 2.10 1.76 0.12 6% 72.92 19.18 35 9

2007 11.60 3.36 1.71 1.63 0.11 6% 42.50 27.87 25 16

2006 9.83 4.57 3.32 1.74 0.08 2% 33.26 19.13 10 6

2005 6.18 2.58 1.50 1.49 0.07 5% 26.75 13.72 18 9

2004 4.69 1.94 0.90 0.88 0.05 6% 16.30 9.57 18 11

2003 3.78 1.27 0.29 0.20 0.05 18% 10.17 7.50 35 26

2002 3.67 1.18 0.17 0.15 0.05 32% 8.85 5.92 53 36

2001 3.66 1.41 0.51 0.49 0.05 10% 11.45 5.42 22 11

2000 2.77 0.93 0.36 NA 0.05 15% 10.67 4.69 30 13

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

879 NA 269 59.0 223 33.6% 148 153

946 550 227 36.4 336 37.1% 211 178

732 423 162 17.2 258 35.0% 167 159

762 436 129 18.4 511 37.1% 321 172

683 380 108 22.5 236 37.2% 148 148

530 278 103 22.0 139 36.2% 88.4 87.2

509 252 94.9 23.5 43.0 35.0% 28.0 19.1

354 182 96.5 25.3 23.8 32.3% 16.1 14.4

447 191 80.6 20.8 74.5 36.8% 47.1 45.1

369 132 53.4 22.9 41.9 39.3% 25.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 40.2 Current Assets 282 Total Assets 3,683 Current Liabilities 309 Long Term Debt 805 Common Equity 1,813 Total Capital 2,618 Capital Expenditures 611 Cash Flow 417 Current Ratio 0.9 % Long Term Debt of Capitalization 30.8 % Return on Assets 4.0 % Return on Equity 8.2

28.1 461 3,702 379 831 1,791 3,221 1,454 438 1.2 25.8 7.2 14.8

30.1 221 2,209 252 350 1,070 1,882 557 329 0.9 23.6 8.3 16.6

41.9 316 1,834 251 220 945 1,513 467 450 1.3 14.5 19.3 41.6

10.6 230 1,495 219 320 600 1,210 351 257 1.1 26.5 11.0 28.1

10.0 195 1,211 197 250 456 953 207 192 1.0 26.2 7.8 21.5

0.72 121 1,024 155 270 365 815 122 123 0.8 33.1 2.7 7.8

2.56 93.1 1,055 123 365 351 916 103 113 0.8 39.9 1.5 4.6

5.71 85.0 1,069 110 393 347 940 127 128 0.8 41.8 5.2 16.0

7.57 110 736 118 253 243 604 99.4 76.7 0.9 41.9 3.7 10.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 840 Gessner Rd Ste 1400, Houston, TX 77024. Telephone: 281-589-4600. Website: http://www.cabotog.com Chrmn, Pres & CEO: D.O. Dinges

Investor Contact: S.C. Schroeder (281-589-4993) Chief Acctg Officer & Cntlr: T. Roemer Secy: L.A. Machesney General Counsel: K. Cunningham

Board Members: R. J. Best, D. M. Carmichael, D. O. Dinges, J. R. Gibbs, R. L. Keiser, R. Kelley, P. D. Peacock, W. P. Vititoe

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1989 Domicile: Delaware Employees: 567

Stock Report | October 23, 2010 | NYS Symbol: CAM | CAM is in the S&P 500

Cameron International Corp S&P Recommendation HOLD

★★★★★

Price $42.92 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Equipment & Services

12-Mo. Target Price $44.00

Investment Style Large-Cap Growth

Summary This company is a leading international manufacturer of oil and gas blowout preventers, flow control valves, surface and subsea production systems, and related oilfield services products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.44– 31.42 Trailing 12-Month EPS $1.98 Trailing 12-Month P/E 21.7 $10K Invested 5 Yrs Ago $25,708

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.26 2.83 19.0 242.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

2-for-1

MEDIUM

HIGH

Quantitative Evaluations

Vol. Mil.

82

66

S&P Quality Ranking

30 20 10 0

D 4

3

3

4

3

C

B-

B+ B

B+

A-

Relative Strength Rank

3

A

A+

MODERATE 67

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Stewart Glickman, CFA on August 05, 2010, when the stock traded at $ 39.49. Highlights In early July, the Obama administration revised its drilling moratorium following successful industry-led legal challenges to the initial drilling ban announced May 28; the revised ban is scheduled to terminate November 30. We expect that, post-ban, new regulatory requirements will be enacted for blowout preventers (BOPs), which may include both equipment specifications as well as frequency of inspections. Depending on the extent to which BOP requirements are raised, CAM may benefit from increased BOP upgrade demand, and/or refurbishments. Either way, we also expect greater interest by rig contractors in arranging for CAM after-market support on installed BOPs. Based on data from RigLogix, we estimate that CAM has about a 50% market share of BOPs in the U.S. Gulf of Mexico. Second-quarter orders were $1.39 billion, despite no major project awards during the quarter. While Brazil looms as a potential catalyst for CAM, the timing of project awards remains uncertain. We project EPS of $2.26 in 2010, rising to $2.83 in 2011 on higher margins.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects CAM's exposure to volatile crude oil and natural gas prices, capital spending decisions made by its oil and gas producing customers, political risk associated with operating in frontier regions, an unclear regulatory environment, and legal risk associated with the U.S. Gulf of Mexico oil spill.

30

➤

1.58 16 BBB+

Below Avg.

40

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

5

$10.396 Nil Nil 91

We see several factors being potential tailwinds for CAM. First, potential regulatory changes could create near-term demand for BOPs, as well as increased annuity-like demand for aftermarket services. Second, the pickup in U.S. land activity, such as shale plays, is spurring higher demand for shorter-cycle businesses. Third, Brazil and other subsea demand remains a potential catalyst, although that may be more of a longer-term development. Nonetheless, in the near term, concerns remain over legal exposure to the Deepwater Horizon accident, given that it was a CAM blowout preventer that was installed on that rig. Risks to our recommendation and target price include lower oil and natural gas prices; new regulatory requirements that may affect CAM's manufacturing processes; and legal risk associated with the Deepwater Horizon accident. Our DCF model, assuming terminal growth of 3% and a WACC of 12.9%, indicates intrinsic value of about $58. Using below-peer multiples (due to legal risk) of 10.5X 2010 EBITDA, 12.0X 2010 operating cash flow, and blending with our DCF model, our 12-month target price is $44.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,347 1,453 2009 1,257 1,270 2008 1,339 1,481 2007 997.0 1,139 2006 829.7 857.8 2005 547.9 594.8

3Q -1,232 1,505 1,186 978.8 636.6

4Q -1,464 1,524 1,344 1,077 738.6

Year -5,223 5,849 4,666 3,743 2,518

Earnings Per Share ($) 2010 0.48 0.52 2009 0.52 0.63 2008 0.55 0.65 2007 0.44 0.54 2006 0.24 0.32 2005 0.13 0.18

E0.58 0.56 0.73 0.66 0.39 0.22

E0.67 0.41 0.67 0.54 0.42 0.24

E2.26 2.11 2.60 2.17 1.36 0.76

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: CAM

Cameron International Corp Business Summary August 05, 2010 CORPORATE OVERVIEW. Cameron International, an international provider of oil and gas pressure control equipment, is organized into three business segments: Drilling & Production Systems (DPS), Valves & Measurement (V&M), and Compression. Primary customers of DPS, V&M and Compression are major and independent oil and gas exploration companies, foreign national oil and gas companies, drilling contractors, pipeline companies, refiners, and other industrial and petrochemical processing companies. The company serves customers in North America (39% of 2009 revenues), Asia/Middle East (20%), Europe (15%), Africa (13%), South America (9.7%) and Other (3.3%). Drilling & Production Systems (DPS; 65% of 2009 revenues and 67% of 2009 segment pretax income) manufactures pressure control equipment used at the wellhead in drilling, production and transmission of oil and gas, both onshore and offshore. Primary products include wellheads, drilling valves, blowout preventers, and control systems, marketed under the brand names Cameron, W-K-M, McEvoy, Willis, and Ingram Cactus. The segment also makes subsea production systems, which tend to be highly sophisticated technically. The company believes subsea capacity additions at manufactur-

ing plants in England, Brazil and Germany provide support for increased completions of subsea trees and associated manifolds, production controls and other equipment in the future. Valves & Measurement (VMS; 23%, 23%), split out from the DPS division as a separately managed business in 1995, provides a full range of ball valves, gate valves, butterfly valves, and accessories used primarily to control pressures and direct oil and gas as they are moved from individual wellheads through transmission systems to refineries, petrochemical plants, and other processing centers. In September 2005, CAM announced an agreement to acquire substantially all of the flow control businesses of Dresser Inc.; the acquisition was completed in January 2006. The acquisition, which expanded the company's valve product line, totaled $217.5 million in cash and assumed debt. The acquired businesses were added to the company's V&M segment.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.04 2.81 2.11 2.12 Nil Nil 42.49 17.19 20 8

2008 6.88 3.03 2.60 2.63 Nil Nil 58.53 16.15 23 6

2007 6.67 2.52 2.17 2.27 Nil Nil 53.83 24.30 25 11

2006 5.11 1.79 1.36 1.43 Nil Nil 28.91 19.04 21 14

2005 4.40 1.11 0.76 0.73 Nil Nil 21.55 12.76 28 17

2004 3.83 0.83 0.44 0.34 Nil Nil 14.19 10.01 32 23

2003 3.81 0.59 0.26 0.17 Nil Nil 13.90 10.25 53 39

2002 3.39 0.58 0.28 0.12 Nil Nil 14.90 8.98 54 33

2001 2.92 0.78 0.44 0.21 Nil Nil 18.25 7.21 42 16

2000 2.69 0.47 0.13 NA Nil Nil 20.97 10.59 NM NM

5,223 NA 157 92.4 643 26.0% 476 478

5,849 1,023 98.7 49.7 872 31.9% 594 601

4,666 814 81.5 23.3 708 29.3% 501 527

3,743 605 101 20.7 489 35.0% 318 333

2,518 340 78.4 12.0 263 34.9% 171 167

2,093 232 82.8 17.8 133 29.0% 94.4 73.1

1,634 164 83.6 8.16 77.6 26.2% 57.2 37.5

1,538 196 77.9 7.98 85.1 29.0% 60.5 23.3

1,564 251 83.1 5.62 143 31.0% 98.3 44.0

1,387 215 75.3 18.0 43.8 36.8% 27.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,861 Current Assets 4,714 Total Assets 7,725 Current Liabilities 2,296 Long Term Debt 1,232 Common Equity 3,920 Total Capital 5,174 Capital Expenditures 241 Cash Flow 632 Current Ratio 2.1 % Long Term Debt of Capitalization 23.8 % Return on Assets 7.0 % Return on Equity 15.2

1,621 4,056 5,902 2,112 1,256 2,320 3,662 272 692 1.9 34.3 11.2 26.9

740 3,072 4,731 1,693 742 2,095 2,909 246 582 1.8 26.2 11.0 26.1

1,034 2,908 4,351 1,628 745 1,741 2,577 185 419 1.8 28.9 8.5 19.1

362 1,728 3,099 922 444 1,595 2,078 77.5 250 1.9 21.4 6.3 12.1

227 1,205 2,356 528 458 1,228 1,727 53.5 177 2.3 26.5 4.2 8.0

292 1,148 2,141 680 204 1,137 1,387 64.7 141 1.7 14.7 2.8 5.3

274 1,018 1,998 375 463 1,041 1,550 82.1 138 2.7 29.9 3.1 6.2

112 965 1,875 378 459 976 1,477 125 181 2.6 31.1 5.8 10.6

16.6 688 1,494 346 188 842 1,069 66.6 103 2.0 17.6 1.9 3.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1333 W Loop S Ste 1700, Houston, TX 77027-9118. Telephone: 713-513-3300. Website: http://www.c-a-m.com Chrmn: S.R. Erikson

Pres & CEO: J.B. Moore COO & EVP: J.D. Carne SVP & CFO: C.M. Sledge SVP & General Counsel: W.C. Lemmer

Investor Contact: R.S. Amann (713-513-3344) Founded: 1994 Board Members: C. B. Cunningham, S. R. Erikson, P. J. Domicile: Delaware Fluor, D. L. Foshee, J. B. Moore, M. E. Patrick, J. E. Employees: 18,100 Reinhardsen, D. W. Ross, III, B. W. Wilkinson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CPB | CPB is in the S&P 500

Campbell Soup Co S&P Recommendation SELL

★★★★★

Price $36.37 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $34.00

Investment Style Large-Cap Growth

Summary This company is a major producer of branded soups and other grocery food products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.59– 30.96 Trailing 12-Month EPS $2.42 Trailing 12-Month P/E 15.0 $10K Invested 5 Yrs Ago $14,455

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.62 NA 13.9 336.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.220 3.02 $1.10 36

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.27 7 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relatively stable nature of the company's end markets, our view of its strong cash flow, and corporate governance practices that we see as favorable relative to peers.

40 36 32 28

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

15 10 5 0 5

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE

36 LOWEST = 1

3

HIGHEST = 99

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Tom Graves, CFA on October 08, 2010, when the stock traded at $ 35.48. Highlights ➤

➤

In FY 11 (Jul.), we look for net sales to increase about 2% from the $7.68 billion reported for FY 10. Before special items, we estimate FY 11 EPS from continuing operations of $2.62, up from $2.47 in FY 10, which excludes about $0.05 of costs related to special items. In February 2010, CPB announced a plan to boost the performance of its U.S. condensed soup business. We expect efforts to include product improvements, further sodium reduction, changed packaging, improved shelving systems, and new marketing.

Investment Rationale/Risk ➤

➤

In September 2010, CPB said that Douglas R. Conant plans to step down as the company's CEO at the end of FY 11, and his successor is expected to be Denise M. Morrison, who was elected COO, effective Oct. 1, 2010. ➤

➤

Over the longer term, we look for Russia and China to become more significant contributors to CPB's overall growth. In May 2009, CPB said it had entered into a long-term agreement with Hellenic Bottling Company S.A. for the distribution of concentrated broth and other soup products in Russia.

Revenue/Earnings Data

2010

In our view, demand for soup has been surprisingly lackluster in the U.S. during the recent period of economic softness. We had expected that increased at-home meals would lead to stronger soup sales. Over the longer term, we expect CPB's overall revenue and profit growth prospects to be bolstered by new or enhanced products, increasingly portable packaging, and some expanded distribution, including overseas markets.

Revenue (Million $) 1Q 2Q 2010 2,203 2,153 2009 2,250 2,122 2008 2,185 2,218 2007 2,153 2,252 2006 2,002 2,159 2005 2,091 2,223

3Q 1,802 1,686 1,880 1,868 1,728 1,736

4Q 1,518 1,528 1,715 1,594 1,454 1,498

Year 7,676 7,586 7,998 7,867 7,343 7,548

Earnings Per Share ($) 2010 0.87 0.74 2009 0.71 0.63 2008 0.69 0.67 2007 0.66 0.72 2006 0.69 0.58 2005 0.56 0.57

0.49 0.49 0.14 0.55 0.35 0.35

0.33 0.20 0.24 0.24 0.20 0.23

2.42 2.04 1.76 2.08 1.82 1.71

Risks to our recommendation and target price include the possibility that consumer response to product improvement efforts, new CPB products and CPB marketing efforts will be better than anticipated, and that currency fluctuation will be more favorable than expected.

Fiscal year ended Jul. 31. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $34 reflects our view that the stock should trade at a discount to the average P/E we expect from a group of packaged food stocks. This reflects our concerns about the strength of the soup category and the promotional environment. The stock recently had an indicated dividend yield of 3.1%.

0.275 0.275 0.275 0.275

11/18 03/25 06/24 09/23

12/28 03/31 07/01 10/07

12/30 04/05 07/06 10/12

02/01/10 05/03/10 08/02/10 11/01/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1902. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CPB

Campbell Soup Co Business Summary October 08, 2010 CORPORATE OVERVIEW. Campbell Soup Co. is a major force in the U.S. packaged foods industry. The company, which traces its origins in the food business back to 1869, manufactures and markets a wide array of branded, prepared convenience food products worldwide. In FY 10 (Jul.), operations outside the U.S. accounted for 29% of net sales and 21% of segment operating profits (before corporate expense). CPB's largest customer, Wal-Mart Stores, Inc., and its affiliates accounted for about 18% of CPB's net sales in FY 10. The company reports results based on the following segments: U.S. Soup, Sauces and Beverages (48% of FY 10 sales, 64% of segment profits); Baking and Snacking (26%, 22%), International Soup, Sauces and Beverages (19%, 11%); and North America Foodservice (8%, 3%).

gravies and beans; V8 juice and juice drinks; and Campbell's tomato juice. The company's Baking and Snacking division includes Pepperidge Farm cookies, crackers, bakery and frozen products in the U.S.; and Arnotts biscuits in Australia and Asia Pacific. The International Soup, Sauces and Beverages segment includes soup, sauce and beverage businesses outside of the United States, including Europe, Latin America, the Asia Pacific region, the emerging markets of Russia and China, and the retail business in Canada. The North America Food Service segment includes CPB's Away From Home operations, which represent the distribution of products such as soup, specialty entrees, beverage products, other prepared foods and Pepperidge Farm products through various foodservice channels in the U.S. and Canada.

Campbell's U.S. Soup, Sauces and Beverages segment includes Campbell's condensed and ready-to-serve soups; Swanson broth, stocks and canned poultry; Prego pasta sauce; Pace Mexican sauce; Campbell's canned pasta, Company Financials Fiscal Year Ended Jul. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 3.19 2.46 2.44 1.08 44% 37.59 32.18 15 13

2009 NM 2.78 2.04 1.78 1.00 49% 35.80 24.63 18 12

2008 NM 2.47 1.76 1.52 0.88 50% 40.85 27.35 23 16

2007 NM 2.79 2.08 1.95 0.80 38% 42.65 34.17 21 16

2006 NM 2.52 1.82 1.81 0.72 40% 39.98 28.88 22 16

2005 NM 2.39 1.71 1.63 0.68 40% 31.60 27.35 18 16

2004 NM 2.20 1.57 1.47 0.63 40% 30.52 25.03 19 16

2003 NM 2.11 1.52 1.46 0.63 41% 27.90 19.95 18 13

2002 NM 2.05 1.28 1.00 0.63 49% 30.00 19.65 23 15

2001 NM 2.19 1.55 1.28 0.90 58% 35.44 25.52 23 16

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,676 1,611 251 106 1,242 NA 844 838

7,586 1,532 264 114 1,079 32.2% 732 640

7,998 1,564 271 171 939 28.5% 671 579

7,867 1,541 23.0 163 1,149 28.4% 823 772

7,343 1,445 289 165 1,001 24.6% 755 751

7,548 1,483 279 184 1,030 31.4% 707 675

7,109 1,394 260 174 947 31.7% 647 603

6,678 1,376 243 186 924 32.3% 626 604

6,133 1,442 319 190 798 34.2% 525 413

6,664 1,470 266 216 987 34.2% 649 536

Balance Sheet & Other Financial Data (Million $) Cash 254 Current Assets 1,687 Total Assets 6,276 Current Liabilities 2,065 Long Term Debt 1,945 Common Equity 929 Total Capital 2,874 Capital Expenditures 315 Cash Flow 1,095 Current Ratio 0.8 % Long Term Debt of Capitalization 67.7 % Net Income of Revenue 11.0 % Return on Assets 13.7 % Return on Equity 101.9

51.0 1,551 6,056 1,628 2,246 728 2,974 345 996 1.0 75.5 9.7 11.7 71.6

81.0 1,693 6,474 2,403 1,633 1,318 3,251 298 942 0.7 49.4 8.4 10.4 51.4

71.0 1,578 6,445 2,030 2,074 1,295 3,369 334 1,106 0.8 61.6 10.5 11.5 53.7

657 2,112 7,870 2,962 2,116 1,768 3,884 309 1,044 0.7 54.5 10.3 10.3 49.7

40.0 1,512 6,776 2,002 2,542 1,270 3,812 332 986 0.8 66.7 9.4 10.5 66.0

32.0 1,481 6,675 2,339 2,543 874 3,417 288 907 0.6 74.4 9.1 10.0 102.6

32.0 1,290 6,205 2,783 2,249 387 2,636 283 869 0.5 85.3 9.4 10.5 458.6

21.0 1,199 5,721 2,678 2,449 -114 2,335 269 844 0.4 104.9 8.6 9.0 NM

24.0 1,221 5,927 3,120 2,243 -247 1,996 200 915 0.4 112.4 9.7 11.7 NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Campbell Pl, Camden, NJ 08103-1799. Telephone: 856-342-4800. Website: http://www.campbellsoupcompany.com Chrmn: P.R. Charron

Pres & CEO: D.R. Conant COO & EVP: D. Morrison SVP, CFO & Chief Admin Officer: B.C. Owens SVP & Chief Acctg Officer: A.P. DiSilvestro

Investor Contact: L.F. Griehs (856-342-6427) Board Members: E. M. Carpenter, P. R. Charron, D. R. Conant, B. Dorrance, H. Golub, L. C. Karlson, R. W. Larrimore, M. A. Malone, S. Mathew, D. Morrison, W. D. Perez, C. R. Perrin, A. B. Rand, N. Shreiber, L. C. Vinney, C. C. Weber, A. D. van Beuren

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1869 Domicile: New Jersey Employees: 18,400

Stock Report | October 23, 2010 | NNM Symbol: CA | CA is in the S&P 500

CA Inc S&P Recommendation HOLD

★★★★★

Price $22.87 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This company (formerly Computer Associates International) develops systems software, database management systems, and applications software.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.91– 17.70 Trailing 12-Month EPS $1.52 Trailing 12-Month P/E 15.1 $10K Invested 5 Yrs Ago $8,836

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.74 1.87 13.1 516.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.801 0.70 $0.16 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.88 7 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for the company reflects our concern about the financial crisis in Europe, weak spending in enterprise software, and modest underlying growth.

25 20 16

Quantitative Evaluations

12

S&P Quality Ranking

Vol.

D

C

B-

BB

B+

A-

A

A+

Mil. 30 20 10 0 5

Relative Strength Rank

STRONG 85

LOWEST = 1 4

3

4

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for CA has recently been changed to $26.00 from $23.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on CA from MarketScope, see below.

➤

10/22/10 12:40 pm ET ... S&P MAINTAINS HOLD OPINION ON SHARES OF CA INC (CA 22.69***): Sep-Q EPS of $0.44, vs. $0.40, beats our estimate of $0.39. Revenues increased 3.5% to $1.11B, $15M above our forecast. The modest revenue growth reflects weakness in its mainframe business. However, we see that business stabilizing and stronger growth in its virtualization products, which were obtained through acquisitions. We raise our FY 11 (Mar.) EPS estimate by $0.11 to $1.74 and FY 12's by $0.13 to $1.87 on our higher revenue projection, reflecting the recent weakness in the U.S. dollar. We lift our target price by $3 to $26 on higher peer multiples. /J.Yin-CFA

Revenue (Million $) 1Q 2Q 2011 1,091 -2010 1,050 1,072 2009 1,087 110.7 2008 1,025 1,067 2007 949.0 987.0 2006 927.0 950.0

3Q -1,128 1,042 1,100 1,002 971.0

4Q -1,103 1,035 1,085 1,005 948.0

Year -4,353 4,271 4,277 3,943 3,796

Earnings Per Share ($) 2011 0.43 E0.44 2010 0.37 0.41 2009 0.37 0.39 2008 0.24 0.26 2007 0.06 0.09 2006 0.16 0.08

E0.44 0.49 0.40 0.31 0.10 0.09

E0.45 0.19 0.13 0.14 -0.04 -0.07

E1.74 1.47 1.29 0.93 0.22 0.26

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040 0.040 0.040

11/05 02/04 05/12 07/28

11/13 02/11 05/26 08/05

11/17 02/16 05/31 08/09

11/30/09 03/16/10 06/16/10 08/19/10

Dividends have been paid since 1990. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CA

CA Inc Business Summary July 28, 2010 CORPORATE OVERVIEW. CA Inc. provides information technology (IT) management software, which helps customers better manage their IT infrastructure. The company has a broad portfolio of software products and services that span the areas of infrastructure management, IT security management, storage management, application performance management and business service optimization. The company's products and services include both mainframe and distributed solutions, each of which we estimate contribute about half of CA's revenues.

Internal Product Development - CA plans to ship new versions of every major product, including those products obtained through acquisitions. The company has added headcount in India and Czech Republic research centers.

CORPORATE STRATEGY. In April 2007, CA announced a new strategy, Enterprise IT Management (EITM), for transforming the way companies manage their IT. The goal of EITM is to unify disparate elements of IT, including hardware, processes and people, so customers can have better control and manage these resources rather than replace existing IT investments. For example, CA's Unicenter Advanced Systems Management provides centralized management for virtualized and clustered server environments, enabling customers to assess and optimize network resources.

International Expansion - CA plans to invest in regions outside the U.S., especially in emerging markets such as China and India to increase the volume of enterprise sales. The company has also pursued small- and medium-sized customers in the Europe, Middle East and Africa (EMEA) region. International revenue comprised nearly 46% of total sales in FY 09 (Mar.), down from 48% in FY 08.

Strengthening Partner Relationships - CA intends to strengthen its global distribution by recruiting and educating channel partners on CA products and services. The company formed a Mid-Market and Storage organization that targets enterprises with 500-5,000 employees.

Key parts of CA's EITM strategy include:

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 2.01 1.47 1.48 0.16 11% 2009 24.15 15.13 16 10

2009 NM 1.56 1.29 1.31 0.16 12% 2008 26.68 12.00 21 9

2008 NM 1.21 0.93 0.97 0.16 17% 2007 28.46 22.86 31 25

2007 NM 0.47 0.22 0.23 0.16 73% 2006 29.50 18.97 NM NM

2006 NM 1.22 0.26 0.26 0.08 31% 2005 31.35 26.04 NM NM

2005 0.50 0.24 0.02 0.22 0.08 NM 2004 31.71 22.37 NM NM

2004 8.09 0.17 -0.06 0.02 0.08 NM 2003 29.29 12.39 NM NM

2003 NM 0.60 -0.46 -0.53 0.08 NM 2002 38.74 7.47 NM NM

2002 NM -0.01 -1.91 -2.05 0.08 NM 2001 39.03 18.31 NM NM

2001 0.66 0.89 -1.02 -1.18 0.08 NM 2000 79.44 18.13 NM NM

4,353 1,631 301 76.0 1,171 34.2% 771 768

4,271 1,377 149 95.0 1,102 37.0% 694 704

4,277 1,137 156 370 808 38.1% 500 522

3,943 560 148 126 154 21.4% 121 122

3,796 836 583 41.0 121 NM 156 155

3,530 504 130 106 11.0 NM 13.0 136

3,276 417 134 Nil -54.0 NM -36.0 7.10

3,116 421 612 172 -363 NM -267 -301

2,964 -62.0 1,096 227 -1,385 NM -1,102 -1,185

4,198 604 1,110 344 -666 NM -591 -688

Balance Sheet & Other Financial Data (Million $) Cash 2,583 Current Assets 3,990 Total Assets 11,838 Current Liabilities 3,588 Long Term Debt 1,530 Common Equity 4,983 Total Capital 6,528 Capital Expenditures 79.0 Cash Flow 1,072 Current Ratio 1.1 % Long Term Debt of Capitalization 23.4 % Net Income of Revenue 17.7 % Return on Assets 6.7 % Return on Equity 16.5

2,713 4,180 11,252 4,078 1,287 4,344 5,767 83.0 843 1.0 22.3 16.3 6.0 17.2

2,796 4,468 11,756 4,278 2,221 3,709 6,291 117 656 1.0 36.2 11.7 4.5 13.5

2,280 3,101 10,585 3,714 2,572 3,690 6,282 150 269 0.8 41.1 3.1 1.2 2.9

1,865 2,648 10,438 3,377 1,810 4,680 6,536 143 739 0.8 27.7 4.1 1.4 3.2

3,125 3,954 11,082 3,664 1,810 4,840 6,822 69.0 143 1.1 26.5 0.4 0.1 0.3

1,902 3,358 10,679 2,455 2,298 4,718 7,634 30.0 98.0 1.4 30.1 NM NM NM

1,512 3,565 11,054 2,974 2,298 4,363 7,525 30.0 345 1.2 30.5 NM NM NM

1,180 3,061 12,226 2,321 3,334 4,617 9,218 25.0 -6.00 1.3 36.2 NM NM NM

850 2,643 14,143 2,286 3,639 5,780 11,319 89.0 519 1.2 32.1 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One CA Plaza, Islandia, NY 11749. Telephone: 800-225-5224. Email: [email protected] Website: http://www.ca.com

Chrmn: A.F. Weinbach CEO: W.E. McCracken EVP & CFO: N. Cooper EVP & Chief Admin Officer: P.J. Harrington, Jr.

EVP & CTO: D.F. Ferguson Investor Contact: K. Doherty (212-415-6844) Board Members: R. J. Bromark, G. J. Fernandes, K. Koplovitz, C. B. Lofgren, W. E. McCracken, R. Sulpizio, L. S. Unger, A. F. Weinbach, R. Zambonini

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1974 Domicile: Delaware Employees: 13,800

Stock Report | October 23, 2010 | NYS Symbol: COF | COF is in the S&P 500

Capital One Financial Corp. S&P Recommendation HOLD

★★★★★

Price $39.12 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Consumer Finance

12-Mo. Target Price $49.00

Investment Style Large-Cap Blend

Summary This diversified consumer finance company is one of the largest issuers of Visa and MasterCard credit cards in the world.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.73– 34.03 Trailing 12-Month EPS $5.46 Trailing 12-Month P/E 7.2 $10K Invested 5 Yrs Ago $5,643

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.83 6.93 5.7 456.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.869 0.51 $0.20 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.79 105 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we perceive as the risk of higher chargeoff and unemployment levels, offset by strong capital levels and favorable early delinquency trends.

80

40

20

Quantitative Evaluations 10

S&P Quality Ranking Vol.

D

Mil.

B-

AB

B+

A-

A

A+

223

141

60 40 20 0 5

C

Relative Strength Rank

WEAK

28 LOWEST = 1 3

3

3

4 2

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Rafay Khalid, CFA on October 19, 2010, when the stock traded at $ 38.41. Highlights ➤

➤

➤

Following flat revenue in 2009, we expect revenues to increase in 2010 and 2011, on our outlook for an improving economy. However, we forecast a continued slowdown in loan growth, reflecting the company's tighter lending standards. Although regulation in its U.S. card business will likely hurt revenue due to a mandated change in minimum payment policies, we think COF will come up with alternative means to make up for some of the lost revenue. We expect loan loss provisions to decline in 2010 and 2011, on our outlook for lower delinquency levels. We look for charge-offs to continue declining for the rest of 2010 and in 2011, reflecting our view of credit improvement this year and unemployment levels peaking in mid2010. We see an increase in expenses related to the integration of Chevy Chase Bank (acquired in early 2009) and a ramp-up of marketing expenses in the domestic credit card business to normal levels. We estimate operating EPS of $6.83 in 2010 and $6.93 in 2011. This compares with operating EPS of $0.84 in 2009, excluding one-time items.

Investment Rationale/Risk ➤

➤

➤

We see lower loss provisions in 2010, particularly as they relate to COF's commercial, auto, home, and credit card loans, reflecting our outlook for a decline in delinquency rates. We remain concerned about higher unemployment rates in the U.S. and the U.K., but we think peak levels will be lower than we previously expected. Uncertainty remains regarding the impact of recent credit card regulation, as fee income will likely come under pressure. But COF will likely attempt to recoup lost fee revenue from other facets of its business. Risks to our recommendation and target price include a decrease in consumer confidence; faster-than-expected deterioration in COF's mortgage portfolio; and higher-than-expected unemployment rates that would hurt credit quality. Our 12-month target price of $49 is based on a historical average tangible book value ratio of 1.42X our 2011 tangible book value per share estimate of $34.52. We believe this historical average is warranted, reflecting what we see as an improving economic environment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 5,091 4,642 2009 3,740 3,949 2008 4,936 4,269 2007 4,598 4,719 2006 3,737 3,607 2005 2,852 2,934

3Q 4,722 4,255 4,469 4,917 2,826 2,999

4Q -4,007 4,137 5,119 4,021 3,300

Year -15,951 17,856 19,132 15,191 12,085

Earnings Per Share ($) 2010 1.58 1.78 2009 -0.38 -0.64 2008 1.70 1.24 2007 1.62 1.89 2006 2.86 1.78 2005 1.99 2.03

1.79 0.96 1.03 -2.09 1.89 1.81

E1.68 0.89 -3.67 0.85 1.14 0.97

E6.83 0.98 0.14 6.55 7.62 6.73

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

10/29 01/28 04/29 07/29

11/06 02/10 05/07 08/09

11/11 02/12 05/11 08/11

11/20/09 02/22/10 05/20/10 08/20/10

Dividends have been paid since 1995. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: COF

Capital One Financial Corp. Business Summary October 19, 2010 CORPORATE OVERVIEW. Capital One Financial (COF) is one of the largest banks in the United States. It is a diversified banking corporation focused primarily on consumer and commercial lending and deposit origination. The company's principal business segments are national lending and local banking. The national lending segment consists of two sub-segments: U.S. Card, and Other National Lending. The Other National Lending sub-segment includes the Auto Finance sub-segment and International sub-segment. The U.S. Card segment consists of domestic consumer credit card lending, national small business lending, installment loans and other unsecured consumer financial service activities. COF offers a wide variety of credit card and small business products, in addition to unsecured closed-end loans throughout the U.S., which it customizes to appeal to different consumer preferences and needs. Its product offerings are supported by extensive brand advertising. It routinely tests new products to develop products that appeal to different and changing consumer preferences. Its customized products include products offered to a wide range of consumer credit risk profiles, as well as products aimed at special consumer interests.

The Auto Finance segment consists of automobile and other motor vehicle financing activities. COF purchases retail installment contracts, secured by new and used automobiles or other motor vehicles, through dealer networks throughout the U.S. Additionally, it utilizes direct marketing, including the Internet, to offer automobile financing directly to consumers for the purchase of new and used vehicles, as well as refinancing of existing motor vehicle loans. As of December 31, 2009, COF was the fourth largest non-captive provider of auto financing in the U.S. In January 2005, it acquired Onyx Acceptance Corporation, an auto finance company that provides financing to franchised and select independent dealerships throughout the U.S. The company also completed the acquisition of Key Bank's non-prime auto loan portfolio in 2005. Similar to its credit card strategy, COF customizes product features, such as interest rate, loan amount and loan terms, enabling it to lend to customers with a wide range of credit profiles.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 26.90 0.98 0.87 0.52 54% 42.90 7.80 44 8

2008 27.28 0.14 1.83 1.50 NM 63.50 23.28 NM NM

2007 27.89 6.55 6.55 0.11 2% 83.84 44.40 13 7

2006 28.30 7.62 7.61 0.11 1% 90.04 69.30 12 9

2005 33.99 6.73 6.61 0.11 2% 88.56 69.09 13 10

2004 33.98 6.21 5.72 0.11 2% 84.45 60.04 14 10

2003 25.75 4.92 4.41 0.11 2% 64.25 24.91 13 5

2002 20.44 3.93 3.37 0.11 3% 66.50 24.05 17 6

2001 15.33 2.91 2.55 0.11 4% 72.58 36.40 25 13

2000 9.94 2.24 NA 0.11 5% 73.25 32.06 33 14

Income Statement Analysis (Million $) Net Interest Income Non Interest Income Loan Loss Provision Non Interest Expenses % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

7,697 5,286 4,230 7,417 57.1% 1,336 26.2% 987 5.30 374

7,149 6,692 5,101 8,210 59.3% 582 85.5% 84.5 5.38 691

6,530 8,054 2,637 8,078 55.4% 3,870 33.0% 2,592 6.46 2,591

5,100 6,997 1,476 6,967 57.6% 3,653 33.9% 2,414 6.03 2,412

3,680 6,358 1,491 5,718 57.0% 2,829 36.1% 1,809 6.63 1,792

3,003 5,900 1,221 5,322 59.8% 2,360 34.6% 1,543 6.44 1,431

2,785 5,416 1,517 4,857 59.2% 1,827 37.0% 1,151 7.45 1,012

2,719 5,467 2,149 4,586 56.0% 1,451 38.0% 900 8.73 742

1,663 4,420 990 4,058 66.7% 1,035 38.0% 642 8.03 545

1,589 3,034 718 3,148 68.1% 757 38.0% 470 12.0 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 5,585 Investment Securities 38,910 Earning Assets:Total Loans 90,619 Total Assets 169,400 Demand Deposits 13,439 Time Deposits 102,370 Long Term Debt 15,438 Common Equity 26,589 % Return on Assets 0.6 % Return on Equity 3.9 % Loan Loss Reserve 4.6 % Loans/Deposits 78.3 % Loans/Assets 57.2 % Equity to Assets 14.9

5,444 31,003 101,342 165,981 11,294 97,327 16,735 23,516 0.1 0.4 4.5 93.0 63.2 15.1

2,444 19,782 98,842 150,590 11,047 71,944 20,237 24,294 1.7 10.5 2.9 114.5 64.2 16.5

1,843 15,452 106,947 149,739 11,648 74,123 20,217 25,235 2.0 12.3 2.0 124.7 70.0 16.5

2,049 14,350 59,848 88,701 4,841 43,092 14,863 14,129 2.5 16.1 3.0 124.8 68.8 15.8

1,084 9,300 38,216 53,747 NA NA Nil 8,388 3.1 21.4 3.9 149.1 71.0 14.4

1,598 5,867 32,850 46,284 Nil 22,416 14,813 6,052 2.8 21.6 4.9 146.5 71.9 12.8

641 4,424 27,854 37,382 Nil 17,326 8,124 4,623 2.7 22.6 6.2 160.8 74.4 12.1

352 3,116 20,921 28,184 Nil 12,839 Nil 3,324 2.7 24.3 4.0 162.9 74.3 11.2

162 1,697 14,059 18,889 Nil 8,379 4,051 1,963 2.9 27.0 3.7 167.8 72.3 10.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1680 Capital One Drive, McLean, VA 22102-3407. Telephone: 703-720-1000. Email: [email protected] Website: http://www.capitalone.com

Chrmn, Pres & CEO: R.D. Fairbank EVP, CFO & Chief Acctg Officer: G.L. Perlin EVP & Cntlr: S.R. McFarland SVP & Treas: S. Linehan

Secy & General Counsel: J.G. Finneran, Jr. Investor Contact: M. Rowen (703-720-2455) Board Members: E. R. Campbell, W. R. Dietz, R. D. Fairbank, P. W. Gross, A. F. Hackett, L. Hay, III, P. Leroy, M. A. Shattuck, III, B. H. Warner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1993 Domicile: Delaware Employees: 30,900

Stock Report | October 23, 2010 | NYS Symbol: CAH | CAH is in the S&P 500

Cardinal Health Inc S&P Recommendation HOLD

★★★★★

Price $31.99 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Distributors

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary This company is one of the leading wholesale distributors of pharmaceuticals, medical/surgical supplies and related products to a broad range of health care customers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.66– 28.22 Trailing 12-Month EPS $1.78 Trailing 12-Month P/E 18.0 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.43 2.65 13.2 351.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.234 2.44 $0.78 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 5 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CAH's diversified products and services and what we believe are good growth prospects for its contract drugmaking and drug dispensing systems. However, we also see intense competition in the drug distribution market, and we believe that future drugmaker-distributor contract negotiations could be less favorable to distributors.

60 50 40 30

Vol. Mil.

Quantitative Evaluations

24 16 8 0 5

S&P Quality Ranking 4

3

4

3

D

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

24 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Herman B. Saftlas on August 10, 2010, when the stock traded at $ 32.72. Highlights ➤

➤

➤

We expect revenues to rise about 2.5% in FY 11 (Jun.), to about $101 billion. Sales in the Pharmaceutical segment should reflect low-single digit market growth, renewals of customer contracts, and a branded drug inflation rate similar to FY 10. Sales of nuclear medicines should benefit from the resolution of recent supply shortages. We also expect low single-digit market growth in the Medical segment, due to an anticipated normal flu season, and benefits from new marketing strategies and services. We project gross and operating margins to improve slightly in FY 11, with organic expenses expected to be flat with FY 10. However, expenses related to the new Healthcare Solutions business should result in a moderate increase in SG&A costs. We also expect a decline in interest expense. After a projected tax rate of 37%, versus FY 10's 37.5%, we estimate non-GAAP adjusted EPS of $2.43 for FY 11, up from the $2.22 reported for FY 10. Adjusted EPS exclude restructuring and acquisition-related costs, and various other nonrecurring items.

Investment Rationale/Risk ➤

➤

➤

Representing one of the nation's three major pharmaceutical distribution companies, we see Cardinal well situated in its industry, with relationships with two major retail pharmacy chains generating over 40% of its revenues. We see CAH gaining good traction in its performance initiatives, including reducing the number of its generic drug suppliers and bolstering its generic drug sales, transforming its medical supply business, and expense control. Longer term, we believe health care reform will help lead to increased drug volumes for CAH and its peers. Meanwhile, we view CAH's cash flow as healthy, providing financial flexibility for business expansion, dividends and common share buybacks. Risks to our recommendation and target price include intensified competition, the loss of major accounts, consolidation trends in the U.S. retail pharmacy industry reducing the customer base, and unfavorable changes in contracts with drugmakers or retailers. Our 12-month target price of $38 is based on a peer-level multiple of 15.6X applied to our EPS estimate of $2.43 for FY 11.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 24,781 24,920 2009 24,321 25,075 2008 21,973 23,283 2007 20,938 21,785 2006 19,237 19,781 2005 17,796 18,555

3Q 24,343 24,918 22,910 21,867 20,638 19,103

4Q 24,460 25,199 22,926 22,263 21,708 19,457

Year 98,503 99,512 91,091 86,852 81,364 74,911

Earnings Per Share ($) 2010 -0.17 0.64 2009 0.68 0.88 2008 0.82 0.89 2007 0.71 0.77 2006 0.55 0.72 2005 0.50 0.47

0.62 0.87 1.02 -0.01 0.83 0.84

0.54 0.74 0.89 0.61 0.80 0.59

1.62 3.16 3.62 2.08 2.90 2.40

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.175 0.175 0.195 0.195

11/04 02/03 05/05 08/04

12/29 03/30 06/29 09/29

01/01 04/01 07/01 10/01

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1983. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CAH

Cardinal Health Inc Business Summary August 10, 2010 CORPORATE OVERVIEW. Cardinal Health ranks as one of the nation's largest wholesalers of pharmaceuticals and medical products. On August 31, 2009, the company spun off to its shareholders stock in CareFusion Corp., a company formed from Cardinal's previous device businesses designed to prevent hospital medication errors and infections. CareFusion's stock trades on the NYSE under the symbol CFN. The Pharmaceutical segment (91% of revenues in FY 10 (Jun.)) distributes pharmaceutical and related health care products to independent and chain drug stores, hospitals, alternate care centers, and supermarket and mass merchandiser pharmacies. The company also provides pharmaceutical repackaging and distribution for retail and mail order customers. Cardinal also offers third-party logistics support services, distributes therapeutic plasma to hospitals, clinics and other providers located in the U.S. The company manufactures and markets generic pharmaceutical products for sale to hospitals, clinics and pharmacies in the United Kingdom. CAH also has a specialty pharmacy that provides prescription fulfillment and clinical care services directly to individual patients requiring highly intensive therapies. In July 2010, the company acquired Healthcare Solutions, a provider of data and services for oncology and specialty customers, for $517 million in cash, plus

an additional $150 in future contingent payments. Cardinal operates the world's largest network of nuclear pharmacies and is expanding its positron emission tomography (PET) agent manufacturing capabilities to support new drug development and the future of personalized medicine. This unit prepares and delivers radiopharmaceuticals for use in nuclear imaging and other procedures in hospitals and clinics. In addition, about 200 hospitals across the U.S. outsource the management of their inpatient pharmacy to Cardinal. The Medical segment (9% of revenues) distributes medical-surgical products to ambulatory care centers, physician offices, clinical laboratories and hospitals across the U.S. and Canada. This unit also produces gloves, gowns, surgical drapes, scrubs and fluid management products. In addition, this segment conducts surgical and procedural kitting operations that assemble all necessary single-use surgical products and apparel for specific procedures into one kit, allowing clinicians to focus on the patient.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 8.48 2.33 1.62 1.39 0.72 44% 36.66 29.69 23 18

2009 7.30 4.27 3.16 3.16 0.60 19% 39.87 24.87 13 8

2008 4.26 4.65 3.62 3.64 0.50 14% 62.25 27.79 17 8

2007 4.12 2.87 2.07 3.08 0.39 19% 76.15 56.41 37 27

2006 8.52 3.82 2.90 2.88 0.27 9% 75.74 61.15 26 21

2005 8.20 3.34 2.40 2.16 0.15 6% 69.64 52.85 29 22

2004 7.05 4.15 3.47 3.14 0.12 3% 76.54 36.08 22 10

2003 12.10 3.70 3.12 2.78 0.11 4% 67.96 50.00 22 16

2002 11.50 2.98 2.45 2.26 0.10 4% 73.70 46.60 30 19

2001 9.50 2.50 1.88 1.69 0.09 5% 77.32 56.67 41 30

98,503 1,627 254 114 1,212 NA 587 503

99,512 2,488 399 219 1,667 31.5% 1,143 1,142

91,091 2,594 375 171 1,957 32.3% 1,325 1,326

86,852 2,485 322 121 1,252 32.9% 840 1,247

81,364 2,474 393 132 1,835 32.2% 1,245 1,236

74,911 2,555 410 134 1,629 35.8% 1,047 936

65,054 2,694 299 98.9 2,238 31.9% 1,525 1,369

50,467 3,723 266 115 2,127 33.6% 1,412 1,266

44,394 2,216 244 133 1,701 33.8% 1,126 1,045

47,948 1,893 281 155 1,332 35.6% 857 771

Balance Sheet & Other Financial Data (Million $) Cash 2,755 Current Assets 14,919 Total Assets 19,990 Current Liabilities 11,538 Long Term Debt 1,896 Common Equity 5,276 Total Capital 7,405 Capital Expenditures 256 Cash Flow 841 Current Ratio 1.3 % Long Term Debt of Capitalization 25.6 % Net Income of Revenue 0.6 % Return on Assets 2.6 % Return on Equity 8.4

1,848 15,799 25,119 11,400 3,280 8,725 12,005 533 1,542 1.4 27.3 1.2 4.7 13.9

1,291 14,184 23,448 10,376 3,687 7,756 11,444 376 1,691 1.4 32.2 1.5 5.7 17.5

1,309 14,545 23,154 11,460 3,457 7,377 10,834 1,630 1,162 1.3 31.9 1.0 3.6 10.6

1,321 14,777 23,374 11,373 2,600 8,491 11,090 443 1,637 1.3 23.4 1.5 5.5 14.6

1,412 13,443 22,059 10,105 2,320 8,593 10,913 572 1,456 1.3 21.3 1.4 4.8 12.6

1,096 13,058 21,369 9,369 2,835 7,976 12,000 410 1,824 1.4 23.6 2.3 7.7 19.5

1,724 13,250 18,521 7,314 2,472 7,758 11,207 423 1,678 1.8 22.1 2.8 8.1 20.0

1,382 11,907 16,438 6,810 2,207 6,393 8,600 285 1,370 1.7 25.7 2.5 7.2 19.0

934 10,716 14,642 6,575 1,871 5,437 7,308 341 1,138 1.6 25.6 1.8 6.4 17.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7000 Cardinal Place, Dublin, OH 43017. Telephone: 614-757-5000. Website: http://www.cardinal.com Chrmn & CEO: G.S. Barrett

EVP & Secy: S.T. Falk EVP & CIO: P.B. Morrison SVP & Chief Acctg Officer: S.G. Laws SVP & Treas: J.M. Gomez

Board Members: C. F. Arnold, G. S. Barrett, G. A. Founded: 1979 Britt, C. S. Cox, C. Darden, B. L. Downey, J. F. Finn, G. B. Domicile: Ohio Kenny, J. J. Mongan, R. C. Notebaert, D. W. Employees: 31,200 Raisbeck, J. G. Spaulding

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CFN | CFN is in the S&P 500

CareFusion Corp S&P Recommendation HOLD

★★★★★

Price $24.70 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $27.00

Investment Style Large-Cap Growth

Summary This leading maker of infusion pumps, dispensing systems, and respiratory and infection prevention products was spun off from Cardinal Health on August 31, 2009.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.08– 20.63 Trailing 12-Month EPS $0.87 Trailing 12-Month P/E 28.4 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.63 1.87 15.2 222.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.492 Nil Nil 77

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

NA 14 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our belief that U.S. hospital capital spending will remain under pressure over the long term, limiting the sales growth of CFN's capital equipment, which represents about 40% of its business. Still, we expect these and CFN's disposables products to benefit from hospitals seeking to improve patient safety.

28 24

20 18

Vol. Mil.

27

26

9 6 3 0

Quantitative Evaluations S&P Quality Ranking D

4

5

C

B-

NR B

B+

A-

Relative Strength Rank

1

MODERATE

LOWEST = 1

2008

2009

➤

➤

➤

We expect CFN's revenue in FY 11 (Jun.) to rise 5%, to $4.13 billion, led by new products, the recent acquisition of IV (intravenous) device maker Medegen, and the fulfillment of a dispensing equipment contract deferred from FY 10. However, we see growth being limited by FY 10's H1N1-related revenue, resumption of Alaris infusion pump shipments in July 2009, and FY 10's favorable currency exchange rates. The company does not expect these top-line benefits to recur in FY 11.

Investment Rationale/Risk ➤

We forecast wider gross margins on an improved product mix. We also expect operating expenses to contract as a percentage of revenue, despite higher R&D spending, mainly on savings from a planned restructuring. We estimate EPS of $1.63 in FY 11, versus $1.42 in FY 10, but note that growth is masked by the $0.25 - $0.30 earned in FY 10 related to nonrecurring factors. We look for $1.87 in FY 12. We view CFN's $1 billion in cash as of June 30, 2010, and its expectations of operating cash flow of $425 million to $475 million in FY 11 as adequate for potential acquisitions.

➤

➤

HIGHEST = 99

2010

Analysis prepared by Phillip M. Seligman on August 16, 2010, when the stock traded at $ 22.59. Highlights

A+

52

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

3

We expect CFN to benefit over the long term from hospitals seeking to reduce medication errors and hospital-acquired infection. We view CFN's expanding product portfolio as promising, and are positive on its plans to divest underperforming businesses and make more synergistic investments. But while we consider its view of a gradual thawing of hospital capital spending as encouraging, we expect hospitals to remain selective in their purchases, as their top priority for their limited budgets is IT projects, and we see increasing competition. We also believe it is too soon to determine how much CFN will benefit from rival Baxter's (BAX 46, Buy) infusion pump recall, and we see that being determined partly by BAX's success in replacing the pumps. Risks to our recommendation and target price include further declines in hospital capital spending, intensified competition, product recalls, and increased health care regulation. Our 12-month target price of $27 reflects a multiple of 20X our calendar 2010 EPS estimate of $1.35. This multiple is above peers' on our view of CFN's superior growth prospects.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 923.0 1,019 2009 1,167 1,167 2008 1,060 1,060 2007 --2006 --2005 ---

3Q 952.0 1,076 1,150 ----

4Q 1,035 1,091 1,248 ----

Year 3,929 4,501 4,518 3,478 3,052 --

Earnings Per Share ($) 2010 0.25 0.33 2009 0.14 0.49 2008 --2007 --2006 --2005 ---

-0.04 ------

0.23 0.44 -----

0.77 2.57 -----

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: CFN

CareFusion Corp Business Summary August 16, 2010 CORPORATE OVERVIEW. CareFusion Corp. is a global medical technology company with leading products and services designed to improve the safety and quality of health care. In 2008, Cardinal Health reorganized and consolidated the businesses comprising the majority of CareFusion into Cardinal Health's Clinical and Medical Products segment. CareFusion was incorporated in Delaware on January 14, 2009, for the purpose of holding the segment in connection with its planned spinoff, and transferred the equity interests of the entities that hold the assets and liabilities of the clinical and medical products businesses to CareFusion. Approximately 81% of the equity of CareFusion was spun off to Cardinal Health shareholders after the close of trading on August 31, 2009, and Cardinal plans to divest the remaining amount over time. CFN consists of two segments: Critical Care Technologies and Medical Technologies and Services. Critical Care Technologies includes intravenous, or IV, infusion, medication and supply dispensing and respiratory care businesses that develop, manufacture and sell capital equipment and related dedicated and non-dedicated disposables. Medical Technologies and Services includes infection prevention and medical specialties products and services businesses that develop, manufacture and sell primarily single-use, disposable prod-

ucts and reusable surgical instruments. Its primary customers include hospitals, ambulatory surgical centers, clinics, long-term care facilities and physician offices in the U.S., and hospitals in 120 countries worldwide. Primary product brands include: (1) Alaris IV infusion systems that feature proprietary software, Guardrails, an application that alerts the clinician when a parameter is outside the institution's pre-established limitations for that medication, thereby helping to reduce IV medication errors; (2) Pyxis automated medication dispensing systems that provide medication management and Pyxis automated medical supply dispensing systems; (3) AVEA and Pulmonetic Systems ventilation and respiratory products, and Jaeger and SensorMedics pulmonary products; (4) ChloraPrep products that help prevent vascular and surgical-site infections and MedMined software and services that help target and reduce hospital-acquired infections (HAIs); and (5) V. Mueller surgical instruments and related products and services.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.63 1.54 0.77 0.77 NA Nil 30.08 20.63 39 27

2009 4.73 3.45 2.57 2.51 Nil Nil 26.99 17.25 11 7

2008 NA NA NA 2.93 NA NA NA NA NA NA

2007 NA NA NA 2.23 NA NA NA NA NA NA

2006 NA NA NA NA NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,929 714 173 93.0 357 NA 171 172

4,501 856 194 92.0 719 21.0% 568 568

4,518 945 165 22.3 847 21.8% 663 663

3,478 691 117 37.0 619 18.8% 502 502

3,052 573 109 57.5 567 18.8% 460 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 1,019 Current Assets 2,508 Total Assets 7,943 Current Liabilities 753 Long Term Debt 1,386 Common Equity 4,704 Total Capital 6,094 Capital Expenditures 127 Cash Flow 344 Current Ratio 3.3 % Long Term Debt of Capitalization 22.7 % Net Income of Revenue 4.4 % Return on Assets NA % Return on Equity NA

783 2,390 8,349 762 1,159 5,451 6,740 129 762 3.1 17.2 12.6 6.8 10.8

607 2,322 8,329 762 1,539 5,048 6,657 188 828 2.9 23.1 14.7 8.2 13.3

677 NA 7,876 NA 1,268 4,887 6,167 115 620 3.2 20.6 14.5 NA NA

NA NA NA NA NA NA NA 105 569 NA Nil 15.1 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3750 Torrey View Court, San Diego, CA 92130. Telephone: 858-617-2000. Website: http://www.carefusion.com Chrmn & CEO: D. Schlotterbeck

COO: D. Winstead EVP, Secy & General Counsel: J. Stafslien SVP, Chief Acctg Officer & Cntlr: J. Maschal CFO: E. Borkowski

Investor Contact: C. Cox (858-617-2020) Employees: 15,000 Board Members: P. Francis, R. Friel, J. Kosecoff, J. M. Losh, G. T. Lucier, E. Miller, M. D. O'Halleran, D. Schlotterbeck, R. Wayman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: KMX | KMX is in the S&P 500

CarMax Inc S&P Recommendation HOLD

★★★★★

Price $29.54 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Automotive Retail

12-Mo. Target Price $26.00

Investment Style Large-Cap Growth

Summary CarMax, the largest U.S. retailer of used vehicles, owns and operates more than 100 used car superstores in 49 markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.10– 18.62 Trailing 12-Month EPS $1.58 Trailing 12-Month P/E 18.7 $10K Invested 5 Yrs Ago $21,421

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.57 1.63 18.8 224.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.642 Nil Nil 98

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.21 12 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the automotive retailing industry, which is affected by interest rates, consumer confidence, and personal discretionary spending, offset by the company's variable cost structure.

30 20 15 10

Quantitative Evaluations S&P Quality Ranking

Vol. 64

Mil.

D

24 16 8 0

C

B-

B+ B

B+

A-

A

Relative Strength Rank

5

3

A+ STRONG 92

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Efraim Levy, CFA on September 22, 2010, when the stock traded at $ 25.92. Highlights ➤

We expect revenues in FY 11 (Feb.) to rise 17.5%, through a combination of comparablestore sales growth and new store additions. Sales volume has been improving and average transaction price has been rising. The company opened three new stores in early FY 11. While SG&A expenses should rise as demand expands, we expect operating margins to improve during the fiscal year. In addition to its core used car superstores, CarMax also owns several new vehicle dealerships for selling a variety of automaker brands.

Investment Rationale/Risk ➤

➤ ➤

➤

For 2010 and 2011, we project that higher industry volume and macroeconomic factors will bolster new and used vehicle sales. The company plans to open between three and five used vehicle stores in FY 12 and between five and 10 in FY 13. As a result, we expect to see rising capital spending and depreciation and amortization charges during those years. We expect EPS to rise to $1.57 in FY 11 and then to $1.63 in FY 12, from $1.26 in FY 10. The balance sheet, with limited long-term debt, should support an increase in debt as the company resumes the addition of new stores to its portfolio.

➤

Revenue/Earnings Data

2010

Based on our calendar 2010 P/E and price to free cash flow and total enterprise value to EBITDA estimates, KMX recently traded at a premium to the average of publicly traded automobile retailers in our analytical coverage. We believe the premium is warranted given KMX's better than peer net margin. We estimate adjusted free cash flow per share of $1.45 for FY 11 and $1.13 for FY 12, compared to $1.42 posted in FY 10. Rising investment in new facilities will limit capital available for other purposes. Risks to our recommendation and target price include a decrease in multiples for automotive retailers. In addition, demand for and pricing of used vehicles could be less than we expect, and credit for dealers and consumers could be more costly or difficult to obtain. We expect CarMax Auto Finance (CAF) to help deliver sales by providing financing for consumers, and we think CAF will make a solid profit contribution on its own. Based on historical and peer P/E comparisons, our 12-month target price is $26, or 16.7X our FY 11 EPS estimate of $1.57, toward the low end of KMX's historical range, but still above publicly traded automotive retailing peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 2,319 2,342 2010 1,834 2,077 2009 2,209 1,839 2008 2,147 2,123 2007 1,885 1,930 2006 1,578 1,634

3Q -1,726 1,456 1,885 1,768 1,424

4Q -1,833 1,471 2,045 1,883 1,624

Year -7,470 6,974 8,285 7,466 6,260

Earnings Per Share ($) 2011 0.45 0.48 2010 0.13 0.46 2009 0.13 0.06 2008 0.30 0.29 2007 0.27 0.25 2006 0.19 0.20

E0.31 0.33 -0.10 0.14 0.21 0.13

E0.34 0.33 0.17 0.10 0.19 0.19

E1.57 1.26 0.27 0.83 0.92 0.70

Fiscal year ended Feb. 28. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: KMX

CarMax Inc Business Summary September 22, 2010 CORPORATE OVERVIEW. CarMax, Inc., is the largest U.S. retailer of used cars, based on data for FY 10 (Feb.). As of September 22, 2010, CarMax owned and operated 103 used car superstores. It also sells new vehicles at five locations under franchise agreements with four new car manufacturers. The company also provides financial services to customers through CarMax Auto Finance (CAF). MARKET PROFILE. The automotive retailing industry is the largest retail trade sector in the U.S. It generates approximately $1.0 trillion in annual sales, comprising roughly 7% of GDP. The industry is highly fragmented, and we estimate that the 100 largest automotive retailers produce approximately 15% of industry revenues. In its FY 10 10-K filing with the SEC, citing industry data from the CNW Group, CarMax said there were about 35 million used cars sold in the U.S. during calendar 2009, of which 15 million were estimated to be later-model, 1- to 6-year-old vehicles. While CarMax is the largest used auto retailer, it still represented only about 2% of the total late model used units sold.

for the used vehicle and vehicle financing markets. Our fundamental outlook for automotive retailers is positive, reflecting our view of improving sales prospects. We believe the industry has seen the bottom of the sales cycle. We still see a weak residential housing market, a difficult credit environment and relatively low consumer confidence limiting demand for big ticket items such as cars. However, bright spots include the sharp decline in gasoline prices from a peak above $4 a gallon and signs of economic improvement. We believe we could see increased year-over-year new vehicle sales volume for most months of 2010. After U.S. light vehicle sales volume fell 21% in 2009, to 10.4 million units, we expect an 8.4% rebound, to 11.3 million units, in 2010. Publicly traded dealerships' general overweighting toward import and luxury brands should help them when demand likely rebounds with the economy. With expected higher sales, we look for dealer profits to improve in 2010.

During the past few years, Internet marketing has taken on great significance Company Financials Fiscal Year Ended Feb. 28 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 8.62 1.53 1.26 1.24 Nil Nil 2009 24.75 6.92 20 5

2009 7.18 0.52 0.27 0.23 Nil Nil 2008 23.00 5.76 85 21

2008 6.76 1.04 0.83 0.83 Nil Nil 2007 29.45 18.57 35 22

2007 5.77 1.08 0.92 0.93 Nil Nil 2006 27.60 13.87 30 15

2006 4.57 0.82 0.70 0.64 Nil Nil 2005 17.40 12.32 25 18

2005 3.84 0.63 0.54 0.49 Nil Nil 2004 18.55 9.02 35 17

2004 3.28 0.63 0.55 0.52 Nil Nil 2003 19.65 6.23 36 11

2003 2.69 0.52 0.46 0.43 Nil Nil 2002 17.00 6.45 37 14

2002 6.56 0.65 0.41 0.41 Nil Nil 2001 12.00 1.94 29 5

2001 7.64 0.55 0.22 0.31 Nil Nil 2000 2.69 0.66 12 3

7,645 514 58.3 3.46 453 37.8% 282 275

6,989 156 54.7 7.99 96.8 38.8% 59.2 50.2

8,200 347 46.6 9.96 297 38.7% 182 181

7,598 362 34.6 5.37 323 38.6% 199 200

6,260 165 26.7 4.09 240 38.3% 148 135

5,260 124 20.1 2.81 185 38.8% 113 102

4,598 119 16.2 1.14 189 38.5% 116 109

3,970 90.7 14.9 2.26 157 39.5% 94.8 90.2

3,518 168 16.3 4.96 146 38.0% 90.8 27.4

2,501 104 18.1 12.1 73.5 38.0% 45.6 16.6

Balance Sheet & Other Financial Data (Million $) Cash 18.3 Current Assets 1,556 Total Assets 2,556 Current Liabilities 477 Long Term Debt 27.4 Common Equity 1,934 Total Capital 2,083 Capital Expenditures 22.4 Cash Flow 340 Current Ratio 3.3 % Long Term Debt of Capitalization 1.3 % Net Income of Revenue 3.7 % Return on Assets 11.4 % Return on Equity 16.0

141 1,288 2,379 491 178 1,593 1,901 186 114 2.6 9.2 0.9 2.5 3.8

13.0 1,357 2,333 490 227 1,489 1,716 253 229 2.8 13.2 2.2 8.6 13.3

19.5 1,151 1,886 512 33.7 1,247 1,281 192 233 2.2 2.6 2.6 11.7 17.8

21.8 942 1,489 363 135 960 1,095 194 175 2.6 12.3 2.4 10.6 16.8

29.1 865 1,293 329 128 801 934 230 133 2.6 13.7 2.1 9.6 15.2

61.6 773 1,037 242 100 681 781 181 133 3.2 12.8 2.5 11.9 18.9

34.6 709 918 248 100 555 659 122 110 2.9 15.2 2.4 11.6 18.2

3.29 578 720 223 14.1 485 502 41.4 44.3 2.6 2.8 2.6 12.7 20.7

8.80 493 711 226 83.1 392 478 10.8 29.7 2.2 17.4 1.8 6.6 12.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 12800 Tuckahoe Creek Pkwy, Richmond, VA 23238-1124. Telephone: 804-747-0422. Website: http://www.carmax.com Chrmn: W.R. Tiefel

Pres & CEO: T.J. Folliard EVP, CFO & Chief Acctg Officer: K. Browning EVP & Chief Admin Officer: M.K. Dolan SVP, Secy & General Counsel: E.M. Margolin

Investor Contact: K.D. Browning (804-747-0422) Founded: 1996 Board Members: R. E. Blaylock, K. Browning, T. J. Domicile: Virginia Folliard, J. E. Garten, S. D. Goodman, W. R. Grafton, E. Employees: 13,439 H. Grubb, T. G. Stemberg, V. M. Stephenson, B. A. Stewart, W. R. Tiefel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CCL | CCL is in the S&P 500

Carnival Corp S&P Recommendation HOLD

★★★★★

Price $40.14 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Hotels, Resorts & Cruise Lines

12-Mo. Target Price $42.00

Investment Style Large-Cap Blend

Summary Carnival Corp. and Carnival plc own businesses that operate more than 90 cruise ships, as well as tour companies in Alaska and Canada.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.21– 28.71 Trailing 12-Month EPS $2.40 Trailing 12-Month P/E 16.7 $10K Invested 5 Yrs Ago $9,490

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.52 2.72 15.9 789.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$31.670 1.00 $0.40 55

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.48 UR BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the capital intensity of the cruise sector and its sensitivity to economic cycles. This is offset by our view of Carnival's premier position in a consolidated industry with high barriers to entry, economies of scale, and Carnival's strong operating profile.

50 40 30

20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

NR B

B+

A-

A

Relative Strength Rank 3

2

STRONG 79

3

2

A+

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Preeti Rambhiya on September 30, 2010, when the stock traded at $ 38.30. Highlights ➤

In FY 11 (Nov.), we look for revenue to increase 8%, to $15.2 billion, from the $14.1 billion that we project for FY 10.

➤

In FY 11, we expect Carnival's net yield to increase by 3.5%, but we think that continued sector capacity growth amid challenging economic conditions could limit pricing gains as well as margin improvement. We caution that market volatility could pour cold water on both consumer optimism and discretionary spending. In FY 10, booking levels have been strong and pricing has picked up significantly.

➤

We believe the company's superb cost management has enabled Carnival to deliver strong operating performance versus expectations. In FY 11, we think a cost containment focus is likely to continue, but we expect the scope of further margin expansion to be limited. We look for Carnival's EBIT margin in FY 11 to be relatively flat with the 16.9% that we project for FY 10. For FY 11, we estimate EPS of $2.72, up from the $2.52 we project for FY 10, which excludes a net adverse impact of $0.03 from special items in FY 10's third quarter.

Investment Rationale/Risk ➤

➤

➤

We think that a key factor to monitor is whether yield growth momentum is maintained in the face of toughening comparisons and sticky unemployment. More importantly, we believe, the vast majority of the cost containment has been squeezed from commissions and selling expenses, which may prove unsustainable as the demand scenario improves. Downside risks to our target price and recommendation include material disappointments on pricing and advance bookings, significant deterioration in consumer confidence, and terrorism concerns. Rising oil prices are a risk, in our opinion, particularly as CCL does not hedge its fuel exposure. Our 12-month target price of $42 is derived from an equal blend of EV/EBITDA and P/E analyses and DCF valuation. Based on our FY 10 EBITDA estimate of $3.794 billion, we apply a multiple of 10.9X, a 10% premium to Carnival's five-year average, given the improved visibility we see, yielding a value of about $41. Our DCF analysis (WACC 8.6%, terminal growth rate of 2.5%) indicates an intrinsic value of about $44. Our P/E approach implies a value of about $41 a share.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,095 3,195 2009 2,864 2,948 2008 3,152 3,378 2007 2,688 2,900 2006 2,463 2,662 2005 2,396 2,519

3Q 4,426 4,139 4,814 4,321 3,905 3,605

4Q -3,206 3,302 3,124 2,809 2,567

Year -13,157 14,646 13,033 11,839 11,087

Earnings Per Share ($) 2010 0.22 0.31 2009 0.32 0.33 2008 0.30 0.49 2007 0.35 0.48 2006 0.31 0.46 2005 0.42 0.49

1.62 1.33 1.64 1.64 1.49 1.36

E0.34 0.24 0.46 0.44 0.51 0.43

E2.52 2.23 2.86 2.95 2.77 2.70

Fiscal year ended Nov. 30. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100

01/21 04/14

02/05 11/17

02/09 11/19

03/12/10 12/10/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CCL

Carnival Corp Business Summary September 30, 2010 CORPORATE OVERVIEW. Carnival Corp. is part of the world's largest cruise ship business, and has grown significantly through acquisitions and the addition of new ships. In 2003, Carnival merged with P&O Princess Cruises plc, which was renamed Carnival plc (CUK 40, Hold). As of September 2010, the combined Carnival operated 97 ships with capacity for more than 185,000 passengers. Also, Carnival has tour operations in Alaska and the Canadian Yukon. With Carnival's dual listing company (DLC) format, there are separate stocks trading under the Carnival Corp. and Carnival plc names. Each company has retained its separate legal identity, but the two share a single senior executive management team, have identical boards of directors, and are run as if they were a single economic enterprise. In valuing the shares, we look at the combined financial results and equity base of the Carnival entities.

will lead to more interest in cruises. Also, we believe that a continued industry emphasis on providing ships with more features and the addition of more local ports will bolster passenger demand. COMPETITIVE LANDSCAPE. We see Carnival enhancing its competitive position through the addition of new ships, which should encourage both returning and new customers. As of September 2010, Carnival had 11 new ships scheduled to be delivered between September 2010 and May 2014. However, one or more other ships could leave Carnival's fleet during this period. In terms of capacity, Carnival was recently more than twice the size of its biggest competitor -- Royal Caribbean Cruises Ltd. (RCL 32, Buy).

MARKET PROFILE. Looking ahead, we expect demand for cruise ship vacations to grow. In the U.S., we believe that most people have never taken a multi-night cruise ship vacation, and we expect that an aging U.S. population Company Financials Fiscal Year Ended Nov. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 21.90 3.85 2.23 Nil Nil 34.95 16.80 16 8

2008 18.52 4.39 2.86 1.60 56% 45.22 14.85 6 2

2007 19.01 4.24 2.95 1.38 47% 52.73 41.70 18 14

2006 17.10 3.89 2.77 1.03 37% 56.14 36.40 20 13

2005 15.47 3.91 2.70 0.80 30% 58.98 45.78 22 17

2004 13.96 3.13 2.24 0.52 23% 58.75 39.75 26 18

2003 11.83 2.46 1.66 0.44 27% 39.84 20.34 24 12

2002 11.48 2.38 1.73 0.42 24% 34.64 22.07 20 13

2001 10.13 2.21 1.58 0.42 27% 34.94 16.95 22 11

2000 8.84 2.08 1.60 0.42 26% 51.25 18.31 32 11

13,157 3,463 1,309 NA 1,806 0.89% 1,790

14,646 3,921 1,249 466 2,377 1.98% 2,330

13,033 3,826 1,101 367 2,424 0.10% 2,408

11,839 3,601 988 312 2,240 NM 2,279

11,087 3,541 902 330 2,184 NM 2,257

9,727 2,985 812 284 1,901 2.47% 1,854

6,718 1,968 585 195 1,223 2.37% 1,194

4,368 1,444 382 111 959 NM 1,016

4,536 1,448 372 121 948 2.34% 926

3,779 1,233 288 41.4 967 0.11% 965

Balance Sheet & Other Financial Data (Million $) Cash 538 Current Assets NA Total Assets 36,835 Current Liabilities NA Long Term Debt 9,097 Common Equity 22,035 Total Capital 31,947 Capital Expenditures 3,380 Cash Flow 3,099 Current Ratio 0.3 % Long Term Debt of Capitalization 28.5 % Net Income of Revenue 13.6 % Return on Assets 5.1 % Return on Equity 8.7

650 1,650 33,400 5,781 7,735 19,098 27,914 3,353 3,579 0.3 27.7 15.9 6.9 11.9

943 1,976 34,181 7,260 6,313 19,963 26,276 3,312 3,509 0.3 24.0 18.4 7.4 12.6

1,163 1,995 30,552 5,415 6,355 18,210 24,565 2,480 3,267 0.4 25.9 19.2 7.7 13.0

1,178 2,215 28,432 5,192 5,727 16,972 22,699 1,977 3,159 0.4 25.2 20.4 8.1 13.8

643 1,728 27,636 5,034 6,291 15,760 22,051 3,586 2,666 0.3 28.5 19.1 7.1 12.5

1,070 2,132 24,491 3,315 6,918 13,793 20,711 2,516 1,779 0.6 33.4 17.8 6.5 11.3

667 1,132 12,335 1,620 3,012 7,418 10,430 1,986 1,398 0.7 28.9 23.3 8.5 14.5

1,421 1,959 11,564 1,480 2,955 6,591 9,546 827 1,298 1.3 31.0 20.4 8.7 14.9

189 549 9,831 1,715 2,099 5,871 7,970 1,003 1,253 0.3 26.3 25.6 10.7 16.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Carnival Place MSCD925N, 3655 NW 87 Avenue, Miami, FL 33178-2428. Telephone: 305-599-2600. Website: http://www.carnivalcorp.com Chrmn & CEO: M.M. Arison

Vice Chrmn & COO: H.S. Frank SVP & CFO: D. Bernstein SVP, Secy & General Counsel: A. Perez Chief Acctg Officer & Cntlr: L. Freedman

Investor Contact: B. Roberts (305-406-4832) Founded: 1974 Board Members: M. M. Arison, J. Band, R. H. Domicile: Panama Dickinson, A. W. Donald, P. L. Foschi, H. S. Frank, R. J. Employees: 84,800 Glasier, M. A. Maidique, J. Parker, P. G. Ratcliffe, S. Subotnick, L. A. Weil, R. J. Weisenburger, U. Zucker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CAT | CAT is in the S&P 500

Caterpillar Inc S&P Recommendation BUY

★★★★★

Price $78.33 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Farm Machinery & Heavy Trucks

12-Mo. Target Price $95.00

Investment Style Large-Cap Blend

Summary CAT, the world's largest producer of earthmoving equipment, is also a big maker of electric power generators and engines used in petroleum markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $81.20– 50.50 Trailing 12-Month EPS $2.47 Trailing 12-Month P/E 31.7 $10K Invested 5 Yrs Ago $18,204

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.00 5.25 19.6 630.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$49.385 2.25 $1.76 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.78 41 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects its leading position in many of the end markets it serves, offset by the highly cyclical nature of the construction equipment, agricultural equipment, and engine businesses.

100 80 60 40

Quantitative Evaluations S&P Quality Ranking

Vol. 138

Mil. 60 40 20 0 5

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank 4

3

A+

MODERATE 68

5 3

3

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Michael W. Jaffe on October 22, 2010, when the stock traded at $ 78.89. Highlights ➤

➤

➤

We expect revenues to advance 15% in 2011. Weak global economies, tight credit markets and the resultant slowdowns in residential and commercial construction brought large sales declines in 2009 and in the early part of 2010. However, we think CAT's machinery business (its largest segment) is now in the midst of a recovery, on the seeming start of a global economic recovery and what appears to be the end of inventory destocking at CAT's dealers. We expect the forecasted gains to be driven in the near term by robust growth in CAT's operations in Asia/Pacific and Latin America, and increased demand in North America related to the need to replace aging and worn out equipment. We look for margins to widen in 2011, on the leverage that we see resulting from improved sales trends. We also expect margins to be aided by CAT's focus on improving operating efficiency, and incremental benefits from aggressive cost cuts implemented by CAT during its business downturn. Our 2011 forecast compares with a 2010 estimate that excludes $0.14 of charges related to the recently enacted U.S. health care bill.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Depressed economic conditions greatly affected CAT's client markets in recent quarters. However, in light of aggressive stimulus packages put in place by governments throughout the world, we believe its business is in the process of recovery, and that it has also done a solid job of controlling costs. Based on these factors and our valuation model, we believe CAT's shares are undervalued. Risks to our opinion and target price include less robust than expected results from global stimulus packages, and worse than expected conditions in global credit markets. The shares recently traded at 15X our 2011 EPS forecast of $5.25, which is in the middle of CAT's typical valuation range as it moved further into business recoveries. We see the stock as undervalued based on our belief that government stimulus packages and improving credit conditions will allow its business to post a strong revival over the next few years, with CAT's recent streamlining actions likely to lead to robust earnings growth. We set our 12-month target price at $95, which is 18.1X our 2011 EPS forecast, and slightly above CAT's peak at a similar stage of its last business revival.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 8,238 10,409 2009 9,225 7,975 2008 11,796 13,624 2007 10,016 11,356 2006 9,392 10,605 2005 8,339 9,360

3Q -7,298 12,981 11,442 10,517 8,977

4Q -7,898 12,923 12,144 11,003 9,663

Year -32,396 51,324 44,958 41,517 36,339

Earnings Per Share ($) 2010 0.36 1.09 2009 -0.19 0.60 2008 1.45 1.74 2007 1.23 1.24 2006 1.20 1.52 2005 0.81 1.08

E1.08 0.64 1.39 1.40 1.14 0.94

E1.18 0.36 1.08 1.50 1.32 1.20

E4.00 1.43 5.66 5.37 5.17 4.04

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.440 0.440 0.440

04/14 06/09 06/09 10/13

04/22 07/16 07/16 10/21

04/26 07/20 07/20 10/25

05/20/10 08/20/10 08/20/10 11/20/10

Dividends have been paid since 1914. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CAT

Caterpillar Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. Caterpillar's distinctive yellow machines are in service in nearly every country in the world, with 69% of the company's revenues derived from outside of the U.S. in 2009 (67% in 2008). As of year-end 2009, 71% of CAT's independent dealers were located outside of the U.S. CAT operates in three principal lines of business: Machinery, Engines and Financial Products. CAT's largest operating segment, the Machinery unit (56% of revenues and $1.0 billion of operating losses in 2009), makes earthmoving equipment. Operations include the design, manufacture, marketing and sale of construction, mining and forestry machinery including track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders and related parts. This segment also includes logistics services for other companies and the design, manufacture, remanufacture, maintenance and servicing of railrelated products. The division's products are used predominantly in heavy construction (including infrastructure), general construction, mining, and

quarry/aggregates markets. These end markets are very cyclical and competitive. The Engine segment (35% and operating profits of $1.5 billion) makes diesel, heavy fuel and natural gas reciprocating engines for both CAT's own earthmoving equipment and third-party customers. This segment designs, manufactures, markets and sells engines for Caterpillar machinery; electric power generation systems; locomotives; marine, petroleum, construction, industrial, agricultural and other applications; and related parts. This area also includes remanufacturing of Caterpillar engines and a variety of Caterpillar machine and engine components and remanufacturing services for other companies. The division's major end markets are petroleum, electric power generation, industrial and marine.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.61 4.02 1.43 2.03 1.68 117% 61.28 21.71 43 15

2008 5.51 8.80 5.66 4.56 1.68 30% 85.96 31.95 15 6

2007 14.88 8.09 5.37 5.46 1.32 25% 87.00 57.98 16 11

2006 7.07 7.52 5.17 5.48 1.10 21% 82.03 57.05 16 11

2005 9.77 6.14 4.04 4.05 0.91 23% 59.88 41.31 15 10

2004 8.34 4.85 2.88 2.76 0.78 27% 49.36 34.25 17 12

2003 6.48 3.48 1.57 1.50 0.71 45% 42.48 20.62 27 13

2002 5.51 2.91 1.15 0.20 0.70 61% 30.00 16.88 26 15

2001 5.75 2.85 1.16 0.16 0.69 59% 28.42 19.88 24 17

2000 5.97 2.97 1.51 NA 0.67 44% 27.56 14.78 18 10

32,396 2,928 2,336 389 557 NM 895 1,277

51,324 7,569 1,968 1,427 4,510 21.1% 3,557 2,867

44,958 7,850 1,797 1,420 5,026 29.6% 3,541 3,604

41,517 7,634 1,602 1,297 4,942 28.4% 3,537 3,748

36,339 6,029 1,477 1,028 3,974 28.2% 2,854 2,860

30,251 4,650 1,397 750 2,766 26.4% 2,035 1,951

22,763 3,505 1,347 716 1,497 26.6% 1,099 1,052

20,152 3,060 1,220 800 1,110 28.1% 798 133

20,450 3,137 1,169 942 1,172 31.3% 805 98.7

20,175 3,447 1,022 980 1,500 29.8% 1,053 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,239 Current Assets 26,789 Total Assets 60,038 Current Liabilities 19,292 Long Term Debt 5,652 Common Equity 8,740 Total Capital 15,254 Capital Expenditures 2,316 Cash Flow 2,518 Current Ratio 1.4 % Long Term Debt of Capitalization 37.1 % Net Income of Revenue 2.8 % Return on Assets 1.4 % Return on Equity 12.1

1,517 31,633 67,782 26,069 22,834 6,087 29,575 4,011 5,525 1.2 77.2 6.9 5.7 47.5

1,122 25,477 56,132 22,245 17,829 8,883 26,712 3,040 5,338 1.2 66.7 7.9 6.6 45.0

530 23,093 50,879 19,252 17,680 6,859 24,539 2,675 5,139 1.2 72.0 8.5 7.2 46.3

1,108 22,790 47,069 19,092 15,677 8,432 24,109 2,415 4,331 1.2 65.0 7.9 6.3 35.9

445 20,856 43,091 16,210 15,837 7,467 23,304 2,114 3,432 1.3 68.0 6.7 5.1 30.0

342 16,791 36,465 12,621 14,078 6,078 20,156 1,765 2,446 1.3 69.8 4.8 3.2 19.0

309 14,628 32,851 11,344 11,596 5,472 17,068 1,773 2,018 1.3 67.9 4.0 2.5 14.4

400 13,400 30,657 10,276 11,291 5,611 16,902 1,968 1,974 1.3 66.8 3.9 2.7 14.4

334 12,521 28,464 8,568 11,334 5,600 16,934 1,388 2,075 1.5 66.9 5.2 3.8 19.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 N.E. Adams Street, Peoria, IL 61629. Telephone: 309-675-1000. Email: [email protected] Website: http://www.cat.com

Chrmn: J.W. Owens Pres: L.C. Calil Vice Chrmn & CEO: D.R. Oberhelman CFO: E.J. Rapp

CTO: T.L. Utley Founded: 1925 Investor Contact: M. DeWalt (309-675-4549) Domicile: Delaware Board Members: W. Blount, D. M. Dickinson, J. T. Employees: 95,290 Dillon, E. V. Fife, J. Gallardo, D. Goode, P. A. Magowan, D. R. Oberhelman, W. A. Osborn, J. W. Owens, C. D. Powell, E. B. Rust, Jr., S. C. Schwab, J. I. Smith

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CBG | CBG is in the S&P 500

CB Richard Ellis Group Inc S&P Recommendation HOLD

★★★★★

Price $18.88 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Real Estate Services

12-Mo. Target Price $19.00

Investment Style Large-Cap Growth

Summary CB Richard Ellis Group is a global commercial real estate services company.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$20.38– 9.98 $0.43 43.9 $12,348

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.64 1.06 29.5 321.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.075 Nil Nil 97

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.64 67 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CBG's position as one of the world's largest commercial real estate services firms, which should benefit from a worldwide rebound in demand for commercial real estate space and services.

40 20

8 4

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

68

D

30 20 10 0 5

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+ STRONG

71 4

3

2

3

2

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Robert McMillan on July 30, 2010, when the stock traded at $ 16.94. Highlights ➤

➤

➤

After a 19% revenue decline in 2009 that stemmed from the global economic crisis, which caused sales and leasing activity to plummet, we see a rise of 25% in 2010 on an expected rebound in commercial real estate transactions. We look for CBG's property management and investment management businesses to recover before its sales and leasing business. We think the continuing, but gradual thawing of the credit markets and more prudent underwriting will contribute to an eventual and sustained pickup in the property sales and leasing business. During the 2010 second quarter, CBG's revenues rose 23%, while operating income surged on well-controlled expenses in CBG's low-fixed cost business. We were encouraged by growth in the Americas, Europe and the Asia-Pacific region. Revenues from sales and leasing activities jumped 61% and 29%, respectively, while commercial mortgage brokerage and investment management advanced 33% and 23%. Despite recent turbulence stemming from the European debt crisis, we expect CBG's business to sustain its momentum.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Longer term, however, we expect the company to benefit from its large size and broad array of products and services relative to peers. We think the global reach of CBG's operations helps generate economies of scale that few other real estate firms can match, helping create sustainable barriers to entry. Nevertheless, we see the shares remaining volatile until the turmoil in the financial markets abates. Risks to our recommendation and target price include lower-than-expected demand for office and industrial space, greater competition, and a further decline in financing activity for commercial real estate transactions. The stock recently traded at 25.7X our 2010 EPS estimate. Our 12-month target price of $19 reflects a multiple of about 29.6X our 2010 EPS forecast, on our assumption that the multiple will expand, as we see CBG's operating prospects improving. Although we believe the valuation multiple is rich relative to recent historical levels, we think the shares are appropriately valued at recent levels.

We see EPS of $0.64 in 2010 and $1.06 in 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,026 1,172 2009 890.5 955.7 2008 1,231 1,315 2007 1,214 1,490 2006 903.5 751.3 2005 538.3 672.2

3Q -1,023 1,300 1,493 967.9 744.2

4Q -1,297 1,283 1,837 1,409 956.0

Year -4,166 5,129 6,034 4,032 2,911

Earnings Per Share ($) 2010 -0.02 0.15 2009 -0.14 -0.02 2008 0.10 0.08 2007 0.05 0.59 2006 0.16 0.27 2005 0.06 0.22

E0.23 0.04 0.15 0.48 0.39 0.25

E0.29 0.21 0.03 0.53 0.53 0.41

E0.64 0.12 0.34 1.65 1.35 0.95

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: CBG

CB Richard Ellis Group Inc Business Summary July 30, 2010 CB Richard Ellis Group, Inc. is one of the largest global commercial real estate services companies in the world. The company's business is focused on several service competencies, including strategic advice and execution assistance for property leasing and sales, forecasting, valuations, origination and servicing of commercial mortgage loans, facilities and project management, and real estate investment management. CBG's primary business objective is to leverage its integrated global platform to garner an increasing share of industry revenues relative to competitors. CBG believes this will enable the company to maximize and sustain its long-term cash flow and increase longterm stockholder value. Management's strategy to achieve these business objectives consists of several elements: increasing revenues from large clients; capitalizing on cross-selling opportunities; continuing to grow the investment management business; expanding through fill-in acquisitions; and focusing on improving operating efficiency. CBG's advisory services (30.8% of 2009 total consolidated revenues) include occupier/tenant and investor/owner services that meet a broad range of client needs, including real estate services, capital markets and valuation. The real estate services business offers a broad spectrum of services to occupiers/tenants and investors/owners. Real estate services include strategic

advice and execution for owners, investors and occupiers of real estate in connection with the leasing, disposition and acquisition of property. Although we expect further economic improvement, we still believe that more stringent lending and credit conditions will continue to restrict commercial real estate buying activity over the next 12-18 months. However, we expect activity to improve over the dismal levels of the recent past, particularly in the Asia-Pacific region. Through its capital markets business, CBG offers comprehensive capital markets solutions, rather than separate sales and financing transactions. During 2009, this unit concluded more than $16.3 billion of capital markets transactions in the Americas, including $10.0 billion of investment sales transactions and $6.3 billion of mortgage loan originations. The valuation business provides valuation services that include market value appraisals, litigation support, discounted cash flow analyses, and feasibility and fairness opinions. During 2009, CBG completed over 30,000 valuation, appraisal and advisory assignments.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 0.47 0.12 0.21 Nil Nil 14.14 2.34 NM NM

2008 NM 0.84 0.34 -1.30 Nil Nil 24.50 3.00 72 9

2007 NM 2.09 1.65 1.71 Nil Nil 42.74 17.49 26 11

2006 NM 1.64 1.35 1.33 Nil Nil 34.26 19.46 25 14

2005 NM 1.14 0.95 0.94 Nil Nil 19.92 10.40 21 11

2004 NM 0.56 0.30 0.30 Nil Nil 11.36 6.03 37 20

2003 NM 0.38 -0.11 NA Nil Nil NA NA NA NA

2002 NA 0.34 0.15 NA NA NA NA NA NA NA

2001 NA 0.54 0.32 NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Commissions Interest Income Total Revenue Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Nil 6.13 4,166 189 -0.64 NM 33.3 58.5

Nil 18.0 5,129 167 134 85.4% 73.7 -272

Nil 29.0 6,034 163 592 32.5% 388 403

Nil 9.80 4,032 45.0 523 37.9% 319 314

Nil 9.30 2,911 54.3 358 38.8% 217 216

Nil 4.30 2,365 65.4 108 40.2% 64.7 64.0

Nil 6.00 1,949 71.3 -41.0 NM -34.7 NA

NA NA 1,170 NA 48.8 61.7% 18.7 NA

NA NA 675 NA 42.5 50.8% 20.9 NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Total Assets 5,039 Cash Items 742 Receivables 1,091 Securities Owned Nil Securities Borrowed Nil Due Brokers & Customers Nil Other Liabilities 1,883 Capitalization:Debt 2,372 Capitalization:Equity 629 Capitalization:Total 3,157 % Return on Revenue 0.8 % Return on Assets 0.7 % Return on Equity 9.0

5,818 159 962 Nil Nil Nil 1,937 2,254 1,211 3,465 1.4 1.2 6.7

6,243 392 1,337 Nil Nil Nil 2,428 1,992 989 3,244 6.4 6.4 35.8

5,945 244 985 Nil Nil Nil 1,906 2,193 1,182 3,573 7.8 7.2 32.2

2,816 449 739 Nil Nil Nil 1,138 821 794 1,622 7.4 8.5 32.0

2,272 257 532 Nil Nil Nil 809 761 560 1,321 2.7 2.8 14.4

2,213 164 553 Nil Nil Nil 833 1,061 333 1,394 NM NM NM

1,325 79.7 NA NA NA NA NA NA 251 779 1.6 1.4 7.4

1,359 57.5 NA NA NA NA NA NA 257 794 3.1 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 11150 Santa Monica Blvd Ste 1600, Los Angeles, CA 90025-3385. Telephone: 310-405-8900. Website: http://www.cbre.com Chrmn: R.C. Blum

Pres & CEO: W.B. White Vice Chrmn: R. Wirta COO & EVP: C.W. Frese, Jr. EVP & Chief Acctg Officer: G. Borok

Investor Contact: N. Kormeluk (949-809-4308) Board Members: R. C. Blum, P. M. Daniels, C. F. Feeny, B. M. Freeman, M. Kantor, F. V. Malek, J. J. Su, B. White, G. L. Wilson, R. Wirta

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2001 Domicile: Delaware Employees: 29,000

Stock Report | October 23, 2010 | NYS Symbol: CBS | CBS is in the S&P 500

CBS Corp S&P Recommendation BUY

★★★★★

Price $17.18 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Broadcasting & Cable TV

12-Mo. Target Price $18.00

Investment Style Large-Cap Value

Summary This major operator of TV, radio, and outdoor advertising properties is one of the two companies created after the 2006 separation of the "old" Viacom into two public entities.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $18.20– 11.40 Trailing 12-Month EPS $0.56 Trailing 12-Month P/E 30.7 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.11 1.24 15.5 680.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.821 1.16 $0.20 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.09 10 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as CBS's steady free cash flow-generating businesses and ownership of some relatively well established traditional media brands, offset by exposure to cyclical ad-dependent businesses as well as potential structural challenges.

40 20

8 4

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 60 40 20 0 5

D

C

B-

BB

B+

A-

A

Relative Strength Rank 4

3

2

STRONG

4

2

78 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Tuna N. Amobi, CFA, CPA on August 05, 2010, when the stock traded at $ 15.58. Highlights ➤

We project consolidated revenue growth of about 10% for 2010 to about $14.3 billion, mainly on strong affiliate and advertising revenue growth for the Entertainment, Cable Networks, and Local Broadcasting segments -- with the additional benefit of this year's upcoming political advertising cycle for the TV stations. We also anticipate a relatively modest recovery in the global Outdoor unit, on a gradual improvement in pricing power and occupancy levels (with further improvement in 2011). With some difficult comparisons, we expect 2011 consolidated revenues to advance about 5% to $15.0 billion, also assuming some relatively modest growth for the Publishing division.

Investment Rationale/Risk ➤

➤ ➤

➤

Over the next two years, we see sizable margin expansion, with the benefit of cost savings on recent restructuring measures driving a significant improvement in operating leverage. We see 42% adjusted EBIT growth in 2010, to $2.14 billion, and a relatively modest 7% in 2011, to nearly $2.29 billion. After D&A, reduced interest expense, and taxes, we see 2010 and 2011 operating EPS of $1.11 and $1.24, respectively -- assuming no major acquisitions, divestitures, or share buybacks.

➤

We think CBS's stronger-than-expected 2010 second quarter results showed signs of a cyclical upturn across virtually all of the company's core businesses -- with management's update indicating continued momentum into the third quarter. In particular, we note relatively strong gains for the CBS network during the recently concluded upfront season, even as the scatter ad market has stayed buoyant. We see other potential catalysts from a continued ramp-up of retransmission deals with pay TV providers, and longer-term publishing upside on growing e-books sales. We also note CBS's strong balance sheet with ample financial flexibility. Risks to our opinion and target price include a relatively high macroeconomic exposure to cyclical advertising businesses (nearly twothirds of total revenues); corporate governance concerns related to voting control and board independence; and, foreign currency exposure. Based on what we see as an ample 1.6X 2010 P/E-to-growth (PEG) multiple, our 12-month target price is $18. We also note CBS's net operating loss carryforwards of about $1 billion. The stock recently provided a 1.3% dividend yield.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,531 3,331 2009 3,160 3,006 2008 3,654 3,394 2007 3,658 3,375 2006 3,575 3,483 2005 5,577 5,876

3Q -3,350 3,376 3,281 3,379 5,943

4Q -3,498 3,527 3,759 3,883 3,828

Year -13,015 13,950 14,073 14,320 14,536

Earnings Per Share ($) 2010 -0.04 0.22 2009 -0.08 0.02 2008 0.36 0.61 2007 0.28 0.55 2006 0.31 0.64 2005 0.72 0.94

E0.38 0.30 -18.53 0.48 0.42 0.94

E0.44 0.09 0.20 0.40 0.43 -6.07

E1.11 0.33 -17.43 1.70 1.79 -5.27

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

11/16 02/23 05/26 08/20

12/09 03/09 06/08 09/08

12/11 03/11 06/10 09/10

01/01/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CBS

CBS Corp Business Summary August 05, 2010 CORPORATE OVERVIEW. In its current form, the company is one of the two independent public entities created after the early 2006 separation of the "old" Viacom (which was renamed CBS Corp., while the other entity adopted the "Viacom" name). Pursuant to the separation, each Class A and B shareholder of the "old" Viacom received 0.5 of a share of corresponding A or B stock of each of the new entities. We believe that CBS Corp. was the lower-growth entity resulting from the separation, and that it was targeted to value-oriented investors. The company is organized into five business reporting segments. The Entertainment segment (54% of 2009 revenue and 46% of adjusted EBIT) includes the CBS networks, CBS TV production and syndication, CBS Films and CBS Interactive. Cable Networks (10% and 29%) comprises the Showtime Networks and CBS College Sports Network. Publishing (5% and 3%) comprises Simon & Schuster book publishers. The Local Broadcasting segment (18% and 28%) includes 30 owned and operated (O&O) TV stations, as well as 130 radio stations in 29 U.S. markets. The Outdoor unit (13% and -6%) operates billboards and out-of-home displays in the U.S. and abroad. In 2006, CBS sold its Para-

mount Parks unit for $1.24 billion in cash. CORPORATE STRATEGY. In June 2008, CBS acquired CNET Networks for about $1.8 billion in cash. CNET became the cornerstone of a new CBS Interactive unit -- an online audience network with such verticals as Technology, Entertainment, Sports, News and Business. CBS's online video syndication network has several distribution partners such as AOL, Microsoft, Comcast, Joost, Bebo, Brightcove, Netvibes, Sling Media, and Veoh. In recent years, the company has divested several dozen radio stations (and some TV stations) in smaller markets. In May 2007, CBS acquired Last.fm, a music-based social network with nearly 20 million users in more than 200 countries, for $280 million in cash. In January 2006, CBS acquired College Sports Network cable channel for about $325 million in stock.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.18 0.33 0.49 0.20 61% 14.56 3.06 44 9

2008 NM -16.64 -17.43 -7.03 1.06 NM 27.18 4.36 NM NM

2007 NM 2.34 1.70 1.72 0.94 55% 35.75 25.57 21 15

2006 NM 2.36 1.79 1.90 0.68 NM 32.04 23.85 18 13

2005 NM -9.91 -5.27 1.10 0.56 NM 77.98 59.86 NM NM

2004 NM -16.62 -17.56 2.92 0.50 NM 90.10 60.18 NM NM

2003 NM 2.77 1.62 2.40 0.24 15% 99.50 66.22 61 41

2002 NM 3.55 2.48 2.08 Nil Nil 103.78 59.50 42 24

2001 NM 3.31 -0.26 -0.76 Nil Nil 119.00 56.50 NM NM

2000 NM 3.04 -0.60 NA Nil Nil 151.75 88.63 NM NM

13,015 NA 582 542 409 44.7% 227 329

13,950 2,691 532 547 -12,593 NM -11,673 -4,713

14,073 3,078 456 571 2,052 40.0% 1,231 1,247

14,320 3,135 440 566 2,036 32.0% 1,383 1,468

14,536 3,165 499 720 -7,513 NM -8,322 871

22,526 5,838 810 719 -13,676 NM -15,060 2,497

26,585 5,957 1,000 776 2,861 55.9% 1,435 2,087

24,606 5,542 946 848 3,695 39.2% 2,207 1,845

23,223 4,667 3,087 963 656 NM -220 -656

20,044 4,243 2,224 822 436 NM -364 NA

Balance Sheet & Other Financial Data (Million $) Cash 717 Current Assets 5,637 Total Assets 26,962 Current Liabilities 4,747 Long Term Debt 6,553 Common Equity 9,019 Total Capital 16,016 Capital Expenditures 262 Cash Flow 809 Current Ratio 1.2 % Long Term Debt of Capitalization 40.9 % Net Income of Revenue 1.7 % Return on Assets 0.8 % Return on Equity 2.6

420 5,193 26,889 4,801 6,975 8,597 15,593 474 -11,142 1.1 44.7 NM NM NM

1,347 6,031 40,430 4,405 6,979 21,472 30,490 469 1,687 1.4 24.8 8.8 2.9 5.5

3,075 8,144 43,509 4,400 7,027 24,153 32,862 394 1,822 1.9 21.0 9.7 3.2 5.9

1,655 6,796 43,030 5,379 7,153 21,737 31,007 376 -7,823 1.3 23.1 NM NM NM

928 7,494 68,002 6,880 9,649 59,862 70,879 415 -14,250 1.1 13.6 NM NM NM

851 7,736 89,849 7,585 9,683 63,205 73,812 534 2,435 1.0 13.1 5.4 1.6 2.3

631 7,167 89,754 7,341 10,205 62,488 74,337 537 3,152 1.0 13.7 9.0 2.4 3.5

727 7,206 90,810 7,562 10,824 62,717 75,884 515 2,867 1.0 14.3 NM NM NM

934 7,832 82,646 7,758 12,474 47,967 67,481 659 1,860 1.0 18.5 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Data as orig. reptd., for "old" Viacom through third qtr. 2005. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 51 West 52nd Street, New York, NY 10019-6188. Telephone: 212-975-4321. Website: http://www.cbscorporation.com Chrmn: S.M. Redstone

Pres & CEO: L. Moonves Vice Chrmn: S.E. Redstone EVP & CFO: J.R. Ianniello EVP & General Counsel: L.J. Briskman

Board Members: D. R. Andelman, J. A. Califano, Jr., W. Founded: 1986 S. Cohen, G. L. Countryman, C. K. Gifford, L. Domicile: Delaware Goldberg, B. S. Gordon, L. M. Griego, A. Kopelson, L. Employees: 25,580 Moonves, D. Morris, S. E. Redstone, S. M. Redstone, F. V. Salerno

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CELG | CELG is in the S&P 500

Celgene Corp S&P Recommendation STRONG BUY

★★★★★

Price $58.74 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Biotechnology

12-Mo. Target Price $74.00

Investment Style Large-Cap Growth

Summary This company primarily develops and commercializes small molecule drugs for the treatment of bloodborne and solid tumor cancers and inflammatory disease.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $65.79– 48.02 Trailing 12-Month EPS $1.84 Trailing 12-Month P/E 31.9 $10K Invested 5 Yrs Ago $22,750

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.38 2.96 24.7 470.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$27.648 Nil Nil 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.64 25 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the strong competition we see in the blood cancer treatment markets, particularly from Velcade in multiple myeloma. Further, in Thalomid and Revlimid, the company currently depends on two products in the same markets for the majority of its revenues. We also see inherent risk in CELG's drugs maintaining a competitive safety profile versus peers.

80

60 50 40

Vol. 80

Mil.

75

Quantitative Evaluations

30 20 10 0 5

S&P Quality Ranking 5

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

C B

B+

A-

Relative Strength Rank

A

A+

MODERATE 59

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Steven Silver on October 18, 2010, when the stock traded at $ 58.21. Highlights ➤

➤

➤

We see 2010 revenues of $3.48 billion, 30% higher than in 2009, with 37% growth in Revlimid sales to $2.34 billion, and 2011 revenues of $4.37 billion, up 26%, with 21% higher Revlimid sales to $2.82 billion. We continue to see significant long-term growth for Revlimid, with new uses being explored in multiple blood cancers, and with its global expansion still in early stages. Further, we expect Vidaza and the recently acquired Abraxane to provide near-term revenue diversification. We forecast 2010 and 2011 gross margins above 92%, as CELG improves manufacturing efficiencies and discontinues sales of lowermargin drugs. We expect 2010 operating margin expansion to 39%, from 2009's 36%, and a further rise to 42% in 2011, driven by leverage from a global infrastructure after the 2008 purchase of Pharmion. We also view robust R&D investments favorably, as CELG expects to have 20 late-stage trials ongoing during 2010. We project adjusted EPS of $2.38 in 2010 and $2.96 in 2011, excluding amortization of intangible assets. We expect CELG to maintain a below-industry average tax rate of 20%-21%, on higher sales in lower tax jurisdictions.

Investment Rationale/Risk ➤

➤

➤

In our view, CELG holds the brightest growth prospects among large-cap biotech companies. We expect Revlimid to drive near-term revenue growth, bolstered by positive efficacy seen in first-line multiple myeloma studies, and its oral formulation and superior safety profile. We also have a favorable view of CELG's inflammation/ immunology and cellular therapeutics pipelines complementing the core hematology/oncology franchise. We estimate CELG having around $2 billion in cash following the recently closed acquisition of Abraxis Bioscience for its cancer drug Abraxane, which is currently approved for metastatic breast cancer and in Phase III study for non-small cell lung cancer, and a $1.25 billion debt offering. Risks to our opinion and target price include slower-than-expected Revlimid sales growth, reimbursement issues for the drug, unfavorable defense of its patents, and clinical failure of CELG's earlier pipeline candidates. Our 12-month target price of $74 applies a 25X multiple to our 2011 adjusted EPS estimate of $2.96, a premium to large-cap peers on what we view as a superior earnings growth and pipeline outlook.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 791.3 852.7 2009 605.1 628.7 2008 462.6 571.5 2007 293.4 347.9 2006 181.8 197.2 2005 112.4 145.7

3Q -695.1 592.5 349.9 244.8 129.5

4Q -761.0 628.3 414.6 275.0 149.3

Year -2,690 2,255 1,406 898.9 536.9

Earnings Per Share ($) 2010 0.50 0.33 2009 0.35 0.31 2008 -3.98 0.26 2007 0.14 0.13 2006 0.04 0.03 2005 0.13 0.03

E0.63 0.46 0.29 0.09 0.05 Nil

E0.57 0.54 -0.33 0.18 0.06 0.01

E2.38 1.66 -3.46 0.54 0.18 0.18

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: CELG

Celgene Corp Business Summary October 18, 2010 CORPORATE OVERVIEW. Celgene is a biopharmaceutical company focusing on the discovery, development and commercialization of products for the treatment of cancer and other severe, immune, inflammatory conditions. Its primary areas of expertise have been on hematological and solid tumor cancers, including multiple myeloma, myelodysplastic syndromes, chronic lymphocyte leukemia (CLL), non-Hodgkin's lymphoma (NHL), glioblastoma, and ovarian, pancreatic and prostate cancers. CELG uses its small molecule technology to develop Immunomodulatory Drugs (IMiDs) and Selective Cytokine Inhibitory Drugs (SelCIDs), potent, orally available agents to fight acute and chronic diseases. Its primary focus to date has been treating multiple myeloma (MM), the second most commonly diagnosed blood cancer. According to the International Myeloma Foundation, there are an estimated 100,000 people in the U.S. with multiple myeloma and nearly 20,000 new cases diagnosed each year. The IMF estimates that multiple myeloma represents 1% of all cancers and accounts for 2% of cancer deaths. To date, Celgene's primary marketed products have been Thalomid ($437 million sales in 2009) and Revlimid ($1.7 billion). Thalomid is CELG's version of thalidomide, an antiangiogenic agent capable of inhibiting blood vessel growth and down-regulating TNFa. In 1998, Thalomid was approved by the FDA to treat leprosy-related conditions. In 2006, FDA approved Thalomid to treat relapsed/refractory multiple myeloma. European rights to Thalomid were

re-acquired in the March 2008 acquisition of Pharmion, and the drug was approved in Europe for front-line multiple myeloma in April 2008. In December 28, 2005, FDA approved Revlimid, a successor analogue version of Thalomid, to treat patients with blood disorder myelodysplastic syndrome (MDS). Revlimid has subsequently been approved in the U.S., Europe and Japan, among other countries, for relapsed/refractory multiple myeloma, which has become its most lucrative indication. The drug is also being studied for amyloidosis, non-Hodgkin's lymphoma, and solid tumors including prostate, renal cell carcinoma, pancreatic and colorectal cancers. In 2009, a pivotal Phase III study, MM-015, showed a 50% reduction in progression-free survival in patients receiving Revlimid with melphalan and prednisone (MP) versus patients receiving MP alone as a multiple myeloma maintenance regimen after autologous stem cell transplant, and patients saw 75% progressionfree survival improvement beyond nine cycles of therapy. We expect CELG to file the drug for earlier-stage MM use in major markets by early 2011. In August 2010, CELG received notice of a U.S. regulatory filing for a generic version of Revlimid and has responded with a challenge to the filing.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.55 1.93 1.66 1.66 Nil Nil 58.31 36.90 35 22

2008 5.37 -3.13 -3.46 -3.45 Nil Nil 77.39 45.44 NM NM

2007 6.80 0.60 0.54 0.55 Nil Nil 75.44 41.26 NM NM

2006 4.83 0.23 0.18 0.19 Nil Nil 60.12 31.51 NM NM

2005 1.48 0.23 0.18 0.05 Nil Nil 32.68 12.35 NM NM

2004 1.06 0.18 0.16 0.08 Nil Nil 16.29 9.37 NM NM

2003 0.93 0.06 0.04 -0.04 Nil Nil 12.22 5.04 NM NM

2002 0.85 -0.31 -0.33 -0.33 Nil Nil 8.05 2.83 NM NM

2001 1.03 0.01 -0.01 -0.09 Nil Nil 9.72 3.60 NM NM

2000 1.00 -0.05 -0.06 NA Nil Nil 19.00 4.58 NM NM

2,690 968 126 1.97 976 20.4% 777 777

2,255 742 149 4.44 -1,369 NM -1,534 -1,528

1,406 457 31.5 11.1 517 56.2% 226 230

899 200 25.7 9.42 203 66.0% 69.0 71.5

537 97.9 14.3 9.50 84.2 24.4% 63.7 10.8

378 52.4 9.69 9.55 63.2 16.5% 52.8 25.0

271 5.38 8.03 5.67 12.0 NM 12.8 -13.0

136 -31.0 5.18 0.03 -101 NM -101 -88.6

114 -19.9 5.09 0.08 -4.14 NM -2.90 -26.5

84.2 -23.9 3.72 2.08 -18.8 NM -17.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,997 Current Assets 3,845 Total Assets 5,389 Current Liabilities 495 Long Term Debt 21.1 Common Equity 4,395 Total Capital 4,420 Capital Expenditures 93.4 Cash Flow 903 Current Ratio 7.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 28.9 % Return on Assets NA % Return on Equity NA

2,222 2,841 4,445 527 22.2 3,491 3,514 77.4 -1,385 5.4 0.6 NM NM NM

2,739 3,084 3,611 433 22.6 2,844 2,877 64.4 258 7.1 0.8 16.1 7.1 9.4

1,982 2,311 2,736 240 400 1,976 2,376 46.1 94.7 9.6 16.8 7.7 3.5 5.3

724 973 1,247 136 400 636 1,036 35.9 77.9 7.2 38.6 11.9 5.4 11.4

749 850 1,107 141 400 477 877 36.0 62.4 6.0 45.6 14.0 5.5 13.0

667 730 791 71.8 400 310 710 11.2 20.8 10.2 56.3 4.7 2.3 4.3

261 296 327 44.3 0.04 277 277 11.1 -95.8 6.7 0.0 NM NM NM

310 336 354 30.0 11.8 310 322 7.87 2.18 11.2 3.7 NM NM NM

161 332 347 33.8 12.3 296 308 9.64 -13.3 9.8 4.0 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 86 Morris Avenue, Summit, NJ 07901. Telephone: 908-673-9000. Email: [email protected] Website: http://www.celgene.com

Chrmn: S.J. Barer Pres, CEO & Secy: R.J. Hugin SVP & CFO: J.A. Fouse Chief Acctg Officer & Cntlr: A. Van Hoek

Treas: C.B. Elflein Founded: 1986 Investor Contact: B.P. Gill (908-673-9530) Domicile: Delaware Board Members: S. J. Barer, M. D. Casey, C. S. Cox, R. Employees: 2,813 L. Drake, R. J. Hugin, G. Kaplan, J. J. Loughlin, E. Mario, W. L. Robb

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CNP | CNP is in the S&P 500

CenterPoint Energy Inc. S&P Recommendation HOLD

★★★★★

Price $16.42 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $17.00

Investment Style Large-Cap Value

Summary This Houston-based energy company (formerly Reliant Energy) is one of the largest electric and natural gas delivery companies in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$16.56– 5.67 $1.05 15.6 $16,528

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.07 1.20 15.3 421.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.925 4.75 $0.78 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 -3 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the strong and steady cash flow we expect from the Houston electric operations, which have a growing service territory; a low commodity risk profile; a generally supportive regulatory environment; and the gas purchase adjustment clauses that reduce the commodity risks related to the company's more diversified gas distribution operations.

20 16 12

8

Vol. Mil.

60

24 16 8 0

Quantitative Evaluations S&P Quality Ranking D

5

C

B-

B B

B+

A-

A

Relative Strength Rank

1

STRONG 73

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights

➤

➤

Investment Rationale/Risk

We expect EPS in 2010 to increase about 5% from 2009's $1.01, which fell 22% from 2008's $1.30. Earnings in the first half of 2010 benefited from the more favorable weather and lower uncollected accounts at CNP's electric and gas utility operations, and from higher operating income at the interstate pipelines and field services operations. However, EPS was diluted by approximately 14% more shares. EPS in the first quarter was reduced by $0.05 due to federal legislation eliminating the tax deductibility of certain retiree health care costs.

➤

For full-year 2010, we expect EPS to benefit from higher operating margins in all of CNP's segments and a decline in its interest expense. This should, however, be partially offset by a higher effective tax rate and more shares outstanding. For 2011, we look for EPS to increase about 8% from anticipated results in 2010, reflecting an expected gradual recovery in both the economy and the energy markets.

➤

On June 30, 2010, CNP's Houston Electric subsidiary filed with the Texas Public Utility Commission a request for a $76 million increase in its distribution rates and an $18 million increase in its wholesale transmission rates.

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on October 11, 2010, when the stock traded at $ 16.17.

➤

A+

3

2

The stock is up about 11% year to date. This follows a 15% increase in 2009, and has reflected, in our view, CNP's improved financial strength, a well above peers yield from the dividend and the rebound in the utilities sector and the broader market. The stock had been badly hurt in early 2009 after CNP had announced a sharp reduction in its 2009 earnings outlook due to an increase in its projected pension expense. It was then further hurt by the impact of the economic downturn and the crisis in the credit markets. Risks to our recommendation and target price include a potential weakening of the company's financial strength, including a decreased ability to access capital markets on reasonable terms, and/or a large decline in the average P/E of the company's electric and gas utility peers. The dividend yield, recently at 4.8%, was above the recent electric and gas utility peer average of about 4.6%. Given the estimated 73% payout ratio on our EPS estimate for 2010, we believe the dividend is secure. Our 12-month target price is $17, reflecting a premium-to-peers P/E of approximately 14.2X our 2011 estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,023 1,756 2009 2,766 1,640 2008 3,363 2,670 2007 3,106 2,033 2006 3,077 1,843 2005 2,762 1,932

3Q -1,576 2,515 1,882 1,935 2,073

4Q -2,299 2,774 2,602 2,464 3,212

Year -8,281 11,322 9,623 9,319 9,722

Earnings Per Share ($) 2010 0.29 0.20 2009 0.19 0.24 2008 0.36 0.30 2007 0.38 0.20 2006 0.28 0.61 2005 0.20 0.09

E0.29 0.31 0.39 0.27 0.26 0.15

E0.29 0.27 0.25 0.32 0.20 0.25

E1.07 1.01 1.30 1.17 1.33 0.67

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.195 0.195 0.195 0.195

01/21 04/22 07/22 10/21

02/11 05/12 08/12 11/12

02/16 05/14 08/16 11/16

03/10/10 06/10/10 09/10/10 12/10/10

Dividends have been paid since 1922. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CNP

CenterPoint Energy Inc. Business Summary October 11, 2010 CORPORATE OVERVIEW. CenterPoint Energy (formerly Reliant Energy) is a Houston-based energy delivery company with operations that include electric transmission and distribution (48.5% of operating income in 2009), interstate pipelines (22.8%), natural gas distribution (18.1%), field services (8.4%), competitive natural gas sales and services (1.9%), and other (0.3%). MARKET PROFILE. The CenterPoint Energy Houston Electric (CEHE) utility serves more than 2 million customers in a 5,000 square mile territory that includes the cities of Houston and Galveston, TX, and (with the exception of Texas City), nearly all of the Houston/Galveston metropolitan area. Following the deregulation of the industry in Texas, wholesale and retail suppliers pay the company to deliver the electricity over its transmission lines. The natural gas subsidiary, CenterPoint Energy Resources Corp. (CERC), serves about 3.2 million residential, commercial and industrial customers in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. In 2009, approximately 43% of total demand was accounted for by residential customers, and about 57% was from commercial and industrial customers.

CERC's interstate pipeline business owns and operates approximately 8,000 miles of gas transmission lines primarily located in Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. It also owns and operates six natural gas storage fields with a combined daily volume of about 1.2 billion cubic feet per day. CERC's field services business owns and operates around 3,700 miles of gathering pipelines and processing plants, and around 140 natural gas gathering systems in Arkansas, Oklahoma, Louisiana and Texas. In January 2007, CNP agreed to discontinue the development of its proposed pipeline with Spectra Energy (the spun-off gas transmission unit of Duke Energy) due to market conditions. The proposed pipeline (announced in June 2006) would have stretched from Texas to Pennsylvania.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.41 1.01 1.05 0.76 75% 14.87 8.66 15 9

2008 0.99 1.30 1.31 0.73 56% 17.35 8.48 13 7

2007 NM 1.17 1.31 0.68 58% 20.20 14.70 17 13

2006 NM 1.33 1.18 0.60 45% 16.87 11.62 13 9

2005 NM 0.67 0.75 0.40 60% 15.14 10.55 23 16

2004 NM 0.61 0.65 0.40 66% 12.32 9.66 20 16

2003 NM 1.37 1.28 0.40 29% 10.49 4.35 8 3

2002 NM 1.29 2.17 1.07 83% 27.10 4.24 21 3

2001 13.05 3.14 3.00 1.50 48% 50.45 23.27 16 7

2000 8.11 2.68 NA 1.50 56% 49.00 19.75 18 7

8,281 743 NA 1.80 NA 32.1% 372 386

11,322 708 NA 2.14 NA 38.3% 447 451

9,623 631 NA 1.95 NA 32.8% 399 444

9,319 599 NA 1.80 NA 12.6% 432 384

9,722 541 NA 1.35 NA 40.5% 225 254

8,510 490 NA 1.15 NA NM 206 224

9,760 625 NA 1.37 NA 35.6% 420 390

7,923 616 NA 1.80 NA 35.0% 386 642

46,226 911 NA 3.33 NA 33.3% 919 868

29,339 906 NA 2.60 NA 32.9% 771 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 14,770 Capital Expenditures 1,160 Net Property 10,788 Capitalization:Long Term Debt 9,119 Capitalization:% Long Term Debt 77.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 2,639 Capitalization:% Common 22.4 Total Capital 12,661 % Operating Ratio 88.6 % Earned on Net Property 10.7 % Return on Revenue 4.5 % Return on Invested Capital 7.8 % Return on Common Equity 15.9

14,006 1,020 10,296 10,181 83.3 Nil Nil 2,037 16.7 14,851 91.2 12.7 4.0 7.3 23.2

13,250 1,114 9,740 8,364 82.2 Nil Nil 1,810 17.8 12,440 89.7 12.5 4.1 8.5 23.7

12,567 1,007 9,204 7,802 83.4 Nil Nil 1,556 16.6 12,036 89.5 11.8 2.8 8.3 30.3

11,558 693 8,492 8,568 86.9 Nil Nil 1,296 13.1 12,769 91.9 11.3 1.4 7.9 18.7

10,963 530 8,186 7,193 86.7 Nil Nil 1,106 13.3 10,767 91.5 10.6 2.4 7.6 14.4

11,812 648 11,812 10,783 86.0 Nil Nil 1,761 14.0 12,934 85.8 21.8 4.3 11.1 26.4

11,409 854 11,409 9,194 71.0 Nil Nil 3,756 29.0 13,180 85.8 17.2 4.9 14.7 10.3

24,214 2,053 15,857 6,448 48.4 Nil Nil 6,881 51.6 16,970 96.6 12.8 2.0 11.2 14.8

15,260 1,842 15,260 5,701 51.0 10.0 0.09 5,472 48.9 13,998 94.9 13.2 2.6 10.3 14.3

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1111 Louisiana Street, Houston, TX 77002-5230. Telephone: 713-207-1111. Email: [email protected] Website: http://www.centerpointenergy.com

Chrmn: M. Carroll Pres & CEO: D.M. McClanahan EVP & CFO: G.L. Whitlock EVP, Secy & General Counsel: S.E. Rozzell

SVP & Chief Acctg Officer: W.L. Fitzgerald Founded: 1882 Investor Contact: M. Paulsen (713-207-6500) Domicile: Texas Board Members: D. R. Campbell, M. Carroll, D. Cody, O. Employees: 8,810 H. Crosswell, M. P. Johnson, J. M. Longoria, T. F. Madison, D. M. McClanahan, R. T. O'Connell, S. O. Rheney, R. A. Walker, P. S. Wareing, S. M. Wolff

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CTL | CTL is in the S&P 500

CenturyLink Inc S&P Recommendation HOLD

★★★★★

Price $40.59 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Integrated Telecommunication Services

12-Mo. Target Price $36.00

Investment Style Large-Cap Blend

Summary CTL acquired larger telecom peer Embarq in a stock deal in July 2009. Combined, the company provides voice service to 7 million customers and Internet service to 2 million customers in both rural towns and larger cities, like Las Vegas.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.78– 10.16 Trailing 12-Month EPS $3.33 Trailing 12-Month P/E 12.2 $10K Invested 5 Yrs Ago $15,958

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.41 3.31 11.9 301.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.236 7.14 $2.90 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.74 5 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as CTL's relatively strong balance sheet and cash flow generation offset by the competitive nature of its markets and integration of a large acquisition.

40 30

20

Quantitative Evaluations

15

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

71

5

3

2

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: Cycle P, Ph

Analysis prepared by Todd Rosenbluth on August 09, 2010, when the stock traded at $ 36.41. Highlights ➤

➤

We forecast revenues of $7 billion in 2010 and $6.75 billion in 2011, down from $7.5 billion in 2009 on a pro forma basis including Embarq. Much of CTL's second-half 2009 reported revenues stemmed from the acquisition. We see pressure on voice services from ongoing access line losses, exacerbated by lower revenues from universal service funding, and the migration of wireless traffic from a customer, outweighing gains we expect from data services such as DSL. We look for EBITDA margins of 51% in 2010 and 52% in 2011, as we see cost synergies from billing and network integration. However, we expect to see increased selling and marketing costs in the second half of 2010. We look for depreciation charges to decline on a pro forma basis in 2010.

Investment Rationale/Risk ➤

➤

➤ ➤

Historically, CTL has repurchased shares on the open market, but with the company's current focus on merger integration and a new yetto-be-approved deal, we do not expect additional repurchases in 2010. We estimate EPS of $3.41 in 2010 and $3.31 in 2011.

Revenue/Earnings Data

2010

While we believe the company is making progress integrating Embarq, we expect 2010 earnings pressure amid a decline in revenues even as cost synergies and room for greater broadband penetration exist. We also believe the planned stock-based acquisition of Qwest Communications (Q 6, Hold), subject to necessary approvals expected in mid-2011, adds new opportunities for expense synergies and dividend payout support, but also risks. We think Q faces tough competition in its consumer and enterprise segments and has greater debt leverage. Risks to our recommendation and target price include regulatory changes; an inability to smoothly integrate acquired assets; and an increase in customer migration or line losses. We think the shares, supported by a recent dividend yield of around 8%, are fairly valued. Our 12-month target price of $36 is based on an 11X P/E applied to our 2011 EPS estimate, a slight discount to multiples we expect for peers. At our target price, CTL would also trade at a discount on an enterprise value/EBITDA basis.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,800 1,772 2009 636.4 634.5 2008 648.6 658.1 2007 600.9 690.0 2006 611.3 608.9 2005 595.3 606.4

3Q -1,874 650.1 708.8 619.8 657.1

4Q -1,829 643.0 656.6 607.7 620.5

Year -4,974 2,600 2,656 2,448 2,479

Earnings Per Share ($) 2010 0.84 0.88 2009 0.67 0.69 2008 0.83 0.88 2007 0.68 1.00 2006 0.55 1.26 2005 0.59 0.64

E0.81 0.50 0.84 1.01 0.64 0.68

E0.79 0.76 1.01 1.05 0.62 0.59

E3.41 2.55 3.56 3.72 3.07 2.49

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.700 0.725 0.725 0.725

11/18 02/25 05/21 08/24

11/30 03/05 06/04 09/02

12/02 03/09 06/08 09/07

12/15/09 03/22/10 06/21/10 09/20/10

Dividends have been paid since 1974. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CTL

CenturyLink Inc Business Summary August 09, 2010 CORPORATE OVERVIEW. As of June 2010, CenturyLink Inc (formerly CenturyTel) operated 6.8 million telephone access lines, following the acquisition of Embarq in July 2009. The company also provided DSL broadband to 2.3 million customers (36% penetration of total addressable lines) and has partnered to offer wholesale satellite services to more than 594,000 customers through CTL's product bundles. In the first half of 2010, 44% of revenues were from voice services, 16% from network access services and the remainder from data and fiber transport services. In early July 2009, CTL completed its planned acquisition of its larger, fellow telco Embarq Corp (EQ). The deal involved a swap of 1.37 CTL shares per EQ share and the assumption of $6 billion in debt. On a pro forma basis, the new company had 7.3 million access lines and 2.15 million DSL customers at the end of June 2009. Revenues would have been $1.96 billion during the second quarter of 2009 and EBITDA of $968 as a combined company, before any synergies. CTL believes it achieved $75 million of expense synergies from the merger during the second quarter of 2010 and expects to finish 2010 with a $330 million annualized synergy run rate.

approvals expected in mid-2011, is equal to $22 billion including the assumption of debt. We view the price to be fair and see opportunities for expense synergies (CTL expects $625 million on an annual basis) that can help CTL support its dividend. As of early August 2010, six of the 21 required state approvals had been received. COMPETITIVE LANDSCAPE. We believe CTL faces challenges from technology substitution to cable telephony and to wireless. The penetration of the necessary broadband connection is smaller in the Tier II and Tier III markets in which CTL previously operated; as of late 2009, more than 65% of its access line customers had the option of cable broadband from companies such as Comcast. However, Embarq's operations included larger cities in Florida and Nevada that faced greater competition and were hurt by weakness in the housing market. At the end of the second quarter of 2010, CTL highlighted that its access lines declined 8% from a year earlier on a pro forma basis. This line loss rate remains higher than that of some peers, although it is lower than the 9% loss of a year earlier and the 11.5% access line loss Q had in the 12 months ended June 2010.

In April 2010, CTL announced plans to acquire Qwest Communications (Q 6, Hold)), a wireline carrier currently with 9.4 million access lines, 3 million DSL customers and a stable enterprise segment. The deal, subject to necessary Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 7.46 2.55 2.77 2.80 110% 37.16 23.41 15 9

2008 NM 8.64 3.56 3.33 1.61 45% 42.00 20.45 12 6

2007 NM 8.44 3.72 3.37 0.26 7% 49.94 39.91 13 11

2006 NM 7.31 3.07 2.52 0.25 8% 44.11 32.54 14 11

2005 1.41 6.37 2.49 2.30 0.24 10% 36.50 29.55 15 12

2004 NM 5.90 2.41 2.36 0.23 10% 35.54 26.20 15 11

2003 0.37 5.63 2.38 2.35 0.22 9% 36.76 25.25 15 11

2002 NM 4.21 1.33 1.08 0.21 16% 35.50 21.13 27 16

2001 NM 5.73 2.41 1.21 0.20 8% 39.88 25.45 17 11

2000 NM 4.36 1.63 NA 0.19 12% 47.31 24.44 29 15

4,974 975 NA NA 37.1% 511 551

2,600 524 NA NA 34.7% 3,294 342

2,656 536 NA NA 32.4% 418 377

2,448 524 NA NA 37.4% 370 302

2,479 532 NA NA 37.8% 334 307

2,407 501 NA NA 38.4% 337 330

2,381 471 NA NA 35.2% 345 339

1,972 412 NA NA 35.3% 190 153

2,117 473 NA NA 37.2% 343 171

1,846 388 NA NA 39.0% 231 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 15,557 Net Property 9,097 Capital Expenditures 755 Total Capital 17,221 Fixed Charges Coverage 3.2 Capitalization:Long Term Debt 7,254 Capitalization:Preferred 0.24 Capitalization:Common 9,461 % Return on Revenue 10.3 % Return on Invested Capital 7.5 % Return on Common Equity 8.1 % Earned on Net Property 20.6 % Long Term Debt of Capitalization 43.4 Capital % Preferred Nil Capitalization:% Common 56.6

8,869 2,896 287 7,311 3.8 3,294 0.24 3,163 14.1 7.5 11.1 24.2 51.0 Nil 49.0

8,666 3,108 326 6,962 3.9 2,734 6.97 3,402 15.8 9.5 12.7 25.5 44.5 0.1 55.4

7,894 3,109 314 5,604 4.4 2,413 7.45 3,184 15.1 9.8 10.9 20.8 43.1 0.1 56.8

7,801 3,304 415 5,993 3.6 2,376 7.85 3,609 13.5 8.8 9.5 38.2 39.6 0.1 60.2

7,431 3,341 385 6,172 3.6 2,762 7.98 3,402 14.0 8.6 9.8 36.9 44.8 0.1 55.1

3,455 3,455 378 6,588 3.4 3,109 7.98 3,471 14.5 8.6 10.5 35.0 47.2 0.1 52.7

6,668 3,532 386 6,666 2.3 3,578 7.98 3,080 9.6 7.4 7.0 31.5 53.7 0.1 46.2

5,839 3,000 507 4,425 3.4 2,088 7.98 2,329 16.2 12.2 15.7 34.6 47.2 0.2 52.6

5,915 2,959 450 5,082 3.2 3,050 7.98 2,024 12.5 9.4 12.0 35.0 60.0 0.2 39.8

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 CenturyLink Drive, Monroe, LA 71203. Telephone: 318-388-9000. Website: http://www.centurylink.com Chrmn: W.A. Owens

Pres & CEO: G.F. Post, III Vice Chrmn: H.P. Perry Vice Chrmn: T.A. Gerke COO & EVP: K.A. Puckett

Investor Contact: T. Davis (800-833-1188) Founded: 1968 Board Members: V. Boulet, P. C. Brown, R. A. Domicile: Louisiana Gephardt, T. A. Gerke, W. B. Hanks, G. J. McCray, III, C. Employees: 20,200 G. Melville, Jr., F. R. Nichols, W. A. Owens, H. P. Perry, G. F. Post, III, L. A. Siegel, J. R. Zimmel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CEPH | CEPH is in the S&P 500

Cephalon Inc S&P Recommendation HOLD

★★★★★

Price $64.10 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Biotechnology

12-Mo. Target Price $72.00

Investment Style Large-Cap Growth

Summary This biopharmaceutical company markets and develops human therapeutics for the treatment of neurological disorders, pain indications and, most recently, oncology.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $72.87– 53.44 Trailing 12-Month EPS $4.99 Trailing 12-Month P/E 12.9 $10K Invested 5 Yrs Ago $14,103

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

7.11 7.20 9.0 75.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

70 60

MEDIUM

HIGH

Quantitative Evaluations

Vol. 24

Mil.

S&P Quality Ranking D 5

4

5

3

C

B-

BB

B+

A-

Relative Strength Rank

A

A+

MODERATE 57

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Steven Silver on August 02, 2010, when the stock traded at $ 58.24. Highlights We estimate 2010 sales of $2.71 billion, which would represent 24% growth over 2009, driven by contributions from products acquired from Mepha AG in April 2010. We forecast 9% sales growth in 2011, to about $2.97 billion. We expect the early 2012 patent expiration of Provigil to slow CEPH's revenue growth outlook, but we expect the impact to be mitigated by new approved uses for Nuvigil, wider adoption of Treanda in non-Hodgkin's lymphoma, and exposure to new markets through the Mepha deal. We expect gross margins to narrow from 87% in 2009 to around 84% in 2010 and 83% in 2011, as patients migrate from Provigil to the cheaper Nuvigil. We project operating margins of around 33% in 2010 and 31% in 2011, with operating margins further challenged by a ramp in investment in CEPH's biologics-focused pipeline and global infrastructure expansion. However, we see such efforts being supported by solid operational cash flows and a cash balance of $927 million as of June 30, 2010.

Investment Rationale/Risk ➤

➤

➤

Our 2010 and 2011 adjusted EPS estimates of $7.11 and $7.20 per share, respectively, exclude amortized intangible assets, restructuring and acquisition-related charges.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Cephalon faces generic pressures in its pain franchise and in its wakefulness franchise in the coming years, and has been subject to regulatory oversight of its marketing practices and drug safety. Also, the company is developing new drugs for competitive markets, which we view as a highly risky endeavor.

80

➤

0.46 10 NA

Below Avg.

90

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

100

12 8 4 0

$4.820 Nil Nil NM

Our recent downgrade to hold, from buy, reflects a more cautious view of CEPH's reliance on expanding Nuvigil's approved uses. While we are encouraged by CEPH's aggressive acquisition of biologic pipeline assets, we see few near-term catalysts and a less clear path to drive meaningful revenue growth to offset looming wakefulness franchise sales erosion. We still expect the FDA to approve Nuvigil for jet lag disorder at its new December 2010 action date given initial priority review status, but we are wary of its questioning of the drug's efficacy. We are encouraged by prospects for the Mepha AG acquisition to broaden CEPH's global sales reach and business mix. Risks to our recommendation and target price include failure to expand Nuvigil's product label, clinical failure of late-stage pipeline candidates, failure to expand the market for Fentora to offset erosion from generic Actiq, and further regulatory issues over product marketing. Our 12-month target price of $72 applies a 10.1X multiple to our 2010 adjusted EPS estimate, in line with our long-term growth outlook, but a discount to peers given CEPH's high exposure to generic drugs.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 596.6 726.9 2009 514.4 539.0 2008 433.9 485.0 2007 437.0 447.2 2006 356.9 440.1 2005 280.0 286.0

3Q -535.2 489.7 438.4 482.3 309.5

4Q -562.9 534.9 450.0 484.7 336.4

Year -2,192 1,975 1,773 1,764 1,212

Earnings Per Share ($) 2010 1.35 1.11 2009 0.75 1.11 2008 0.52 0.80 2007 0.99 -0.06 2006 0.05 0.76 2005 0.44 -4.29

E1.70 1.31 1.42 -4.58 1.43 0.50

E1.61 1.23 0.15 0.56 -0.08 0.30

E7.11 4.41 2.92 -2.88 2.08 -3.01

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: CEPH

Cephalon Inc Business Summary August 02, 2010 CORPORATE OVERVIEW. Cephalon develops, manufactures and markets therapeutics for the treatment of sleep disorders, neurodegenerative conditions and cancer. CEPH's Provigil is approved for excessive daytime sleepiness (EDS) due to narcolepsy (a chronic, lifelong sleep disorder), obstructive sleep apnea/ hypopnea syndrome and shift work sleep disorder. Provigil has patent protection until 2012. CEPH has developed Nuvigil, a single-isomer version of Provigil, with a longer duration of action and an improved side effect profile, which it launched in June 2009, and is transitioning Provigil users to Nuvigil. In October 2009, Teva Pharmaceuticals filed to produce a generic version of Nuvigil, which CEPH has challenged. Provigil/Nuvigil sales rose 11%, to $1.1 billion, in 2009, representing 51% CEPH's 2009 product sales. CEPH's pain franchise sales fell by 3% in 2009, as Actiq sales for breakthrough cancer pain declined 15% to $230 million, due to generic competition. CEPH's Fentora, for the same indication, saw sales decline 9% in 2009, to $141 million. Following several deaths that occurred due to inappropriate prescribing and dosing, the FDA has delayed approving Fentora's use in non-cancer pain indications due to concerns over patient mis-use, pending an approved risk mini-

mization program. In June 2008, Watson Labs announced plans to seek a generic version of Fentora. CEPH filed to defend its patents. In 2008, CEPH received FDA approval for Treanda for treatment of prevalent blood cancers chronic lymphocytic leukemia (CLL) and for relapsed indolent non-Hodgkin's lymphoma (NHL). To date, the majority of Treanda sales have come from CLL, but CEPH expects NHL sales to expand following the late 2009 publication of study data that showed Treanda outperformed the current standard of care. Treanda's patents expire in 2014. Treanda sales were $222 million in 2009, up from $75 million in 2008. In mid-2007, CEPH acquired North American rights to once-daily, extended-release muscle relaxant Amrix from ER Pharmaceuticals. In April 2008, CEPH received a patent extension extending market exclusivity to 2025, from the previously expected 2010 date. In October 2008, Mylan Pharmaceuticals filed to launch a generic version of Amrix. CEPH filed to defend its patents. Amrix sales were $114 million in 2009, up 55% over 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.21 6.58 4.41 4.44 Nil Nil 81.35 52.55 18 12

2008 6.55 4.96 2.92 3.13 Nil Nil 80.39 56.20 28 19

2007 0.11 -1.02 -2.88 3.44 Nil Nil 84.83 64.65 NM NM

2006 5.93 3.75 2.08 2.14 Nil Nil 82.92 51.58 40 25

2005 NM -1.56 -3.01 -3.30 Nil Nil 66.92 37.35 NM NM

2004 NM -0.37 -1.31 -1.43 Nil Nil 60.98 41.58 NM NM

2003 1.98 2.01 1.44 0.90 Nil Nil 54.95 36.92 38 26

2002 NM 3.12 2.84 2.08 Nil Nil 78.88 35.82 28 13

2001 NM -1.03 -1.33 -1.86 Nil Nil 78.40 36.38 NM NM

2000 NM -2.42 -2.51 NA Nil Nil 83.63 29.88 NM NM

2,192 763 168 90.3 289 27.2% 343 345

1,975 533 155 28.5 181 NM 223 239

1,773 450 124 19.8 -68.4 NM -192 230

1,764 428 117 67.0 238 39.2% 145 149

1,212 249 84.3 25.2 -245 NM -175 -191

1,015 282 52.8 50.4 -28.2 NM -73.8 -80.6

715 201 45.1 28.9 130 35.6% 83.9 51.1

507 132 35.5 38.2 62.4 NM 175 140

267 37.8 14.4 73.1 -58.5 NM -58.5 -89.9

112 -57.8 3.95 Nil -93.7 NM -93.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,648 Current Assets 2,566 Total Assets 4,658 Current Liabilities 1,338 Long Term Debt 362 Common Equity 2,262 Total Capital 3,658 Capital Expenditures 60.9 Cash Flow 511 Current Ratio 1.9 % Long Term Debt of Capitalization 9.9 % Net Income of Revenue 15.6 % Return on Assets 8.8 % Return on Equity 18.2

524 1,330 3,169 1,422 3.69 1,503 1,585 75.9 378 0.9 0.2 11.3 6.7 15.9

826 1,422 3,506 2,006 3.79 1,302 1,362 96.9 -67.9 0.7 0.3 NM NM NM

497 1,198 3,045 1,377 225 1,309 1,607 160 261 0.9 14.0 8.2 4.9 15.1

205 1,049 2,819 1,279 763 612 1,486 118 -90.6 0.8 51.4 NM NM NM

574 1,180 2,440 216 1,284 830 2,209 50.2 -21.0 5.5 58.2 NM NM NM

1,116 1,370 2,382 138 1,409 770 2,225 40.5 129 9.9 63.3 11.7 4.1 11.9

486 786 1,689 120 861 643 1,556 27.3 211 6.6 55.3 34.5 11.2 33.6

549 734 1,389 107 867 399 1,265 12.5 -49.7 6.9 68.5 NM NM NM

36.6 141 308 80.8 55.1 165 220 7.46 -98.9 1.7 25.0 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 41 Moores Rd, Frazer, PA 19355-1113. Telephone: 610-344-0200. Email: [email protected] Website: http://www.cephalon.com

Chrmn, Pres & CEO: F. Baldino, Jr. COO: K. Buchi EVP, CFO & Chief Acctg Officer: W. Groenhuysen EVP & Chief Admin Officer: C.A. Savini

EVP & CSO: J. Vaught Founded: 1987 Investor Contact: C. Merritt (610-738-6376) Domicile: Delaware Board Members: F. Baldino, Jr., W. P. Egan, M. D. Employees: 3,026 Greenacre, V. M. Kailian, K. E. Moley, C. A. Sanders, G. Wilensky, D. L. Winger

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CERN | CERN is in the S&P 500

Cerner Corp S&P Recommendation HOLD

★★★★★

Price $88.11 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Technology

12-Mo. Target Price $87.00

Investment Style Large-Cap Growth

Summary This company is a leading supplier of health care information technology (HCIT) solutions, health care devices and related services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $92.95– 72.05 Trailing 12-Month EPS $2.53 Trailing 12-Month P/E 34.8 $10K Invested 5 Yrs Ago $20,550

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.75 3.42 32.0 82.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.267 Nil Nil 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.99 18 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CERN's established market position in the HCIT market and its broad customer base, weighed against a highly competitive environment for its products and services as well as the risk of technological obsolescence.

80 60

40 30

Quantitative Evaluations

Vol.

S&P Quality Ranking

20

Mil.

B+

13

6 4 2 0

D

C

B-

B

B+

A-

A

Relative Strength Rank

5

STRONG 76

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jeffrey Loo, CFA on August 24, 2010, when the stock traded at $ 73.34. Highlights

Investment Rationale/Risk

We expect revenues to increase 11% in 2010 to $1.85 billion and 12% in 2011 to $2.08 billion, as Cerner sees the benefit of accelerating industry growth due to the American Recovery and Reinvestment Act of 2009 (ARRA), which incentivizes hospitals and clinicians to adopt health care information technology. We believe the recent release of the final "meaningful use" rules provides flexibility and will lead to broader adoption of health care IT, positively impacting the industry and CERN. We look for ARRA to drive solid bookings throughout 2010 aided by new clients. Approximately 25% of first-half sales in 2010 were from new clients. We expect this growth to be tempered somewhat by continued cautious levels of capital expenditures by Cerner's hospital customer base.

➤

➤

We project gross margins to widen only 40 basis points (bps) in 2010 due to lower-margin system sales but aided by support and maintenance sales margins. But we see operating margins improving 200 bps on lower R&D cost and leverage, in spite of higher SG&A costs.

➤

➤

Inclusive of stock compensation costs of $0.18 in 2010 and 2011, our EPS forecasts are $2.75 for 2010 and $3.42 for 2011.

➤

➤

We believe the shares are fairly valued, recently trading at 27.0X and 21.9X our 2010 and 2011 EPS estimates, in line with peers. While we look for strong growth in health care information technology spending, driven by ARRA incentives as well as health care companies seeking to achieve additional cost efficiencies in the face of health care reform, we are concerned that implementation may be more complex and time-consuming than anticipated. Although we see hospital capex stabilizing, we expect it to remain below peak levels relative to sales. Risks to our recommendation and target price include increased competition for CERN's core HCIT products; and further slowdowns in hospital capex.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 431.3 456.0 2009 392.3 403.8 2008 384.8 402.8 2007 365.9 386.6 2006 321.2 330.6 2005 262.5 277.8

3Q -409.4 422.7 372.9 345.5 294.6

4Q -466.3 465.7 394.5 380.8 325.8

Year -1,672 1,676 1,520 1,378 1,161

Earnings Per Share ($) 2010 0.59 0.65 2009 0.49 0.52 2008 0.44 0.42 2007 0.34 0.32 2006 0.25 0.29 2005 0.17 0.26

E0.71 0.58 0.54 0.37 0.33 0.34

E0.78 0.71 0.86 0.49 0.48 0.34

E2.75 2.31 2.26 1.53 1.34 1.10

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Our 12-month target price of $87 is based on an in-line-with-peers PEG ratio of 1.75X, based on our 2010 EPS estimate of $2.75 and projected three-year EPS growth rate of 18%. We believe this high industry PEG ratio is appropriate due to the potential we see for robust growth from broad adoption of health care IT.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CERN

Cerner Corp Business Summary August 24, 2010 CORPORATE OVERVIEW. Cerner Corp. is the largest standalone health care information technology (HCIT) company providing health care information technology solutions and devices and related services to health care organizations and consumers. Domestic (U.S.) revenues accounted for 84% of the total in 2009 (78% in 2008). Revenues are derived from system sales, support and maintenance, and services. System sales (30% of revenues in 2009; 31% in 2008) includes sales of software, deployment period upgrade rights, installation fees, content subscriptions, transaction processing and hardware and sublicensed software. Support and maintenance (29%; 28%) includes ongoing support and services provided to clients. Services (39%; 38%) includes professional services excluding installation, and managed services. Reimbursed travel, which includes reimbursable out-of-pocket expenses related to client service activities, accounted for the remaining 2% (2%).

avail themselves of the incentives offered by the Health Information Technology for Economic and Clinical Health Act (HITECH) provisions of the American Recovery and Reinvestment Act (ARRA). We believe HCIT is in its nascent stages in the U.S., based on a recent article in FT Health magazine that estimated only about 20% of doctors' offices and 10% of hospitals currently utilize "some form" of HCIT. Cerner, currently operating in over 25 countries, plans to increase its sales outside the U.S. as other countries realize the importance of HCIT. It also expects to increase its market share by making its offerings affordable to smaller community hospitals, critical access hospitals and physician practices, as well as by selling software as a service. It also plans to offer solutions beyond the HCIT market, similar to its current offerings, in the form of clinic, pharmacy and wellness services provided directly to employers.

CORPORATE STRATEGY. Cerner intends to increase its market share by providing innovative solutions and services to existing and new clients as well as by capturing some potential clients who wish to upgrade their systems to Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 14.21 3.81 2.31 2.31 Nil Nil 85.97 33.38 37 14

2008 11.13 3.42 2.26 2.32 Nil Nil 59.81 30.37 26 13

2007 9.25 2.72 1.53 1.53 Nil Nil 66.17 44.11 43 29

2006 9.37 2.88 1.34 1.34 Nil Nil 50.58 32.50 38 24

2005 7.44 2.57 1.10 0.96 Nil Nil 49.26 23.60 45 21

2004 7.06 2.07 0.86 0.73 Nil Nil 26.95 17.93 31 21

2003 5.90 1.54 0.59 0.41 Nil Nil 23.25 8.19 39 14

2002 5.24 1.43 0.66 0.48 Nil Nil 28.53 13.66 43 21

2001 4.99 0.07 -0.61 0.37 Nil Nil 30.75 14.00 NM NM

2000 4.63 2.01 1.48 NA Nil Nil 32.44 8.94 22 6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,672 418 126 8.49 293 33.9% 193 193

1,676 412 96.7 10.6 281 33.0% 189 194

1,520 303 153 11.9 204 37.7% 127 127

1,378 291 125 0.70 52.2 NM 110 110

1,161 261 114 5.86 135 36.2% 86.3 75.3

926 202 90.8 6.15 108 40.1% 64.6 54.9

840 147 69.3 7.02 71.2 39.9% 42.8 29.4

752 148 57.3 5.56 80.6 39.5% 48.8 35.2

543 109 47.3 4.43 -63.3 NM -42.4 24.9

405 75.2 38.0 7.32 172 38.8% 105 NA

Balance Sheet & Other Financial Data (Million $) Cash 559 Current Assets 1,146 Total Assets 2,149 Current Liabilities 358 Long Term Debt 95.5 Common Equity 1,581 Total Capital 1,701 Capital Expenditures 131 Cash Flow 319 Current Ratio 3.2 % Long Term Debt of Capitalization 5.6 % Net Income of Revenue 11.6 % Return on Assets 9.6 % Return on Equity 13.4

309 859 1,881 341 111 1,311 1,454 108 285 2.5 7.7 11.3 10.6 15.4

345 819 1,690 288 178 1,132 1,326 181 226 2.8 13.4 8.4 8.0 12.4

163 746 1,491 301 187 918 1,176 131 235 2.5 15.9 8.0 7.9 13.1

113 652 1,304 260 194 761 1,029 64.8 200 2.5 18.9 7.4 7.5 12.7

190 509 982 199 109 597 777 44.2 155 2.6 14.0 7.0 7.0 11.8

122 429 859 177 125 495 680 26.8 112 2.4 18.3 5.1 5.2 9.1

143 448 779 166 137 441 578 33.2 106 2.7 23.7 6.5 6.5 11.7

108 348 712 158 92.1 395 549 25.7 4.94 2.2 16.8 NM NM NM

90.9 288 616 102 102 344 503 16.2 143 2.8 20.3 26.0 16.5 29.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2800 Rockcreek Parkway, North Kansas City, MO 64117. Telephone: 816-221-1024. Email: [email protected] Website: http://www.cerner.com

Chrmn, Pres & CEO: N.L. Patterson Vice Chrmn: C.W. Illig COO & EVP: M.G. Valentine EVP, CFO & Treas: M.G. Naughton

Chief Acctg Officer: M.R. Battaglioli Founded: 1980 Investor Contact: A. Kells (816-201-2445) Domicile: Delaware Board Members: G. E. Bisbee, Jr., J. C. Danforth, L. M. Employees: 7,600 Dillman, C. W. Illig, W. B. Neaves, N. L. Patterson, W. D. Zollars

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CF | CF is in the S&P 500

CF Industries Holdings Inc S&P Recommendation HOLD

★★★★★

Price $117.65 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Fertilizers & Agricultural Chemicals

12-Mo. Target Price $112.00

Investment Style Large-Cap Value

Summary This company is a major manufacturer and distributor of nitrogen and phosphate fertilizer products in North America.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $120.35– 57.56 Trailing 12-Month EPS $3.53 Trailing 12-Month P/E 33.3 $10K Invested 5 Yrs Ago $92,708

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

8.20 8.55 14.3 71.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.363 0.34 $0.40 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 9 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical and seasonal nature of the agriculture industry and the company's reliance on the volatile natural gas industry for much of its raw materials, partly offset by the competitive advantage of having many overseas suppliers.

160 120 80

40

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

C

B-

NR B

B+

A-

A

Relative Strength Rank

STRONG 94

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Kevin Kirkeby on October 08, 2010, when the stock traded at $ 109.55. Highlights ➤

➤

➤

In April 2010, CF completed the acquisition of Terra Industries. We forecast GAAP revenues of $4.2 billion in 2010, including nearly nine months of contributions from Terra Industries, which was acquired in April. On a pro forma basis, we expect revenues to increase about 9% to $4.6 billion due to higher volumes and a higher average selling prices. We expect volume sales for the combined companies to rise 6%, due to inventory rebuilding and improved application rates. We think selling prices, which began to rise in mid-2010, will be higher on average in 2011, and contribute favorably to the $4.7 billion in revenues we forecast for next year. We expect margins to widen during 2010 due to the combination of higher selling prices and lower average input costs. However, integration-related expenses will be a partial offset, in our view. CF believes it can lower its cost structure by $135 million in the 18 months following the Terra transaction. We think input cost trends will be less favorable next year relative to selling prices, and will lead to a modest narrowing of margins for 2011. Our EPS estimate of $8.22 for 2010 excludes $2.73 of net special items (Terra breakup fee, mark-to-market fluctuations).

Investment Rationale/Risk ➤

➤

➤

CF increased its revenue base by about 60% through the April 2010 acquisition of Terra Industries, and is now among the largest global producers of phosphate and nitrogen. On account of the U.S. being a net importer of nitrogen fertilizer, we believe CF, as a domestic producer, benefits from a generally lower cost base, especially during periods of rising demand and selling prices. On this, and our view that post-acquisition debt levels are manageable, we think valuations above the historic average are warranted. Risks to our recommendation and target price include difficulties integrating the Terra acquisition, increases in natural gas and sulfur costs, and more competitively priced imports due to a strengthening U.S. dollar. Our discounted cash flow model assumes relatively unchanged free cash flow for the next five years, a 10.8% cost of equity and 2.5% terminal growth, and calculates intrinsic value of $98. We apply a P/E of 15.5X to our four-quarter forward EPS estimate, which is above the historic average of 10X for CF, to yield a $126 value. Blending the two, we arrive at our 12-month target price of $112.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 502.4 1,308 2009 680.6 991.0 2008 667.3 1,161 2007 447.7 848.9 2006 400.5 664.8 2005 459.3 626.7

3Q -430.1 1,021 582.9 378.0 359.4

4Q -506.7 1,072 852.5 506.2 463.0

Year -2,608 3,921 2,757 1,950 1,908

Earnings Per Share ($) 2010 -0.09 1.54 2009 1.28 4.33 2008 2.77 5.02 2007 1.02 1.65 2006 -0.45 0.77 2005 0.41 0.78

E1.61 0.78 0.82 1.52 0.13 -1.81

E2.00 1.04 3.59 2.38 0.14 -0.18

E8.20 7.42 12.14 6.57 0.60 -0.66

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

01/29 05/03 07/22 10/21

02/18 05/12 08/11 11/10

02/16 05/14 08/13 11/15

03/01/10 06/01/10 08/31/10 11/29/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CF

CF Industries Holdings Inc Business Summary October 08, 2010 CORPORATE OVERVIEW. CF Industries is a major manufacturer and distributor of nitrogen and phosphate fertilizer products in North America. In April 2010, CF completed the $4.7 billion acquisition of Terra Industries, boosting its revenue base by about 60%, based on 2009 figures. Principal products of the combined entity are ammonia, urea, urea ammonium nitrate solution (UAN), diammonium phosphate (DAP) and monoammonium phosphate (MAP). On a pro forma basis, the combined companies would have generated $4.2 billion in revenue during 2009, on sales of 11.8 million tons of nitrogen-related fertilizers and 2.1 million tons of phosphate fertilizers. Core markets and distribution facilities for the company are concentrated in the midwestern U.S. grainproducing states. PRIMARY BUSINESS DYNAMICS. Nitrogen, phosphates and potash are the three primary plant nutrients that are essential for proper crop nutrition and maximum yields. There are no substitutes for them, and they are generally not substitutable for each other. Each of these fertilizers is actively traded in the global marketplace, with price being the primary means of differentiation. The U.S. is a net exporter of phosphate fertilizers, while it tends to import a significant amount of nitrogen-based product. Producers typically build their inventories ahead of the spring planting season when demand is the highest, and over the summer in advance of post-harvest fertilizer applications.

In 2009, natural gas purchases accounted for about 47% of the combined company's pro forma total cost of sales of nitrogen fertilizers and a substantially higher percentage of cash costs. CF uses, and plans to continue using, a combination of spot and term purchases of varied duration from a number of suppliers to maintain a reliable, competitively priced natural gas supply, and also uses certain financial instruments to hedge natural gas prices. It has developed a forward pricing program under which it traditionally sells about half of its nitrogen fertilizer, and this system provides some margin certainty. CORPORATE STRATEGY. CF's manufacturing facilities are competitive, due, in our view, to their large scale and a modular configuration that allows it to adjust production to changing market conditions. Its distribution system is flexible and strategically located to serve its midwestern customers. The company's Donaldsonville, LA, nitrogen fertilizer facility is the largest in North America, and its Medicine Hat, Alberta, plant is the second largest, which gives it significant economies-of-scale advantages over its competitors. Through the purchase of Terra Industries, CF acquired interests in six nitrogen facilities in the U.S., as well as joint ventures in Trinidad and the United Kingdom.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 35.58 9.48 7.42 7.30 0.40 5% 95.13 42.30 13 6

2008 27.72 13.93 12.14 11.91 0.40 3% 172.99 37.71 14 3

2007 21.09 8.06 6.57 6.56 0.08 1% 118.88 25.70 18 4

2006 13.88 2.32 0.60 0.63 0.08 13% 26.60 12.91 44 22

2005 13.73 1.11 -0.66 -0.68 0.02 NM 18.00 11.19 NM NM

2004 12.96 3.21 1.23 1.22 NA NA NA NA NA NA

2003 NA 1.57 -0.33 -0.35 NA NA NA NA NA NA

2002 NA 2.14 -0.51 NA NA NA NA NA NA NA

2001 NA 0.77 -1.35 NA NA NA NA NA NA NA

2000 NA 1.57 -0.47 NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,608 838 101 1.50 694 35.4% 366 360

3,921 1,313 101 1.60 1,180 32.1% 685 671

2,757 686 84.5 1.70 627 31.8% 373 372

1,950 166 94.6 2.90 81.8 24.1% 33.3 34.9

1,908 236 97.5 14.0 110 NM -36.2 -37.1

1,651 258 109 22.7 132 31.3% 67.7 67.5

1,370 99.4 105 23.9 -25.0 NM -18.4 -19.7

1,014 89.6 108 23.6 -38.3 NM -28.1 NA

1,160 -32.1 102 31.8 -151 NM -59.7 NA

1,160 97.6 112 21.1 -40.1 NM -25.8 NA

Balance Sheet & Other Financial Data (Million $) Cash 882 Current Assets 1,283 Total Assets 2,495 Current Liabilities 480 Long Term Debt 4.70 Common Equity 1,729 Total Capital 1,750 Capital Expenditures 236 Cash Flow 467 Current Ratio 2.7 % Long Term Debt of Capitalization 0.3 % Net Income of Revenue 14.0 % Return on Assets 15.0 % Return on Equity 23.8

625 1,433 2,388 818 Nil 1,338 1,357 142 785 1.8 Nil 17.5 31.1 54.2

861 1,279 2,013 629 4.90 1,187 1,241 105 457 2.0 0.4 13.5 22.6 38.2

25.4 633 1,290 353 4.20 767 785 59.3 128 1.8 0.5 1.7 2.6 4.4

37.4 576 1,228 341 4.20 756 782 69.4 61.3 1.7 0.5 NM NM NM

72.8 NA 1,149 NA 4.01 720 724 33.7 176 NA 0.6 4.1 NA NA

169 526 1,405 350 255 -0.79 1,038 28.7 86.6 1.5 24.6 NM NA NA

NA NA NA NA NA NA NA 26.3 118 NA Nil NM NA NA

NA NA NA NA NA NA NA 41.7 42.3 NA NA NM NA NA

NA NA NA NA NA NA NA 52.3 86.2 NA NA NM NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. 2004 pro forma as adjusted; bal. sheet and book val. as of Jun. 30, 2005. Prior to 2005, per sh. data based on pro forma shs. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4 Parkway North, Suite 400, Deerfield, IL 60015-2590. Telephone: 847-405-2400. Website: http://www.cfindustries.com Chrmn, Pres & CEO: S.R. Wilson

Chief Acctg Officer & Cntlr: R.A. Hoker Treas: R.W. Selgrad Secy & General Counsel: D.C. Barnard Investor Contact: T. Huch (847-405-2515)

Board Members: R. C. Arzbaecher, W. W. Creek, W. Founded: 1946 Davisson, S. A. Furbacher, S. J. Hagge, D. R. Harvey, J. Domicile: Delaware D. Johnson, E. A. Schmitt, S. R. Wilson Employees: 1,600

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: CHK | CHK is in the S&P 500

Chesapeake Energy Corp S&P Recommendation BUY

★★★★★

Price $21.16 (as of Oct 25, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $29.00

Investment Style Large-Cap Blend

Summary As one of the largest independent exploration and production companies in the U.S., CHK focuses on U.S. onshore natural gas production east of the Rocky Mountains.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.22– 19.62 Trailing 12-Month EPS $1.01 Trailing 12-Month P/E 21.0 $10K Invested 5 Yrs Ago $7,543

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.93 2.69 7.2 654.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.846 1.42 $0.30 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.15 -9 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CHK's business profile in a volatile, cyclical and capital-intensive segment of the energy industry. We believe CHK's financial strategy is aggressive, as it has been one of the most active acquirers in exploration and production, and one of the most active users of commodity hedges. This is partly offset by what we see as strong volume growth and good drilling prospects.

80

40

20

10

Vol. 319

Mil. 90 60 30 0

Quantitative Evaluations S&P Quality Ranking 5

4

5

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ WEAK

19 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on October 25, 2010, when the stock traded at $ 21.20. Highlights ➤

➤

➤

In May, CHK stated plans to increase its focus on crude oil and lower debt, as it plans to raise $5 billion through asset sales (20% of Marcellus operations), JV's, and convertibles to repay $3.5 billion in debt and boost oil capex $1.5 billion over the next 24 months. CHK has since announced several liquids-rich opportunities (Granite Wash, Eagle Ford, Niobrara) as it attempts to add oil to its portfolio. We see production up 13% and 17% in 2010 and 2011. As of September, CHK ran 133 rigs, with 100 at natural gas shale plays and 21 rigs at unconventional liquid plays, with 12 at Granite Wash. CHK is aiming for a 50-rig program at liquids-rich plays in the next 12 months and plans to raise its liquid production mix from 10% currently to 15%-20% by year-end 2012. CHK has closed on five JV asset monetizations (most recently a $2.16 billion JV at Eagle Ford with CNOOC Ltd.), which we expect to increase shareholder value at five major shales, and intends to enter a JV at Niobrara. We believe JV funding has provided greater flexibility. On volume growth and hedges, we see EPS of $2.93 (with $0.01 non-cash gain) for 2010 and $2.69 for 2011, up from $1.91 ($0.46 loss) in 2009.

Investment Rationale/Risk ➤

➤

➤

CHK's aggressive acquisition strategy has seen it spend over $14 billion over the past 10 years, focused on unconventional natural gas plays. With turmoil in credit markets, and a highly leveraged balance sheet, CHK has monetized assets through JVs and is planning to sell certain non-Haynesville Shale producing assets in Louisiana for $225-$250 million and 20% of its Marcellus Shale operations. CHK believes it has built a solid position at 12 liquids-rich plays with 2.9 million net acres. CHK anticipates excess cash of $2 billion in 2010 for debt reduction. It sees drilling capex of $4.5-$4.6 billion per annum through 2012, up from $3.4 billion in 2009, and within its cash flow assumptions. Risks to our recommendation and target price include weaker economic and operating conditions, a sustained decline in natural gas prices, and difficulty replacing reserves. CHK has developed a dominant natural gas shale position, and we expect its expertise in unconventional drilling to carry over to liquids development. Our 12-month target price of $29 blends our proved NAV ($39) with our DCF ($26, assuming an 8.8% WACC; 3% terminal growth) and relative metrics ($27).

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,798 2,012 2009 1,995 1,673 2008 1,611 3,372 2007 1,580 2,105 2006 1,945 1,584 2005 783.5 1,048

3Q -1,811 7,491 2,027 1,929 1,083

4Q -2,222 2,981 2,089 1,868 1,751

Year -7,702 11,629 7,800 7,326 4,665

Earnings Per Share ($) 2010 1.14 0.37 2009 -9.63 0.39 2008 -0.29 -3.16 2007 0.50 1.01 2006 1.44 0.82 2005 0.36 0.52

E0.64 0.30 5.61 0.72 1.13 0.43

E0.71 -0.84 -1.51 0.27 0.96 1.11

E2.93 -9.57 1.14 2.62 4.35 2.51

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.075 0.075 0.075 0.075

12/18 03/08 06/21 09/01

12/30 03/30 06/29 09/29

01/04 04/01 07/01 10/01

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 2002. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: CHK

Chesapeake Energy Corp Business Summary October 25, 2010 CORPORATE OVERVIEW. As the largest producer of natural gas in the U.S. as of year-end 2008, Chesapeake Energy Corp. (CHK) is focused on discovering, acquiring and developing conventional and unconventional natural gas reserves onshore in the U.S., east of the Rocky Mountains, primarily in natural gas shale plays -- the Barnett Shale in the Fort Worth Basin, the Haynesville Shale in Louisiana, the Fayetteville Shale in the Arkoma Basin, and the Marcellus Shale in the Appalachian Basin. In 2009, CHK added the Eagle Ford Shale and Bossier play to its core properties of "Big 6" natural gas shale plays. CHK operations are concentrated in six U.S. operating areas: Mid-Continent, Barnett Shale, Appalachian Basin, Permian and Delaware Basin, Ark-La-Tex, and South Texas and Texas Gulf Coast. Proved oil and gas reserves rose 18%, to 14.3 trillion cubic feet equivalent (Tcfe; 94% natural gas, 58% developed) in 2009. Oil and gas production rose 8%, to 906 billion cubic feet equivalent (92% natural gas), in 2009. We estimate CHK's 2009 organic reserve replacement at 343%. During 2009, CHK drilled 1,148 gross (831 net) operated wells and participated in 1,127 gross (99 net) wells operated by other companies. CHK's drilling success rate was 99% for company-operated wells. During 2009, CHK invested $2.941 billion in operated wells (using an average of 104 operated

rigs) and $439 million in non-operated wells (using an average of 60 nonoperated rigs) for total drilling, completing and equipping costs of $3.38 billion. MARKET PROFILE. From 1998 to the present, CHK has integrated an aggressive and technologically advanced drilling program with an active property consolidation program focused on small to medium-sized corporate and property acquisitions. Beginning in 2006, CHK shifted its strategy from drilling inventory capture to drilling inventory conversion. In doing so, CHK has deemphasized its acquisitions of proved properties while further emphasizing its drilling program and converting its substantial backlog of drilling opportunities into proved developed producing reserves. CHK believes one of its most distinctive characteristics is its ability to increase its reserves and production organically. CHK conducts the most active drilling program in the U.S. and is active in most unconventional plays in the U.S. east of the Rockies, where it drills more horizontal wells than any other company in the industry.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.47 11.26 -9.57 -9.36 0.30 NM 30.00 13.27 NM NM

2008 26.00 5.21 1.14 1.35 0.29 26% 74.00 9.84 65 9

2007 21.87 6.87 2.62 2.51 0.26 10% 41.19 27.27 16 10

2006 20.32 7.36 4.35 4.19 0.23 5% 35.57 26.81 8 6

2005 12.42 5.05 2.51 2.48 0.20 8% 40.20 15.06 16 6

2004 8.57 3.56 1.53 1.50 0.17 11% 18.31 11.70 12 8

2003 5.45 2.61 1.20 1.19 0.14 11% 14.00 7.27 12 6

2002 3.99 1.54 0.17 0.17 0.06 35% 8.55 4.50 50 26

2001 3.75 2.52 1.51 1.36 Nil Nil 11.06 4.50 7 3

2000 2.05 3.67 3.01 NA Nil Nil 10.50 1.94 3 1

7,702 NA 12,745 113 -9,288 37.5% -5,830 -5,723

11,629 3,631 2,147 314 1,186 39.0% 723 737

7,800 4,638 1,989 675 2,341 38.0% 1,451 1,178

7,326 3,413 1,463 301 3,255 38.5% 2,003 1,831

4,665 1,773 945 220 1,493 36.5% 948 871

2,709 992 611 167 805 36.0% 515 431

1,717 675 386 154 501 38.0% 311 283

738 191 235 111 67.1 40.0% 40.3 29.9

969 597 178 98.3 438 39.9% 263 235

628 384 105 86.3 196 NM 456 NA

Balance Sheet & Other Financial Data (Million $) Cash 307 Current Assets 2,446 Total Assets 29,914 Current Liabilities 2,688 Long Term Debt 12,295 Common Equity 11,444 Total Capital 24,636 Capital Expenditures 5,226 Cash Flow 6,892 Current Ratio 0.9 % Long Term Debt of Capitalization 51.8 % Return on Assets NM % Return on Equity NM

1,749 4,292 38,444 3,621 14,184 16,297 34,244 9,177 2,837 1.2 41.4 4.5 5.3

1.00 1,396 30,734 2,761 10,950 11,170 27,046 9,705 3,346 0.5 47.4 4.9 13.3

2.52 1,154 24,417 1,890 7,376 9,293 21,944 986 3,377 0.6 33.6 9.9 27.6

60.0 1,183 16,118 1,964 5,490 4,598 13,469 484 1,851 0.6 40.8 7.8 24.9

6.90 568 8,245 964 3,075 2,672 7,172 127 1,087 0.6 42.9 8.0 24.7

40.6 342 4,572 513 2,058 1,180 3,982 71.5 674 0.7 51.7 8.3 29.7

248 435 2,876 266 1,651 758 2,559 33.6 265 1.6 64.5 1.6 4.4

125 361 2,287 173 1,329 617 2,097 24.9 439 2.1 63.4 14.1 58.1

3.50 167 1,440 163 945 282 1,270 78.9 556 1.0 74.4 39.8 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6100 North Western Avenue, Oklahoma City, OK 73118. Telephone: 405-848-8000. Website: http://www.chk.com Chrmn & CEO: A.K. McClendon

COO & EVP: S.C. Dixon EVP & CFO: M.C. Rowland SVP, Chief Acctg Officer & Cntlr: M.A. Johnson SVP, Treas & Secy: J. Grigsby

Investor Contact: J.L. Mobley (405-767-4763) Founded: 1989 Board Members: R. K. Davidson, K. Eisbrenner, V. B. Domicile: Oklahoma Hargis, F. Keating, C. T. Maxwell, A. K. McClendon, M. Employees: 8,200 A. Miller, Jr., D. L. Nickles, F. B. Whittemore

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CVX | CVX is in the S&P 500

Chevron Corp S&P Recommendation STRONG BUY

★★★★★

Price $84.55 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $98.00

Investment Style Large-Cap Blend

Summary This global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $85.00– 66.83 Trailing 12-Month EPS $8.42 Trailing 12-Month P/E 10.0 $10K Invested 5 Yrs Ago $17,698

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

9.24 9.68 9.2 2,010.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$169.996 3.41 $2.88 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.72 33 AA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Chevron's diversified and strong business profile in volatile, cyclical and capital-intensive segments of the energy industry. We view its corporate governance practices as generally sound and its earnings as stable.

140 120 100 80

60

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 90 60 30 0 5

D

B-

B

B+

A-

A

Relative Strength Rank

5

4

C

AA+

MODERATE 69

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tina J. Vital on October 14, 2010, when the stock traded at $ 83.20. Highlights ➤

➤

➤

We see minimal impact to CVX's oil and gas production but expect higher third quarter expenses from the U.S. Gulf of Mexico drilling moratorium (about 6% of CVX's output is from the Gulf of Mexico); in July, CVX estimated the impact at less than 10,000 b/d. We project third quarter oil & gas production will rise 1.1%, to 2.73 million boe per day, and we expect 1.6% growth, to 2.75 million boe per day, in 2010, on optimization efforts and increased gas sales in Thailand. Despite a base decline of 4%-5%, longer term, we expect field developments to permit annual production growth of about 2.6% between 2008 and 2013. On the downstream, as of September 2010, we project that U.S. Gulf Coast 3-2-1 refining crack spreads will narrow by about 5% in 2010 before widening about 16% in 2011. In January 2010, CVX began a restructuring study of its refining segment to make it smaller and less complex. Completion was slated for September 2010. We expect cost initiatives and an improved economic outlook to boost after-tax operating earnings by 84% in 2010 and 5% in 2011.

Investment Rationale/Risk ➤

➤

➤

CVX is reducing its refining footprint and focusing on large, long-lived upstream projects with higher margin and growth potential. We have a positive outlook for these prospects, given the company's 2005 purchase of Unocal and its ongoing international "Big Five" developments. We consider CVX's reserve replacement rate to be solid, and we see improvement in its upstream costs. Risks to our recommendation and target price include declines in economic, industry and operating conditions. A pending 2003 lawsuit in Ecuador alleges environmental damage related to Texaco's prior operations, but we see little near-term financial impact since CVX has no operations there. (Texaco spent $40 million on a clean-up in Ecuador before leaving in 1997, at which time Ecuador released it from responsibility for its operations.) Blending our discounted cash flow ($99 per share, assuming a WACC of 7.7% and terminal growth of 3%) and relative market valuations, our 12-month target price is $98. This represents an enterprise value of about 5.1X our 2011 EBITDA estimate, a discount to U.S. supermajor peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 46,741 51,051 2009 34,987 39,647 2008 65,903 78,310 2007 46,302 54,344 2006 54,624 53,536 2005 41,607 48,343

3Q -45,180 73,615 53,545 54,212 54,456

4Q -47,588 43,145 59,900 47,746 53,794

Year -167,402 264,958 203,970 210,118 198,200

Earnings Per Share ($) 2010 2.27 2.70 2009 0.92 0.87 2008 2.48 2.89 2007 2.18 2.52 2006 1.80 1.97 2005 1.28 1.76

E2.18 1.92 3.86 1.75 2.29 1.64

E2.20 1.53 2.43 2.32 1.74 1.86

E9.24 5.24 11.67 8.77 7.80 6.54

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.680 0.680 0.720 0.720

10/28 01/27 04/28 07/28

11/16 02/12 05/17 08/17

11/18 02/17 05/19 08/19

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1912. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CVX

Chevron Corp Business Summary October 14, 2010 CORPORATE OVERVIEW. In October 2001, Chevron Corp. (CHV) and Texaco Inc. (TX) merged, creating the second largest U.S.-based oil company at the time, ChevronTexaco Corp. (CVX). In May 2005, the company changed its name to Chevron Corp.

year finding and development costs at $23.48 per boe, above the peer average; three-year proved acquisition costs at $2.18 per boe, above the peer average; and reserve replacement costs at $18.43 per boe, above the peer average. We estimate CVX's 2009 organic reserve replacement rate at 115%.

CVX separately manages its upstream (or exploration and production; 26% of 2009 revenues and 91% of 2009 segment income), downstream (or refining, marketing and transportation; 72% and 5%), chemicals (1% and 4%) and other businesses, which includes its mining operations for coal and molybdenum, power generation, Chevron Energy Solutions (CES), and energy technology such as Chevron Technology Ventures (CTV) companies.

As of December 31, 2009, CVX owned eight refineries and one asphalt plant (which was idled in early 2008, and is being operated as a terminal), and had interests in eight international refineries, for a total operable capacity of 2.158 million b/d (50% North America). CVX processes imported (85% of 2009 refinery inputs) and domestic (15%) crude oil in its U.S. refining operations. As of year-end 2009, it had a network of about 22,000 (44% U.S.) branded retail sites worldwide.

Net production of crude oil, natural gas liquids (NGLs) and natural gas rose 7%, to 2.678 million barrels of oil equivalent (boe) per day (69% liquids), in 2009, reflecting the start-up of the Blind Faith and Tahiti fields in the U.S. Gulf of Mexico in 2008 and the Agbami field in Nigeria in 2009, and the expansion of Tengiz in Kazakhstan. Net proved oil and gas reserves, including equity share in affiliates, rose 1.1%, to 11.31 billion boe (62% liquids, 73% developed) in 2009. Using data from John S. Herold, we estimate CVX's three-year (2006-2008) reserve replacement rate at 94%, below the peer average; three-

CVX's chemical segment includes the company's Oronite subsidiary and the 50%-owned Chevron Phillips Chemical Co. LLC (CPChem).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 43.48 11.29 5.24 5.04 2.66 51% 79.82 56.12 15 11

2008 40.93 16.32 11.67 10.90 2.53 22% 104.63 55.50 9 5

2007 34.66 12.67 8.77 8.34 2.26 26% 95.50 64.99 11 7

2006 29.71 11.38 7.80 7.88 2.01 26% 76.20 53.76 10 7

2005 25.99 8.96 6.54 6.62 1.75 27% 65.98 49.81 10 8

2004 21.47 8.53 6.14 5.88 1.53 25% 56.07 42.00 9 7

2003 16.98 5.99 3.57 3.50 1.43 40% 43.50 30.66 12 9

2002 14.80 2.98 0.54 1.22 1.40 NM 45.80 32.71 86 61

2001 15.92 5.17 1.85 1.66 1.33 72% 49.25 39.22 27 21

2000 15.54 6.17 3.99 NA 1.30 33% 47.44 34.97 12 9

167,402 NA 12,110 28.0 18,528 43.0% 10,483 10,080

264,958 45,238 9,528 2.00 43,057 44.2% 23,931 22,346

214,091 33,936 8,309 468 32,274 41.8% 18,688 17,772

204,892 35,748 7,506 451 32,046 46.3% 17,138 17,310

193,641 27,129 5,913 482 25,293 43.9% 14,099 14,277

150,865 21,542 4,935 406 20,636 36.4% 13,034 12,471

120,032 49,336 5,384 474 12,850 41.6% 7,426 7,454

98,691 28,848 5,231 565 4,213 71.8% 1,132 2,590

104,409 16,031 7,059 833 8,412 51.8% 3,931 3,518

50,592 15,834 2,848 460 9,270 44.1% 5,185 NA

Balance Sheet & Other Financial Data (Million $) Cash 8,822 Current Assets 37,216 Total Assets 164,621 Current Liabilities 26,211 Long Term Debt 9,829 Common Equity 91,914 Total Capital 102,456 Capital Expenditures 19,843 Cash Flow 22,593 Current Ratio 1.4 % Long Term Debt of Capitalization Nil % Return on Assets 6.4 % Return on Equity NA

9,560 36,470 161,165 32,023 6,083 86,648 104,739 19,666 33,459 1.1 5.8 15.4 29.2

8,094 39,377 148,786 33,798 6,753 77,088 95,532 16,678 26,997 1.2 7.3 13.3 25.6

11,446 36,304 132,628 28,409 7,679 73,684 93,219 13,813 24,644 1.3 8.2 13.3 24.4

11,144 34,336 125,833 25,011 12,131 66,722 90,315 8,701 20,012 1.4 13.4 12.9 24.5

10,742 28,503 93,208 18,795 10,456 48,575 66,471 6,310 17,969 1.5 15.7 14.9 29.4

5,267 19,426 81,470 16,111 10,894 40,022 57,601 5,625 12,810 1.2 18.9 9.4 19.5

3,781 17,776 77,359 19,876 10,911 36,176 53,009 7,597 6,363 0.9 20.6 1.5 3.1

3,150 18,327 77,572 20,654 8,989 37,120 52,524 9,713 10,990 0.9 17.1 5.1 10.7

2,630 8,213 41,264 7,674 5,153 21,761 31,822 3,657 8,033 1.1 16.2 12.7 25.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Quarterly revs. incl. other inc. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6001 Bollinger Canyon Road, San Ramon, CA 94583-2324. Telephone: 925-842-1000. Email: [email protected] Website: http://www.chevrontexaco.com

Chrmn & CEO: J.S. Watson Vice Chrmn & EVP: G. Kirkland CFO: P.E. Yarrington CTO: J.W. McDonald

Treas: P. Breber Founded: 1901 Board Members: S. H. Armacost, L. F. Deily, R. E. Domicile: Delaware Denham, R. J. Eaton, C. T. Hagel, E. Hernandez, Jr., F. G. Employees: 64,000 Jenifer, G. Kirkland, S. A. Nunn, D. B. Rice, K. W. Sharer, C. R. Shoemate, J. G. Stumpf, R. D. Sugar, C. Ware, J. S. Watson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CHRW | CHRW is in the S&P 500

C.H. Robinson Worldwide Inc S&P Recommendation BUY

★★★★★

Price $72.52 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Air Freight & Logistics

12-Mo. Target Price $80.00

Investment Style Large-Cap Growth

Summary This global provider of multimodal transportation and logistics solutions has a network of over 230 offices in North America, South America, Europe, and Asia.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $72.99– 51.16 Trailing 12-Month EPS $2.18 Trailing 12-Month P/E 33.3 $10K Invested 5 Yrs Ago $25,620

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.30 2.75 31.5 165.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.028 1.38 $1.00 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.81 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CHRW's lack of long-term debt and our favorable view of its high quality of earnings and non-asset-based structure. This is only partially offset, in our view, by exposure to cyclical economic slowdowns and volatile transportation costs.

80

60 50 40

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 12 8 4 0 5

D

B-

B

B+

A-

A

Relative Strength Rank

5

4

3

C

A+ A+ STRONG

4

73 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Corridore on September 30, 2010, when the stock traded at $ 70.43. Highlights ➤

➤

For 2010, we see gross revenues rising about 15% on improving demand related to a strengthening U.S. economy, which has already led to increased shipping activity, although the overall economy is not robust. We believe CHRW will continue to gain market share as it increases penetration into existing accounts and adds new accounts. Gross revenues declined 12% in 2009, reflecting decreased volume and pricing for truck, intermodal, ocean, and air shipping services related to the weak U.S. economy. We expect operating margins to be impacted by rising purchased transportation costs, driven by higher capacity utilization rates among the trucking companies CHRW hires to transport goods. This should be partly offset by lower SG&A costs and a reduction in personnel costs as a percentage of revenues. We see operating margins of 7.3% for 2010, versus 7.7% in 2009.

Investment Rationale/Risk ➤

➤

Our 2010 EPS estimate is $2.30, which is 8% growth over 2009's EPS of $2.13. We believe the quality of CHRW's earnings is high relative to most other transportation companies that we cover. For 2011, we see EPS growth of about 20%, to $2.75.

Risks to our recommendation and target price include the possibility of investor rotation out of transportation stocks, a potential further weakening of transport volumes, and sharply lower pricing related to excess industry transportation capacity.

Revenue (Million $) 1Q 2Q 2010 2,075 2,454 2009 1,688 1,926 2008 1,985 2,322 2007 1,619 1,880 2006 1,499 1,701 2005 1,215 1,405

3Q -1,955 2,317 1,865 1,713 1,485

4Q -2,008 1,955 1,952 1,643 1,584

Year -7,577 8,579 7,316 6,556 5,689

Earnings Per Share ($) 2010 0.50 0.59 2009 0.50 0.54 2008 0.50 0.52 2007 0.42 0.47 2006 0.33 0.38 2005 0.24 0.29

E0.59 0.57 0.54 0.48 0.40 0.31

E0.62 0.52 0.52 0.49 0.42 0.33

E2.30 2.13 2.08 1.86 1.53 1.16

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250

02/12

09/01

09/03

10/01/10

Dividends have been paid since 1997. Source: Company reports. ➤

➤

We are positive on CHRW's history of strong returns on assets and equity relative to most other transportation companies. Also, CHRW has no long-term debt and has been a generator of cash over the past few years. We think the quality of its reported earnings is high relative to peers, as the company does not have a defined benefit pension plan. CHRW has shown an ability to leverage its non-asset model to generate profits during periods of declining demand, in our view, which has allowed it to financially outperform most peers during the current difficult economic climate.

Revenue/Earnings Data

Our 12-month target price of $80 values the stock at 29X our 2011 EPS estimate of $2.75. Our valuation is above peer levels, but within CHRW's historical P/E range for the past five years of 17.5X to 36.1X earnings.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CHRW

C.H. Robinson Worldwide Inc Business Summary September 30, 2010 CORPORATE OVERVIEW. With 2009 gross revenues of about $7.6 billion, C.H. Robinson Worldwide is one of the largest third-party logistics companies in North America. At February 2, 2010, the company provided multimodal transportation services and logistics solutions through a network of 235 offices in North America, South America, Europe and Asia. In 2009, gross profits were divided as follows: 88% from transportation, 9% from sourcing, and 3% from information services. Within the transportation segment, CHRW offers several modes of service, including trucks (86% of gross profits in the transportation segment in 2009), intermodal (3%), ocean (4%), air (3%), and miscellaneous (4%). Through contracts with about 50,000 transportation companies, including motor carriers, railroads, and air freight and ocean carriers, the company maintains the largest network of motor carrier capacity in North America. One of the largest third-party providers of intermodal services in the U.S., it also provides air, ocean and customs services. In addition, CHRW operates valueadded logistics services, including fresh produce sourcing, freight consolidation and cross-docking. In 2009, the company handled about 7.5 million shipments for more than 35,000 customers.

CORPORATE STRATEGY. CHRW has historically grown through internal growth, by expanding current offices, opening new branch offices and hiring additional sales people. Growth has also been augmented through selective acquisitions. In February 2005, the company acquired three produce sourcing and marketing companies: FoodSource Inc., FoodSource Procurement, LLC, and Epic Roots, Inc. The three companies had about $270 million in gross revenues in 2004. In the third quarter of 2005, CHRW purchased two freight forwarding businesses: Hirdes Group Worldwide and Bussini Transport S.r.l., with combined gross revenues of about $52 million in 2004. In May 2006, CHRW acquired certain assets of Paine Lynch and Associates, a third-party logistics company, for $30 million. In July 2007, CHRW purchased LXSI Services, a third-party domestic air and expedited services provider with gross revenues of about $25 million.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.14 2.31 2.13 2.13 0.25 12% 61.69 37.36 29 18

2008 4.46 2.24 2.08 2.08 0.90 43% 67.36 36.50 32 18

2007 4.47 2.00 1.86 1.86 0.75 0% 58.19 42.11 31 23

2006 3.86 1.66 1.53 1.53 0.57 37% 55.18 35.55 36 23

2005 3.11 1.27 1.16 1.16 0.36 31% 41.70 23.60 36 20

2004 2.60 0.86 0.80 0.79 0.26 32% 28.20 18.30 35 23

2003 2.09 0.73 0.67 0.63 0.18 27% 21.50 13.50 32 20

2002 1.59 0.64 0.56 0.56 0.13 23% 17.70 12.92 32 23

2001 1.23 0.60 0.49 0.47 0.11 21% 16.13 11.41 33 23

2000 0.85 0.52 0.42 NA 0.08 19% 16.44 8.58 40 21

7,577 615 30.5 NA 587 38.5% 361 361

8,579 598 26.9 Nil 578 37.9% 359 359

7,316 534 24.1 Nil 524 38.1% 324 324

6,556 439 23.9 Nil 430 37.9% 267 267

5,689 345 18.5 Nil 333 38.9% 203 203

4,342 235 11.8 Nil 226 39.3% 137 136

3,614 195 11.0 Nil 186 38.7% 114 107

3,294 171 14.0 Nil 158 39.0% 96.3 94.9

3,090 153 19.1 Nil 138 39.3% 84.0 79.8

2,882 134 17.3 Nil 118 39.5% 71.2 NA

Balance Sheet & Other Financial Data (Million $) Cash 386 Current Assets 1,307 Total Assets 1,834 Current Liabilities 732 Long Term Debt NA Common Equity 1,080 Total Capital 1,080 Capital Expenditures 34.5 Cash Flow 391 Current Ratio 1.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 4.8 % Return on Assets 19.8 % Return on Equity 33.0

497 1,348 1,816 698 Nil 1,107 1,107 23.8 386 1.9 Nil 4.2 19.8 33.4

455 1,389 1,811 758 Nil 1,042 1,042 43.7 348 1.8 Nil 4.4 18.8 32.7

349 1,256 1,632 687 Nil 944 944 43.2 291 1.8 Nil 4.1 17.6 31.0

231 1,085 1,395 612 Nil 780 782 21.8 222 1.8 Nil 3.6 16.4 29.0

166 846 1,081 453 Nil 621 621 34.7 149 1.9 Nil 3.2 13.8 24.1

199 717 908 381 Nil 517 524 8.57 125 1.9 Nil 3.2 13.5 24.2

133 589 778 343 Nil 426 432 17.3 110 1.7 Nil 2.9 13.2 24.6

116 503 683 324 Nil 356 359 17.1 103 1.6 Nil 2.7 12.7 25.7

79.9 460 644 346 Nil 297 298 15.5 88.6 1.3 Nil 2.5 12.2 26.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 14701 Charlson Rd, Eden Prairie, MN 55347-5076. Telephone: 952-937-8500. Website: http://www.chrobinson.com Chrmn, Pres & CEO: J.P. Wiehoff

SVP, CFO & Chief Acctg Officer: C.M. Lindbloom Treas: T.A. Renner Secy & General Counsel: B.G. Campbell Investor Contact: A. Freeman (952-937-7847)

Board Members: R. Ezrilov, W. M. Fortun, D. W. MacLennan, S. L. Polacek, R. K. Roloff, B. Short, J. B. Stake, M. W. Wickham, J. P. Wiehoff

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1905 Domicile: Delaware Employees: 7,347

Stock Report | October 23, 2010 | NYS Symbol: CB | CB is in the S&P 500

Chubb Corp (The) S&P Recommendation BUY

★★★★★

Price $57.92 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $67.00

Investment Style Large-Cap Blend

Summary One of the largest U.S. property-casualty insurers, Chubb has carved out a number of niches, including high-end personal lines and specialty liability lines coverage.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.18– 47.10 Trailing 12-Month EPS $6.70 Trailing 12-Month P/E 8.6 $10K Invested 5 Yrs Ago $15,316

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.82 6.15 10.0 314.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.219 2.56 $1.48 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.47 2 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that CB is a superior underwriter with sound capital and risk management practices and an attractive mix of business. This is offset by our concerns about the impact a prolonged economic slowdown could have on CB's business, and by its exposure to catastrophe and professional liability claims.

70 60 50

40 35

Quantitative Evaluations

Vol. Mil. 24 16 8 0

S&P Quality Ranking D 5

5

3

4

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE 57

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Highlights The 12-month target price for CB has recently been changed to $67.00 from $60.00. The Highlights section of this Stock Report will be updated accordingly.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on CB from MarketScope, see below.

➤

10/21/10 05:15 pm ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF CHUBB CORPORATION (CB 58.36****): CB reports Q3 operating EPS of $1.69, vs. $1.56, above consensus, and our $1.19 view, amid better than expected underwriting results and impact of share buybacks. While our outlook is tempered by erosion in top line results, we note CB is growing its overseas business. We are raising our 2010 operating EPS estimate by $0.67 to $5.82 per CB guidance. We also raise 2011's estimate by $0.65 to $6.15. Our $67 target price (raised $7) assumes the shares trade at 11X our 2011 estimate, in line with the closest peers and the midpoint of CB's historical range. /C.Seifert

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,323 3,318 2009 2,965 3,266 2008 3,489 3,354 2007 3,519 3,521 2006 3,506 3,445 2005 3,449 3,451

3Q -3,320 3,303 3,549 3,451 3,479

4Q --3,465 3,075 3,518 3,601 3,703

Year -13,016 13,221 14,107 14,003 14,082

Earnings Per Share ($) 2010 1.39 1.59 2009 0.95 1.54 2008 1.77 1.27 2007 1.71 1.75 2006 1.58 1.41 2005 1.18 1.23

E1.69 1.69 0.73 1.87 1.43 0.60

E1.58 2.03 1.13 1.68 1.56 1.46

E5.82 6.18 4.92 7.01 5.98 4.47

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.350 0.370 0.370 0.370

12/03 02/24 06/10 09/02

12/16 03/17 06/23 09/15

12/18 03/19 06/25 09/17

01/12/10 04/06/10 07/13/10 10/05/10

Dividends have been paid since 1902. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CB

Chubb Corp (The) Business Summary July 26, 2010 CORPORATE OVERVIEW. Chubb Corp.'s property-casualty operations are divided into three strategic business units: Personal Lines (33% of net written insurance premiums in 2009); Commercial Insurance (42%); and Specialty Insurance (25%). Net written premiums totaled $11.08 billion in 2009, down 6% from net written premiums of $11.78 billion recorded in 2008. During 2009, 76% of CB's written premiums originated in the United States, while 24% was derived from overseas. The Personal Lines division offers primarily automobile and homeowners insurance coverage. The company's products are typically targeted to individuals with upscale homes and automobiles, requiring more coverage choices and higher policy limits than are offered under standard insurance policies. Net written premiums totaled $3.7 billion in 2009 (down 2.6% from $3.8 billion in 2008), and were divided as follows: homeowners 64%, automobile 16%, and other (mainly personal article coverage) 20%.

policies, including those for multiple peril, casualty, workers' compensation, and property and marine coverage. Net written premiums totaled $4.66 billion in 2009 (down 6.6% from $4.99 billion in 2008) and were divided as follows: commercial casualty 32%, commercial multi-peril 24%, property and marine 27%, and workers' compensation 17%. Chubb Specialty Insurance offers a variety of specialized executive protection and professional liability products for privately and publicly owned companies, financial institutions, professional firms, and health care organizations. Net written premiums totaled $2.74 billion in 2009 (down 5.5% from $2.90 billion in 2008), and were divided as follows: professional liability 88%, and surety 12%. Reinsurance assumed totaled $21 million in 2009, down from $64 million in 2008.

Chubb Commercial Insurance underwrites an array of commercial insurance Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 50.03 NA 6.18 6.14 1.40 23% 53.79 34.44 9 6

2008 36.63 NA 4.92 5.58 1.32 27% 69.39 33.47 14 7

2007 37.31 NA 7.01 6.41 1.45 21% 55.99 45.65 8 7

2006 32.57 NA 5.98 5.63 1.00 17% 54.73 46.61 9 8

2005 28.56 NA 4.47 3.87 1.08 24% 49.73 36.51 11 8

2004 25.06 NA 4.01 3.63 0.78 19% 38.73 31.50 10 8

2003 21.50 NA 2.23 2.08 0.72 32% 34.65 20.89 16 9

2002 18.67 0.58 0.65 0.42 0.70 109% 39.32 25.96 61 40

2001 17.81 0.31 0.32 0.19 0.68 NM 43.31 27.77 NM NM

2000 18.58 1.91 2.01 NA 0.66 33% 45.13 21.63 23 11

11,331 1,649 36.0 13,016 2,954 NA 2,183 2,168

11,828 1,732 -339 13,221 2,537 NA 1,804 2,045

11,946 1,738 423 14,107 3,937 NA 2,807 2,564

11,958 1,580 465 14,003 3,525 NA 2,528 2,378

12,176 1,408 12,675 14,082 2,447 NA 1,826 1,578

11,636 1,256 286 13,177 2,068 NA 1,548 1,402

10,183 1,118 93.2 11,394 934 NA 809 754

8,035 997 57.7 9,140 168 201 223 146

6,656 983 115 7,754 -66.0 111 112 65.2

6,146 957 6,294 7,252 851 681 715 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 511 Premiums Due 2,101 Investment Assets:Bonds 36,578 Investment Assets:Stocks 1,433 Investment Assets:Loans Nil Investment Assets:Total 42,004 Deferred Policy Costs 1,533 Total Assets 50,449 Debt 3,975 Common Equity 15,634 Property & Casualty:Loss Ratio 55.4 Property & Casualty:Expense Ratio 30.6 Property & Casualty Combined Ratio 86.0 % Return on Revenue 16.8 % Return on Equity NA

491 2,201 32,755 1,479 Nil 38,738 1,532 48,429 3,975 13,432 58.5 30.2 88.7 13.6 12.9

489 2,227 33,871 2,320 Nil 40,081 1,556 50,574 3,460 14,445 52.8 30.1 82.9 19.8 19.8

449 2,314 31,966 1,957 Nil 37,693 1,480 50,277 1,791 13,863 55.2 29.0 84.2 18.1 19.2

427 2,319 30,523 2,212 Nil 34,893 1,445 48,061 2,467 12,407 64.3 28.0 92.3 13.0 16.2

392 2,336 28,009 1,841 Nil 31,504 1,435 44,260 2,814 10,126 63.1 29.2 92.3 11.8 16.6

1,044 2,188 22,412 1,514 Nil 26,934 1,343 38,361 2,814 8,522 67.6 30.4 98.0 7.1 10.5

1,644 6,112 18,263 795 Nil 21,279 1,150 34,114 1,959 6,859 75.4 31.3 106.7 2.4 3.3

691 6,198 16,117 710 Nil 17,784 929 29,449 2,901 6,525 80.8 32.6 113.4 1.4 1.7

720 3,263 15,564 831 Nil 17,001 842 25,027 754 6,982 67.5 32.9 100.4 9.9 10.8

Income Statement Analysis (Million $) Premium Income Net Investment Income Other Revenue Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 15 Mountain View Road, Warren, NJ 07061-1615. Telephone: 908-903-2000. Email: [email protected] Website: http://www.chubb.com

Chrmn, Pres & CEO: J.D. Finnegan COO: J.J. Degnan EVP & CFO: R.G. Spiro EVP & General Counsel: M.A. Brundage

SVP & Chief Acctg Officer: J.J. Kennedy Founded: 1967 Investor Contact: G.A. Montgomery (908-903-2365) Domicile: New Jersey Board Members: Z. Baird, S. P. Burke, J. I. Cash, Jr., J. Employees: 10,200 D. Finnegan, M. G. McGuinn, S. R. Pozzi, L. M. Small, J. Soderberg, D. Somers, K. H. Williams, J. M. Zimmerman, A. W. Zollar

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CI | CI is in the S&P 500

CIGNA Corp. S&P Recommendation BUY

★★★★★

Price $36.17 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Managed Health Care

12-Mo. Target Price $39.00

Investment Style Large-Cap Growth

Summary CIGNA is one of the largest investor-owned employee benefits organizations in the U.S. Its subsidiaries are major providers of employee benefits offered through the workplace.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $39.26– 27.20 Trailing 12-Month EPS $4.47 Trailing 12-Month P/E 8.1 $10K Invested 5 Yrs Ago $9,555

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.35 4.60 8.3 272.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

3-for-1

10

HIGH

90

Mil.

S&P Quality Ranking

24 16 8 0

D 4

3

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 62

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Phillip M. Seligman on August 12, 2010, when the stock traded at $ 33.42. Highlights We look for health care segment revenue to rise about 14% in 2010, on higher premiums and 3% more members. We see medical enrollment growth driven by 98,000 additional Medicare Advantage (MA; Medicare health plan) Private Fee-for-Service members, mid single-digit growth in commercial middle-market (250 5,000 members) and select (50 - 250) accounts, and 40%-plus growth in individual/small business (2-50) market enrollment outweighing a mid single-digit decline in national account (5,000-plus) enrollment. We expect commercial medical costs to decline as a percentage of premiums (MCR: medical cost ratio), on the favorable impact of prior-year claims reserve development and lower utilization levels in the first half. However, we see a higher firmwide MCR partly on the higher percentage of MA enrollment. Elsewhere, we look for the more profitable group disability and life and international segments to continue to expand.

Investment Rationale/Risk ➤

➤

➤

We estimate operating EPS of $4.35 in 2010, versus $3.98 in 2009 before $0.75 of net onetime gains. We look for $4.60 in 2011.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

MEDIUM

Quantitative Evaluations

Vol.

➤

LOW

Our risk assessment reflects our view of CI's improving cost structure, strong cash flow, diversity, and wide range of products. However, competition is intensifying in the managed care market, and CI's focus on maintaining pricing discipline in a weak economy has contributed to declines in enrollment.

30

➤

1.58 7 BBB

Below Avg.

60

5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

20

$9.845 0.11 $0.04 83

We believe CI lost a greater percentage of commercial members than peers in 2009 amid the soft economy. Hence, we are encouraged that its new products thus far appear to be enjoying strong retention rates and membership gains in the individual, small-group, and middle markets, outweighing national account losses. In addition, we think CI has made gains in improving its health care segment's operating cost structure, but has much more work to do. Elsewhere, we are also encouraged by CI's intention to focus more on its international business, given rising demand overseas for life, accident, and health products and private health insurance to supplement government-run programs. We also view CI as well capitalized and think its investment portfolio and cash flow is healthy. Risks to our recommendation and target price include intensified competition and higherthan-expected medical costs. Our 12-month target price of $39 assumes a slightly below-peer forward multiple of 9X our 2010 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,205 5,353 2009 4,773 4,488 2008 4,569 4,863 2007 4,374 4,381 2006 4,107 4,098 2005 4,345 4,107

3Q -4,517 4,852 4,413 4,137 4,022

4Q -4,636 4,817 4,455 4,205 4,210

Year -18,414 19,101 17,623 16,547 16,684

Earnings Per Share ($) 2010 1.02 1.06 2009 0.76 1.58 2008 0.20 0.98 2007 0.93 0.75 2006 0.96 0.78 2005 1.09 0.94

E0.99 1.19 0.62 1.28 0.93 0.67

E0.92 1.19 -0.78 0.93 0.76 0.59

E4.35 4.73 1.04 3.88 3.44 3.28

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040

02/24

03/09

03/11

04/12/10

Dividends have been paid since 1867. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CI

CIGNA Corp. Business Summary August 12, 2010 CORPORATE OVERVIEW. CIGNA Corp., one of the largest U.S. employee benefits organizations, provides health care products and services and group life, accident and disability insurance. Health Care offers group medical, dental, behavioral health and pharmacy services products. Medical products include consumer directed health plans (CDHPs), HMOs, network only, point-of-service (POS) plans, preferred provider organizations (PPOs), and traditional indemnity coverage. The health care products and services are offered through guaranteed cost, retrospectively experience-rated, administrative services only (ASO) and minimum premium funding arrangements. Under ASO, the employer or other plan sponsor self-funds all of its claims and assumes the risk for claim costs incurred. CI's CDHPs offer a modular product portfolio that provides a choice of benefits network and various funding, medical management, consumerism and health advocacy options for employers and consumers.

11,040,000 as of December 31, 2009): 1,113,000 (1,001,000) guaranteed cost (commercial HMO and voluntary/limited benefits); 826,000 (761,000) experience-related indemnity; 147,000 (52,000) Medicare) and 9,279,000 (9,226,000) ASO. Disability and Life, which provides employer-paid and voluntary life, accident and disability products, held group life insurance policies covering 4.7 million lives at year-end 2009, down from 6.2 million at year-end 2008. International operates in selected markets outside the U.S., providing individual and group life, accident and health, health care and pension products. CI's invested assets under management at year-end 2008 totaled $19.8 billion, versus $18.0 billion at year-end 2008.

Medical covered lives as of June 30, 2010, totaled 11,365,000 (versus Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.35 NA 4.73 4.76 0.04 1% 38.12 12.68 8 3

2008 0.21 NA 1.04 1.21 NA NA NA NA NA NA

2007 13.93 NA 3.88 4.10 0.04 1% 57.61 42.33 15 11

2006 8.73 NA 3.44 3.34 0.03 1% 44.59 29.35 13 9

2005 10.30 NA 3.28 2.80 0.03 1% 39.94 26.04 12 8

2004 9.05 NA 3.81 2.62 0.14 4% 27.76 17.63 7 5

2003 6.85 NA 1.47 1.21 0.44 30% 19.53 13.03 13 9

2002 2.74 NA -0.94 -0.24 0.44 NM 37.00 11.38 NM NM

2001 7.62 2.45 2.20 1.77 0.43 19% 44.98 23.29 20 11

2000 7.75 2.02 2.03 NA 0.41 20% 45.58 20.25 22 10

615,794 16,041 Nil 1,014 18,414 1,301 NA 1,301 1,309

NA NA NA NA 19,101 288 NA 288 335

475,346 15,008 Nil 1,114 17,623 1,631 NA 1,120 1,180

NA 13,641 Nil 1,195 16,547 1,731 NA 1,159 1,127

NA 13,695 Nil 1,359 16,684 1,793 NA 1,276 1,090

NA 14,236 Nil 1,643 18,176 2,375 NA 1,577 1,082

459,995 15,441 Nil 2,594 18,808 903 NA 620 509

516,661 15,737 Nil 2,716 19,348 -569 NA -397 -99.2

609,970 15,367 Nil 2,843 19,115 1,497 1,101 989 794

647,464 16,328 Nil 2,942 19,994 1,497 983 987 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 1,162 Premiums Due 7,958 Investment Assets:Bonds 13,443 Investment Assets:Stocks 113 Investment Assets:Loans 5,071 Investment Assets:Total 19,839 Deferred Policy Costs 943 Total Assets 43,013 Debt 2,436 Common Equity 5,417 Combined Loss-Expense Ratio NA % Return on Revenue 7.1 % Return on Equity 28.9 % Investment Yield 5.4

1,439 NA NA NA NA 17,921 NA 41,406 NA 3,592 NA 1.5 NA 6.0

2,203 8,736 12,081 132 4,727 17,530 816 40,065 1,790 4,748 NA 6.4 24.7 6.3

1,647 9,501 12,155 131 5,393 18,303 707 42,399 1,294 4,330 NA 7.0 23.9 6.0

1,991 8,616 14,947 135 5,271 21,376 618 44,863 1,338 5,360 NA 7.6 24.2 6.3

2,804 16,223 16,136 33.0 5,123 21,919 544 81,059 1,438 5,203 NA 8.7 32.2 5.3

1,860 9,421 17,121 11,300 10,227 39,658 580 90,953 1,500 4,465 NA 3.3 15.3 6.5

2,079 9,981 27,803 295 11,134 40,362 494 88,950 1,500 3,665 NA NM NM 6.9

2,455 2,832 23,401 404 12,694 38,261 448 91,589 1,627 5,055 NA 5.2 18.9 7.3

2,739 2,814 24,776 569 12,755 41,516 1,052 95,088 1,163 5,634 NA 4.9 16.5 7.1

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Two Liberty Place, 1601 Chestnut Street, Philadelphia, PA 19192. Telephone: 215-761-1000. Website: http://www.cigna.com Chrmn: I. Harris, Jr.

Pres & CEO: D.M. Cordani EVP & General Counsel: C.A. Petren EVP & CIO: P. Emond CFO: T.A. McCarthy

Investor Contact: T. Detrick (215-761-1414) Founded: 1792 Board Members: D. M. Cordani, I. Harris, Jr., J. E. Domicile: Delaware Henney, P. Larson, R. Martinez, IV, J. Partridge, J. E. Employees: 29,300 Rogers, Jr., J. P. Sullivan, C. C. Wait, E. C. Wiseman, D. F. Zarcone, W. D. Zollars

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CINF | CINF is in the S&P 500

Cincinnati Financial Corp S&P Recommendation HOLD

★★★★★

Price $30.49 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary This insurance holding company markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.70– 25.05 Trailing 12-Month EPS $3.13 Trailing 12-Month P/E 9.7 $10K Invested 5 Yrs Ago $9,347

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.43 1.85 21.3 162.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.960 5.25 $1.60 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.72 1 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company as a fairly conservative underwriter with sound risk and capital management policies. However, CINF's investment allocation is more heavily weighted than peers toward equity holdings, although the company has taken steps to re-balance its investments.

40 30

20 15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

9 6 3 0 5

D 3

3

2

1

2009

Analysis prepared by Cathy A. Seifert on August 06, 2010, when the stock traded at $ 27.47.

➤

➤

➤

We expect property-casualty earned premiums to decline 1% to 2% in 2010, following a 2.6% drop in 2009. We see the effects of CINF's expansion being offset (albeit to a lesser degree) by price competition. Competition in many noncoastal regions (such as those where CINF operates) is expected to remain intense. Underwriting margins may narrow in 2010, particularly if catastrophe losses return to more "normal" levels. This impact may be offset by cost-cutting initiatives that CINF has undertaken. We estimate that net investment income will advance modestly in 2010, after declining 6.8% in 2009. The drop in investment income CINF experienced was worse than the results experienced by many of the company's peers, partly reflecting a different asset mix. CINF has taken steps in recent periods to shift its invested asset mix. As of December 31, 2009, 25% of CINF's invested assets were in equity securities (versus 33% at December 31, 2008). This compares to an industry average that we estimate at less than 15%. We estimate operating EPS of $1.43 in 2010 and $1.85 in 2011, versus $1.32 in 2009 and $2.10 in 2008.

Investment Rationale/Risk ➤

➤

➤

B+

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, P

Highlights

A B

70

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

B-

Relative Strength Rank

3

1

2007

C

At current levels, we view the shares as adequately valued, and at a premium versus most peers, particularly on a price to operating earnings basis. Our outlook still reflects what we see as the dual challenges of continued price competition in many of CINF's core lines of business and a challenging investment environment. We believe CINF's results on both of those fronts lag many peers. We also see a high degree of execution risk in a number of the company's expansion strategies. We also note that the $1.58 indicated annual dividend exceeds our 2010 operating earnings per share estimate. Risks to our opinion and target price include a significant downturn in underwriting results (including an erosion in earned premiums and a significant narrowing of underwriting margins), and a greater than anticipated deterioration in investment results. Our 12-month target price of $30 assumes the shares will trade at approximately 16.2X our 2011 operating EPS estimate, a premium of at least 40% to most of the company's peers, and at the upper end of CINF's historical range.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 887.0 878.0 2009 890.0 874.0 2008 704.0 917.0 2007 1,031 1,270 2006 1,607 981.0 2005 916.0 940.0

3Q -1,007 1,186 982.0 967.0 944.0

4Q -1,133 1,018 983.0 995.0 967.0

Year -3,903 3,824 4,259 4,550 3,767

Earnings Per Share ($) 2010 0.42 0.17 2009 0.22 -0.12 2008 -0.25 0.38 2007 1.11 2.02 2006 3.13 0.76 2005 0.81 0.89

E0.33 1.05 1.50 0.72 0.66 0.66

E0.48 1.50 0.99 1.11 0.75 1.03

E1.43 2.65 2.63 4.97 5.30 3.40

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.395 0.395 0.400 0.400

02/01 05/24 08/16 08/13

03/22 06/21 09/20 09/20

03/24 06/23 09/22 09/22

04/15/10 07/15/10 10/15/10 10/15/10

Dividends have been paid since 1954. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: CINF

Cincinnati Financial Corp Business Summary August 06, 2010 CORPORATE OVERVIEW. Cincinnati Financial Corp. (CINF) underwrites and sells property-casualty insurance primarily in the Midwest and Southeast, through a network of independent agents. Operations as of year-end 2009 were conducted in 37 states, through a network of approximately 1,680 independent insurance agencies, many of which own stock in the company. The company is licensed in all 50 states, the District of Columbia, and Puerto Rico. An ongoing geographical expansion plan is being implemented. Ten states accounted for about 68% of earned premium volume in 2009 (latest available): Ohio (21%), Illinois (9%), Indiana (7%), Pennsylvania (6%), North Carolina (5%), Georgia (5%), Michigan (4%), Virginia (4%), Wisconsin (4%), and Kentucky (3%). Property-casualty net earned premiums totaled $2.9 billion in 2009, with commercial lines accounting for 76% and personal lines for 23% and excess and surplus lines for 1%. During 2009, commercial casualty lines of coverage accounted for 32% of commercial lines earned premiums, while commercial property lines coverage accounted for 22%, commercial auto for 18%, workers' compensation for 15%, special package coverages for 7%, surety and executive risk for 5%, and other for 1%. Personal auto accounted for 47% of personal lines earned premiums in 2009, homeowners' coverage for 40%, and other personal lines for 13%.

Underwriting results deteriorated in 2009 and 2008, largely due to an elevated level of catastrophe losses. The loss ratio in 2009 equaled 71.7% (including 5.7 points of catastrophe losses), versus 68.3% in 2008 (including 6.8 points of catastrophe losses). The expense ratio inched upward, to 32.8%, from 32.3%. Taken together, the combined ratio (before policyholder dividends) equaled 104.5% in 2009, a deterioration from 2008's combined ratio of 100.6%. (A combined ratio of under 100% indicates an underwriting profit, while one in excess of 100% signals an underwriting loss.) Life, accident and health insurance is marketed through property-casualty agents and independent life insurance agents. This unit has been expanding its work site marketing activities, introducing a new product line and exploring expansion opportunities. Term life insurance represents this unit's largest product line. Life insurance earned premiums totaled $143 million in 2009, up from earned premiums of $126 million in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 29.38 NA 2.65 1.28 1.57 59% 29.66 17.84 11 7

2008 22.67 NA 2.63 2.16 1.56 59% 40.24 13.68 15 5

2007 32.94 NA 4.97 3.49 1.42 29% 48.45 36.00 10 7

2006 39.38 2.82 5.30 2.78 1.34 25% 49.19 41.21 9 8

2005 34.88 3.02 3.40 3.10 1.21 35% 45.95 38.38 14 11

2004 35.60 2.93 3.28 2.87 1.04 32% 43.52 36.57 13 11

2003 35.10 NA 2.10 2.09 0.91 43% 38.01 30.00 18 14

2002 31.42 1.67 1.32 1.55 0.81 61% 42.90 29.42 32 22

2001 33.62 1.17 1.08 1.06 0.76 71% 38.94 30.84 36 29

2000 33.80 0.82 0.66 NA 0.69 104% 39.29 23.75 59 36

69,814 143 2,911 501 3,903 582 NA 432 208

65,887 126 3,010 537 3,824 540 NA 429 354

61,873 125 3,125 608 4,259 1,192 NA 855 602

56,971 115 3,163 570 4,550 1,329 496 930 487

51,493 106 3,058 526 3,767 823 562 602 549

44,921 101 2,919 492 3,614 800 524 584 512

48,492 95.0 2,653 465 3,181 480 286 374 372

32,486 87.0 2,391 445 2,843 279 300 238 279

27,534 81.0 2,071 421 2,561 221 210 193 189

23,525 79.3 1,828 415 2,331 109 120 118 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 557 Premiums Due 1,670 Investment Assets:Bonds 7,855 Investment Assets:Stocks 2,701 Investment Assets:Loans Nil Investment Assets:Total 10,643 Deferred Policy Costs 481 Total Assets 14,440 Debt 838 Common Equity 4,760 Combined Loss-Expense Ratio 104.5 % Return on Revenue 11.1 % Return on Equity 9.7 % Investment Yield 5.1

1,009 1,818 5,827 2,896 Nil 8,890 509 13,369 840 4,182 100.6 11.2 8.5 5.3

226 1,861 5,848 6,249 Nil 12,261 461 16,637 860 5,929 90.3 20.1 13.4 4.7

202 1,811 5,805 7,799 Nil 13,759 453 17,222 840 6,808 94.3 23.4 14.4 4.3

119 1,797 5,476 7,106 Nil 12,702 429 16,003 791 4,145 89.2 16.0 15.4 4.1

306 1,799 5,141 7,498 Nil 12,677 400 16,107 791 6,249 89.8 16.2 8.0 3.9

91.0 1,677 3,925 8,524 Nil 12,527 372 15,509 603 6,204 94.7 11.8 5.4 3.9

112 1,483 3,305 7,884 Nil 11,257 343 14,059 420 5,998 98.4 8.4 3.6 3.9

93.0 732 3,010 8,495 Nil 11,571 286 13,959 609 5,998 104.9 7.5 3.2 3.7

60.3 652 2,721 8,526 Nil 11,316 259 13,287 449 5,995 112.5 5.1 1.0 3.9

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6200 South Gilmore Road, Fairfield, OH 45014-5141. Telephone: 513-870-2000. Email: [email protected] Website: http://www.cinfin.com

Chrmn: J.J. Schiff, Jr. Pres & CEO: K.W. Stecher SVP, CFO, Treas & Secy: S.J. Johnston SVP & Chief Acctg Officer: E.N. Mathews

Investor Contact: H.J. Wietzel (513-870-2768) Founded: 1950 Board Members: W. F. Bahl, G. T. Bier, L. Domicile: Ohio Clement-Holmes, K. C. Lichtendahl, W. R. McMullen, G. Employees: 4,170 W. Price, T. R. Schiff, J. J. Schiff, Jr., D. S. Skidmore, K. W. Stecher, J. F. Steele, Jr., L. R. Webb, E. A. Woods

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CTAS | CTAS is in the S&P 500

Cintas Corp S&P Recommendation HOLD

★★★★★

Price $28.08 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Diversified Support Services

12-Mo. Target Price $30.00

Investment Style Large-Cap Growth

Summary A leader in the corporate identity uniform business, Cintas also provides entrance mats, cleaning services and supplies, first aid products, along with document management and shredding services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.00– 23.10 Trailing 12-Month EPS $1.46 Trailing 12-Month P/E 19.2 $10K Invested 5 Yrs Ago $7,654

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.60 1.70 17.6 145.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.96 7 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's leading position in its core business, other related services that we believe are showing growth, and what we view as a strong balance sheet and cash flow.

40

30 25 20

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

9 6 3 0 5

$4.080 1.71 $0.48 78

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 56

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Kevin Kirkeby on September 30, 2010, when the stock traded at $ 27.60. Highlights ➤

➤

➤

We forecast revenue growth of 3% in FY 11 (May), supported by a modest recovery in CTAS's rental unit, and acquisitions in its document management segment. Price competition was aggressive during much of FY 10, but we think it will lessen in coming quarters as the number of workers in industries served by CTAS rises. S&P is forecasting real GDP growth of 2.6% in calendar 2010 and 2.4% in 2011. We see margins largely unchanged during FY 11 as an improved sales performance and cost savings from facility closures and route consolidations offset rising wages and benefits. CTAS added to its sales force, even as the economy and rental volumes slowed last year. However, we think the sales team has reached the point where new business and additional work for existing customers are offsetting contract reductions. We are also assuming relatively flat diesel and natural gas prices, which are both sizable operating expenses, over the next year. Our EPS forecast of $1.60 in FY 11 reflects the 7.6 million shares CTAS has repurchased this fiscal year, mostly in August and September.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Valuations have compressed during the past five years and are only modestly ahead of the S&P 500. We think this is partly due to slowing revenue growth, as CTAS's traditional customer base in manufacturing has generally been reducing headcount. At the same time, CTAS has been investing heavily in its nonuniform service offerings. Until these businesses mature and the economy improves to the point where employment moves steadily higher, we see muted net income growth. Risks to our recommendation and target price include renewed economic weakness, a rapid rise in fuel prices, declines in the prices CTAS receives for recycled paper, and regulatory changes that raise labor costs. Applying an 18.2X multiple, near the five-year average but ahead of the S&P 500, to our forward four-quarter EPS estimate, we calculate a value close to $30. Our DCF model yields an intrinsic value of $31, assuming a 9.0% weighted average cost of capital, 7% annual growth over the next five years, and 3% growth in perpetuity. Blending these valuation models results in our 12-month target price of $30.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 923.9 -2010 891.6 884.5 2009 1,002 985.2 2008 969.1 983.9 2007 914.2 923.3 2006 823.5 835.8

3Q -861.8 908.6 976.0 905.4 836.4

4Q -909.5 878.7 1,009 964.1 907.9

Year -3,547 3,775 3,938 3,707 3,404

Earnings Per Share ($) 2011 0.40 E0.38 2010 0.35 0.37 2009 0.51 0.47 2008 0.51 0.53 2007 0.53 0.51 2006 0.47 0.46

E0.39 0.32 0.47 0.53 0.48 0.46

E0.46 0.36 0.03 0.58 0.57 0.55

E1.60 1.40 1.48 2.15 2.09 1.94

Fiscal year ended May 31. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.480

01/26

02/08

02/10

03/10/10

Dividends have been paid since 1984. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: CTAS

Cintas Corp Business Summary September 30, 2010 CORPORATE OVERVIEW. Cintas Corp. is North America's leading supplier of corporate uniforms, as well as a significant provider of related services. FY 09 (May) was the first time in 40 years that the company was unable to deliver an increase in revenues and net profits, reflecting the economic downturn. FY 10 marked the second time. The company reports financial results using four segments: Rental Uniforms and Ancillary Services, Uniform Direct Sales, Document Management, and First Aid, Safety & Fire Protection. The Rental operating segment (72% of total revenues in FY 10 and 75% of gross profits, with a 43.6% margin) designs and manufactures corporate uniforms that it rents to its customers. Services provided to the rental markets by the company also include the cleaning of uniforms, as well as the provision of ongoing replacements as required by each customer. The company also offers ancillary products, including the rental or sale of entrance and special purpose mats, towels, mops, and linen products, as well as sanitation supplies and services and cleanroom supplies. It operates through about 7,700 local delivery routes (down from about 8,400 at the end FY 08 following route restructuring initiatives).

design, manufacture and direct sale of uniforms to CTAS's national account customers. In recent years, there has been an effort to offer more branded items in its catalogs alongside the traditional propriety uniform and apparel lines. This segment generally has less recurring business than the rental operations. The First Aid, Safety and Fire Protection segment (10%, 9%, and 38.9% margin) provides first aid equipment, inspection, repair and recharging of portable fire extinguishers, fire suppression systems, and emergency and exit lights. In a short period of time, CTAS believes it has become the second-largest fire protection services company in the U.S., with capabilities in at least 42 of the top 50 cities. Although the company estimated the market for first aid and fire protection services to be about $4.5 billion a year, the recession and declines in non-residential construction prompted the company to re-evaluate its goals for this segment and cease providing fire protection services in certain smaller markets.

The Uniform Direct Sales segment (11%, 8%, and 30.6% margin) includes the Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 6.93 2.41 1.40 1.49 0.48 34% 2009 30.85 18.09 22 13

2009 5.83 2.50 1.48 1.48 0.46 31% 2008 33.89 19.51 23 13

2008 4.92 3.10 2.15 2.15 0.39 18% 2007 42.89 31.14 20 14

2007 4.73 2.96 2.09 2.09 0.35 17% 2006 44.30 34.57 21 17

2006 4.73 2.78 1.94 1.92 0.32 16% 2005 45.50 37.51 23 19

2005 6.15 2.43 1.74 1.69 0.32 18% 2004 50.35 39.51 29 23

2004 6.32 2.26 1.58 1.54 0.29 18% 2003 50.68 30.60 32 19

2003 5.42 2.12 1.45 1.43 0.27 19% 2002 56.62 39.15 42 29

2002 4.39 1.95 1.36 1.33 0.25 18% 2001 53.25 33.75 39 25

2001 6.42 1.82 1.30 1.27 0.22 17% 2000 54.00 23.17 42 18

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,547 564 152 48.6 344 NA 216 228

3,775 653 158 52.5 362 37.4% 226 226

3,938 726 149 16.6 531 36.8% 335 335

3,707 713 135 50.3 534 37.3% 335 335

3,404 674 127 31.8 522 37.3% 327 324

3,067 614 120 24.4 477 37.0% 301 293

2,814 602 117 25.1 432 37.0% 272 265

2,687 539 115 30.9 396 37.0% 249 245

2,271 478 101 11.0 372 37.0% 234 229

2,161 459 90.2 15.1 356 37.6% 222 219

Balance Sheet & Other Financial Data (Million $) Cash 566 Current Assets 1,525 Total Assets 3,970 Current Liabilities 384 Long Term Debt 785 Common Equity 2,534 Total Capital 3,320 Capital Expenditures 111 Cash Flow 368 Current Ratio 4.0 % Long Term Debt of Capitalization 23.7 % Net Income of Revenue 6.1 % Return on Assets 5.6 % Return on Equity 8.8

250 1,270 3,695 317 786 2,367 3,154 160 384 4.0 24.9 6.0 6.0 9.8

192 1,282 3,809 367 943 2,254 3,198 190 484 3.5 28.4 8.5 9.1 15.2

155 1,157 3,570 403 877 2,168 3,167 181 470 2.9 27.7 9.0 9.6 15.7

241 1,178 3,425 412 794 2,088 3,013 157 454 2.9 26.4 9.6 10.1 15.6

309 1,167 3,060 356 465 2,104 2,703 141 420 3.3 17.2 9.8 10.2 15.1

254 1,034 2,810 326 474 1,888 2,485 113 389 3.2 19.1 44.4 10.1 15.4

57.7 878 2,583 305 535 1,646 2,278 115 365 2.9 23.5 9.3 9.8 16.2

85.1 853 2,519 313 703 1,424 2,207 170 335 2.7 31.9 10.3 11.0 17.6

110 820 1,752 251 221 1,231 1,501 147 313 3.3 14.7 10.3 13.3 19.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6800 Cintas Boulevard, Cincinnati, OH 45262-5737. Telephone: 513-459-1200. Website: http://www.cintas.com Chrmn: R.J. Kohlhepp

Pres & COO: J.P. Holloman CEO: S.D. Farmer Investor Contact: W.C. Gale (513-459-1200) SVP, CFO & Chief Acctg Officer: W.C. Gale

Board Members: G. S. Adolph, G. V. Dirvin, R. T. Founded: 1968 Farmer, S. D. Farmer, J. Hergenhan, J. J. Johnson, R. J. Domicile: Washington Kohlhepp, D. C. Phillips, J. M. Scaminace, R. W. Tysoe Employees: 30,000

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CSCO | CSCO is in the S&P 500

Cisco Systems Inc S&P Recommendation STRONG BUY

★★★★★

Price $23.48 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $29.00

Investment Style Large-Cap Growth

Summary This company offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $27.74– 19.82 Trailing 12-Month EPS $1.33 Trailing 12-Month P/E 17.7 $10K Invested 5 Yrs Ago $13,787

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.54 1.80 15.2 5,585.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.27 14 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for CSCO reflects the highly competitive nature of the industry in which it operates, balanced by our view of its strong financials, including $40 billion of cash and investments, and a dominant market position.

30 25 20

Quantitative Evaluations

15

S&P Quality Ranking

Vol. Mil.

D

450 300 150 0 5

$131.142 Nil Nil 73

C

B-

B+ B

B+

A-

Relative Strength Rank 4

3

4

A+

MODERATE 62

5

4

3

A

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Ari Bensinger on September 15, 2010, when the stock traded at $ 21.63. Highlights ➤

➤

➤

Following an 11% sales increase in FY 10 (July), we see an additional 11% advance in FY 11, on higher networking product demand, aided by a product refresh cycle in core switching and routing. We believe the company has taken a more aggressive approach in targeting new market adjacencies, with new product announcements like unified computing (servers) and the Cius (tablets), as well as recent acquisitions, such as Tandberg (video conferencing), and Starent (wireless packet data). We look for FY 11 gross margins to narrow modestly, to 65%, as the benefits from higher sales volume are offset by a less favorable sales mix toward new products and higher component procurement and shipping costs. We believe CSCO will manage FY 11 costs prudently, and we see operating expenses rising at a slower rate than sales. After taxes at a 22% effective rate, we project FY 11 operating EPS of $1.54, including $0.18 of projected stock option expense, up from the $1.43 EPS posted for FY 10, which was before $0.10 of non-recurring items, mostly related to intangible asset amortization.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We believe IT spending could weaken over the near term amid an uncertain macroeconomic outlook. Still, we see CSCO taking advantage of its broad-balanced portfolio, large established customer base, and strong cash position to gain market share from smaller networking rivals. We foresee a continued rapid increase in network bandwidth usage acting as a strong underlying growth driver for CSCO. We believe the shares, trading below peers on a P/E basis, do not adequately reflect CSCO's leading market position and strong profitability metrics. Risks to our recommendation and target price include a slower-than-expected recovery in enterprise and telecom spending, increased competition, and intensifying pricing pressures. Our 12-month target price of $29 equals a peeraverage 19X our FY 11 EPS estimate of $1.54. We view the company's 7% free cash flow yield as one of the highest in the industry. Our discounted cash flow model, assuming a weighted average cost of capital of 11% and terminal growth of 3%, indicates an intrinsic value of just under $31.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 9,021 9,815 2009 10,331 9,089 2008 9,554 9,831 2007 8,184 8,439 2006 6,550 6,628 2005 5,971 6,062

3Q 10,368 8,162 9,791 8,866 7,322 6,187

4Q 10,836 8,535 10,364 9,433 7,984 6,581

Year 40,040 36,117 39,540 34,922 28,484 24,801

Earnings Per Share ($) 2010 0.30 0.32 2009 0.37 0.26 2008 0.35 0.33 2007 0.26 0.31 2006 0.20 0.22 2005 0.21 0.21

0.37 0.23 0.29 0.30 0.22 0.21

0.33 0.19 0.33 0.33 0.25 0.24

1.33 1.05 1.31 1.17 0.89 0.87

Fiscal year ended Jul. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: CSCO

Cisco Systems Inc Business Summary September 15, 2010 CORPORATE OVERVIEW. Cisco Systems is the world's largest supplier of high-performance computer internetworking systems. The company's sales strategy is primarily based on distribution channel partners, with over 40,000 reseller partner sales representatives around the world. Geographically, FY 09 (Jul.) sales were distributed to the following regions: United States and Canada (54%), Europe (21%), the Emerging Markets (11%), Asia Pacific (10%), and Japan (4%). Product families are categorized into four segments: switches (41% of total FY 09 product sales), routers (22%), advanced technologies (32%), and other. There are currently seven primary advanced technology segments: home networking, unified communications, security, storage area networking, wireless technology, application networking services, and video systems. The company also has a broad range of service offerings, including technical support services and advanced services.

segments as industry segments with the potential to become billion dollar businesses. We see the company continuing to identify additional advanced technology sub-segments in markets that build upon its networking expertise. The company is also actively developing a new wave of technologies, referred to as emerging technologies, including telepresence systems, physical security and digital media. MARKET PROFILE. With a dominant market share of approximately 70% of the overall Ethernet switching market, we believe CSCO has become the de facto choice for Ethernet switches. We view the company's large installed base as a significant competitive advantage over peers. In the beginning of 2008, the company introduced its new Nexus series of switches that aims to unify storage and computing in data centers.

In our view, the primary driver of company sales growth will be the advanced technologies segment. CSCO distinguishes its advanced technology subCompany Financials Fiscal Year Ended Jul. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA 1.68 1.33 1.31 NA Nil 27.74 19.82 21 15

2009 4.15 1.35 1.05 1.06 Nil Nil 24.83 13.61 24 13

2008 3.37 1.59 1.31 1.30 Nil Nil 27.72 14.20 21 11

2007 2.76 1.40 1.17 1.15 Nil Nil 34.24 24.82 29 21

2006 2.07 1.10 0.89 0.88 Nil Nil 27.96 17.10 31 19

2005 2.74 1.02 0.87 0.70 Nil Nil 20.25 16.83 23 19

2004 3.16 0.91 0.70 0.52 Nil Nil 29.39 17.53 42 25

2003 3.35 0.72 0.50 0.28 Nil Nil 24.60 12.33 49 25

2002 3.33 0.52 0.25 0.12 Nil Nil 21.84 12.24 87 49

2001 3.07 0.17 -0.14 -0.37 Nil Nil 44.50 11.04 NM NM

40,040 11,194 2,030 623 9,415 NA 7,767 7,622

36,117 9,153 1,768 346 7,693 20.3% 6,134 6,186

39,540 11,189 1,744 319 10,255 21.5% 8,052 7,985

34,922 10,034 1,413 Nil 9,461 22.5% 7,333 7,197

28,484 8,380 1,293 Nil 7,633 26.9% 5,580 5,499

24,801 8,451 1,009 Nil 8,036 28.6% 5,741 4,645

22,045 7,738 1,443 Nil 6,992 28.9% 4,968 3,652

18,878 6,477 1,591 Nil 5,013 28.6% 3,578 2,051

18,915 4,941 1,957 Nil 2,710 30.1% 1,893 931

22,293 2,257 2,236 Nil -874 NM -1,014 -2,641

Balance Sheet & Other Financial Data (Million $) Cash 39,861 Current Assets 51,421 Total Assets 81,130 Current Liabilities 19,233 Long Term Debt 12,188 Common Equity 44,285 Total Capital 59,569 Capital Expenditures 1,008 Cash Flow 9,797 Current Ratio 2.7 % Long Term Debt of Capitalization 20.5 % Net Income of Revenue 19.4 % Return on Assets 10.4 % Return on Equity 18.7

35,001 44,177 68,128 13,655 10,295 38,647 48,972 1,005 7,902 3.2 21.0 17.0 9.7 16.8

26,235 35,699 58,734 13,858 6,393 34,353 40,875 1,268 9,796 2.6 15.6 20.4 14.4 24.5

3,728 31,574 53,340 13,358 6,408 31,480 37,898 1,251 8,746 2.4 16.9 21.0 15.2 26.5

3,297 25,676 43,315 11,313 6,332 23,912 30,250 772 6,873 2.3 20.9 19.6 14.5 23.7

4,742 13,031 33,883 9,511 Nil 23,174 23,184 692 6,750 1.4 Nil 23.1 16.5 23.4

3,722 14,343 35,594 8,703 Nil 25,826 25,916 613 6,411 1.6 Nil 22.5 13.7 18.4

3,925 13,415 37,107 8,294 Nil 28,029 28,039 717 5,169 1.6 Nil 19.0 9.6 12.6

9,484 17,433 37,795 8,375 Nil 28,656 28,671 2,641 3,850 2.1 Nil 10.0 5.2 6.8

4,873 12,835 35,238 8,096 Nil 27,120 27,142 2,271 1,222 1.6 Nil NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 170 West Tasman Drive, San Jose, CA 95134-1706. Telephone: 408-526-4000. Email: [email protected] Website: http://www.cisco.com

Chrmn & CEO: J.T. Chambers COO: R. Lloyd EVP & CFO: F.A. Calderoni SVP & Treas: D.K. Holland

SVP, Secy & General Counsel: M. Chandler Investor Contact: L. Graves (408-526-6521) Board Members: C. A. Bartz, M. M. Burns, M. D. Capellas, L. R. Carter, J. T. Chambers, B. L. Halla, J. L. Hennessy, R. M. Kovacevich, R. McGeary, M. K. Powell, A. Sarin, S. M. West, J. Yang

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1984 Domicile: California Employees: 70,700

Stock Report | October 23, 2010 | NYS Symbol: C | C is in the S&P 500

Citigroup Inc S&P Recommendation BUY

★★★★★

Price $4.11 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Other Diversified Financial Services

12-Mo. Target Price $5.00

Investment Style Large-Cap Blend

Summary This diversified financial services company provides a wide range of financial services to consumers and corporate customers in more than 100 countries and territories.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$5.07– 3.11 $-0.12 NM $1,078

S&P Oper. EPS 2010E 0.39 S&P Oper. EPS 2011E 0.45 P/E on S&P Oper. EPS 2010E 10.5 Common Shares Outstg. (M) 28,973.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$119.081 Nil Nil 38

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.64 NM BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of C's exposure to risky assets on its balance sheet and to uncertain credit in domestic and international markets. It also reflects the possibility of attrition of C's customers and trading partners.

40 20 8 4 2

Quantitative Evaluations

1

S&P Quality Ranking

Vol. 8760

Mil. 2400 1600 800 0

D

5453

C

B-

B B

B+

Relative Strength Rank

A-

A

A+

MODERATE

50

5

5

3

3

3

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for C has recently been changed to $5.00 from $5.50. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on C from MarketScope, see below.

➤

10/18/10 10:16 am ET ... RETRANSMIT - S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF CITIGROUP INC. (C 4.06****): Q3 EPS of $0.07, vs. a loss per share of $0.23, misses our $0.11 estimate, on higher than expected loan loss provisions. However, our provisioning forecast was likely more aggressive than consensus, and Q3 provisions were significantly lower than Q2, a positive. On Q3 results, we are lowering our '10 EPS estimate to $0.39, from $0.43. We see improvements on track, and we keep our $5 target price, based on slightly below peers multiples of 10.9X on our unchanged forward four quarters EPS estimate of $0.46, and 1.15X our year end tangible book value per share estimate of $4.36. /E. Oja

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 31,460 8,032 2009 32,178 36,811 2008 29,696 32,392 2007 43,021 45,802 2006 34,290 35,899 2005 28,620 28,837

3Q 26,863 27,070 29,456 43,197 36,323 31,147

4Q -11,947 16,253 27,209 40,046 31,714

Year -108,006 105,782 159,229 146,558 120,318

Earnings Per Share ($) 2010 0.14 0.09 2009 -0.16 0.51 2008 -1.04 -0.51 2007 1.01 1.24 2006 1.11 1.05 2005 0.98 0.91

0.09 -0.23 -0.71 0.44 1.06 0.97

E0.12 -0.34 -4.12 -1.99 1.03 0.98

E0.39 -0.76 -4.72 0.72 4.25 3.82

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data The most recent payment was in February 2009.

Stock Report | October 23, 2010 | NYS Symbol: C

Citigroup Inc Business Summary July 20, 2010 CORPORATE OVERVIEW. Following the market downturn and credit crisis, Citigroup decided to refocus on its core operations. It reorganized into three segments for reporting purposes. Citicorp consists of core banking operations for consumers and businesses, and includes its Regional Consumer Banking and Institutional Clients Group. Citi Holdings contains businesses and assets that the company no longer considers part of its core business, including its Brokerage and Asset Management, Local Consumer Lending, and Special Asset Pool units. Its Corporate and Other segment includes global staff functions and other corporate expenses. The Regional Consumer Banking unit consists of C's four regional consumer banks that offer traditional banking services to retail customers, as well as its branded cards business and a small commercial banking business. It has roughly 4,000 branches in 39 countries, and in 2009, 68% of the unit's revenues were from outside North America, with a focus on emerging economies. The Institutional Clients Group includes securities and banking and transaction services units that provide corporate, institutional and high-net-worth clients with a wide range of banking and investment services and products. It has trading floors in about 75 countries and a proprietary network to handle client transactions that stretches to nearly 100 countries.

Citi Holdings contains a number of businesses and assets that the company intends to exit as quickly as practicable through divestitures, portfolio run-off and asset sales. At the end of 2009, the firm had already reduced the asset base of Holdings by about 40%, to $547 billion. C holds a 49% stake in the Morgan Stanley Smith Barney brokerage joint venture within the Brokerage and Asset Management unit. Morgan Stanley has options to purchase C's remaining stake in the JV over three years staring in 2012. This unit was also downsized in 2009 through the sale of Nikko Cordial Securities. The Local Consumer Lending unit held the majority of Holding's assets at year-end 2009, and includes a portion of the firm's North American mortgage business, retail partner cards, Western European cards and retail banking, CitiFinancial North America, Student Loan Corporation, and other global businesses. It divested a range of global card operations in 2009, and spun-off the majority of its Primerica stake in early 2010. About one half of assets in Local Consumer Lending consisted of U.S. mortgages at the end of 2009, which will likely see additional chargeoffs throughout 2010.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.15 -0.76 -1.53 0.01 NM 7.59 3.26 NM NM

2008 4.41 -4.72 -4.97 1.12 NM 29.89 3.05 NM NM

2007 9.95 0.72 0.43 2.16 NM 56.28 28.80 78 40

2006 14.14 4.25 4.09 1.96 46% 57.00 44.81 13 11

2005 12.76 3.82 3.69 1.76 46% 49.99 42.91 13 11

2004 11.72 3.26 4.02 1.60 49% 52.88 42.10 16 13

2003 10.75 3.42 3.35 1.10 32% 49.15 30.25 14 9

2002 9.70 2.59 2.33 0.70 27% 52.20 24.48 20 9

2001 15.49 2.75 2.51 0.60 22% 57.38 34.51 21 13

2000 12.84 2.62 NA 0.52 20% 59.13 35.34 23 13

3,020 29,178 75,808 108,006 27,721 71.1% -7,799 NM -1,161 -17,737

3,221 44,319 58,242 105,782 52,963 117.3% -43,113 45.6% -23,125 -26,217

3,132 58,273 126,392 159,229 77,531 87.3% 1,701 NM 3,617 2,154

3,202 41,409 109,179 146,558 56,943 74.3% 29,639 27.3% 21,249 20,311

3,132 28,833 88,353 120,318 36,676 75.5% 29,433 30.8% 19,806 19,114

3,993 22,728 81,555 108,276 22,086 77.6% 24,182 28.6% 17,046 20,934

3,749 18,937 72,027 94,713 17,271 72.2% 26,333 31.1% 17,853 17,424

3,410 21,036 68,110 92,556 21,248 77.8% 20,537 34.1% 13,448 12,000

13,460 26,949 71,613 112,022 31,965 80.5% 21,897 34.4% 14,284 12,943

12,429 27,562 71,835 111,826 36,638 81.1% 21,143 35.6% 13,519 NA

Balance Sheet & Other Financial Data (Million $) Receivables 33,634 Cash & Investment 757,681 Loans 591,504 Total Assets 1,856,164 Capitalization:Debt 364,019 Capitalization:Equity 152,388 Capitalization:Total 518,992 Price Times Book Value:High 1.8 Price Times Book Value:Low 0.8 % Return on Revenue NM % Return on Assets NM % Return on Equity NM Loans/Equity 5.8

44,278 763,760 694,216 1,945,263 359,593 80,110 501,223 6.8 0.7 NM NM NM 8.0

57,359 242,663 777,993 2,187,631 427,112 113,598 540,710 5.7 2.9 2.3 0.2 3.1 6.3

44,445 300,105 679,192 1,884,318 288,494 118,783 408,277 4.0 3.2 22.0 1.3 18.5 5.5

42,823 208,970 583,503 1,494,037 217,499 111,412 330,036 3.9 3.4 16.5 1.3 18.0 5.2

44,056 236,799 548,829 1,484,101 207,910 108,166 317,201 4.5 3.5 15.7 1.2 16.6 5.1

31,053 204,041 478,006 1,264,032 168,759 96,889 284,251 4.6 2.8 18.8 1.5 19.5 5.1

29,714 186,839 447,805 1,097,190 133,079 85,318 219,797 5.4 2.5 14.5 1.3 11.6 3.6

47,528 179,352 391,933 1,051,450 128,756 79,722 210,003 3.7 2.2 12.8 1.5 19.7 5.3

36,237 134,743 367,022 902,210 116,698 64,461 182,904 4.6 2.7 12.9 1.6 22.2 5.6

Income Statement Analysis (Million $) Premium Income Investment Income Other Revenue Total Revenue Interest Expense % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 399 Park Avenue, New York, NY, USA 10043. Telephone: 212-559-1000. Website: http://www.citigroup.com Chrmn: R.D. Parsons

Pres: W. McNamee CEO: V.S. Pandit COO, Chief Admin Officer & CTO: D. Callahan CFO: J.C. Gerspach

Board Members: A. J. Belda, T. C. Collins, B. Cowley, G. Founded: 1901 Franck, J. A. Grundhofer, R. L. Joss, A. N. Liveris, M. E. Domicile: Delaware O'Neill, V. S. Pandit, R. D. Parsons, L. R. Ricciardi, J. Employees: 269,000 Rodin, R. L. Ryan, A. M. Santomero, C. Scheurkogel, D. Taylor, W. S. Thompson, Jr., E. Zedillo

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CTXS | CTXS is in the S&P 500

Citrix Systems Inc S&P Recommendation HOLD

★★★★★

Price $60.80 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Application Software

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company is a leading developer and supplier of access infrastructure software and services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $71.93– 36.75 Trailing 12-Month EPS $1.26 Trailing 12-Month P/E 48.3 $10K Invested 5 Yrs Ago $23,048

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.36 1.58 44.7 186.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.366 Nil Nil 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.04 20 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects rapidly changing technology and the competitive nature of the enterprise software market.

50 40

Quantitative Evaluations

30

S&P Quality Ranking

20

D

C

B-

B+ B

B+

A-

A

A+

Vol. Mil. 24 16 8 0

Relative Strength Rank

MODERATE

45 LOWEST = 1 5

4

5

3

3

2

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The STARS recommendation for CTXS has recently been changed to 3 (hold) from 2 (sell) and the 12-month target price has recently been changed to $60.00 from $46.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on CTXS from MarketScope, see below. 10/22/10 10:17 am ET ... S&P RAISES RECOMMENDATION ON SHARES OF CITRIX SYSTEMS TO HOLD FROM SELL (CTXS 58.83***): Q3 EPS of $0.46, vs. $0.29, beats our estimate of $0.36, aided by lower-than-expected taxes and higher interest income. Revenues rose 18% to $472M, $11M above our forecast, driven by strong demand for its data center infrastructure products. While bookings for desktop virtualization products declined sequentially from Q2 following the end of its upgrade program, we see accelerating growth in that segment. We increase our '10 EPS estimate $0.12 to $1.36 and '11's by $0.08 to $1.58. We raise our target price by $14 to $60, reflecting our higher revenue and EPS growth outlook. /J.Yin-CFA

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 414.3 458.4 2009 369.1 392.8 2008 377.0 391.7 2007 308.1 334.4 2006 260.0 275.5 2005 201.9 211.2

3Q -401.0 398.9 349.9 277.9 227.0

4Q -451.2 415.7 399.6 321.0 268.7

Year -1,614 1,583 1,392 1,134 908.7

Earnings Per Share ($) 2010 0.25 0.25 2009 0.04 0.23 2008 0.18 0.18 2007 0.20 0.29 2006 0.22 0.23 2005 0.22 0.16

E0.46 0.29 0.26 0.33 0.23 0.23

E0.40 0.47 0.33 0.33 0.29 0.32

E1.36 1.03 0.96 1.14 0.97 0.93

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: CTXS

Citrix Systems Inc Business Summary August 03, 2010 CORPORATE OVERVIEW. Citrix Systems (CTXS) designs, develops and markets server and desktop virtualization software solutions that enable users to access and share applications and files on-demand with a higher performance and level of security. CTXS's solutions help people conduct business in remote and mobile locations as they move from location to location, use multiple devices, and connect with a wide range of heterogeneous applications over wired, wireless and Internet networks.

called Citrix Presentation Server, which runs the business logic of applications on a central server and displays the video on the users' computers. By keeping applications under a centralized control, it improves data security and reduces the costs of managing many different applications on every user's desktop. Other products include Citrix NetScaler and Citrix Repeater, which optimize the performance of a network by balancing the load and providing firewall protection.

CTXS organizes its products into three groups: Citrix Delivery Center, Online Services and Technical Services.

Online Services are Web-based access and collaboration software and services. GoToMyPC allows users to remotely access PCs via the Internet. GoToMeeting enables online meetings, training sessions and collaborative gatherings. GoToAssist is an online solution that enables businesses to provide customer support over the Internet. GoToWebinar helps organizations conduct online events, such as large marketing events.

Citrix Delivery Center is focused on application virtualization, application networking and desktop virtualization. It includes Server Virtualization products, which allow servers to run multiple operating systems, thus enabling them to process multiple business applications. As a result, enterprises can reduce infrastructure costs by aggregating servers and data storage into pools of shared resources. The key product is Citrix XenServer, which was obtained through the acquisition of XenSource. CTXS and Microsoft entered into patent cross license and source code licensing agreements related to Microsoft's operating systems.

Technical Services include consulting, support, and training to help ensure that customers are achieving the maximum value of CTXS's products and services.

Another key application in Citrix Delivery Center is Citrix XenApp, previously Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.89 1.78 1.03 1.02 Nil Nil 43.78 20.00 43 19

2008 4.13 1.62 0.96 0.99 Nil Nil 38.95 19.00 41 20

2007 3.59 1.60 1.14 1.14 Nil Nil 43.90 26.10 39 23

2006 3.92 1.32 0.97 0.97 Nil Nil 45.50 26.62 47 27

2005 2.68 1.06 0.93 0.74 Nil Nil 29.46 20.70 32 22

2004 2.80 0.95 0.75 0.48 Nil Nil 26.00 15.02 35 20

2003 3.24 0.94 0.74 0.23 Nil Nil 27.86 10.48 38 14

2002 2.57 0.75 0.52 -0.34 Nil Nil 24.70 4.70 47 9

2001 2.48 0.95 0.54 -0.19 Nil Nil 37.19 16.88 69 31

2000 2.94 0.72 0.47 NA Nil Nil 122.31 14.25 NM NM

1,614 344 139 0.43 194 1.48% 191 190

1,583 295 124 0.44 197 9.47% 178 184

1,392 297 85.2 0.74 251 14.5% 214 214

1,134 267 63.6 0.93 243 24.7% 183 183

909 233 22.0 2.23 226 26.2% 166 131

741 212 33.6 4.37 164 20.0% 132 83.5

589 189 34.3 18.3 161 21.0% 127 39.3

527 145 41.4 18.2 113 17.0% 93.9 -60.5

592 216 79.6 20.6 153 31.0% 105 -36.2

471 172 50.2 17.0 135 30.0% 94.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 600 Current Assets 1,039 Total Assets 3,091 Current Liabilities 834 Long Term Debt NA Common Equity 2,189 Total Capital 2,189 Capital Expenditures 76.3 Cash Flow 330 Current Ratio 1.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 11.8 % Return on Assets 6.6 % Return on Equity 9.3

575 940 2,694 731 Nil 1,918 1,918 181 302 1.3 Nil 11.3 6.8 9.5

580 934 2,535 654 Nil 1,838 1,838 85.9 300 1.4 Nil 15.4 9.4 13.0

349 812 2,024 536 Nil 1,464 1,464 52.1 247 1.5 Nil 16.1 9.8 13.7

484 726 1,682 426 31.0 1,203 1,234 26.4 188 1.7 2.5 18.3 11.2 15.6

73.5 427 1,286 342 Nil 925 925 24.4 165 1.2 Nil 17.7 10.0 16.1

359 809 1,345 626 Nil 707 707 11.1 161 1.3 Nil 21.6 10.1 19.1

143 375 1,162 189 334 622 955 19.1 135 2.0 34.9 17.8 7.9 14.6

140 346 1,208 193 346 647 994 60.6 185 1.8 34.8 17.8 9.1 17.0

375 587 1,113 159 330 593 923 43.5 145 3.7 35.8 10.0 8.8 16.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 851 West Cypress Creek Road, Fort Lauderdale, FL 33309. Telephone: 954-267-3000. Email: [email protected] Website: http://www.citrix.com

Chrmn: T.F. Bogan Pres & CEO: M.B. Templeton SVP, CFO & Chief Acctg Officer: D.J. Henshall Treas: K. Leopardi

Secy: A.G. Gomes Founded: 1989 Investor Contact: E. Fleites (954-267-3000) Domicile: Delaware Board Members: T. F. Bogan, N. Caldwell, M. J. Employees: 4,816 Demo, S. M. Dow, A. Hirji, G. E. Morin, G. Sullivan, M. B. Templeton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CLF | CLF is in the S&P 500

Cliffs Natural Resources Inc S&P Recommendation BUY

★★★★★

Price $64.60 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Steel

12-Mo. Target Price $78.00

Investment Style Large-Cap Growth

Summary CLF is the largest supplier of iron ore pellets to the North American steel industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $76.17– 32.87 Trailing 12-Month EPS $3.89 Trailing 12-Month P/E 16.6 $10K Invested 5 Yrs Ago $34,022

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.88 6.84 11.0 135.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.749 0.87 $0.56 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.61 76 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to the highly cyclical demand for iron ore and metallurgical coal, offset by its large market share in iron ore.

120

60 40

2-for-1

20

Quantitative Evaluations S&P Quality Ranking

Vol.

D

Mil.

C

B-

B B

B+

A-

A

A+

80

69

30 20 10 0

Relative Strength Rank

MODERATE

51 LOWEST = 1

HIGHEST = 99

4

5

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Leo J. Larkin on August 10, 2010, when the stock traded at $ 60.14. Highlights ➤

➤

➤

Excluding the August acquisition of coal operations from INR Energy, we look for an 88% sales increase in 2010 on higher volume and a rise in prices. Our forecast for a large sales increase rests on several assumptions. First, we look for U.S. GDP growth of 3.1% in 2010, after a 2.4% decline in 2009, and see global GDP growth of 3.8%, versus a drop of 1.8%. Second, we see a return to economic growth resulting in a rebound in steel production in both North America and Asia. Third, we believe steel mill inventories of iron and metallurgical coal finished 2009 at very low levels, and we expect mills to restock raw material inventories in 2010. On expected higher volume and prices for iron ore and metallurgical coal, we anticipate sharply higher operating income. After interest expense, taxes, and equity income, we project operating EPS of $5.88 for 2010, versus operating EPS of $1.03 posted in 2009 (excluding net unusual gains of $0.63). We estimate EPS of $6.84 in 2011. Long term, we see earnings rising on acquisitions, market share gains, further consolidation of the iron ore mining industry, and a secular rise in steel consumption in Asia.

Investment Rationale/Risk ➤

In our view, consolidation of the iron ore mining industry will result in generally firmer pricing and less volatile sales and profits over the course of the business cycle. Also, we think the company's strong market position in North America's iron ore market provides it with a solid platform for expansion in Asia and the ability to enter new markets such as ferrochrome. For the long term, we believe CLF's sales and earnings will rise on a combination of acquisitions, continued consolidation of the global iron ore mining industry, and a secular increase in steel consumption in most of Asia. We think the shares are attractively valued on a relative and absolute basis, recently trading at about 9.2X our 2011 EPS estimate.

➤

Risks to our recommendation and target price include a decline in the price of iron ore and metallurgical coal in 2011 instead of the increases we project.

➤

Our 12-month target price of $78 is 11.4X our 2011 EPS estimate of $6.84. On this projected multiple, the shares would trade just above the mid-point of their range over the past 10 years and at a discount to the P/E we apply to CLF's main iron ore mining peer.

Revenue (Million $) 1Q 2Q 2010 727.7 1,184 2009 464.8 390.3 2008 494.4 1,009 2007 325.5 547.6 2006 306.4 486.2 2005 271.2 485.3

3Q -666.4 1,190 619.6 580.1 514.1

4Q -820.5 916.3 782.5 549.0 468.9

Year -2,342 3,609 2,275 1,922 1,753

Earnings Per Share ($) 2010 0.69 1.92 2009 -0.07 0.36 2008 0.16 2.57 2007 0.31 0.83 2006 0.34 0.77 2005 0.19 0.90

E1.66 0.45 1.61 0.54 0.84 0.77

E1.75 0.82 0.47 0.88 0.67 0.59

E5.88 1.63 4.76 2.57 2.60 2.46

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.088 0.140 .001 Spl. 0.140

01/12 03/11 03/11 07/13

02/11 05/12 05/12 08/11

02/16 05/14 05/14 08/13

03/01/10 06/01/10 06/01/10 09/01/10

Dividends have been paid since 2004. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CLF

Cliffs Natural Resources Inc Business Summary August 10, 2010 CORPORATE OVERVIEW. Cliffs Natural Resources, the largest producer of iron ore pellets in North America, primarily sells to integrated steel companies in the United States and Canada. The company manages and operates six North American iron ore mines located in Michigan, Minnesota and Eastern Canada that currently have a rated capacity of 38.1 million tons of iron ore pellet production annually, representing approximately 45.1% of total North American pellet production capacity. CLF is also a major supplier of directshipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal. Based on its percentage ownership of the North American mines CLF currently operates, its share of the rated pellet production capacity is currently 25.6 million tons annually, representing some 30.3% of total North American annual pellet capacity. In 2009, production totaled 19.6 million tons of iron ore pellets, including 17.1 million tons for the company's account and 2.5 million tons on behalf of steel company owners of the mines.

of sales and incurred an operating loss of $71.9 million; Asia Pacific Iron Ore accounted for 23% of sales and had an operating profit of $87.2 million; and other operations accounted for 6% of sales and had $18.1 million of operating profit. In 2009, the United States accounted for 45% of revenues, China 30%, Canada 10%, Japan 7%, and other countries 8%. CORPORATE STRATEGY. The company seeks to achieve scale in the mining industry and focuses on serving the world's largest and fastest-growing steel markets. CLF plans to increase its business and presence as an international mining company by expanding both geographically and through the minerals it mines and markets. The company also intends to make acquisitions in minerals other than iron ore, such as metallurgical coal.

In 2009, the North American Iron Ore segment accounted for 62% of sales and had $275.5 million of operating profit; North American Coal accounted for 9% Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.97 3.51 1.63 1.85 0.25 16% 48.41 11.80 30 7

2008 14.20 6.61 4.76 4.48 0.35 7% 121.95 13.73 26 3

2007 13.35 3.54 2.57 2.38 0.25 10% 53.15 23.00 21 9

2006 9.12 3.24 2.60 2.67 0.24 9% 27.59 15.70 10 6

2005 7.28 0.00 2.45 2.40 0.15 6% 24.81 11.70 10 5

2004 4.76 3.14 2.92 2.16 0.03 1% 13.51 4.85 5 2

2003 2.72 -0.10 -0.43 -0.18 Nil Nil 6.80 1.84 NM NM

2002 0.98 -0.51 -0.82 -1.07 Nil Nil 4.03 1.96 NM NM

2001 4.63 -0.21 -0.40 -0.60 0.05 NM 2.81 1.71 NM NM

2000 4.97 0.37 0.22 NA 0.19 87% 3.92 2.46 18 11

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,342 589 237 39.0 225 9.24% 205 233

3,609 1,201 201 39.8 681 21.2% 516 485

2,275 473 107 21.8 370 22.8% 270 245

1,933 445 73.9 3.60 388 23.4% 280 282

1,753 403 48.6 4.50 368 23.0% 273 262

1,207 146 29.3 0.80 286 NM 321 231

825 -17.7 26.7 4.60 -35.2 NM -34.9 -14.8

599 17.6 25.5 6.60 -57.3 NM -66.4 -86.2

374 -33.8 15.4 9.30 -53.6 NM -32.2 -48.4

430 20.4 12.9 4.90 16.6 NM 18.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 503 Current Assets 1,161 Total Assets 4,639 Current Liabilities 570 Long Term Debt 525 Common Equity 2,543 Total Capital 3,062 Capital Expenditures 116 Cash Flow 442 Current Ratio 2.0 % Long Term Debt of Capitalization 17.2 % Net Income of Revenue 8.8 % Return on Assets 4.7 % Return on Equity 9.6

179 862 4,111 845 525 1,751 2,346 183 716 1.0 22.4 14.3 14.4 35.4

157 755 3,076 400 440 1,164 2,045 200 372 1.9 21.5 11.9 10.6 27.7

352 782 1,940 375 Nil 746 1,122 120 348 2.1 Nil 14.5 15.2 39.2

213 636 1,747 363 Nil 652 1,012 97.8 316 1.8 Nil 15.6 18.3 49.8

400 734 1,161 257 Nil 424 626 60.7 345 2.9 Nil 26.6 31.4 96.7

265 313 895 226 Nil 228 283 20.1 -8.20 1.4 Nil NM NM NM

61.8 301 730 205 35.0 79.3 134 8.60 -40.9 1.5 26.1 NM NM NM

184 363 825 190 70.0 374 470 9.20 -16.8 1.9 14.9 NM NM NM

29.9 248 728 102 70.0 402 496 17.8 31.0 2.4 14.1 4.2 2.6 4.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 Public Square, Suite 3300, Cleveland, OH 44114-2315. Telephone: 216-694-5700. Website: http://www.cliffsnaturalresources.com Chrmn, Pres & CEO: J.A. Carrabba

EVP, CFO & Chief Admin Officer: L. Brlas EVP & CTO: W. Brake, Jr. Chief Acctg Officer & Cntlr: T.M. Paradie Treas: S.M. Raguz

Board Members: R. C. Cambre, J. A. Carrabba, S. M. Founded: 1920 Cunningham, B. Eldridge, S. M. Green, J. K. Henry, J. F. Domicile: Ohio Kirsch, F. R. McAllister, R. Phillips, R. K. Riederer, A. G. Employees: 5,404 Schwartz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CLX | CLX is in the S&P 500

Clorox Co (The) S&P Recommendation HOLD

★★★★★

Price $68.19 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Household Products

12-Mo. Target Price $69.00

Investment Style Large-Cap Growth

Summary This diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $69.00– 57.72 Trailing 12-Month EPS $4.24 Trailing 12-Month P/E 16.1 $10K Invested 5 Yrs Ago $14,557

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.57 NA 14.9 138.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.474 3.23 $2.20 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.42 8 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of stable demand for household and personal care products, which is generally not affected by changes in the economy or by geopolitical factors.

70

55 50

Quantitative Evaluations 45

S&P Quality Ranking

Vol. Mil.

D

12 8 4 0 5

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

50 LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Souers on August 12, 2010, when the stock traded at $ 64.43. Highlights ➤

➤

Investment Rationale/Risk

We see sales growth of 3.0% in FY 11 (Jun.), following a 1.5% advance in FY 10. We expect a modestly negative impact from foreign currency translation due to a negative impact from the Venezuelan bolivar, and recategorization of Venezuela as hyperinflationary. While the recession has also dampened demand for some items in the natural home/personal care products categories, we view these areas as additive to CLX's growth for the long term, and expect CLX to continue to capture market share.

➤

We look for operating margins to widen about 10 basis points in FY 11 on continued benefits from cost reduction programs and slightly lower advertising expense, partially offset by narrowing gross margins as a result of commodity cost reinflation. CLX widened its operating margin (excluding restructuring costs) by 110 bps in FY 10, helped by pricing and cost savings.

➤

➤ ➤

After slightly lower interest expense, and taxes at 34.0%, we project FY 11 EPS of $4.57, a 7.8% improvement from the $4.24 the company posted in FY 10.

Revenue/Earnings Data

2010

In recent years, CLX's performance has been positive but erratic, in our view, due to the seasonal nature of some businesses, the diverse categories in which it operates, and the timing of new product introductions. However, we think its level of product innovation is respectable and bolsters the company's pricing power and competitive stance. We view positively CLX's increased presence in the natural home/personal care products arena through Burt's Bees and Green Works. Risks to our recommendation and target price include increased competition and promotional activity that would affect profitability, poor consumer acceptance of new products, unfavorable foreign exchange, and potential challenges in the implementation of new enterprise resource planning system software. Our 12-month target price of $69 blends our historical and peer analyses. We apply a P/E below the 10-year historical average to our calendar 2011 EPS estimate for a $74 value. Our peer analysis uses a slight discount to the average peer multiple, for a $64 value.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,372 1,279 2009 1,384 1,216 2008 1,239 1,186 2007 1,161 1,101 2006 1,104 1,064 2005 1,048 1,000

3Q 1,366 1,350 1,353 1,241 1,157 1,086

4Q 1,517 1,500 1,495 1,344 1,319 1,254

Year 5,534 5,450 5,273 4,847 4,644 4,388

Earnings Per Share ($) 2010 1.11 0.77 2009 0.91 1.08 2008 0.76 0.65 2007 0.73 0.59 2006 0.70 0.55 2005 0.50 0.72

1.17 1.09 0.71 0.84 0.72 0.75

1.20 1.20 1.13 1.07 0.92 1.00

4.24 3.81 3.25 3.22 2.89 2.88

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.500 0.500 0.550 0.550

11/19 02/09 05/19 09/14

01/26 04/26 07/26 10/25

01/28 04/28 07/28 10/27

02/12/10 05/14/10 08/13/10 11/12/10

Dividends have been paid since 1968. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CLX

Clorox Co (The) Business Summary August 12, 2010 CORPORATE OVERVIEW. From its divestiture from The Procter & Gamble Company in 1969 through its January 1999 acquisition of First Brands and beyond, Clorox has expanded into a company with approximately $5.5 billion in annual sales, by focusing on building big-share brands in mid-sized categories. In November 2004, CLX completed the exchange of its ownership interest in a subsidiary for approximately 61.4 million of its shares held by Henkel KGaA, which represented about 29% of CLX's outstanding common stock prior to the exchange. The subsidiary transferred to Henkel contained CLX's existing insecticides and Soft Scrub cleaner businesses, its 20% interest in the Henkel Iberica, S.A. joint venture, and approximately $2.1 billion in cash. As of FY 10 (Jun.), Clorox has four segments for reporting purposes: North America-Cleaning (34% of FY 09 sales and 37% of segmental profits); North America-Household (31% and 26%); North America-Lifestyle (15% and 24%); and International, which now includes Canada (20% and 13%). In FY 09, WalMart Stores and its affiliated companies accounted for 27% of consolidated net sales.

Clorox, Formula 409, Liquid-Plumr, Pine-Sol, S.O.S., and Tilex brands; natural cleaning products under the Green Works brand (introduced in January 2008); water-filtration systems and filters under the Brita brand; professional cleaning products for institutional, janitorial, health care and food service markets; auto care products, primarily under the Armor All and STP brands; plastic bags, wraps and containers, under the Glad brand; cat litter products, primarily under the Fresh Step and Scoop Away brands; food products, primarily under the Hidden Valley and KC Masterpiece brands; charcoal products under the Kingsford and Match Light brands; and natural personal care products under the Burt's Bees brand. In FY 09, liquid bleach represented 13% of sales, trash bags 13%, and charcoal 10%. CLX owns or leases and operates 23 manufacturing facilities in North America. The company also owns and operates 17 manufacturing facilities outside North America. CLX leases seven distribution centers located in North America and several other warehouse facilities.

Clorox's products include: laundry additives, including bleaches, under the Clorox, Clorox 2 and Javex brands; cleaning products, primarily under the Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 5.57 4.26 4.26 2.00 47% 69.00 58.96 16 14

2009 NM 5.16 3.81 3.70 1.84 48% 63.10 45.67 17 12

2008 NM 4.61 3.25 3.15 1.60 49% 65.25 47.48 20 15

2007 NM 4.47 3.22 3.26 1.20 37% 69.36 56.22 22 17

2006 NM 4.12 2.89 2.94 1.14 39% 66.00 56.17 23 19

2005 NM 3.95 2.88 2.73 1.10 38% 66.04 52.50 23 18

2004 0.77 3.47 2.55 2.43 1.08 42% 59.45 46.50 23 18

2003 NM 3.19 2.33 2.26 0.88 38% 49.16 37.40 21 16

2002 0.24 2.18 1.37 1.63 0.84 61% 47.95 31.92 35 23

2001 1.38 2.30 1.36 1.11 0.84 62% 40.85 29.95 30 22

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,534 1,291 185 139 925 NA 603 602

5,450 1,208 190 161 811 33.8% 537 521

5,273 1,116 193 168 693 33.5% 461 448

4,847 1,059 192 113 743 33.2% 496 501

4,644 967 188 127 653 32.2% 443 450

4,388 1,011 190 79.0 731 29.3% 517 489

4,324 1,069 197 30.0 840 35.0% 546 521

4,144 1,046 191 28.0 802 35.9% 514 496

4,061 942 190 39.0 498 35.3% 322 383

3,903 895 225 88.0 487 33.3% 325 266

Balance Sheet & Other Financial Data (Million $) Cash 87.0 Current Assets 1,124 Total Assets 4,555 Current Liabilities 1,647 Long Term Debt 2,124 Common Equity 83.0 Total Capital 2,507 Capital Expenditures 203 Cash Flow 788 Current Ratio 0.7 % Long Term Debt of Capitalization 84.7 % Net Income of Revenue 10.9 % Return on Assets 13.2 % Return on Equity NM

206 1,180 4,576 1,937 2,151 -175 1,999 197 727 0.6 107.6 9.9 11.6 NM

214 1,249 4,708 1,661 2,720 -370 2,447 170 654 0.8 111.2 8.7 11.0 NM

182 1,032 3,666 1,427 1,462 171 1,723 147 688 0.7 84.9 10.2 13.6 6613.3

192 1,007 3,616 1,130 1,966 -156 1,939 180 631 0.9 101.4 9.5 12.2 NM

293 1,090 3,617 1,348 2,122 -553 1,651 151 707 0.8 128.5 11.8 13.9 104.8

232 1,043 3,834 1,268 475 1,540 2,189 172 743 0.8 21.7 12.6 14.6 39.6

172 951 3,652 1,451 495 1,215 1,825 205 705 0.7 27.1 12.4 14.3 39.8

177 1,002 3,630 1,225 678 1,354 2,174 177 512 0.8 31.2 7.9 8.4 19.8

251 1,103 3,995 1,069 685 1,900 2,732 192 550 1.0 25.1 8.3 7.8 17.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1221 Broadway, Oakland, CA, USA 94612-1888. Telephone: 510-271-7000. Email: [email protected] Website: http://www.thecloroxcompany.com

Chrmn & CEO: D.R. Knauss EVP & CFO: D.J. Heinrich SVP & General Counsel: L. Stein Chief Acctg Officer: T.D. Johnson

Secy: A.C. Hilt Investor Contact: S. Austenfeld Board Members: D. Boggan, Jr., R. H. Carmona, T. M. Friedman, G. J. Harad, D. R. Knauss, R. W. Matschullat, G. G. Michael, E. A. Mueller, J. L. Murley, P. Thomas-Graham, C. M. Ticknor

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1913 Domicile: Delaware Employees: 8,300

Stock Report | October 23, 2010 | NNM Symbol: CME | CME is in the S&P 500

CME Group Inc S&P Recommendation HOLD

★★★★★

Price $283.69 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized Finance

12-Mo. Target Price $332.00

Investment Style Large-Cap Growth

Summary The CME Group, a combination of the Chicago Mercantile Exchange and CBOT Holdings, is the world's largest futures exchange.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $353.03– 234.50 Trailing 12-Month EPS $13.80 Trailing 12-Month P/E 20.6 $10K Invested 5 Yrs Ago $8,650

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

14.94 16.59 19.0 67.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$19.068 1.62 $4.60 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.11 11 AA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects potential volatility in results due to changes in futures trading volumes, recent acquisition activity in the sector, and a changing regulatory environment.

750

400 300

Quantitative Evaluations

200

S&P Quality Ranking Vol.

D

C

B-

NR B

B+

A-

A

A+

Mil. 9 6 3 0 5

Relative Strength Rank

MODERATE 64

LOWEST = 1 4

3

3

4

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Rafay Khalid, CFA on July 30, 2010, when the stock traded at $ 276.81. Highlights ➤

➤

➤

We forecast revenue growth of 14% in 2010 and 8% in 2011. We think trading volumes in 2010 and 2011 will improve over 2009, but they will remain below historical levels. In 2010, we foresee strength in domestic products and expansion into new international markets. Uncertainty about the direction of interest rates and the price of oil and gas continues in 2010, which should lead to a pick-up in hedging and speculative activity. But we forecast the average rate per contract will only increase 1% this year, compared to an 18% increase in 2009. We believe expenses on an absolute dollar basis will increase to $1.17 billion in 2010 and $1.20 billion in 2011, from $1.02 billion in 2009. Our expense forecast reflects our expectation for higher employee compensation costs, additional technology spending, and accelerating marketing expenses. But we forecast total expenses as a percentage of sales will decline to 39.1% in 2010 and 37.4% in 2011, compared to 39.2% in 2009. As a result, we see the operating margin rising to 60.9% in 2010 and 62.6% in 2011, from 60.8% in 2009.

Investment Rationale/Risk ➤

➤

➤

Since the U.S. government passed the new financial reform legislation, we see derivatives products being cleared through a central exchange. While we believe CME has a first mover advantage in the clearing business, we think competition will be increasing, as we see new companies entering the business. We expect that the legislation will cause minimal impact on trading volume, reflecting our outlook for a long implementation period for the Volcker rule, which requires banks to have an ownership stake of 3% or less in a private equity or hedge fund. Risks to our recommendation and target price include intensified price competition, increased regulation that curbs speculative trading, a significant decline in trading volume, and a deterioration in the macroeconomic environment. Our 12-month target price of $332 is based on a historical average multiple of about 20X our 2011 EPS forecast. We believe a historical average is warranted, as we see increasing competition in the clearing business, offset by our view of an improving economy.

We forecast EPS of $14.94 in 2010 and $16.59 in 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 693.2 813.9 2009 647.1 647.8 2008 625.1 563.2 2007 332.3 329.0 2006 251.7 282.2 2005 223.9 252.2

3Q -650.4 681.0 565.2 274.7 249.6

4Q -667.5 691.8 529.5 281.3 251.6

Year -2,613 2,561 1,756 1,090 977.3

Earnings Per Share ($) 2010 3.62 4.12 2009 3.00 3.33 2008 5.25 3.67 2007 3.69 3.57 2006 2.61 3.12 2005 2.04 2.36

E3.56 3.04 2.81 3.87 2.95 2.22

E3.66 3.04 0.93 3.75 2.91 2.18

E14.94 12.41 12.13 14.93 11.60 8.81

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

1.150 1.150 1.150 1.150

11/10 02/04 05/06 08/13

12/08 03/08 06/08 09/08

12/10 03/10 06/10 09/10

12/28/09 03/25/10 06/25/10 09/27/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: CME

CME Group Inc Business Summary July 30, 2010 CORPORATE OVERVIEW. The largest futures exchange in the world, CME Group was formed in July 2007 from the merger of the Chicago Mercantile Exchange and CBOT Holdings. CME serves the risk management needs of clients worldwide through a diverse range of futures and options-on-futures products on its CME Globex electronic trading platform and on its trading floors. CME offers futures and options on futures primarily in four product areas: interest rates, stock indexes, foreign exchange, and commodities. CME is the leading exchange for trading Eurodollar futures, the world's most actively traded futures contract and a benchmark for measuring the relative value of U.S. dollar-denominated short-term fixed income securities. CME operates its own clearing house, which clears, settles and guarantees every contract traded through its exchange. We view CME's internal clearing capabilities as a key competitive advantage as CME is able to capture the revenue associated with both the trading and clearing of its products. We expect CME to expand its clearing business by partnering with other exchanges, both domestically and abroad, and clearing over-the-counter (OTC) transactions.

In 2009, CME derived 83% of its revenue from fees associated with trading and clearing its products. These fees include per contract charges for trade execution, clearing and CME Globex fees. Within trading and clearing, the different products include commodities, equities, energy, foreign exchange, interest rates, and metals. CME Globex is the company's electronic platform through which it conducts more than 75% of CME's trading volume. Fees are charged at various rates based on the product traded, the method of trade, and the exchange trading privileges of the customer making the trade. Generally, members are charged lower fees than non-members. Certain customers benefit from volume discounts and limits on fees to encourage increased liquidity.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 16.19 12.41 12.92 4.60 37% 346.24 155.06 28 12

2008 NM 16.08 12.13 15.26 9.60 79% 686.43 155.49 57 13

2007 NM 18.00 14.93 14.96 3.44 23% 714.48 497.00 48 33

2006 42.91 13.67 11.60 11.59 2.52 22% 557.97 354.50 48 31

2005 32.38 10.71 8.81 8.80 1.84 21% 396.90 163.80 45 19

2004 23.83 7.93 6.38 6.37 1.04 16% 229.80 72.50 36 11

2003 17.10 5.16 3.60 3.61 0.63 18% 79.30 41.35 22 11

2002 13.71 4.76 3.13 3.23 Nil Nil 45.50 35.00 15 11

2001 12.39 3.61 2.33 NA NA NA NA NA NA NA

2000 NA 0.98 -0.21 NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,613 1,846 251 134 1,438 42.6% 826 859

2,561 1,946 233 56.5 1,248 42.7% 715 900

1,756 1,258 136 115 1,096 39.9% 659 660

1,090 694 72.8 92.1 672 39.4% 407 407

977 631 66.0 57.0 508 39.6% 307 307

753 464 53.0 19.0 368 40.2% 220 219

545 290 53.0 8.74 206 40.7% 122 123

469 NA 48.5 15.9 154 39.0% 94.1 97.2

397 NA 37.6 9.48 114 40.3% 68.3 NA

227 32.1 33.5 NA -8.08 41.3% -5.91 NA

Balance Sheet & Other Financial Data (Million $) Cash 303 Current Assets 6,699 Total Assets 35,651 Current Liabilities 6,524 Long Term Debt 2,015 Common Equity 19,301 Total Capital 21,316 Capital Expenditures 158 Cash Flow 1,077 Current Ratio 1.0 % Long Term Debt of Capitalization 9.5 % Net Income of Revenue 31.6 % Return on Assets 2.0 % Return on Equity 4.4

608 19,112 48,133 18,643 2,966 18,689 29,383 200 948 1.0 10.1 27.9 2.1 4.6

4,744 4,987 20,306 4,076 Nil 12,306 16,154 164 794 1.2 Nil 37.5 5.4 9.5

3,872 4,030 4,307 2,755 Nil 1,519 1,519 87.8 480 1.5 Nil 37.4 9.8 30.9

904 3,783 3,969 2,830 Nil 1,119 1,119 85.6 373 1.3 Nil 31.4 8.9 31.7

660 2,695 2,857 2,026 Nil 813 813 67.0 273 1.3 Nil 29.2 5.6 31.9

442 4,723 4,873 4,288 Nil 563 563 63.0 175 1.1 Nil 22.5 3.0 24.2

339 3,215 3,355 2,889 2.33 446 448 56.3 143 1.1 0.5 20.1 3.5 27.1

292 2,818 2,958 2,544 8.22 394 402 16.3 106 1.1 2.0 17.2 5.6 33.0

75.0 267 381 197 NA 164 164 11.2 27.6 1.4 Nil NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 20 S Wacker Dr, Chicago, IL 60606-7408. Telephone: 312-930-1000. Email: [email protected] Website: http://www.cme.com

Chrmn: T.A. Duffy Pres: P.S. Gill Vice Chrmn: C.P. Carey CEO: C.S. Donohue

COO: B.T. Durkin Founded: 1898 Investor Contact: J. Peschier (312-930-8491) Domicile: Delaware Board Members: J. M. Bernacchi, T. S. Bitsberger, C. P. Employees: 2,260 Carey, M. Cermak, D. H. Chookaszian, J. Clegg, R. F. Corvino, J. A. Donaldson, C. S. Donohue, T. A. Duffy, M. J. Gepsman, L. G. Gerdes, J. S. Ginsburg, D. R. Glickman, J. D. Hastert, G. J. Heraty, B. F. Johnson, G. M. Katler, P. B. Lynch, L. Melamed, W. Miller, II, J. Newsome, J. Niciforo, C. C. Odom, II, J. Oliff, J. L. Pietrzak, A. J. Pollock, J. F. Sandner, T. L. Savage, W. R. Shepard, H. J. Siegel, C. Stewart, D. A. Suskind, D. J. Wescott

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CMS | CMS is in the S&P 500

CMS Energy Corp S&P Recommendation HOLD

★★★★★

Price $18.69 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $17.00

Investment Style Large-Cap Value

Summary This energy holding company's principal subsidiary is Consumers Energy, the largest utility in Michigan and the sixth largest gas and 13th largest electric utility in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.07– 13.00 Trailing 12-Month EPS $0.97 Trailing 12-Month P/E 19.3 $10K Invested 5 Yrs Ago $14,369

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.34 1.42 13.9 230.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.302 4.49 $0.84 NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.59 4 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the steady cash flow from the regulated electric and gas utility businesses, which operate within a generally supportive regulatory environment, and our view of a substantially improved financial risk profile.

16

12 10

Quantitative Evaluations 8

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 65

3

LOWEST = 1

3

2

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Justin McCann on September 13, 2010, when the stock traded at $ 17.91. Highlights ➤

Excluding net one-time gains of $0.03, we expect operating EPS in 2010 to grow about 6% from 2009's $1.26. This would reflect a full year of annual surcharges of $91 million and $79 million (implemented in June and September 2009) for Energy Optimization and Renewable plans, and a $139.4 million electric rate increase. Since CMS had self-implemented a $179 million increase in May 2009, it had to refund the difference. It also had to refund the difference between the $65.9 million gas rate increase authorized in May 2010 and the $89 million increase it had self-implemented in November 2009.

Investment Rationale/Risk ➤

➤ ➤

➤

While operating EPS in the first half of 2010 was aided by rate increases and surcharges, this was partially offset by reduced gas sales due to the milder than normal winter weather. For 2011, we expect operating EPS to increase about 6% from anticipated results in 2010, reflecting CMS's investments in its rate base and a modest improvement in the local economy. On May 27, 2010, CMS announced that due to projected surplus generating capacity in its market, it was indefinitely deferring the development of an 830-megawatt clean coal power plant it planned to have operational in 2017.

➤

Revenue/Earnings Data

2010

The shares were recently up about 13% year to date, reflecting, in our view, the recent 40% increase in the dividend and the rebound in the utility sector. This follows a nearly 57% gain in 2009 that primarily reflected an improved outlook for CMS's long-term earnings growth. It plans to invest about $6.4 billion in its Consumer Energy utility over the next five years, which should significantly add to its rate base and enable it to grow earnings at an average annual rate of 5% to 7%. We do not expect CMS to issue any new equity through 2012. Risks to our recommendation and target price include a slower-than-expected recovery in both the financial markets and the Michigan economy, as well as a decrease in the average P/E multiple of the group as a whole. Following the 40% increase in the dividend (effective with the November 2010 payment), the recent yield was around 4.7%, in line with the approximate average peer yield. The increase was made possible after the company reduced its five-year capital investment plan by about $1 billion. Our 12-month target price is $17, a modest discount-to-peers P/E of 12X our operating EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,967 1,340 2009 2,104 1,225 2008 2,184 1,365 2007 2,237 1,319 2006 2,032 1,396 2005 1,845 1,230

3Q -1,263 1,428 1,282 1,462 1,307

4Q -1,613 1,844 1,674 1,920 1,906

Year -6,205 6,821 6,464 6,810 6,288

Earnings Per Share ($) 2010 0.35 0.39 2009 0.31 0.21 2008 0.44 0.20 2007 -0.16 -0.26 2006 -0.13 0.30 2005 0.74 0.12

E0.40 0.29 0.33 0.34 -0.47 -1.21

E0.30 0.03 0.27 -0.56 -0.16 -0.09

E1.34 0.83 1.23 -0.62 -0.44 -0.51

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.210

01/29 04/19 07/19 10/22

02/04 05/05 08/04 11/03

02/08 05/07 08/06 11/05

02/26/10 05/28/10 08/31/10 11/30/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CMS

CMS Energy Corp Business Summary September 13, 2010 CORPORATE OVERVIEW. CMS Energy (CMS) is the energy holding company for Consumers Energy (formerly Consumers Power Co.), a regulated electric and gas utility serving Michigan's Lower Peninsula, and CMS Enterprises, which is engaged in U.S. and international energy-related businesses. CMS operates in three business segments: electric utility, gas utility, and enterprises. CMS's electric utility operations include generation, purchase, distribution and sale of electricity. CMS's gas utility purchases, transports, stores, distributes and sells natural gas. The Enterprises segment, through its various subsidiaries and equity investments, is engaged in diversified energy businesses, including independent power production, electric distribution, and natural gas transmission, storage and processing.

mercial and diversified industrial customers, the largest segment of which is the automotive industry, which accounted for about 5% of total electric revenues in 2009. In April 2007, CMS completed the sale of the Palisades 798-megawatt nuclear power plant to Entergy (ETR) for $363 million. The transaction included a 15-year power purchase agreement with ETR. The company's gas utility serves some 1.7 million customers in 46 of the 68 counties in Michigan's lower peninsula. The gas utility also owned 1,652 miles of transmission lines at the end of 2009, and 15 gas storage fields in Michigan, with a storage capacity of 307 bcf. The electric utility segment accounted for 54.9% of consolidated revenues in 2009 (52.8% in 2008); the gas utility segment 41.2% (41.5%); Enterprises 3.5% (5.4%), and, other 0.4% (0.3%).

MARKET PROFILE. CMS's electric utility provides electricity to approximately 1.8 million customers in 61 of the 68 counties in the lower peninsula of Michigan. In 2009, the electric utility had total electric deliveries of 36 billion kWh. Consumers' electric utility customer base includes a mix of residential, comCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.42 0.83 1.08 0.50 60% 16.13 9.98 19 12

2008 10.88 1.23 1.01 0.36 29% 17.47 8.33 14 7

2007 9.46 -0.62 -0.65 0.20 NM 19.55 14.98 NM NM

2006 9.90 -0.44 -0.16 Nil Nil 17.00 12.09 NM NM

2005 10.53 -0.51 -0.44 Nil Nil 16.80 9.70 NM NM

2004 10.51 0.67 0.36 Nil Nil 10.65 7.81 16 12

2003 9.69 -0.30 0.25 Nil Nil 10.74 3.41 NM NM

2002 7.47 -2.99 -3.75 1.09 NM 24.80 5.45 NM NM

2001 8.11 -2.53 -3.29 1.46 NM 31.80 19.49 NM NM

2000 12.15 0.36 NA 1.46 NM 32.25 16.06 NM NM

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

6,205 590 220 1.70 NA 34.3% 209 260

6,821 629 193 2.05 NA 31.6% 300 238

6,464 540 201 3.38 NA 63.3% -126 -145

6,810 576 326 1.18 NA NM -85.0 -31.0

6,288 525 249 -0.56 NA NM -98.0 -93.1

5,472 431 256 1.01 NA NM 127 63.4

5,513 428 226 1.23 NA NM -43.0 40.6

8,687 403 211 0.12 NA NM -416 -522

9,597 530 263 1.26 NA NM -331 -431

8,998 637 298 1.63 NA 57.7% 41.0 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 14,222 Capital Expenditures 818 Net Property 9,682 Capitalization:Long Term Debt 6,092 Capitalization:% Long Term Debt 68.2 Capitalization:Preferred 239 Capitalization:% Preferred 2.70 Capitalization:Common 2,602 Capitalization:% Common 29.1 Total Capital 9,724 % Operating Ratio 90.8 % Earned on Net Property 7.3 % Return on Revenue 3.4 % Return on Invested Capital 6.7 % Return on Common Equity 8.3

13,618 792 9,190 6,287 69.9 243 2.70 2,463 27.4 9,145 90.6 8.9 4.4 7.9 13.1

12,894 1,263 8,728 5,832 71.0 250 3.00 2,130 25.9 8,323 100.4 8.8 NM 4.4 NM

13,293 670 7,976 6,466 72.2 261 2.91 2,234 24.9 9,234 92.8 NM NM 8.1 NM

12,448 593 7,325 7,286 73.8 261 2.64 2,322 23.5 10,566 84.8 NM NM 11.0 NM

14,751 525 8,636 7,307 75.8 261 2.71 2,072 21.5 11,123 88.2 7.6 2.3 9.5 6.3

11,790 535 6,944 8,652 84.5 Nil Nil 1,585 15.5 11,010 91.5 8.1 NM 6.7 NM

11,344 747 5,234 6,399 85.0 Nil Nil 1,133 15.0 8,058 92.1 1.8 NM 7.9 NM

15,195 1,262 8,362 6,983 78.7 Nil Nil 1,890 21.3 9,834 89.6 3.7 NM 9.4 NM

14,087 1,032 7,835 7,913 77.0 Nil Nil 2,361 23.0 11,221 88.9 9.1 0.5 9.5 1.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Energy Plaza, Jackson, MI 49201-2357. Telephone: 517-788-0550. Email: [email protected] Website: http://www.cmsenergy.com

Chrmn: D.W. Joos Pres & CEO: J.G. Russell EVP & CFO: T.J. Webb SVP & General Counsel: J.E. Brunner

Chief Acctg Officer & Cntlr: G.P. Barba Investor Contact: L.L. Mountcastle (517-788-2590) Board Members: M. S. Ayres, J. E. Barfield, S. E. Ewing, R. M. Gabrys, D. W. Joos, P. R. Lochner, Jr., M. T. Monahan, J. G. Russell, K. L. Way, J. B. Yasinsky

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1987 Domicile: Michigan Employees: 8,039

Stock Report | October 23, 2010 | NYS Symbol: COH | COH is in the S&P 500

Coach Inc. S&P Recommendation STRONG BUY

★★★★★

Price $44.55 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel, Accessories & Luxury Goods

12-Mo. Target Price $51.00

Investment Style Large-Cap Growth

Summary COH designs, makes, and markets fine accessories for women and men, including handbags, weekend and travel accessories, outerwear, footwear, and business cases.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.97– 31.69 Trailing 12-Month EPS $2.33 Trailing 12-Month P/E 19.1 $10K Invested 5 Yrs Ago $14,049

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.65 3.00 16.8 297.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.249 1.35 $0.60 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.63 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of COH's strong brand equity and rising cash flow, offset by a highly competitive market amid retail consolidation.

50 40 30 20

Quantitative Evaluations S&P Quality Ranking Vol.

D

C

B-

B+ B

B+

A-

A

A+

Mil. 45 30 15 0 5

Relative Strength Rank

STRONG 76

LOWEST = 1

5

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on September 10, 2010, when the stock traded at $ 39.08. Highlights ➤

➤

COH is developing its global business with a region-driven strategy -- a strong factory offering in regions where value is a high consumer priority (Japan and the U.S.) and heightened luxury positioning in Europe and China. COH is entering the $4 billion global men's bag and small leather goods market with the same regional focus. We see international expansion supporting global market share gains through 2015. COH intends to expand its retail distribution 10% in FY 11 (Jun.), emphasizing China, where sales doubled to $100 million in FY 10 and COH plans 30 new stores (+60% square footage) in FY 11. In the U.S., 30 new stores will include 10 each of men's only factory, factory and full price, and eight locations will open in Japan. We see mid single-digit wholesale growth driven by Europe and a +3% to +5% comp. We see 10.4% revenue growth (12.6% excluding the $70 million sales impact of a 53rd week in FY 10).

Investment Rationale/Risk ➤

➤

We see 30 basis points of EBIT margin contraction to 31.6%, in FY 11 as COH invests in Reed Krakoff, Europe, and global infrastructure.

Risks to our recommendation and target price include a sharp decline in consumer spending, risks associated with sourcing, fashion and inventory, and execution risk as COH expands internationally.

3Q 830.7 739.9 744.5 625.3 497.9 415.9

4Q 950.5 777.7 781.5 652.1 514.4 418.7

Year 3,608 3,230 3,181 2,612 2,112 1,710

Earnings Per Share ($) 2010 0.44 0.75 2009 0.44 0.67 2008 0.41 0.69 2007 0.31 0.57 2006 0.24 0.45 2005 0.17 0.34

0.50 0.36 0.46 0.39 0.28 0.23

0.64 0.46 0.62 0.42 0.31 0.25

2.33 1.91 2.17 1.69 1.27 1.00

Fiscal year ended Jun. 30. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.075 0.075 0.150 0.150

11/19 02/04 05/17 08/18

12/03 03/04 06/04 09/02

12/07 03/08 06/08 09/07

12/28/09 03/29/10 07/06/10 10/04/10

Dividends have been paid since 2009. Source: Company reports. ➤

➤

We see favorable long-term sales and earnings prospects for COH, based as much on management's acumen as global brand potential. COH adeptly navigated the consumer pullback by lowering price points, increasing the value equation, and developing new marketing strategies to appeal to a younger audience. COH ended FY 10 on a strong note, with a June-quarter +6.3% North American comp along with a 10% rise in handbag penetration to 55%, and international momentum. COH's productivity and profitability metrics are double those of its specialty apparel peers, at an estimated $2,088 trailing 12-months sales per square foot and a 31.9% EBIT margin.

Revenue (Million $) 1Q 2Q 2010 761.4 1,065 2009 752.5 960.3 2008 676.7 978.0 2007 529.4 805.6 2006 449.0 650.3 2005 344.1 531.8

Our $51 target price is 19.2X our FY 11 EPS estimate, a modest discount to COH's average fiveyear forward P/E of 21X and a 25% premium to a broad peer group of specialty apparel retailers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: COH

Coach Inc. Business Summary September 10, 2010 CORPORATE OVERVIEW. Coach is a leading U.S. designer and marketer of high-quality accessories. Founded in 1941, COH has over the past several years transformed the Coach brand, building on its popular core categories by introducing new products in a broader array of materials, styles and categories. The company has also implemented a flexible sourcing and manufacturing model, which it believes enables it to bring a broader range of products to market more rapidly and efficiently. MARKET PROFILE. Coach is the number one luxury accessories brand in the U.S., with an estimated 20% share of this estimated $8.3 billion market ($100+ handbags). In the 12 months ended June 2010, the category grew an estimated 3% to 5%, which COH easily outpaced. This sub-segment of the handbag/ accessories market grew at an estimated 20% pace in 2007 and 2006, 17% in 2005, 30% in 2004, and 23% in 2003, before a flat 2008 and estimated 5%-10% decline in 2009. It remains one of the best-performing categories at retail. COH has been able to outpace industry growth as it executed its multi-channel growth strategy, and we believe COH has an estimated 20%+ U.S. handbag market share entering FY 11. The Japanese consumer makes up about 40% of the global luxury handbag market; COH estimates it holds 16% of the domestic

Japanese market, and aims to leverage its brand there by entering the men's small leather goods market. Developing markets represent the next leg of growth, supporting a global market projected at $25 billion in 2010. With a total of 41 locations in Greater China, COH currently holds an estimated 4% share of the market. PRIMARY BUSINESS DYNAMICS. COH sells its products through directto-consumer and indirect channels, with the former accounting for 87% of total sales in FY 10 (Jun.), up from 84% in FY 09 and 55% in FY 05 via store expansion and comp store sales gains. As of July 3, 2010, direct-to-consumer channels included the Internet, direct mail catalogs, 342 North American retail stores, 121 North American factory stores, and 167 department store shopin-shops, retail stores and factory stores in Japan. Indirect channels include an estimated 900 U.S. department store locations and 140 international department store, retail store and duty-free shop locations in 18 countries.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 4.01 2.73 2.33 2.33 0.38 16% 44.97 32.96 19 14

2009 4.41 2.29 1.91 1.91 0.08 4% 37.36 11.41 20 6

2008 3.73 2.45 2.17 2.17 Nil Nil 37.64 13.19 17 6

2007 4.52 1.90 1.69 1.69 Nil Nil 54.00 29.22 32 17

2006 2.57 1.44 1.27 1.26 Nil Nil 44.99 25.18 35 20

2005 2.07 1.14 1.00 0.91 Nil Nil 36.84 24.51 37 25

2004 2.00 0.79 0.68 0.61 Nil Nil 28.85 16.88 42 25

2003 1.11 0.48 0.40 0.35 Nil Nil 20.42 7.26 52 18

2002 0.67 0.31 0.24 0.21 Nil Nil 8.93 4.30 38 18

2001 0.43 0.24 0.19 0.17 Nil Nil 5.34 2.50 28 13

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,608 1,276 127 NA 1,152 NA 735 735

3,230 1,095 123 NA 977 36.2% 623 625

3,181 1,280 101 NA 1,195 34.5% 783 783

2,612 1,074 80.9 Nil 1,035 38.5% 637 637

2,112 830 65.1 Nil 797 38.0% 494 492

1,710 679 57.0 1.22 638 36.9% 389 356

1,321 487 42.9 0.81 448 37.5% 262 236

953 274 30.2 0.70 245 37.0% 147 129

719 163 25.5 1.12 133 35.5% 85.8 74.9

616 130 24.1 2.26 99.4 35.6% 64.0 58.3

Balance Sheet & Other Financial Data (Million $) Cash 696 Current Assets 1,303 Total Assets 2,467 Current Liabilities 529 Long Term Debt 24.2 Common Equity 1,505 Total Capital 1,530 Capital Expenditures 81.1 Cash Flow 862 Current Ratio 2.5 % Long Term Debt of Capitalization 1.6 % Net Income of Revenue 20.4 % Return on Assets 29.2 % Return on Equity 45.9

800 1,396 2,564 460 25.1 1,696 1,721 240 746 3.0 1.5 19.3 25.8 38.8

699 1,386 2,274 451 2.58 1,516 1,545 175 884 3.1 0.2 24.6 33.2 45.7

557 1,740 2,450 408 2.87 1,910 1,950 141 717 4.3 0.1 24.4 31.2 41.1

143 974 1,627 342 3.10 1,189 1,223 134 559 2.9 0.3 23.4 33.0 44.0

155 709 1,347 266 3.27 1,033 1,041 94.6 446 2.7 0.3 22.7 32.5 42.8

263 706 1,029 182 3.42 782 842 67.7 305 3.9 0.4 19.8 31.8 43.3

229 449 618 161 3.54 427 453 57.1 177 2.8 0.8 15.4 27.7 42.7

94.0 288 441 159 3.62 260 279 42.8 111 1.8 1.3 11.9 24.5 42.0

3.69 152 259 104 3.69 148 152 31.9 88.2 1.5 2.4 10.4 23.1 35.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 516 W 34th St, New York, NY 10001-1394. Telephone: 212-594-1850. Email: [email protected] Website: http://www.coach.com

Chrmn & CEO: L. Frankfort COO & Co-Pres: J. Stritzke EVP, CFO & Chief Acctg Officer: M.F. Devine, III SVP, Secy & General Counsel: T. Kahn

Treas: N. Walsh Founded: 1941 Investor Contact: M. Devine (212-594-1850) Domicile: Maryland Board Members: L. Frankfort, S. J. Kropf, G. W. Employees: 13,000 Loveman, I. M. Menezes, I. R. Miller, M. E. Murphy, J. J. Zeitlin

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: KO | KO is in the S&P 500

Coca-Cola Co (The) S&P Recommendation STRONG BUY

★★★★★

Price $61.61 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Soft Drinks

12-Mo. Target Price $68.00

Investment Style Large-Cap Growth

Summary The world's largest soft drink company, KO also has a sizable fruit juice business.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $61.75– 49.47 Trailing 12-Month EPS $3.25 Trailing 12-Month P/E 19.0 $10K Invested 5 Yrs Ago $17,005

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.49 3.82 17.7 2,309.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.59 8 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Coca-Cola Company reflects the relatively stable nature of the company's end markets, its dominant market share positions around the world, and our view of its strong balance sheet and cash flow.

70 60 50

40

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

90 60 30 0 5

$142.286 2.86 $1.76 62

C

B-

A+ B

B+

A-

A

Relative Strength Rank

STRONG 71

5

4

A+

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on October 19, 2010, when the stock traded at $ 60.45. Highlights ➤

➤

➤

For 2010, we project that sales will rise about 15% from 2009's $31 billion, on the purchase of the North American operations of Coca-Cola Enterprises and, to a lesser extent, higher prices, international volume growth, and positive foreign exchange. We look for mid-single digit growth in volumes, with carbonated volumes increasing at a low single digit rate and non-carbonated volumes rising at a high single digit rate. For 2011, we forecast sales growth of over 30%, driven by the inclusion of a full year of results from the acquisition. In 2010, we expect operating profit growth to accelerate as cost-cutting initiatives, positive operating leverage and more favorable commodity costs outweigh an unfavorable mix, with lower-margin emerging markets recovering faster than developed ones. Assuming an effective tax rate similar to 2009's 23%, we estimate EPS of $3.49 for 2010, up from operating EPS of $3.06 in 2009, which excludes asset impairment and restructuring charges, and $3.82 in 2011. KO's long-term financial objectives include 3% to 4% annual volume growth, 6% to 8% operating income growth, and EPS growth in the high single digits.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

In October 2010, KO completed the purchase of Coca-Cola Enterprises' (CCE 29, Hold) North American bottling operations for a total value of approximately $12.3 billion and sold to CCE its bottling operations in Norway and Sweden for $822 million. While we have an unfavorable view of the reduction in international exposure, we still see KO having an attractive relative international footprint, particularly in faster growing emerging markets, and capability to generate strong free cash flow, which we believe will be returned to shareholders through dividends and stock repurchases. We also see an opportunity to improve execution and reduce costs in North America. Risks to our recommendation and target price include adverse foreign currency movements, and unfavorable weather conditions in the company's markets. Our 12-month target price of $68 is based on an analysis of historical and comparative peer P/E multiples. KO's forward P/E has ranged between 16X and over 40X over the past few years. Given a more challenging economic environment, we think a multiple in the lower half of that range is appropriate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 7,525 8,674 2009 7,169 8,267 2008 7,379 9,046 2007 6,103 7,733 2006 5,226 6,476 2005 5,206 6,310

3Q 8,426 8,044 8,393 7,690 6,454 6,037

4Q -7,510 7,126 7,331 5,932 5,551

Year -30,990 31,944 28,857 24,088 23,104

Earnings Per Share ($) 2010 0.69 1.02 2009 0.58 0.88 2008 0.64 0.61 2007 0.54 0.80 2006 0.47 0.78 2005 0.42 0.72

0.88 0.81 0.81 0.71 0.62 0.54

E0.72 0.66 0.43 0.52 0.29 0.36

E3.49 2.93 2.49 2.57 2.16 2.04

Fiscal year ended Dec. 31. Next earnings report expected: Early February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.440 0.440 0.440 0.440

02/18 04/22 07/22 10/21

03/11 06/11 09/13 11/29

03/15 06/15 09/15 12/01

04/01/10 07/01/10 10/01/10 12/15/10

Dividends have been paid since 1893. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: KO

Coca-Cola Co (The) Business Summary October 19, 2010 CORPORATE OVERVIEW. The Coca-Cola Company is the world's largest producer of soft drink concentrates and syrups, as well as the world's biggest producer of juice and juice-related products. Finished soft drink products bearing the company's trademarks have been sold in the U.S. since 1886, and are now sold in more than 200 countries. It owns or licenses more than 500 brands. Sales by operating segment in 2009 were derived as follows: North America (26.4% of revenues); Bottling Investments (26.4%); Europe (13.9%); Pacific (14.6%); Latin America (12.0%); Eurasia and Africa (6.4%); and Corporate (0.3%) The company's business encompasses the production and sale of soft drink and non-carbonated beverage concentrates and syrups. These products are sold to the company's authorized independent and company-owned bottling/ canning operations, and fountain wholesalers. These customers then either combine the syrup with carbonated water, or combine the concentrate with sweetener, water and carbonated water to produce finished soft drinks. The finished soft drinks are packaged in containers bearing the company's wellknown trademarks, which include Coca-Cola, caffeine free Coca-Cola, Diet Coke (sold as Coke Light in many markets outside the U.S.), Cherry Coke, Coca-Cola Zero (sold as Coke Zero in some markets), Fanta, Full Throttle, Sprite, Diet Sprite/Sprite Zero, Barq's, Pibb Xtra, Mello Yello, Tab, Fresca, Powerade, Aquarius, and other products developed for specific markets. Other beverage

products included enhanced water brands such as glaceau vitaminwater and smartwater. The company also markets Schweppes, Canada Dry, Crush and Dr. Pepper brands outside of the U.S. In 2009, concentrates and syrups for beverages bearing the trademark Coca-Cola or including the trademark Coke accounted for approximately 51% of the company's total concentrate sales. In 2009, concentrate sales in the U.S. represented approximately 22% of KO's worldwide sales. About 51% of U.S. concentrate sales were beverage concentrates and syrups to 74 authorized bottlers in 393 licensed territories, 34% were fountain syrups sold to fountain retailers and 451 fountain wholesalers, and the remaining 15% were sales by the company of finished products. KO has equity positions in approximately 38 unconsolidated bottling, canning and distribution operations for its products worldwide, including bottlers that accounted for approximately 56% of the company's worldwide unit case volume in 2009. Coca-Cola Enterprises (CCE) accounted for 47% of the company's U.S. concentrate sales.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.20 3.46 2.93 2.94 1.64 56% 59.45 37.44 20 13

2008 3.45 2.94 2.49 2.40 1.52 61% 65.59 40.29 26 16

2007 8.53 3.00 2.57 2.51 1.36 53% 64.32 45.56 25 18

2006 5.08 2.56 2.16 2.04 1.24 57% 49.35 39.36 23 18

2005 5.29 2.43 2.04 2.03 1.12 55% 45.26 40.31 22 20

2004 5.02 2.36 2.00 2.08 1.00 50% 53.50 38.30 27 19

2003 4.14 2.11 1.77 1.77 0.88 50% 50.90 37.01 29 21

2002 3.34 1.93 1.60 1.62 0.80 50% 57.91 42.90 36 27

2001 3.53 1.92 1.60 1.46 0.72 45% 62.19 42.37 39 26

2000 2.98 1.19 0.88 NA 0.68 77% 66.88 42.88 76 49

30,990 9,780 1,236 355 8,946 22.8% 6,824 6,842

31,944 9,862 1,066 438 7,439 21.9% 5,807 5,595

28,857 8,532 1,012 456 7,873 24.0% 5,981 5,827

24,088 7,246 938 220 6,578 22.8% 5,080 4,797

23,104 7,017 932 240 6,690 27.2% 4,872 4,854

21,962 6,591 893 196 6,222 22.1% 4,847 5,063

21,044 6,071 850 178 5,495 20.9% 4,347 4,350

19,564 6,264 806 199 5,499 27.7% 3,976 4,021

20,092 6,155 803 289 5,670 29.8% 3,979 3,654

20,458 4,464 773 447 3,399 36.0% 2,177 NA

Balance Sheet & Other Financial Data (Million $) Cash 9,213 Current Assets 17,551 Total Assets 48,671 Current Liabilities 13,721 Long Term Debt 5,059 Common Equity 24,799 Total Capital 30,456 Capital Expenditures 1,993 Cash Flow 8,060 Current Ratio 1.3 % Long Term Debt of Capitalization 16.6 % Net Income of Revenue 22.0 % Return on Assets 15.3 % Return on Equity 30.2

4,979 12,176 40,519 12,988 2,781 20,472 24,130 1,968 6,873 0.9 11.5 18.2 13.9 27.5

4,308 12,105 43,269 13,225 9,329 21,744 27,269 1,648 6,993 0.9 12.9 20.7 16.3 30.9

2,590 8,441 29,963 8,890 1,314 16,920 18,842 1,407 6,018 0.9 7.0 21.1 17.1 30.5

4,767 10,250 29,427 9,836 1,154 16,355 17,861 899 5,804 1.0 6.5 21.1 16.0 30.2

6,768 12,094 31,327 10,971 1,157 15,935 17,542 755 5,740 1.1 6.6 22.1 16.5 32.3

3,482 8,396 27,342 7,886 2,517 14,090 16,944 812 5,197 1.1 14.9 20.7 16.8 33.6

2,345 7,352 24,501 7,341 2,701 11,800 14,900 851 4,782 1.0 18.1 20.3 16.9 34.3

1,934 7,171 22,417 8,429 1,219 11,366 13,027 769 4,782 0.9 9.4 19.8 18.4 38.5

1,892 6,620 20,834 9,321 835 9,316 10,509 733 2,950 0.7 7.9 10.6 10.3 23.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Coca Cola Plz NW, Atlanta, GA 30313-2499. Telephone: 404-676-2121. Website: http://www.coca-cola.com Chrmn & CEO: M. Kent

Investor Contact: G. Fayard EVP & CFO: G. Fayard EVP & Chief Admin Officer: A.B. Cummings, Jr. SVP & CTO: D.L. Strickland

Board Members: H. Allen, R. W. Allen, C. P. Black, B. Diller, A. Herman, M. Kent, D. R. Keough, M. E. Lagomasino, D. McHenry, S. A. Nunn, J. D. Robinson, III, P. V. Ueberroth, J. Wallenberg, J. B. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1886 Domicile: Delaware Employees: 92,800

Stock Report | October 23, 2010 | NYS Symbol: CCE | CCE is in the S&P 500

Coca-Cola Enterprises Inc. S&P Recommendation HOLD

★★★★★

Price $24.63 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Soft Drinks

12-Mo. Target Price $31.00

Investment Style Large-Cap Blend

Summary This company is the world's largest bottler of Coca-Cola beverage products. Coca-Cola Co., which holds about 34% of CCE's common stock, has agreed to buy CCE's North American operations in exchange for a new CCE share and $10 for each old share.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.80– 18.75 Trailing 12-Month EPS $1.86 Trailing 12-Month P/E 13.2 $10K Invested 5 Yrs Ago $13,563

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.82 2.02 13.5 502.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.379 1.46 $0.36 53

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.30 9 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Coca-Cola Enterprises reflects our view of the relatively stable nature of the company's end markets, its strong cash flow, and its relationship with corporate partner Coca-Cola Company.

30 20 15 10

Quantitative Evaluations S&P Quality Ranking

Vol. 88

Mil.

D

24 16 8 0 5

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ WEAK

12 4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on August 04, 2010, when the stock traded at $ 29.41. Highlights ➤

➤

➤

In 2010, we see net revenues down about 1% from 2009's $21.6 billion. We project higher pricing in both North America and Europe, with lower volumes in North America and a low single-digit rise in Europe. We expect that North American volumes will remain sluggish on higher pricing and relative weakness in noncarbonated beverages, but we see some improvement in the economically sensitive takehome single-serve category. We see gross margins expanding with higher pricing and lower commodity costs and a mix shift favoring cheaper packages, such as cans over higher cost finished goods. We estimate SG&A expenses will remain flat as a percentage of sales. On an effective tax rate of 26.6%, versus 2009's 24%, and slightly lower interest expense, we see EPS of $1.82, up from 2009's $1.60, which excludes restructuring and license charges. After several years' absence and upon completion of its transaction with Coca-Cola, CCE plans to repurchase approximately $1 billion of shares within the following 18 months, and pay an annual dividend of $0.50 per share.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

In February 2010, Coca-Cola Co. agreed to acquire CCE's North America bottling business for $10 and one new CCE share for each existing CCE share. In turn, CCE will purchase Coca-Cola Co.'s bottling operations in Norway and Sweden for $822 million and have the right to acquire its 83% equity stake in its German bottling operations for fair value 18 to 36 months after the close of the deal. Coca-Cola Co. and CCE anticipate that the proposed transaction will close in the fourth quarter of 2010. We like the deal for CCE shareholders, as the new business will be higher growth with higher profitability, but we see the shares as fully valued. Risks to our recommendation and target price include failure to consummate the proposed transaction, sustained turmoil in the European economy and credit markets, and more rapid commodity cost inflation than we expect. In terms of corporate governance, the board of directors is controlled by insiders and affiliated outsiders, which we view unfavorably. Our 12-month target price of $31 is based on forward P/E of 15.5X our 2011 EPS estimate of $2.00, in line with the peer average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 4,968 5,884 2009 5,050 5,909 2008 4,892 5,935 2007 4,567 5,665 2006 4,333 5,467 2005 4,196 5,128

3Q -5,569 5,743 5,405 5,218 4,895

4Q -5,117 5,237 5,299 4,786 4,487

Year -21,645 21,807 20,936 19,804 18,706

Earnings Per Share ($) 2010 0.21 0.69 2009 0.13 0.64 2008 0.02 -6.52 2007 0.03 0.56 2006 0.03 0.71 2005 0.10 0.70

E0.53 0.50 0.44 0.55 0.44 0.40

E0.23 0.22 -2.99 0.32 -3.59 -0.12

E1.82 1.48 -9.05 1.46 -2.41 1.08

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.080 0.090 0.090 0.090

10/27 02/16 04/26 07/26

11/24 03/10 06/09 09/08

11/27 03/12 06/11 09/10

12/10/09 03/26/10 06/24/10 09/23/10

Dividends have been paid since 1986. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CCE

Coca-Cola Enterprises Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. Coca-Cola Enterprises is the world's largest bottler of Coca-Cola beverage products. The Coca-Cola Company (KO 49, Strong Buy) owns about 34% of the company's common stock. CCE's product line also includes other nonalcoholic beverages, such as still and sparkling waters, juices, isotonics and teas. In 2009, the company sold approximately 41 billion bottles and cans (or 1.9 billion cases) throughout its territories, representing about 16% of KO's worldwide volume. More than 90% of this volume consisted of beverages produced and sold under licenses from KO and its affiliates and joint ventures. CCE also distributes Dr Pepper and several other beverage brands. Based on net operating revenues in 2009, North America accounted for 70% of the total, unchanged from 2008, and Europe for 30%. CCE operates in parts of 46 states in the U.S., the District of Columbia, the U.S. Virgin Islands, all 10 Canadian provinces, and portions of Europe that include Belgium, France, the U.K., Luxembourg, Monaco, and The Netherlands. At December 31, 2009, CCE's bottling territories encompassed an aggregate population of 421 million people. The company's five leading brands in North America in 2009 were Coca-Cola, Diet Coke, Sprite, Dasani, and Dr Pepper, while the five leading

brands in Europe were Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero, Fanta and Capri-Sun. During 2009, the company's package mix (based on wholesale physical case volume) in North America was as follows: 58.0% cans, 41.0% PET plastic and 1.0% glass and other. In Europe, the package mix was as follows: 39.5% cans, 45.0% PET plastic and 15.5% glass and other. In addition to concentrates, sweeteners, juices and finished product, CCE purchases carbon dioxide, PET preforms, glass and plastic bottles, cans, closures, packaging such as plastic bags in cardboard boxes, and other packaging materials. The beverage agreements with The Coca-Cola Co. provide that all authorized containers, closures, cases, cartons and other packages, and labels for the products of The Coca-Cola Co. must be purchased from manufacturers approved by The Coca-Cola Co.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.60 1.48 1.54 0.30 20% 21.53 9.70 15 7

2008 NM -6.90 -9.05 0.83 0.28 NM 26.99 7.25 NM NM

2007 NM 3.64 1.46 1.45 0.24 16% 27.09 19.78 19 14

2006 NM -0.28 -2.41 -2.34 0.24 NM 22.49 18.83 NM NM

2005 NM 3.27 1.08 1.01 0.16 15% 23.92 18.52 22 17

2004 NM 3.52 1.26 1.19 0.16 13% 29.34 18.45 23 15

2003 NM 3.88 1.48 1.22 0.16 11% 23.30 16.85 16 11

2002 NM 3.35 1.07 0.78 0.16 15% 24.50 15.94 23 15

2001 6.25 3.08 -0.05 -0.34 0.12 NM 23.90 13.46 NM NM

2000 6.67 3.48 0.54 NA 0.16 30% 30.25 14.00 56 26

21,645 2,684 1,043 574 963 24.1% 731 760

21,807 2,510 1,050 587 -6,901 NM -4,394 405

20,936 2,537 1,067 629 841 15.4% 711 708

19,804 2,439 1,012 633 -2,118 NM -1,143 -1,110

18,706 2,475 1,044 633 790 34.9% 514 478

18,158 2,504 1,068 619 818 27.1% 596 563

17,330 2,674 1,097 607 972 30.5% 676 563

16,889 2,409 1,045 662 705 29.9% 494 356

15,700 1,954 1,353 753 -150 NM -19.0 -147

14,750 2,387 1,261 791 333 29.1% 236 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,057 Current Assets 5,170 Total Assets 16,416 Current Liabilities 4,588 Long Term Debt 7,804 Common Equity 859 Total Capital 9,406 Capital Expenditures 916 Cash Flow 1,774 Current Ratio 1.1 % Long Term Debt of Capitalization 83.0 % Net Income of Revenue 3.4 % Return on Assets 4.6 % Return on Equity NM

722 4,583 15,589 5,074 7,247 -31.0 8,324 981 -3,344 0.9 87.1 NM NM NM

170 4,092 24,046 5,343 7,391 5,689 19,048 938 1,178 0.8 38.8 3.3 3.0 13.9

184 3,691 23,225 3,818 9,218 4,526 17,801 882 -131 1.0 51.8 NM NM NM

107 3,395 25,357 3,846 9,165 5,643 19,914 914 1,558 0.9 46.0 2.7 2.0 9.3

155 3,264 26,354 3,431 10,523 5,378 21,139 946 1,664 1.0 49.8 3.3 2.3 12.2

80.0 3,000 25,700 3,941 10,552 4,365 19,882 1,099 1,771 0.8 53.1 3.9 2.7 17.6

68.0 2,844 24,375 3,455 11,236 3,310 19,122 1,029 1,536 0.8 58.8 2.9 2.1 16.1

284 2,876 23,719 4,522 10,365 2,783 17,521 972 1,331 0.6 59.2 NM NM NM

294 2,631 22,162 3,094 10,348 2,790 17,956 1,181 1,494 0.9 57.6 1.6 1.1 8.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2500 Windy Ridge Parkway, Atlanta, GA 30339. Telephone: 770-989-3000. Website: http://www.cokecce.com Chrmn & CEO: J.F. Brock, III

EVP & CFO: B.W. Douglas, III SVP & General Counsel: J.R. Parker, Jr. SVP & CIO: E. Sezer Chief Acctg Officer & Cntlr: S.D. Patterson

Investor Contact: T. Erickson (770-989-3110) Board Members: J. Bennink, J. F. Brock, III, C. Darden, M. J. Herb, L. P. Humann, J. Hunter, O. H. Ingram, II, D. A. James, T. H. Johnson, S. Labarge, V. Morali, C. R. Welling, P. A. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1944 Domicile: Delaware Employees: 70,000

Stock Report | October 23, 2010 | NNM Symbol: CTSH | CTSH is in the S&P 500

Cognizant Technology Solutions Corp S&P Recommendation BUY

★★★★★

Price $67.96 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry IT Consulting & Other Services

12-Mo. Target Price $75.00

Investment Style Large-Cap Growth

Summary This company offers full life-cycle solutions to complex software development and maintenance problems.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $68.29– 38.37 Trailing 12-Month EPS $1.98 Trailing 12-Month P/E 34.3 $10K Invested 5 Yrs Ago $30,164

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.27 2.48 29.9 300.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.11 17 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as CTSH's strong balance sheet, steady cash inflows, and rapid revenue growth, offset by intense competition in the IT services peer group from companies domiciled in India as well as multinationals.

80 60 40 30 20

$20.449 Nil Nil 93

2-for-1

Quantitative Evaluations Vol.

30 20 10 0 5

S&P Quality Ranking

68

Mil.

D

B-

B

B+

A-

A

Relative Strength Rank

5

4

C

B+

3

STRONG

4

3

A+

82 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Dylan Cathers on October 22, 2010, when the stock traded at $ 68.05. Highlights ➤

➤

➤

We look for revenue growth of 36% in 2010 and 17% in 2011. The company is seeing growth in financial services (over 42% of revenues in the June quarter), benefiting from merger and acquisition integration work, as well as initiatives to improve costs and efficiencies. This theme continues through most of the company's verticals. Importantly, CTSH is seeing interest in more discretionary projects; application development rose 22% sequentially in the second quarter. We expect operating margins, including stock option expense, to narrow in 2010. We think that the improving economic backdrop will bring a resumption of wage inflation (at a roughly 14% pace in India, lower in onshore locations) and an increase in employee attrition. Partially offsetting these negatives will likely be higher utilization rates, a slight improvement in the pricing environment, and greater leverage. Lastly, the rupee/U.S. dollar exchange rate is less favorable than a year ago, but CTSH has hedged much of its exposure for this year. We estimate EPS of $2.27 for 2010, rising to $2.48 in 2011.

Investment Rationale/Risk ➤

➤

➤

We view CTSH shares favorably, given what we see as the company's strong balance sheet, with nearly $3.50 per share in cash and no debt, and its U.S. incorporation. Also, we think CTSH's revenue growth will be faster than that of many peers, and we believe it has done a good job moving into high-growth verticals. We think an increasing portion of companies' IT spending budgets will be spent overseas, as their needs for assistance in cost reduction actions, regulatory compliance and acquisition integration grow. Risks to our recommendation and target price include increasing competition in offshore outsourcing, with consequent margin pressures; rising wages of Indian employees; appreciation of the rupee; and immigration restrictions that could affect personnel. Our corporate governance concerns center around a classified board of directors and a "poison pill" that is in place. We apply a slight peer premium P/E of 30.2X to our 2011 EPS estimate to arrive at our 12-month target price of $75. At that level, the stock's P/ E-to-growth ratio would be about 1.8X, assuming an expected three-year growth rate of 17%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 959.7 1,105 2009 745.9 776.6 2008 643.1 685.4 2007 460.3 516.5 2006 285.5 336.8 2005 181.7 211.7

3Q -853.5 734.7 558.8 377.5 235.5

4Q -902.7 753.0 600.0 424.4 256.9

Year -3,279 2,816 2,136 1,424 885.8

Earnings Per Share ($) 2010 0.49 0.56 2009 0.38 0.47 2008 0.34 0.35 2007 0.25 0.27 2006 0.16 0.19 2005 0.11 0.13

E0.60 0.45 0.38 0.32 0.20 0.14

E0.62 0.47 0.38 0.32 0.23 0.20

E2.27 1.78 1.44 1.15 0.78 0.57

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: CTSH

Cognizant Technology Solutions Corp Business Summary October 22, 2010 CORPORATE OVERVIEW. Cognizant Technology Solutions began operations in 1994 as an in-house technology development center for Dun & Bradstreet Corp. and its operating units. In its June 1998 IPO, 2,917,000 common shares were sold at $10 each. The company's objective is to be a leading provider of full life-cycle ebusiness and application development projects, take full responsibility for ongoing management of a client's software systems, and help clients move legacy transformation projects through to completion. The company's solutions include application development and integration, application management, and re-engineering services. Applications development services are provided using a full life-cycle application development approach in which the company assumes total start to finish responsibility and accountability for analysis, design, implementation, testing and integration of systems, or through cooperative development, in which CTSH employees work with the customer's in-house IT personnel. In either case, the company's on-site team members work closely with end users

of the application to develop specifications and define requirements. CTSH applications management services seeks to ensure that a customer's core operational systems are free of defects and responsive to end-users' changing needs. The company is often able to introduce product and process enhancements and improve service levels. Through its re-engineering services, the company works with customers to migrate systems based on legacy computing environments to newer, open systems-based platforms and client/server architectures, often in response to the more stringent demands of e-business. CTSH's re-engineering tools automate many processes required to implement advanced client/server technologies.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.02 2.07 1.78 1.78 Nil Nil 46.61 17.26 26 10

2008 6.05 1.69 1.44 1.44 Nil Nil 37.10 14.38 26 10

2007 4.42 1.33 1.15 1.15 Nil Nil 47.78 29.44 42 26

2006 3.60 0.89 0.78 0.78 Nil Nil 41.25 24.26 53 31

2005 2.44 0.64 0.57 0.51 Nil Nil 26.24 17.79 46 31

2004 1.61 0.41 0.35 0.30 Nil Nil 21.47 9.80 61 28

2003 0.98 0.26 0.21 0.16 Nil Nil 12.40 4.28 59 20

2002 0.62 0.17 0.14 0.09 Nil Nil 6.38 2.70 47 20

2001 0.42 0.12 0.09 0.07 Nil Nil 4.48 1.48 49 16

2000 0.29 0.07 0.07 NA Nil Nil 6.01 2.02 83 28

3,279 708 89.4 NA 637 16.0% 535 534

2,816 591 74.8 Nil 515 16.4% 431 431

2,136 435 53.9 Nil 414 15.5% 350 350

1,424 293 34.2 Nil 278 16.2% 233 233

886 199 21.4 Nil 185 10.3% 166 148

587 134 16.4 Nil 122 17.9% 100 85.1

368 84.2 11.9 Nil 72.2 20.6% 57.4 42.4

229 106 7.84 Nil 45.1 23.4% 34.6 23.0

178 42.0 6.37 Nil 35.4 37.4% 22.2 16.3

137 30.6 4.51 Nil 28.2 37.4% 17.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,399 Current Assets 2,308 Total Assets 3,338 Current Liabilities 647 Long Term Debt NA Common Equity 2,653 Total Capital 2,653 Capital Expenditures 76.6 Cash Flow 624 Current Ratio 3.6 % Long Term Debt of Capitalization Nil % Net Income of Revenue 16.3 % Return on Assets 18.7 % Return on Equity 23.2

763 1,468 2,375 388 Nil 1,966 1,973 169 506 3.8 Nil 15.3 20.5 25.1

670 1,242 1,838 341 Nil 1,468 1,483 182 404 3.7 Nil 16.4 22.1 27.6

266 1,040 1,326 250 Nil 1,073 1,073 105 267 4.2 Nil 16.3 21.2 26.0

197 663 870 156 Nil 714 714 71.8 188 4.3 Nil 18.8 23.1 28.5

293 454 573 115 Nil 454 458 46.6 117 3.9 Nil 17.1 21.4 27.6

194 278 361 62.6 Nil 274 298 30.0 69.3 4.4 Nil 15.6 19.4 26.1

126 176 231 41.5 Nil 165 190 22.3 42.4 4.2 Nil 15.1 18.4 26.2

85.0 117 145 21.7 Nil 98.8 123 15.0 28.5 5.4 Nil 12.5 17.4 26.9

62.0 88.2 110 26.7 Nil 66.1 82.8 10.7 17.7 3.3 Nil 12.9 19.8 31.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 Glenpointe Ctr W Ste, Teaneck, NJ 07666-6821. Telephone: 201-801-0233. Website: http://www.cognizant.com Chrmn: J. Klein

Pres & CEO: F. D'Souza Vice Chrmn: L. Narayanan COO, CFO, Chief Acctg Officer & Treas: G.J. Coburn SVP, Secy & General Counsel: S.E. Schwartz

Investor Contact: G. Coburn (201-678-2712) Founded: 1988 Board Members: M. Breakiron-Evans, F. D'Souza, J. N. Domicile: Delaware Fox, Jr., R. W. Howe, J. Klein, L. Narayanan, R. E. Employees: 78,400 Weissman, T. M. Wendel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CL | CL is in the S&P 500

Colgate-Palmolive Co S&P Recommendation BUY

★★★★★

Price $76.84 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Household Products

12-Mo. Target Price $86.00

Investment Style Large-Cap Growth

Summary This major consumer products company markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $87.39– 73.12 Trailing 12-Month EPS $4.19 Trailing 12-Month P/E 18.3 $10K Invested 5 Yrs Ago $16,651

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.77 5.15 16.1 486.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$37.344 2.76 $2.12 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.50 9 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that demand for household and personal care products is generally static, and not affected by changes in the economy or geopolitical factors. This is partially offset by the mature and competitive nature of these industries.

90 80 70

60

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

5

4

5

A+

MODERATE

32 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Tom Graves, CFA on August 05, 2010, when the stock traded at $ 77.19. Highlights ➤

➤

➤

In 2010, we look for sales to increase about 4%, to $15.9 billion. This includes a projected double-digit percentage increase for the Greater Asia/Africa segment. For 2009, sales were flat, including a negative 6.5% foreign exchange effect. We look for CL's gross margin to widen somewhat in 2010. Also, we anticipate that SG&A will increase as a percentage of sales, but that the extent of the rise will be limited by efforts to reduce overhead costs. Our 2010 EPS estimate of $4.77 excludes a firstquarter charge of $0.52 a share resulting from an accounting change related to the transition to hyperinflationary accounting in Venezuela. However, our 2010 EPS estimate does include a projected net negative impact of $0.12 a share from other items related to Venezuela, including the translation of Venezuela results at a lower exchange rate, partly offset by an $0.11 firstquarter gain related to balance sheet remeasurement and accrued taxes. For 2011, we estimate EPS of $5.15.

Investment Rationale/Risk ➤

➤

➤

Our Buy opinion reflects our view that the current stock price does not fully reflect what we see as CL's above-industry-average growth prospects. We expect the company to continue to invest in R&D and marketing, with more resources to be allocated to faster-growing markets. Recent changes in the Venezuelan bolivar are expected to negatively affect 2010 results. Risks to our recommendation and target price include intensified competition in the global oral care market, unfavorable currency translation, difficulties in remitting funds from some countries, and low consumer acceptance of new products. Our 12-month target price of $86 reflects a blend of three valuation models. Our DCF model assumes a blended WACC of 8.8% and a terminal growth rate of 3%, in arriving at an intrinsic value of $90. We believe the shares should trade at a premium to peers, and we apply a 18.2X P/E to our 2010 EPS estimate, for a value of about $87. Our historical analysis uses a P/E of 17.3X, below a 10-year average, to value the stock at about $83.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,829 3,814 2009 3,503 3,745 2008 3,713 3,965 2007 3,214 3,405 2006 2,871 3,014 2005 2,743 2,838

3Q -3,998 3,988 3,528 3,144 2,912

4Q -4,081 3,664 3,642 3,209 2,905

Year -15,327 15,330 13,790 12,238 11,397

Earnings Per Share ($) 2010 0.69 1.15 2009 0.97 1.07 2008 0.87 0.92 2007 0.89 0.76 2006 0.59 0.51 2005 0.53 0.62

E1.16 1.12 0.94 0.77 0.63 0.63

E1.22 1.21 0.94 0.77 0.73 0.65

E4.77 4.37 3.66 3.20 2.46 2.43

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.440 0.530 0.530 0.530

01/07 02/04 07/08 10/14

01/21 04/22 07/22 10/21

01/25 04/26 07/26 10/25

02/16/10 05/14/10 08/13/10 11/15/10

Dividends have been paid since 1895. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CL

Colgate-Palmolive Co Business Summary August 05, 2010 CORPORATE OVERVIEW. Colgate-Palmolive Co. is a leading global consumer products company that operates in the oral, personal, and household care, and pet food markets. Its products are marketed in more than 200 countries and territories worldwide. Sales of oral, personal, and home care products accounted for 86% of total worldwide sales in 2009. The balance of revenues was derived from the sale of pet foods. The company's oral care products include toothbrushes, toothpaste and pharmaceutical products for oral health professionals. CL's personal care products include bar and liquid soaps, shampoos, conditioners, deodorants, antiperspirants, and shave products. The home care division produces major brands such as Palmolive and Ajax soaps. Oral, personal and home care sales outside of North America accounted for 67% of total sales in 2009. The geographic breakdown of total oral, personal and home care sales in 2009 were: North America 22%, Latin America 33%, Europe/South Pacific 25% and Greater Asia/Africa 20%. CORPORATE STRATEGY. CL follows a closely defined business strategy to develop and increase market leadership in key product categories. These categories are prioritized based on their capacity to maximize the use of the organization's core competencies and strong global equities and to deliver sustainable long-term growth. Operationally, CL is organized along geographic

lines, with specific regional management teams having responsibility for the financial results in each region. On an ongoing basis, management focuses on a variety of key indicators to monitor business health and performance, including: market share; sales (including volume, pricing and foreign exchange components); gross profit margins; operating profits, net income; and EPS. CL also focuses on measures to optimize the management of working capital, capital expenditures, cash flow, and return on capital. To enhance its global leadership position in its core businesses, in December 2004, CL commenced a four-year restructuring and business-building program. It involved: a 12% workforce reduction, the closing of a third of CL's factories, an increased focus on faster-growing markets and new product innovations, and more efficient spending on marketing. The program cost $775.5 million after taxes through 2008 and was finalized as of December 31, 2008. The company estimated that it would generate annual savings of $350 million to $375 million.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 4.98 4.37 4.48 1.72 39% 87.39 54.51 20 12

2008 NM 4.26 3.66 3.51 1.56 43% 81.98 54.36 22 15

2007 NM 3.76 3.20 3.22 1.40 44% 81.27 63.75 25 20

2006 NM 3.06 2.46 2.42 1.25 51% 67.08 53.41 27 22

2005 NM 2.97 2.43 2.21 1.11 46% 57.15 48.25 24 20

2004 NM 2.86 2.33 2.26 0.96 41% 59.04 42.89 25 18

2003 NM 3.15 2.46 2.31 0.90 37% 60.99 48.56 25 20

2002 NM 2.65 2.19 2.00 0.72 33% 58.86 44.05 27 20

2001 NM 2.40 1.89 1.71 0.68 36% 64.75 48.50 34 26

2000 NM 2.32 1.70 NA 0.63 37% 66.75 40.50 39 24

15,327 4,004 351 88.0 3,538 32.3% 2,291 2,320

15,330 3,673 348 115 2,925 33.1% 1,957 1,848

13,790 3,108 334 173 2,564 29.6% 1,737 1,718

12,238 2,674 329 159 2,002 32.4% 1,353 1,306

11,397 2,613 329 143 2,134 34.1% 1,351 1,207

10,584 2,540 328 124 2,050 32.9% 1,327 1,262

9,903 2,467 316 124 2,042 30.4% 1,421 1,309

9,294 2,333 297 151 1,870 31.1% 1,288 1,152

9,428 2,198 336 192 1,709 30.6% 1,147 1,011

9,358 2,132 410 200 1,600 31.4% 1,064 NA

Balance Sheet & Other Financial Data (Million $) Cash 641 Current Assets 3,810 Total Assets 11,134 Current Liabilities 3,599 Long Term Debt 3,182 Common Equity 3,116 Total Capital 6,439 Capital Expenditures 575 Cash Flow 2,612 Current Ratio 1.2 % Long Term Debt of Capitalization 49.4 % Net Income of Revenue 15.0 % Return on Assets 21.7 % Return on Equity 94.3

567 3,710 9,979 2,953 3,585 1,922 5,711 684 2,276 1.3 62.8 12.8 19.5 97.6

451 3,619 10,112 3,163 3,508 2,308 5,882 583 2,043 1.1 57.4 12.6 17.8 91.2

490 3,301 9,138 3,469 2,720 1,188 4,441 476 1,682 1.0 61.3 11.1 15.3 118.5

341 2,757 8,507 2,743 2,918 1,380 5,106 389 1,653 1.0 57.1 11.9 15.7 99.5

320 2,740 8,673 2,731 3,090 971 4,845 348 1,629 1.0 63.8 12.5 16.4 166.2

265 2,497 7,479 2,445 2,685 594 4,028 302 1,736 1.0 66.7 14.4 19.5 457.2

168 2,228 7,087 2,149 3,211 27.3 4,050 344 1,563 1.0 79.3 13.9 18.3 475.7

173 2,203 6,985 2,124 2,812 505 4,139 340 1,461 1.0 67.9 12.2 16.1 139.0

213 2,347 7,252 2,244 2,537 1,115 4,453 367 1,453 1.0 57.0 11.4 14.5 80.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 300 Park Avenue, New York, NY 10022. Telephone: 212-310-2000. Email: [email protected] Website: http://www.colgate.com

Chrmn, Pres & CEO: I.M. Cook EVP & CFO: P. Alton SVP, Secy & General Counsel: A.D. Hendry Chief Acctg Officer & Cntlr: D.J. Hickey

Treas: E. Paik Founded: 1806 Investor Contact: B. Thompson (212-310-3072) Domicile: Delaware Board Members: P. Alton, J. T. Cahill, I. M. Cook, H. D. Employees: 38,100 Gayle, E. M. Hancock, J. Jimenez, D. W. Johnson, R. J. Kogan, D. Lewis, J. P. Reinhard, S. I. Sadove

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: CMCSA | CMCSA is in the S&P 500

Comcast Corp S&P Recommendation STRONG SELL

★★★★★

Price $19.46 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Cable & Satellite

12-Mo. Target Price $16.00

Investment Style Large-Cap Blend

Summary With about 23.2 million subscribers, this company is the largest U.S. cable multiple system operator (MSO), as well as a provider of cable programming content.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $20.56– 13.95 Trailing 12-Month EPS $1.28 Trailing 12-Month P/E 15.2 $10K Invested 5 Yrs Ago $11,324

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.23 1.34 15.8 2,806.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$54.432 1.95 $0.38 60

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.96 9 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment mainly reflects our view of lingering merger execution risk on the pending NBCU deal, heightened regulatory exposure and intensifying competition in relatively saturated markets, offset by economies of scale and what we see as the company's relatively sound financial condition.

30

20 15

10

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

150 100 50 0 5

D 4

3

2

2008

2009

Analysis prepared by Tuna N. Amobi, CFA, CPA on July 30, 2010, when the stock traded at $ 19.57.

➤

➤

We expect consolidated revenues to advance about 5% in 2010, to $37.1 billion, and 4% in 2011, to $38.5 billion. This should reflect further penetration of bundled customers, higher pricing on advanced video services, a growing customer base of small and medium-size businesses, stronger contributions from the regional and news networks, and a rebound in local ad revenues. Also, the programming unit should reflect affiliate fee increases and higher national ad revenues. Conversely, we anticipate some moderation in subscriber growth (with basic subscriber losses), and increased promotional pricing for residential customers. We assume relatively moderate margin expansion, as further declines in direct operating costs (phone and data), and further investments in content, technology and wireless initiatives, are partly offset by higher programming, marketing and customer service expenses. We estimate annual EBITDA growth of about 5.0%, to more than $14.4 billion in 2010 and $15.1 billion in 2011. After D&A and interest expense, we see operating EPS of $1.23 in 2010 and $1.34 in 2011, noting plans to complete about $3 billion of remaining share buybacks by 2012.

Investment Rationale/Risk ➤

➤

➤

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B+

70

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

Highlights

B+ B

1

1

2007

B-

Relative Strength Rank

3

1

C

In July, the company reported what we saw as somewhat encouraging 2010 second quarter results, and affirmed a likely completion of its pending deal for NBCU this year. Beyond potential risks with merger execution, however, we see lingering regulatory uncertainties for the industry at large, amid concerns with potential reclassification of broadband (Title II). After a related court ruling in the company's network management case against the FCC, we remain wary of potentially onerous regulations that could have some adverse investment (and competitive) implications. Also, we note potential governance issues on dual class shares and voting control by the Roberts family. Risks to our recommendation and target price include potential upside on the NBCU deal; stronger-than-expected share gains from the telcos and satellite TV providers; potential upside on the SME and wireless broadband segments; and a dividend hike. Our 12-month target price of $16 implies about 5.3X 2010E EV/EBITDA, or nearly $2,800 per cable subscriber, reflecting potential downside on the highlighted risk factors, while noting the stock's recent 2.0% dividend yield.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 9,202 -2009 8,866 8,978 2008 8,389 8,553 2007 7,388 7,712 2006 5,595 5,908 2005 5,363 5,598

3Q -8,845 8,549 7,781 6,432 5,578

4Q -9,067 8,765 8,014 7,031 5,716

Year -35,756 34,256 30,895 24,966 22,255

Earnings Per Share ($) 2010 0.31 0.31 2009 0.27 0.33 2008 0.24 0.21 2007 0.26 0.19 2006 0.15 0.13 2005 0.04 0.13

E0.28 0.33 0.26 0.18 0.31 0.07

E0.31 0.33 0.14 0.20 0.14 0.04

E1.23 1.26 0.86 0.83 0.70 0.28

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.095 0.095 0.095 0.095

02/23 05/20 07/28 10/21

04/05 07/02 10/04 01/03

04/07 07/07 10/06 01/05

04/28/10 07/28/10 10/27/10 01/26/11

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: CMCSA

Comcast Corp Business Summary July 30, 2010 CORPORATE OVERVIEW. Comcast Corp. became the largest U.S. cable multiple system operator (MSO) after its acquisition of the former AT&T Broadband (ATTB) in November 2002. In December 2009, the company formalized a plan to assume 51% control of a joint venture comprising General Electric's (GE 16, Buy) NBC Universal, in exchange for contributing its own programming networks (valued at $7.25 billion) plus an initial cash outlay of $6.5 billion. As of June 30, 2010, the company had nearly 23.2 million video subscribers (including 19.1 million for digital video -- with advanced services such as HD and DVR), over 16.4 million for high-speed Internet service, and 8.1 million for digital phone. The primary Cable segment (about 95% of total revenues) also includes the regional sports and news networks -- Comcast SportsNet: Philadelphia, Mid-Atlantic (Baltimore/Washington), Chicago, Sacramento, New England (Boston) and Northwest; Bay Area SportsNet (San Francisco); Cable Sports Southeast; CN8 -- The Comcast Network; and MountainWest Sports Network. The Programming segment include cable networks E! Entertainment Television, The Golf Channel, Versus, G4 and Style.

Other business interests include Comcast Spectacor (which owns the Philadelphia Flyers, the Philadelphia 76ers and two large, multipurpose arenas in Philadelphia and manages other venues); and Comcast Interactive Media (comprising Internet assets such as Comcast.net, Fancast, thePlatform and Fandango). COMPETITIVE LANDSCAPE. In a typical market, Comcast competes with satellite TV companies DirecTV Group and DISH Network as well as large telcos such as Verizon Communications and AT&T, which are increasingly deploying fiber-based video and broadband services in head-to-head competition with cable's triple-play bundle. In a number of other markets, cable providers also compete with rural telcos as well as facilities-based overbuilders that provide video, voice and data services to residential, and in some cases, enterprise customers.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.51 1.26 1.04 0.26 21% 18.10 11.10 14 9

2008 NM 2.71 0.86 0.84 0.19 22% 22.86 NA 27 NA

2007 NM 2.46 0.83 0.74 Nil Nil 30.18 17.37 36 21

2006 NM 2.22 0.70 0.48 Nil Nil 28.94 16.90 41 24

2005 NM 1.79 0.28 0.33 Nil Nil 23.00 17.20 82 61

2004 NM 1.69 0.29 0.14 Nil Nil 24.33 17.50 85 61

2003 NM 0.24 -0.07 -0.30 Nil Nil 23.23 15.61 NM NM

2002 NM 1.05 -0.17 0.47 Nil Nil 25.03 11.37 NM NM

2001 NM 0.99 -0.89 -1.03 Nil Nil 30.54 21.23 NM NM

2000 NM 3.27 1.44 NA Nil Nil 34.91 18.62 24 13

NA NA NA 2,348 5,106 29.0% 3,638 3,000

34,256 12,354 5,457 2,439 4,058 37.8% 2,547 2,484

30,895 10,725 5,107 2,289 4,349 41.4% 2,587 2,313

24,966 9,442 4,823 2,064 3,594 37.5% 2,235 1,541

22,255 8,493 4,803 1,796 1,880 49.6% 928 1,090

20,307 7,531 4,623 1,876 1,810 45.6% 970 465

18,348 6,392 4,438 2,018 -137 NM -218 -979

12,460 3,691 2,032 884 70.0 NM -276 792

19,697 1,576 6,345 2,341 -5,927 NM -3,021 -1,482

8,219 2,470 2,631 691 3,602 40.0% 2,045 NA

Balance Sheet & Other Financial Data (Million $) Cash 721 Current Assets NA Total Assets 112,733 Current Liabilities NA Long Term Debt 27,940 Common Equity 42,721 Total Capital NA Capital Expenditures NA Cash Flow 10,138 Current Ratio 0.4 % Long Term Debt of Capitalization 38.9 % Net Income of Revenue NA % Return on Assets 3.2 % Return on Equity 8.8

1,254 3,716 113,017 8,939 30,178 40,450 97,907 5,750 8,004 0.4 30.8 7.4 2.3 6.2

1,061 3,667 113,417 7,952 29,828 41,340 98,298 6,158 7,694 0.5 30.3 8.4 2.3 6.3

1,239 5,202 110,405 7,440 27,992 41,167 96,489 4,395 7,058 0.7 29.0 9.0 2.1 5.5

693 2,594 103,146 6,269 21,682 40,219 89,928 3,621 5,731 0.4 24.1 4.2 0.9 2.3

452 3,535 104,694 8,635 20,093 41,422 88,798 3,660 5,593 0.4 22.6 4.8 0.9 2.3

1,550 5,403 109,159 9,654 23,835 41,662 91,689 4,161 4,220 0.6 26.0 NM NM NM

781 7,076 113,105 15,383 27,957 38,329 92,070 1,975 1,756 0.5 30.4 NM NM NM

558 4,944 109,319 12,489 27,528 38,451 94,758 NA 3,324 0.4 29.1 NM NM NM

652 5,144 35,745 4,042 10,517 28,113 45,734 1,637 4,653 1.3 23.0 24.9 6.3 8.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Comcast Ctr, Philadelphia, PA 19103-2833. Telephone: 215-286-1700. Website: http://www.comcast.com Chrmn, Pres & CEO: B.L. Roberts

Vice Chrmn: J.A. Brodsky COO & EVP: S.B. Burke EVP & CFO: M.J. Angelakis SVP, Chief Acctg Officer & Cntlr: L.J. Salva

Investor Contact: M. Dooner (866-281-2100) Founded: 1969 Board Members: S. D. Anstrom, K. J. Bacon, S. M. Domicile: Pennsylvania Bonovitz, E. D. Breen, J. A. Brodsky, J. J. Collins, J. M. Employees: 107,000 Cook, G. L. Hassell, J. A. Honickman, B. L. Roberts, R. J. Roberts, J. Rodin, M. I. Sovern

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CMA | CMA is in the S&P 500

Comerica Inc S&P Recommendation BUY

★★★★★

Price $36.26 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Diversified Banks

12-Mo. Target Price $41.00

Investment Style Large-Cap Value

Summary This bank holding company, based in Dallas, operates in Michigan, California, Texas, Arizona, and Florida.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $45.85– 26.49 Trailing 12-Month EPS $-0.50 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $7,955

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.66 1.48 54.9 176.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.393 0.55 $0.20 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.09 NM A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CMA's long history of profitability and relatively high capital ratios, tempered by exposure to the Michigan and California residential real estate markets.

60 40 30 20

Quantitative Evaluations S&P Quality Ranking

Vol.

D

B-

B B

B+

A-

A

A+

58

Mil. 24 16 8 0 5

C

Relative Strength Rank

WEAK

22 LOWEST = 1 3

2

3

4

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for CMA has recently been changed to $41.00 from $47.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on CMA from MarketScope, see below.

➤

10/20/10 11:03 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF COMERICA INC (CMA 34.99****): Q3 EPS of $0.33, vs a $0.10 loss, misses our $0.34 EPS estimate, on lower than expected loan demand. We reduce our '10 EPS estimate to $0.66 from $0.67. Nonperforming loans increased 6% from Q2 vs. improving results at many peers, a negative in our view. On our higher provision forecast for '11, we trim our EPS estimate to $1.48 from $2.27. We also cut our target price by $6 to $41, based on a slight discount to peers 1.2X our $33.85 estimate of year-end tangible book value per share. We continue to see CMA as undervalued relative to peers on this metric. /E. Oja

Revenue (Million $) 1Q 2Q 2010 670.0 670.0 2009 762.0 866.0 2008 1,100 979.0 2007 1,104 1,158 2006 967.0 1,048 2005 817.0 874.0

3Q -819.0 975.0 1,182 1,088 951.0

4Q -685.0 890.0 1,174 1,174 1,026

Year -3,155 3,944 4,618 4,277 3,668

Earnings Per Share ($) 2010 -0.57 0.39 2009 -0.16 -0.11 2008 0.73 0.37 2007 1.19 1.25 2006 1.26 1.19 2005 1.16 1.28

E0.33 -0.10 0.18 1.17 1.20 1.41

E0.33 -0.41 0.01 0.77 1.16 1.25

E0.66 -0.78 1.29 4.40 4.81 5.11

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

11/17 01/26 04/27 07/27

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

01/01/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1936. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CMA

Comerica Inc Business Summary July 22, 2010 CORPORATE OVERVIEW. Comerica is a Dallas-headquartered bank holding company that operates banking units in Michigan, California, Texas, Arizona and Florida. It also has international banking subsidiaries in Canada and Mexico. Operations are divided into three major lines of business: the Business Bank, the Retail Bank (formerly known as Small Business and Personal Financial Services), and Wealth & Institutional Management. The Business Bank is primarily comprised of middle market, commercial real estate, national dealer services, global finance, large corporate, leasing, financial services, and technology and life sciences. This business segment offers various products and services, including commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. CORPORATE STRATEGY. Comerica has positioned itself to deliver financial services in its four primary geographic markets: Midwest & Other, West, Texas, and Florida.

grow the Retail Bank and Wealth & Institutional Management, building and enhancing customer relationships, and improving risk management processes. MARKET PROFILE. As of June 30, 2009, which is the latest available FDIC branch-level data, CMA had 436 branches and $40.2 billion in deposits. Almost 59% of deposits were concentrated in Michigan, where CMA had 231 branches, about $23.7 billion in deposits, and a deposit market share of about 14.5%, ranking first. A year earlier, CMA ranked second in Michigan. In California, CMA had 96 branches, 13 more than a year earlier, and $11.4 billion in deposits, down $1.8 billion from a year before, and a deposit market share of about 1.4%, ranking 11th. In Texas, CMA had 86 branches, more than $4.6 billion in deposits, and a deposit market share of about 1.0%, ranking 11th. This was up from a year earlier, when CMA's market share in Texas was 0.75%, ranking 16th. CMA also has 13 offices in Arizona and 10 offices in Florida.

CMA's goal is to deliver attractive returns to its shareholders over time by exporting its expertise to higher-growth markets, continuing its investments to Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 32.26 -0.78 -0.72 0.20 NM 32.30 11.72 NM NM

2008 32.57 1.29 0.86 0.20 16% 54.00 15.05 42 12

2007 34.12 4.40 4.48 2.56 58% 63.89 39.62 15 9

2006 32.82 4.81 4.71 2.36 49% 60.10 50.12 12 10

2005 33.01 5.11 4.90 2.20 43% 63.38 53.17 12 10

2004 29.85 4.36 4.27 2.08 48% 63.80 50.45 15 12

2003 29.20 3.75 3.72 2.00 53% 56.34 37.10 15 10

2002 28.31 3.40 3.30 1.92 56% 66.09 35.20 19 10

2001 27.15 3.88 3.27 1.76 45% 65.15 44.02 17 11

2000 23.94 4.63 NA 1.60 35% 61.13 32.94 13 7

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

1,567 8.00 1,050 1,082 63.0% -115 NM 16.0 2.72 -107

1,815 6.00 893 686 66.2% 271 21.8% 212 3.02 131

2,003 3.00 881 212 58.6% 988 31.0% 682 3.66 694

1,983 NA 855 37.0 59.0% 1,127 30.6% 782 3.79 766

1,956 4.00 942 -47.0 57.4% 1,279 32.7% 861 4.06 826

1,810 3.00 857 64.0 55.9% 1,110 31.8% 757 3.86 744

1,926 3.00 837 377 53.6% 953 30.6% 661 3.95 657

2,132 4.00 819 635 51.3% 882 31.9% 601 4.55 584

2,102 4.00 784 236 53.9% 1,111 36.1% 710 4.61 587

1,659 4.00 827 145 53.6% 1,151 34.9% 749 4.54 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 4,843 Investment Securities 7,416 Commercial Loans 32,147 Other Loans 9,029 Total Assets 59,263 Demand Deposits 15,871 Time Deposits 7,923 Long Term Debt 11,060 Common Equity 4,878 % Return on Assets 0.0 % Return on Equity 0.3 % Loan Loss Reserve 2.3 % Loans/Deposits 106.3 % Equity to Assets 7.8

2,510 9,201 38,488 11,247 67,548 11,701 17,817 15,053 5,023 0.3 4.2 1.5 120.4 7.8

36.0 6,296 38,271 12,472 62,331 27,181 17,097 8,821 5,126 1.1 13.3 1.1 110.1 8.5

2,632 3,989 35,924 11,507 58,001 29,151 15,776 5,949 5,153 1.4 15.3 1.0 105.6 9.2

1,159 5,399 33,707 9,540 53,013 15,666 26,765 3,961 5,068 1.6 16.9 1.2 101.9 9.7

3,230 7,173 31,540 9,303 51,766 15,164 25,772 4,286 5,105 1.5 14.8 -1.6 99.8 9.8

4,013 8,502 32,153 7,274 52,592 14,104 27,359 4,801 5,110 1.2 13.1 2.0 99.3 9.5

2,446 5,499 33,732 8,549 53,301 16,335 25,440 5,216 4,947 1.2 12.3 1.9 101.2 9.4

1,079 5,370 32,660 8,536 50,732 12,596 24,974 5,503 4,807 1.4 15.4 -1.6 109.7 9.0

165 2,843 28,001 8,060 41,985 6,815 20,353 8,089 3,757 1.9 21.0 1.5 132.7 8.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1717 Main St, Dallas, TX 75201-4612. Telephone: 214-462-6831. Website: http://www.comerica.com Chrmn, Pres & CEO: R.W. Babb, Jr.

EVP & CFO: B. Acton EVP, Secy & General Counsel: J.W. Bilstrom EVP & CIO: J.R. Beran SVP & Chief Acctg Officer: M.S. Carr

Investor Contact: D.P. Persons (313-222-2840) Founded: 1849 Board Members: R. W. Babb, Jr., J. F. Cordes, R. A. Domicile: Delaware Cregg, K. T. DeNicola, J. P. Kane, R. Lindner, A. A. Employees: 9,330 Piergallini, R. S. Taubman, R. M. Turner, Jr., N. G. Vaca

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CSC | CSC is in the S&P 500

Computer Sciences Corp S&P Recommendation STRONG BUY

★★★★★

Price $49.79 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $56.00

Investment Style Large-Cap Blend

Summary This leading computer services company provides consulting, systems integration and outsourcing services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $58.36– 39.61 Trailing 12-Month EPS $5.33 Trailing 12-Month P/E 9.3 $10K Invested 5 Yrs Ago $11,052

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

5.33 5.66 9.3 154.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.687 NA NA 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.03 11 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly competitive nature of the IT consulting and outsourcing market, offset by our view of CSC's strong balance sheet and the stability afforded the company by the numerous long-term contracts it has signed with customers.

60 50 40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

4

3

C

B-

B+ B

B+

A-

A

Relative Strength Rank

5

A+ STRONG

78

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Dylan Cathers on August 17, 2010, when the stock traded at $ 42.28. Highlights ➤

➤

➤

We expect revenue growth of 4.5% in FY 11 (Mar.) and 5.0% in FY 12. Despite our concerns about spending levels by the U.S. government, we think demand for IT services will remain healthy, particularly within the health care, intelligence, logistics systems support and cyber security areas. Although the procurement process remains extended, the pipeline of opportunities is strong, with about $19 billion of awards expected during FY 11. We believe the managed services sector is providing steady growth, as customers seek greater cost efficiencies. We expect some improvement within the business solutions & services segment. We note that contract size has recently been shrinking, a trend that we think will continue until there is greater certainty in the economy. We expect operating margins to widen again in FY 11. We see a lower cost base, including more offshore workers, tighter G&A controls, and facilities reductions offsetting increased bid activity, expenses for early-stage contracts, and investments in the business. For FY 11, we expect EPS of $5.33, increasing to $5.66 in FY 12.

Investment Rationale/Risk ➤

➤

Our strong buy recommendation on the shares is based on valuation. We believe CSC is well positioned to take advantage of certain of the Obama administration's areas of emphasis, including health care, transportation, infrastructure, and cyber security. We had some concerns about the company's pension obligations, but it recently announced that it made a $200 million contribution and agreed to freeze its U.K. defined benefit plan. A quarterly dividend was recently initiated. Risks to our recommendation and target price include increased competition for large longterm contracts in the IT infrastructure and outsourcing arena, further terminations of contracts in the commercial segment, and ongoing shareholder litigation against CSC. We also have concerns regarding corporate governance, including the combination of the chairman, president and CEO roles.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 3,942 -2010 3,898 4,041 2009 4,437 4,239 2008 3,838 4,017 2007 3,561 3,609 2006 3,583 3,573

3Q -3,953 3,952 4,160 3,641 3,577

4Q -4,236 4,112 4,484 4,046 3,884

Year -16,128 16,740 16,500 14,857 14,616

Earnings Per Share ($) 2011 0.91 E1.17 2010 0.86 1.40 2009 0.79 2.95 2008 0.61 0.43 2007 -0.31 0.51 2006 0.58 0.53

E1.50 1.36 1.06 1.05 0.62 0.88

E1.75 1.66 2.51 1.15 1.42 1.08

E5.33 5.28 7.31 3.20 2.16 3.07

Fiscal year ended Mar. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150

05/19 08/10

06/11 09/07

06/15 09/09

07/15/10 10/15/10

Dividends have been paid since 2010. Source: Company reports. ➤

Our 12-month target price of $56 is based on a slight peer-discount P/E of 10.7X using our calendar 2010 EPS estimate of $5.24. Our peer group is comprised of other U.S.-based multinational IT outsourcing companies.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CSC

Computer Sciences Corp Business Summary August 17, 2010 CORPORATE OVERVIEW. Computer Sciences offers what it believes is a broad array of services to clients in the global commercial and government markets. The company specializes in the application of complex information technology (IT) to achieve the strategic objectives of its customers. Offerings include IT and business process outsourcing, and IT and professional services. Outsourcing involves operating all or a portion of a customer's technology infrastructure, including systems analysis, applications development, network operations, desktop computing, and data center management. CSC also provides business process outsourcing, which involves managing key functions for clients such as claims processing, credit checking, logistics, and customer call centers.

and professional services includes advising clients on the strategic acquisition and utilization of IT, and on business strategy, security, modeling, engineering, and business process re-engineering. CSC also licenses sophisticated software systems for health care and financial services markets, and provides a broad array of end-to-end e-business solutions to meet the needs of large commercial and government clients. The company provides services to clients in global commercial industries and to the U.S. federal government. In the global commercial segment, offerings are marketed to clients in a wide variety of industries. In the U.S. federal government market, CSC provides traditional systems integration and outsourcing for complex project management and technical services.

IT and professional services includes systems integration, consulting, and professional services. Systems integration encompasses designing, developing, implementing, and integrating complete information systems. Consulting Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 13.44 12.49 5.28 5.19 Nil Nil 2009 58.36 31.11 11 6

2009 8.25 15.08 7.31 6.24 Nil Nil 2008 50.52 23.93 7 3

2008 6.35 9.26 3.20 2.95 Nil Nil 2007 63.76 46.95 20 15

2007 19.51 8.95 2.16 2.14 Nil Nil 2006 60.39 46.23 28 21

2006 23.85 9.42 3.07 3.00 Nil Nil 2005 59.90 42.31 20 14

2005 21.71 8.56 2.59 2.59 Nil Nil 2004 58.00 38.07 22 15

2004 15.44 8.29 2.75 2.68 Nil Nil 2003 44.99 26.52 16 10

2003 11.78 6.95 2.54 1.84 Nil Nil 2002 53.47 24.30 21 10

2002 11.58 7.02 2.01 1.48 Nil Nil 2001 66.71 28.99 33 14

2001 9.26 5.17 1.37 0.80 Nil Nil 2000 99.88 58.25 73 43

16,128 2,359 1,116 252 1,038 NA 817 803

16,740 2,396 1,186 261 949 NM 1,115 954

16,500 2,205 1,032 106 918 40.7% 545 502

14,857 2,211 1,162 175 607 35.9% 389 385

14,616 2,149 1,188 104 821 29.7% 577 565

14,059 1,845 1,146 157 715 30.6% 496 495

14,768 1,968 1,038 170 747 30.5% 519 507

11,347 1,609 858 143 612 28.0% 440 319

11,426 1,497 858 155 497 30.7% 344 254

10,524 1,302 649 106 330 29.4% 233 137

Balance Sheet & Other Financial Data (Million $) Cash 2,784 Current Assets 8,422 Total Assets 16,455 Current Liabilities 4,122 Long Term Debt 3,494 Common Equity 6,446 Total Capital 10,017 Capital Expenditures 578 Cash Flow 1,933 Current Ratio 2.0 % Long Term Debt of Capitalization 34.9 % Net Income of Revenue 5.1 % Return on Assets 5.1 % Return on Equity 13.7

2,297 7,707 15,619 4,016 4,173 5,510 9,683 699 2,301 1.9 43.1 6.7 7.1 20.3

699 6,923 15,775 5,590 2,506 5,462 7,968 877 1,576 1.2 31.5 3.3 3.7 9.6

1,050 6,706 13,731 5,260 1,412 5,886 7,298 686 1,551 1.3 19.4 2.6 2.9 6.3

1,291 6,306 12,943 4,141 1,377 6,772 8,149 827 1,765 1.5 16.9 3.9 4.5 8.7

1,010 5,690 12,634 3,878 1,303 6,495 7,798 855 1,642 1.5 16.7 3.5 4.1 8.3

610 4,867 11,804 3,253 2,306 5,504 7,810 725 1,558 1.5 29.5 3.5 4.7 10.3

300 4,088 10,433 2,987 2,205 4,606 6,811 638 1,298 1.4 32.4 3.9 4.6 10.7

149 3,304 8,611 2,708 1,873 3,624 5,497 672 1,202 1.2 34.1 3.0 4.1 10.1

185 3,204 8,175 3,589 1,029 3,215 4,245 897 882 0.9 24.3 2.2 3.3 7.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3170 Fairview Park Drive, Falls Church, VA 22042. Telephone: 703-876-1000. Email: [email protected] Website: http://www.csc.com

Chrmn, Pres & CEO: M.W. Laphen CFO: M.J. Mancuso Chief Acctg Officer & Cntlr: D.G. DeBuck Secy & General Counsel: W.L. Deckelman, Jr.

Investor Contact: B. Lackey (310-615-1700) Board Members: I. W. Bailey, II, D. J. Barram, S. L. Baum, R. F. Chase, J. R. Haberkorn, M. W. Laphen, F. W. McFarlan, C. S. Park, T. H. Patrick

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1959 Domicile: Nevada Employees: 94,000

Stock Report | October 23, 2010 | NNM Symbol: CPWR | CPWR is in the S&P 500

Compuware Corp S&P Recommendation SELL

★★★★★

Price $9.92 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Application Software

12-Mo. Target Price $9.00

Investment Style Large-Cap Blend

Summary This company provides software products and professional services designed to increase the productivity of information systems departments.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$10.39– 6.79 $0.44 22.6 $12,573

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.45 0.60 22.0 223.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

1.25 8 NR

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our concern about the maturity of CPWR's core businesses. Its newer initiatives have been slow to bear fruit, in our opinion. Absent a meaningful pickup in revenue growth, we expect future earnings growth to be driven by ongoing cost reductions and share repurchases.

10 8

6

Quantitative Evaluations

Vol. 66

51

S&P Quality Ranking

24 16 8 0

D

5

3

3

2

2

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

The 12-month target price for CPWR has recently been changed to $9.00 from $7.00. The Highlights section of this Stock Report will be updated accordingly.

B-

NR B

B+

A-

A

A+ STRONG 93

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, P

Highlights

C

Relative Strength Rank

2

1

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

12

Mil.

$2.215 Nil Nil 81

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on CPWR from MarketScope, see below.

➤

10/22/10 11:56 am ET ... S&P MAINTAINS SELL RECOMMENDATION ON SHARES OF COMPUWARE (CPWR 9.98**): Sep-Q EPS of $0.12, vs. $0.12, beats our $0.11 estimate. Revenues rose 3.6% to $226M, in line with our forecast. Growth was led by its performance monitoring solutions, which rose 26%. We see stronger demand for these products, given the growing interest in cloud computing. While the mainframe business remains weak, we think it will stabilize with the introductions of new mainframe models. We raise our FY 11 (Mar.) EPS estimate by $0.05 to $0.45, FY 12's by $0.15 to $0.60, and our target price by $2 to $9. However, with the shares above our target price, our opinion is sell. /J.Yin-CFA

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 206.5 -2010 214.4 217.9 2009 298.6 269.9 2008 279.4 302.0 2007 296.3 288.5 2006 297.3 292.7

3Q -229.9 268.7 309.3 315.2 305.9

4Q -230.0 253.4 338.9 313.0 309.5

Year -892.2 1,090 1,230 1,213 1,205

Earnings Per Share ($) 2011 0.06 E0.12 2010 0.21 0.12 2009 0.13 0.08 2008 Nil 0.13 2007 0.08 0.07 2006 0.06 0.06

E0.14 0.11 0.14 0.13 0.11 0.10

E0.15 0.16 0.20 0.23 0.21 0.15

E0.45 0.60 0.55 0.47 0.45 0.37

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: CPWR

Compuware Corp Business Summary July 28, 2010 CORPORATE OVERVIEW. Originally founded as a professional services company, Compuware provides software, maintenance and professional services intended to increase the productivity of the information technology (IT) departments of businesses. The company has two main product lines: mainframe products and distributed products. CPWR's mainframe software products help customers maintain their IBM OS/390 and z/Series IT infrastructure. Key mainframe products include File-AID, Xpeditor, Hiperstation, Abend-AID and Strobe. These products facilitate application analysis, testing, defect detection and remediation, fault management, file and data management. Mainframe product revenues accounted for 49% of total revenue in FY 10 (Mar.). CPWR's distributed software products help customers maximize the performance of their corporate IT infrastructure, which include multiple hardware, software and network platforms. The company's distributed products support requirements management (Changepoint), application development (Uniface), and application performance analysis (Vantage). Distributed product revenue accounted for 21% of total revenue in FY 10.

the growing and ever-more critical demand from enterprises that application systems deliver value to their business. As part of this initiative, the company acquired Gomez in FY 10 for $295 million in cash. Gomez is a leading provider of web application performance services, which enable organizations to test and monitor web applications from outside their firewall. We believe this acquisition complements CPWR's Vantage products. To better focus on the faster growth, higher margined segment of the market, the company has divested its Quality and DevPartner software products. CPWR also provides applications services, which are marketed under the brand name "Covisint." Covisint provides a secure, collaborative platform that enables trading partners, customers, and vendors to share vital business information and process transactions across disparate systems. Application services revenue accounted for about 4.5% of total revenue in FY 10, up from 3.2% in FY 09.

CPWR launched its Compuware 2.0 initiative in FY 09 with the main objective of delivering value-added high end-to-end application performance to meet Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 1.24 0.79 0.60 0.39 Nil Nil 2009 8.95 5.18 15 9

2009 2.09 0.67 0.55 0.49 Nil Nil 2008 11.91 5.08 22 9

2008 1.95 0.58 0.47 0.43 Nil Nil 2007 12.56 7.32 27 16

2007 2.57 0.70 0.45 0.41 Nil Nil 2006 9.55 6.02 NM NM

2006 3.33 0.51 0.37 0.33 Nil Nil 2005 9.99 5.51 27 15

2005 3.15 0.34 0.20 0.12 Nil Nil 2004 8.95 4.35 45 22

2004 3.11 0.27 0.13 0.03 Nil Nil 2003 6.52 3.22 50 25

2003 2.93 0.41 0.27 0.14 Nil Nil 2002 14.00 2.35 52 9

2002 2.60 -0.40 -0.66 -0.15 Nil Nil 2001 14.50 6.25 NM NM

2001 2.02 0.60 0.32 0.17 Nil Nil 2000 37.81 5.63 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

892 184 45.0 NA 209 NA 141 93.3

1,090 220 30.4 NA 213 34.4% 140 124

1,230 224 32.8 31.3 180 25.5% 134 124

1,213 188 55.0 Nil 193 18.1% 158 143

1,205 198 50.2 Nil 191 25.3% 143 126

1,232 143 56.4 Nil 106 28.0% 76.5 46.1

1,265 90.5 55.2 Nil 56.0 11.0% 49.8 9.72

1,375 188 53.8 6.10 156 34.0% 103 51.2

1,729 264 98.2 7.43 -245 NM -245 -55.3

2,010 296 104 31.3 192 38.0% 119 62.2

Balance Sheet & Other Financial Data (Million $) Cash 150 Current Assets 705 Total Assets 2,013 Current Liabilities 613 Long Term Debt NA Common Equity 914 Total Capital 914 Capital Expenditures 9.58 Cash Flow 186 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 15.8 % Return on Assets 7.2 % Return on Equity 15.7

278 859 1,875 562 Nil 881 905 17.9 170 1.5 Nil 12.8 7.2 15.5

286 919 2,019 645 Nil 927 955 10.5 167 1.4 Nil 10.9 6.6 13.1

261 921 2,029 529 Nil 1,132 1,167 18.6 213 1.7 Nil 13.0 7.0 11.7

612 1,445 2,511 545 Nil 1,579 1,605 14.5 193 2.6 Nil 11.9 5.7 9.2

498 1,358 2,478 578 Nil 1,516 1,516 134 133 2.3 Nil 6.2 3.2 5.2

455 1,143 2,234 493 Nil 1,414 1,418 74.6 105 2.3 Nil 3.9 2.3 3.6

319 1,050 2,123 469 Nil 1,332 1,332 225 157 2.2 Nil 7.5 5.0 8.2

233 1,063 1,994 556 Nil 1,170 1,170 90.4 -147 1.9 Nil NM NM NM

53.3 1,004 2,279 569 140 1,377 1,538 39.8 223 1.8 9.1 5.9 5.1 9.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Campus Martius, Detroit, MI 48226-5099. Telephone: 313-227-7300. Email: [email protected] Website: http://www.compuware.com

Chrmn & CEO: P. Karmanos, Jr. Pres & COO: R.C. Paul EVP, CFO, Chief Acctg Officer & Treas: L.L. Fournier EVP & Chief Admin Officer: D.A. Knobblock

CTO: P.A. Czarnik Investor Contact: L. Elkin (248-737-7345) Board Members: D. W. Archer, G. S. Bedi, W. O. Grabe, W. R. Halling, P. Karmanos, Jr., F. A. Nelson, G. Price, W. J. Prowse, G. S. Romney, R. Szygenda

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1973 Domicile: Michigan Employees: 4,336

Stock Report | October 23, 2010 | NYS Symbol: CAG | CAG is in the S&P 500

ConAgra Foods Inc. S&P Recommendation BUY

★★★★★

Price $22.95 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $24.00

Investment Style Large-Cap Value

Summary This company is one of the largest U.S. packaged food processors.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.32– 20.55 Trailing 12-Month EPS $1.57 Trailing 12-Month P/E 14.6 $10K Invested 5 Yrs Ago $11,759

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.84 1.98 12.5 439.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.092 4.01 $0.92 71

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.75 7 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relatively stable nature of the company's end markets, and what we view as relatively strong expected cash flows.

28 24

Quantitative Evaluations

18 16

S&P Quality Ranking

14

D

C

B-

AB

B+

A-

A

A+

Vol. Mil.

Relative Strength Rank

30 20 10 0

48

5

MODERATE

LOWEST = 1 4

3

3

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Tom Graves, CFA on August 20, 2010, when the stock traded at $ 21.41. Highlights ➤

➤

➤

Investment Rationale/Risk

For the company as currently constituted, we look for FY 11 (May) revenue from continuing operations to increase about 3% from the $12.1 billion reported for FY 10. Earlier, in FY 09, when reported sales totaled $12.7 billion, there was a 53rd week.

➤

Although we expect FY 11 profit margins to be bolstered by cost reduction efforts, we have become more wary of the raw material cost environment. Before some possible special items, we estimate FY 11 EPS from continuing operations of $1.88, up from about $1.70 for FY 10, which excludes a net negative impact of about $0.03 a share from special items in FY 10.

➤

In February 2010, CAG announced that its board of directors had approved a $500 million share repurchase authorization with no expiration date. In FY 10's fourth quarter, CAG repurchased about four million shares. Repurchase authorization of about $400 million remained. Also, in FY 11, we expect capital expenditures to total about $525 million, with part of this offset by some insurance proceeds.

➤

Asset sales by ConAgra since 2003 have generated total pretax proceeds of more than $4 billion. Also, CAG's reported earnings have included a variety of special items, including asset sale gains, restructuring charges, and impairment charges. Risks to our recommendation and target price include competitive pressures in CAG's businesses, the potential for increased commodity cost inflation, and the company's ability to generate interest income and achieve cost savings and efficiency targets. With the divestiture of the commodity trading and merchandising business, we anticipate increased profit stability and visibility from a reshaped ConAgra, and we expect the stock to be accorded a higher P/E valuation than it would have otherwise been the case. Our 12-month target price of $24 reflects our view that the stock should receive a P/E that is at a discount to what we expect, on average, from a group of other packaged food stocks. CAG shares recently had an indicated dividend yield of about 3.7%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 2,818 -2010 2,886 3,100 2009 3,066 3,252 2008 2,956 3,511 2007 2,689 3,089 2006 2,700 3,026

3Q -3,031 3,125 3,528 2,918 2,879

4Q -3,063 3,298 3,078 3,333 2,975

Year -12,079 12,731 11,606 12,028 11,579

Earnings Per Share ($) 2011 0.32 E0.50 2010 0.37 0.53 2009 0.23 0.38 2008 0.23 0.50 2007 0.21 0.39 2006 0.63 0.24

E0.51 0.49 0.43 0.63 0.37 0.18

E0.49 0.27 0.39 -0.43 0.38 0.10

E1.84 1.67 1.42 1.06 1.35 1.15

Fiscal year ended May 31. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.200 0.200 0.230

12/03 04/01 07/21 09/21

01/27 04/28 07/28 10/27

01/29 04/30 07/30 10/29

03/02/10 06/02/10 09/01/10 12/01/10

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CAG

ConAgra Foods Inc. Business Summary August 20, 2010 CORPORATE OVERVIEW. ConAgra Foods is one of the largest food companies in North America. The company's continuing operations businesses are now being presented in two reporting segments: consumer foods, which provided 66% of total sales in FY 10 (May); and commercial foods (34%). In June 2008, CAG sold its trading and merchandising segment (12% of FY 07 sales), which was treated as a discontinued operation for FY 08 and FY 09. The consumer foods segment included branded, private label and customized food products. CAG's brands include Hunt's, Healthy Choice, Chef Boyardee, Peter Pan, Wesson, Blue Bonnet, Orville Redenbacher's, Slim Jim, PAM, Swiss Miss, Van Camp's, Banquet, Marie Callender's, Hebrew National, Egg Beaters, and Reddi-wip. In FY 10, what CAG calls Speciality Foods accounted for 36% of segment sales, while Convenient Meals represented 34%, Snacks accounted for 16%, and Meal Enhancers represented 14%.

customers. This segment's primary products include specialty potato products, milled grain ingredients, a variety of vegetable products, seasonings, blends, and flavors. Products are sold under brands such as ConAgra Mills, Lamb Weston, and Spicetec. In FY 10, what CAG calls Specialty Potatoes accounted for 56% of segment sales, while Milled Products represented 35%. In FY 10, CAG's largest customer, Wal-Mart Stores, Inc., and its affiliates, accounted for about 18% of consolidated net sales. CORPORATE STRATEGY. In recent years, CAG has been pursuing an acquisition and divestiture strategy, which has included shifting its focus toward its core branded and value-added food products, while exiting commodity-related businesses.

CAG's commercial foods segment includes branded foods and ingredients, which are sold principally to foodservice, food manufacturing, and industrial Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 1.12 2.40 1.67 1.57 NA NA 2009 23.67 14.00 14 8

2009 0.89 2.12 1.42 1.20 0.75 53% 2008 24.87 13.52 18 10

2008 2.14 1.66 1.06 1.05 0.72 68% 2007 27.73 22.81 26 22

2007 0.73 2.10 1.35 1.29 0.72 53% 2006 28.35 18.85 21 14

2006 0.79 1.74 1.15 0.91 1.08 94% 2005 30.24 19.99 26 17

2005 0.47 1.95 1.27 1.14 1.03 81% 2004 29.65 25.38 23 20

2004 0.41 2.16 1.50 1.39 0.98 65% 2003 26.41 17.75 18 12

2003 NM 2.30 1.58 1.42 NA NA 2002 27.65 20.90 18 14

2002 NM 2.39 1.47 1.27 0.88 60% 2001 26.00 17.50 18 12

2001 NM 2.30 1.33 1.20 0.79 59% 2000 26.19 15.06 20 11

12,079 1,572 327 160 1,107 NA 747 697

12,731 1,519 319 268 984 34.3% 646 547

11,606 1,317 297 467 746 30.5% 519 512

12,028 1,577 346 226 1,050 34.8% 684 657

11,579 1,184 311 307 906 34.2% 596 470

14,567 1,618 351 341 1,133 41.5% 663 589

14,522 1,735 352 275 1,151 30.9% 796 740

19,839 1,123 392 276 1,276 34.2% 840 750

27,630 2,144 474 402 1,268 38.1% 785 668

27,194 2,026 499 423 1,104 38.2% 682 612

Balance Sheet & Other Financial Data (Million $) Cash 953 Current Assets 3,960 Total Assets 11,738 Current Liabilities 2,036 Long Term Debt 3,226 Common Equity 4,929 Total Capital 8,416 Capital Expenditures 483 Cash Flow 1,074 Current Ratio 1.9 % Long Term Debt of Capitalization 38.3 % Net Income of Revenue 6.2 % Return on Assets 6.6 % Return on Equity 15.5

243 3,337 11,073 1,575 3,461 4,721 8,234 442 965 2.1 42.0 5.1 5.2 12.9

141 6,082 13,683 3,651 3,387 5,337 8,739 490 815 1.7 38.7 4.5 4.1 10.5

735 5,006 11,836 2,681 3,420 4,583 8,003 425 1,030 1.9 42.7 5.7 5.7 14.8

332 4,790 11,970 2,965 3,155 4,650 7,805 263 907 1.6 40.4 5.1 4.8 12.5

208 4,524 12,792 2,389 4,349 4,859 9,209 453 1,014 1.9 47.2 4.6 4.9 13.7

589 5,145 14,230 3,002 5,281 4,840 10,120 352 1,148 1.7 52.2 5.5 5.4 16.8

629 6,060 15,071 3,803 5,570 4,622 10,192 390 1,232 1.6 54.7 4.2 5.5 18.8

158 6,434 15,496 4,313 5,919 4,308 10,227 531 1,259 1.5 57.9 2.8 4.9 18.9

198 7,363 16,481 6,936 4,635 3,983 8,618 560 1,181 1.1 53.8 2.5 4.8 19.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One ConAgra Drive, Omaha, NE 68102-5001. Telephone: 402-240-4000. Website: http://www.conagrafoods.com Chrmn: S.F. Goldstone

Pres & CEO: G.M. Rodkin EVP & CFO: J.F. Gehring EVP, Secy & General Counsel: C.R. Batcheler SVP & Treas: S.E. Messel

Investor Contact: C.W. Klinefelter (402-595-4154) Founded: 1919 Board Members: M. C. Bay, S. G. Butler, S. F. Domicile: Delaware Goldstone, J. A. Gregor, R. Johri, W. G. Jurgensen, R. H. Employees: 24,400 Lenny, R. A. Marshall, G. M. Rodkin, A. J. Schindler, K. E. Stinson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: COP | COP is in the S&P 500

ConocoPhillips S&P Recommendation BUY

★★★★★

Price $61.67 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $66.00

Investment Style Large-Cap Blend

Summary Formerly Phillips Petroleum, ConocoPhillips is the fourth largest integrated oil company in the world, and the second largest in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $61.88– 46.63 Trailing 12-Month EPS $6.30 Trailing 12-Month P/E 9.8 $10K Invested 5 Yrs Ago $12,314

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.35 7.36 9.7 1,483.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$91.479 3.57 $2.20 73

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.13 36 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's diversified and solid business profile in volatile, cyclical and capital-intensive segments of the energy industry. While COP has a history of aggressive acquisition activity, we believe its earnings stability is good and its corporate governance practices are sound.

120

80 60

40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

90 60 30 0 5

D 5

4

4

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Tina J. Vital on July 30, 2010, when the stock traded at $ 55.47. Highlights Second-quarter oil and gas production (excluding Lukoil) declined 7.4%, to 1.73 million boe per day, below our estimate, reflecting impacts of higher oil prices on international production contracts, field declines and maintenance activities. Compounded by asset sales, we look for production (excluding Lukoil) to drop about 3% in 2010, before rising 2%-3% per year during 2012-14 driven by heavy oil expansions, such as the relatively low-cost Canadian SAGD portfolio. Demand fell with the economic slowdown, and refiners cut throughputs and initiated cost reductions in 2009. However, so far in 2010, fuel demand has improved, and light-heavy crude differentials and U.S. refining margins have widened. As of July, we project U.S. Gulf Coast 3-2-1 crack spreads will widen 9% in 2010 and 3% in 2011. First-half 2010 operating EPS excluded net special gains of $1.03 related to dispositions and impairments. We expect after-tax operating earnings to rise 89% in 2010 and 16% in 2011 on stronger prices and margins due to improved global demand.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

78 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

COP is reshaping its portfolio to focus on higher growth and profit upstream assets. In April 2010, COP said it would not participate in a new refinery project with Saudi Aramco, and in July, it canceled a refinery upgrade at Wilhelmshaven, Germany. The company plans to sell $10 billion of assets over the next two years and use some proceeds to pay down debt. In March 2010, COP said 60%-80% of the targeted divestment would come from North America E&P, and 20%-40% from downstream assets. COP plans to sell its 20% equity stake in Lukoil for about $8.7 billion plus $1 billion in dividends, and has agreed to sell its 9.03% stake in Syncrude to Sinopec for $4.65 billion. Risks to our recommendation and target price include unfavorable changes in economic, industrial and operating conditions, including COP's ability to organically replace its reserves; geopolitical risk; and operational risk. Blending our DCF ($56 per share, assuming a WACC of 8.9% and a terminal growth rate of 3%) and relative market valuations, our 12-month target price is $66, which represents an expected enterprise value of about 5.2X our 2011 EBITDA estimate, in line with peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 41,601 42,269 2009 30,741 35,448 2008 54,883 71,411 2007 41,320 47,370 2006 46,906 47,149 2005 37,631 41,808

3Q -40,173 70,044 46,062 48,076 48,745

4Q -42,979 44,504 52,685 41,519 51,258

Year -149,341 240,842 187,437 183,650 179,442

Earnings Per Share ($) 2010 1.40 2.77 2009 0.56 0.87 2008 2.62 3.50 2007 2.12 0.18 2006 2.34 3.09 2005 2.06 2.21

E1.58 1.00 3.39 2.23 2.31 2.68

E1.64 0.81 -21.37 2.71 1.91 2.69

E6.35 3.24 -11.16 7.22 9.66 9.63

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.500 0.550 0.550 0.550

02/12 03/24 07/14 10/06

02/18 05/20 07/29 10/27

02/22 05/24 08/02 10/29

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1934. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: COP

ConocoPhillips Business Summary July 30, 2010 CORPORATE OVERVIEW. On August 30, 2002, Phillips Petroleum and Conoco merged, creating ConocoPhillips (COP). Today, we estimate COP is the second largest publicly integrated oil company in the U.S., based on a blend of its oil and gas reserves and production capacity. COP operates in six segments: exploration and production (E&P; 25% of 2009 sales, 61% of 2009 net income); refining and marketing (R&M; 72%, 1%); midstream (3%, 5%); 20% stake in the Russian oil company Lukoil (NA; 28%); chemicals (NA; 4%); and emerging businesses. In July 2010, COP agreed to sell its interest in Lukoil in phases, to either Lukoil or on the open market; deal closure expected by the end of 2011. Including Lukoil, and its share of equity affiliates, net oil and gas production rose 2.4% in 2009, to 2.29 million barrels of oil equivalent per day (boe/d), reflecting new international developments in the U.K., Russia, China, Canada, Vietnam and Norway, plus less unplanned downtime. Proved oil and gas reserves (including Lukoil, bitumen, synthetic oil, and equity affiliates) rose 3.5%, to 10.33 billion barrels (61% liquids, 77% developed), in 2009.

Using data from John S. Herold, we estimate COP's three-year (2006-08) finding and development costs at $30.58 per boe, above the peer average; threeyear proved acquisition costs at $10.50 per boe, above the peer average; three-year reserve replacement costs at $17.16 per boe, above the peer average; and its three-year reserve replacement at 173%, above the peer average. We estimate COP's 2009 organic reserve replacement at 70%. As of December 31, 2009, COP owned or had interests in 12 U.S. refineries (net crude throughput capacity of 2.0 million barrels per day, b/d), four European refineries (610,000 b/d), and one refinery in Malaysia (61,000 b/d). At year-end 2009, fuel was sold through wholesale and retail operations in the U.S. (under Phillips 66, Conoco, and 76 brands) and Europe (under the JET and Coop brand).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 39.03 9.48 3.24 3.36 1.91 59% 57.44 34.12 18 11

2008 34.15 -3.86 -11.16 4.96 1.88 NM 95.96 41.27 NM NM

2007 36.40 12.54 7.22 7.49 1.64 23% 90.84 61.59 13 9

2006 29.69 14.19 9.66 9.59 1.44 15% 74.89 54.90 8 6

2005 25.49 12.63 9.63 9.72 1.18 12% 71.48 41.40 7 4

2004 18.53 8.49 5.79 5.88 0.90 15% 45.61 32.15 8 6

2003 12.85 5.90 3.53 3.43 0.82 23% 33.02 26.80 9 8

2002 9.91 5.31 0.74 0.64 0.74 101% 32.05 22.02 44 30

2001 14.07 5.14 2.79 2.60 0.70 25% 34.00 25.00 12 9

2000 10.77 5.94 3.63 NA 0.68 19% 35.00 17.97 10 5

149,341 NA 9,346 1,289 10,032 50.8% 4,858 5,032

240,842 36,158 11,116 935 -3,523 NM -16,998 7,569

187,437 31,164 8,740 1,801 23,359 48.7% 11,891 12,317

183,650 37,433 7,284 1,087 28,409 45.0% 15,550 15,442

179,442 24,691 4,253 497 23,580 42.0% 13,640 13,753

135,076 17,033 3,798 546 14,401 43.5% 8,107 8,241

104,196 11,866 3,485 864 8,337 44.9% 4,593 4,697

56,748 4,571 4,446 614 2,164 67.0% 714 618

26,868 8,393 1,391 391 3,302 50.2% 1,643 1,533

21,113 5,528 1,179 422 3,769 50.6% 1,862 NA

Balance Sheet & Other Financial Data (Million $) Cash 542 Current Assets 21,167 Total Assets 152,588 Current Liabilities 23,695 Long Term Debt 31,912 Common Equity 62,467 Total Capital 97,348 Capital Expenditures 10,861 Cash Flow 14,204 Current Ratio 0.9 % Long Term Debt of Capitalization Nil % Return on Assets 3.3 % Return on Equity NA

755 20,843 142,865 21,780 32,754 55,165 107,186 19,099 -5,882 1.0 30.6 NM NM

1,456 24,735 177,757 26,882 26,583 88,983 137,757 11,791 20,631 0.9 19.3 6.9 13.9

817 25,066 164,781 26,431 23,091 82,646 106,939 15,596 22,834 0.9 21.6 11.4 23.0

2,214 19,612 106,999 21,359 10,758 52,731 76,137 11,620 17,893 0.9 14.1 13.6 28.6

1,387 15,021 92,861 15,586 14,370 42,723 68,583 9,496 11,905 1.0 21.0 9.2 21.0

490 11,192 82,455 14,011 16,340 34,366 60,113 6,169 8,078 0.8 27.2 5.8 14.4

307 10,903 76,836 12,816 19,267 29,517 57,796 4,388 5,160 0.9 33.3 1.3 3.3

142 4,363 35,217 4,542 9,295 14,340 27,650 3,085 3,034 1.0 33.6 5.9 16.1

149 2,606 20,509 3,492 7,272 6,093 15,259 2,022 3,041 0.7 47.7 10.4 35.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 600 N Dairy Ashford St, Houston, TX 77079-1175. Telephone: 281-293-1000. Website: http://www.conocophillips.com Chrmn & CEO: J.J. Mulva

Pres: J.A. Carrig SVP & CFO: J.W. Sheets SVP & Chief Admin Officer: E.L. Batchelder SVP & Chief Acctg Officer: R.C. Berney

Investor Contact: G. Russell (212-207-1996) Founded: 1917 Board Members: R. L. Armitage, R. H. Auchinleck, J. E. Domicile: Delaware Copeland, Jr., K. M. Duberstein, R. R. Harkin, H. Employees: 30,000 McGraw, III, J. J. Mulva, R. A. Niblock, H. Norvik, W. K. Reilly, B. S. Shackouls, V. J. Tschinkel, K. C. Turner, W. E. Wade, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ED | ED is in the S&P 500

Consolidated Edison Inc. S&P Recommendation HOLD

★★★★★

Price $49.12 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $48.00

Investment Style Large-Cap Value

Summary This electric and gas utility holding company serves parts of New York, New Jersey and Pennsylvania.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.36– 40.55 Trailing 12-Month EPS $3.38 Trailing 12-Month P/E 14.5 $10K Invested 5 Yrs Ago $14,289

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.36 3.47 14.6 282.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.883 4.85 $2.38 40

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.32 5 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong and steady cash flows from regulated electric and gas utility operations, its solid balance sheet and A- credit rating, a relatively healthy economy in its service territory, and a historically supportive regulatory environment.

50 45 40 35

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

15 10 5 0 5

D 4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Justin McCann on October 14, 2010, when the stock traded at $ 48.20. Highlights We expect operating EPS in 2010 to increase nearly 9% from 2009's $3.09, which was up 3% from 2008's $3.00. Operating EPS in the first half of 2010 reflected the benefit of rate increases and relatively flat interest expense, partially offset by new issuances of common stock and long-term debt, higher depreciation and operation and maintenance expenses, and the slowdown in the New York City economy. For the second half of 2010, we expect earnings to benefit from abnormally warm summer weather. For 2011, we expect operating EPS to grow approximately 3% from anticipated results in 2010, reflecting both rate increases and a gradual recovery in the New York City economy, partially offset by the impact of new stock and long-term debt issuances. On September 16, 2010, the New York Public Service Commission authorized Con Edison of New York (CENY) annual natural gas rate increases of $47.1 million, $47.9 million and $46.7 million for the three-year period beginning October 1, 2010. In March 2010, CENY was authorized annual electric rate increases of $420 million for the three-year period through March 31, 2013.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B+ B

52 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

The stock is up approximately 6% year to date. This follows a 16.7% gain in 2009, with a nearly 40% rebound from its 2009 low. We believe the rebound reflected the expectation and then the realization of additional rate increases, the appeal of the above-peer dividend yield, and the recovery in the broader market. We think the stock was hurt earlier by the impacts of the financial crisis, the slowdown in the economy, the sharp drop in the stock market, and the expected dilutive effect of new equity issuances, as well as the lingering negative political and regulatory environment that resulted from a prolonged power outage three summers ago. Risks to our recommendation and target price include extended weakness in ED's service territory economy, unfavorable regulatory rulings, and/or a sharp decline in the utility sector. We believe the shares will be supported by a dividend yield (recently 4.9%) that is above the industry average (approximately 4.6%). We believe the dividend will continue to be increased at an annual rate of slightly less than 1%. Our 12-month target price is $48, reflecting a premium-to-peers P/E multiple of 13.8X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,462 3,017 2009 3,423 2,845 2008 3,577 3,149 2007 3,357 2,956 2006 3,317 2,555 2005 2,801 2,406

3Q -3,489 3,858 3,579 3,441 3,375

4Q -3,273 2,999 3,228 2,824 3,108

Year -13,032 13,583 13,120 12,137 11,690

Earnings Per Share ($) 2010 0.81 0.64 2009 0.66 0.55 2008 1.10 1.02 2007 0.99 0.58 2006 0.74 0.51 2005 0.75 0.48

E1.20 1.22 0.66 1.15 0.92 1.17

E0.71 0.73 0.58 0.76 0.78 0.59

E3.36 3.14 3.36 3.46 2.95 2.99

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.595 0.595 0.595 0.595

01/21 04/15 07/15 10/21

02/12 05/10 08/16 11/15

02/17 05/12 08/18 11/17

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1885. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ED

Consolidated Edison Inc. Business Summary October 14, 2010 CORPORATE OVERVIEW. Consolidated Edison is a holding company with electric and gas utilities serving a territory that includes New York City (except part of Queens), most of Westchester County, southeastern New York state, northern New Jersey, and northeastern Pennsylvania. Although the company also has some competitive subsidiaries that participate in energy-related businesses, we expect the two regulated utilities to provide substantially all of ED's earnings over the next few years. MARKET PROFILE. The company's principal business operations are Con Edison of New York's regulated electric, gas and steam utility operations, and Orange and Rockland Utilities' (O&R) regulated electric and gas utility operations. In 2009, electric revenues accounted for 63.8% of consolidated sales (63.4% in 2008); gas revenues 14.9% (15.4%); non-utility revenues 16.2% (16.0%); and steam revenues 5.1% (5.2%). At December 31, 2009, the distribution system of Consolidated Edison Company of New York had about 36,769 miles of overhead distribution lines and around 95,627 miles of underground distribution lines. The distribution system of O&R had about 3,764 miles of overhead distribution lines, and 1,696 miles of underground distribution lines.

(76.5% of CENY's operating revenues in 2009) to about 3.3 million customers and gas service (16.9%) to around 1.1 million customers in New York City and Westchester County. It also provides steam service (6.6%) in parts of Manhattan to around 1,760 customers (mostly large office buildings, apartment houses and hospitals). Most of the electricity sold by CENY in 2009 was purchased under firm power contracts (primarily with non-utility generators) or through the wholesale electricity market administered by the New York Independent System Operator (NYISO). We expect this to continue for the foreseeable future. The company's O&R unit provides electric and gas service in southeastern New York and adjacent areas of eastern Pennsylvania, and electric service in areas of New Jersey adjacent to its New York service territory. In 2009, electric sales accounted for 72.8% of operating revenues, and gas sales for the remaining 27.2%.

The company's Con Edison of New York (CENY) unit provides electric service Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 34.96 3.14 3.23 2.36 75% 46.35 32.56 15 10

2008 37.05 3.36 1.19 2.34 70% 49.30 34.11 15 10

2007 34.83 3.46 2.99 2.32 67% 52.90 43.10 15 12

2006 32.13 2.95 2.54 2.30 78% 49.28 41.17 17 14

2005 30.69 2.99 2.54 2.28 76% 49.29 41.10 16 14

2004 29.86 2.32 1.78 2.26 97% 45.59 37.23 20 16

2003 29.09 2.36 1.66 2.24 95% 46.02 36.55 20 15

2002 25.40 3.13 0.50 2.22 71% 45.40 32.65 15 10

2001 24.23 3.21 0.66 2.20 69% 43.37 31.44 14 10

2000 23.50 2.74 NA 2.18 80% 39.50 26.19 14 10

13,032 791 NA 3.10 23.0 33.6% 868 893

13,583 717 NA 3.14 16.0 36.2% 922 329

13,120 645 NA 3.49 18.0 31.8% 925 800

12,137 621 NA 2.97 12.0 34.6% 738 635

11,690 584 NA 3.19 16.0 34.6% 732 621

9,758 551 NA 2.64 43.0 33.1% 549 421

9,827 529 353 3.13 27.0 37.5% 525 370

8,482 495 387 3.25 14.0 35.6% 680 106

9,634 526 430 3.46 9.00 38.9% 696 141

9,431 586 458 3.06 8.00 34.0% 596 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 27,921 Capital Expenditures 2,179 Net Property 22,464 Capitalization:Long Term Debt 10,081 Capitalization:% Long Term Debt 49.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 10,249 Capitalization:% Common 50.4 Total Capital 21,061 % Operating Ratio 88.8 % Earned on Net Property 8.8 % Return on Revenue 6.7 % Return on Invested Capital 7.3 % Return on Common Equity 8.7

25,993 2,318 20,874 9,462 49.4 Nil Nil 9,698 50.6 24,159 91.6 8.1 6.8 5.3 9.8

24,698 1,928 19,914 7,846 46.4 Nil Nil 9,076 53.6 21,430 89.4 9.6 7.1 6.9 11.0

23,028 1,847 18,445 8,537 51.6 Nil Nil 8,004 48.4 20,677 89.5 7.1 6.1 6.6 9.4

21,467 1,617 17,112 7,641 51.1 Nil Nil 7,310 48.9 18,637 90.3 7.0 6.3 6.7 10.0

20,394 1,359 16,106 6,807 49.1 Nil Nil 7,054 50.9 17,626 90.3 5.9 5.6 5.9 7.9

19,294 1,292 15,225 6,769 51.3 Nil Nil 6,423 48.7 16,406 88.8 6.4 5.3 7.3 8.5

18,000 1,216 13,330 6,206 50.3 Nil Nil 5,921 48.0 15,037 74.1 8.3 8.0 7.8 11.5

16,630 1,104 12,136 5,542 48.3 250 2.18 5,690 49.6 13,835 88.1 9.4 7.2 8.3 12.2

17,021 986 11,786 5,447 48.8 250 2.24 5,471 49.0 13,602 117.8 8.8 6.3 7.7 10.7

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4 Irving Place, New York, NY 10003-3502. Telephone: 212-460-4600. Email: [email protected] Website: http://www.coned.com

Chrmn, Pres & CEO: K. Burke SVP & CFO: R.N. Hoglund Chief Acctg Officer & Cntlr: R. Muccilo Treas: S. Sanders

Secy: C. Sobin Founded: 1884 Board Members: K. Burke, V. A. Calarco, G. Campbell, Domicile: New York Jr., G. J. Davis, M. J. Del Giudice, E. Futter, J. F. Employees: 15,541 Hennessy, III, S. Hernandez-Pinero, J. F. Killian, E. R. McGrath, M. W. Ranger, L. F. Sutherland

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CNX | CNX is in the S&P 500

CONSOL Energy Inc. S&P Recommendation HOLD

★★★★★

Price $39.03 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Coal & Consumable Fuels

12-Mo. Target Price $45.00

Investment Style Large-Cap Blend

Summary This major producer of high-bituminous coal and coalbed methane gas is the second largest U.S. coal producer based on annual production, with coal reserves of 4.5 billion tons.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $58.00– 31.08 Trailing 12-Month EPS $2.04 Trailing 12-Month P/E 19.1 $10K Invested 5 Yrs Ago $12,372

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.82 4.16 13.8 225.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

MEDIUM

HIGH

Quantitative Evaluations

Vol. 66

Mil.

S&P Quality Ranking

30 20 10 0

D 4

3

4

3

3

4

3

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 61

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Mathew Christy, CFA on October 14, 2010, when the stock traded at $ 40.14. Highlights Including the recently acquired Appalachian natural gas assets from Dominion Resources, we expect 2010 revenues to rise nearly 14%. Our 2010 estimate is based on a 6.7% advance in coal volumes along with a 3.5% estimated increase in the average per ton price realization, which we believe will be about $60.50. In 2011, we look for sales to rise more than 16%, led by increases in coal pricing and volumes and natural gas production. We think that the operating margin will widen by nearly three percentage points in 2010 on greater productivity and operating leverage from higher volumes and increased pricing. Our forecast is also based on a slight decline in production costs per ton in 2010. In 2011, we see wider operating margins due mainly to higher operating leverage resulting from better pricing and volumes. Assuming greater interest expense and more shares outstanding, we estimate EPS of $2.82 for 2010 and $4.16 for 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects the cyclical nature of the coal market, our view of unfavorable corporate governance practices concerning takeover defenses, and the heavily regulated nature of the industry and its utilities end market, notwithstanding expected benefits from the pricing cycle and a growing market share.

40

➤

1.37 20 BB

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

120

5

$8.813 1.02 $0.40 88

We believe CNX's results will benefit from a recovery in global coal demand during 2010. We note that coal inventories at U.S. utilities recently declined from an all-time high due to above-average summer temperatures. In addition, our belief is based on our forecast for increased demand for metallurgical coal. Although we view positively CNX's recent acquisition of Dominion Resources' natural gas assets, which we believe will lead to improved overall results and a more diverse company, we see limited upside to our $45 target price. Risks to our recommendation and target price include lower-than-expected coal pricing, reduced productivity, increased supply costs, slower-than-forecast U.S. economic activity, and acquisition integration risks. Our 12-month target price of $45 is based on relative valuation analysis. We apply an EV/ EBITDA multiple of about 7.3X to our 2010 EBITDA estimate. This multiple is above that of coal and natural gas peers, reflecting our view of CNX's size and relatively low-cost coal and natural gas production.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,218 1,264 2009 1,195 1,031 2008 951.1 1,200 2007 890.1 938.8 2006 944.3 884.4 2005 792.7 795.2

3Q -1,069 1,137 847.7 808.4 862.4

4Q -1,214 1,198 888.9 907.2 927.2

Year -4,509 4,486 3,565 3,544 3,378

Earnings Per Share ($) 2010 0.54 0.29 2009 1.08 0.62 2008 0.41 0.54 2007 0.61 0.83 2006 0.67 0.57 2005 0.41 0.22

E0.66 0.48 0.49 -0.03 0.27 2.02

E0.91 0.77 0.97 0.04 0.69 0.47

E2.82 2.95 2.40 1.45 2.20 3.13

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

10/23 01/29 04/30 07/30

11/02 02/05 05/06 08/11

11/04 02/09 05/10 08/13

11/20/09 02/19/10 05/20/10 08/23/10

Dividends have been paid since 1999. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CNX

CONSOL Energy Inc. Business Summary October 14, 2010 CORPORATE OVERVIEW. Through expansion projects and acquisitions, CONSOL Energy has grown from a single fuel mining company formed in 1860 into a multi-energy producer of coal and natural gas. CNX produces high Btu coal and natural gas, two fuels that collectively generate two-thirds of all U.S. electric power, from reserves located mainly east of the Mississippi River. The coal segment (CNX Coal) has 16 active mining complexes in the U.S., and sells steam coal to power generators and metallurgical coal to metal and coke producers. The company had an estimated 4.5 billion tons of proven and probable coal reserves at the end of 2009, nearly all of which was located east of the Mississippi River. About 62% of CNX's reserves are found in Northern Appalachia, with 18% in the Midwest, 14% in Central Appalachia, 4% in the western U.S., and 2% in western Canada. In addition, about 12% of reserves are metallurgical quality, while 88% are steam coal grade reserves. The company is a major fuel supplier to the electric power industry in the northeast quadrant of the U.S. Coal produced at CNX's mines is transported to

customers via railroad cars, barges, trucks and conveyor belts, or by a combination of such methods. In 2009, the company sold 58.1 million produced tons of coal, down from 66.1 million tons in 2008. Approximately 90% of coal produced in 2009 was sold under contracts with terms of one year or more. The average sales price per produced ton sold in 2009 was $58.42, versus $48.76 in 2008 while no customer accounted for more than 10% of revenue in 2008. CONSOL also operates a gas-fired electric generating facility in a joint venture with Allegheny Energy Supply Company, LLC and the 83%-owned CNX Gas. The 88-megawatt facility is located in southwest Virginia and was opened in June 2002. The facility is used for meeting peak load demands and uses coalbed methane gas produced by the company.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.86 5.37 2.95 3.03 0.40 14% 53.50 22.47 18 8

2008 8.10 4.53 2.40 2.13 0.40 17% 119.10 18.50 50 8

2007 6.77 3.24 1.45 1.02 0.31 21% 74.18 29.15 51 20

2006 5.84 3.80 2.20 1.88 0.28 13% 49.09 28.07 22 13

2005 5.54 4.54 3.13 2.05 0.28 9% 39.91 18.58 13 6

2004 2.59 2.17 0.64 0.69 0.28 44% 21.95 10.12 35 16

2003 NM 1.40 -0.05 0.04 0.28 NM 13.40 7.28 NM NM

2002 1.03 1.74 0.08 0.03 0.42 NM 14.16 4.90 NM NM

2001 2.23 2.71 1.17 0.98 0.56 48% 21.24 9.15 18 8

2000 1.62 2.24 0.68 NA 0.56 83% 14.00 4.97 21 7

4,509 1,180 441 31.4 788 28.1% 540 555

4,486 1,008 394 36.2 726 33.1% 442 391

3,565 628 329 45.4 429 31.7% 268 190

3,544 743 296 25.1 551 20.4% 409 349

3,378 511 262 27.3 655 9.83% 581 381

2,690 308 280 31.4 82.6 NM 115 125

2,157 181 242 34.5 -33.5 NM -12.6 6.95

2,138 222 263 46.2 -40.4 NM 11.7 3.70

2,298 347 243 57.6 240 23.6% 184 154

2,095 534 250 55.0 107 NM 107 NA

Balance Sheet & Other Financial Data (Million $) Cash 65.6 Current Assets 941 Total Assets 7,725 Current Liabilities 1,429 Long Term Debt 423 Common Equity 1,786 Total Capital 2,447 Capital Expenditures 920 Cash Flow 981 Current Ratio 0.7 % Long Term Debt of Capitalization 17.3 % Net Income of Revenue 12.0 % Return on Assets 7.2 % Return on Equity 33.2

139 984 7,370 1,512 468 1,462 2,143 1,062 837 0.7 21.9 9.9 6.5 33.1

41.7 683 6,208 1,016 489 1,214 1,866 743 597 0.7 26.2 7.5 4.5 23.5

224 914 5,663 740 493 984 1,612 659 705 1.2 30.6 12.1 7.6 40.7

341 998 5,088 804 438 1,025 1,557 523 843 1.2 28.2 17.2 12.5 77.7

6.42 470 4,196 705 426 469 895 411 396 0.7 47.6 4.3 2.7 30.3

6.51 471 4,319 825 442 291 733 291 230 0.6 60.3 NM NM NM

11.5 623 4,293 814 488 162 650 295 275 0.8 75.1 0.5 NM NM

16.6 566 3,895 934 231 352 583 214 427 0.6 39.6 8.0 4.7 60.6

8.20 578 3,866 953 301 254 555 143 357 0.6 54.1 5.0 2.7 42.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1000 Consol Energy Dr, Canonsburg, PA 15317-6506. Telephone: 724-485-4000. Website: http://www.consolenergy.com Chrmn, Pres & CEO: J.B. Harvey

Vice Chrmn: J.L. Whitmire, III COO & EVP: N.J. DeIuliis Investor Contact: W.J. Lyons EVP, CFO & Chief Acctg Officer: W.J. Lyons

Board Members: J. E. Altmeyer, P. W. Baxter, W. E. Founded: 1991 Davis, R. K. Gupta, P. A. Hammick, D. C. Hardesty, Jr., J. Domicile: Delaware B. Harvey, J. T. Mills, W. P. Powell, J. L. Whitmire, III, J. Employees: 8,012 T. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: STZ | STZ is in the S&P 500

Constellation Brands Inc S&P Recommendation BUY

★★★★★

Price $19.29 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Distillers & Vintners

12-Mo. Target Price $21.00

Investment Style Large-Cap Growth

Summary This leading international producer and marketer of alcoholic beverages has a broad portfolio of wine, imported beer, and distilled spirits brands.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.54– 14.60 Trailing 12-Month EPS $0.61 Trailing 12-Month P/E 31.6 $10K Invested 5 Yrs Ago $8,619

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.72 1.82 11.2 211.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

1.01 7 BB

STARS

LOW

MEDIUM

HIGH

Below Avg.

STZ operates in an industry that we believe has demonstrated stable revenue streams. This is offset by our corporate governance concerns relating to STZ's dual class stock structure with unequal voting rights.

20 16

12

Quantitative Evaluations S&P Quality Ranking

Vol. 30

D

15 10 5 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

25

Mil.

$3.620 Nil Nil 84

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ STRONG

77 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on October 18, 2010, when the stock traded at $ 19.41. Highlights ➤

➤

➤

Following about an 8% sales decline in FY 10 (Feb.), on negative foreign currency translation, divestitures, and unit weakness in international markets, we see FY 11 net revenues down slightly on a tepid recovery in North America, but more than offset by divestiture of the U.K. cider business, which contributed about $100 million to net sales in FY 10. In North America, we project zero to slight growth in organic wine sales. However, we see operating margin contraction in FY 11 on higher investment spending. We expect STZ's 50/50 joint venture with Grupo Modelo to import and distribute beers, primarily top import brand Corona, to continue to face softness on market share losses, before improvement in the second half of FY 11, with equity earnings dropping about 8% in FY 11. We forecast increased pressure on earnings in the first half as marketing expenses are ramped up during the peak seasonal period. With a reduction in interest expense, and an effective tax rate of about 34% compared to just over 30% in FY 10, we estimate FY 11 EPS of $1.72, up from FY 10's operating EPS of $1.69. In April 2010, directors authorized a $300 million share repurchase program.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We favorably view actions to move into highergrowth segments, divest value-priced, popular brands, and reduce debt. In December 2007, STZ completed the purchase of Fortune Brands' U.S. wine business, providing a stronger presence in the faster-growing superpremium and above segment. We look for healthy global demand for premium wines to continue over the long term. With STZ's move away from acquisitions and a focus on debt reduction, we see free cash flow of between $375 million to $425 million for FY 2011. In December 2009, a Grupo Modelo subsidiary filed a lawsuit in a dispute over marketing at its Crown Imports joint venture. While we expect this to be an overhang, we find the shares' below-peers valuation attractive.

➤

Risks to our recommendation and target price include continued pricing pressures in the U.K. and Australian wine markets, resistance to further price increases, and foreign currency risk.

➤

Our 12-month target price of $21 is based on a multiple of 12X our FY 11 EPS estimate of $1.72. We think a discount to the historical average of over 13X and current forward peer average of 15.5X is appropriate amid a backdrop of slow economic growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 787.5 862.8 2010 791.6 876.8 2009 931.8 956.5 2008 901.2 1,168 2007 1,156 1,418 2006 1,097 1,192

3Q -987.7 1,031 1,406 1,501 1,267

4Q -708.7 735.1 884.4 1,142 1,048

Year -3,365 3,655 3,773 5,216 4,603

Earnings Per Share ($) 2011 0.22 0.43 2010 0.03 0.45 2009 0.20 -0.11 2008 0.13 0.34 2007 0.36 0.28 2006 0.32 0.34

E0.56 0.20 0.38 0.55 0.45 0.46

E0.34 -0.23 -1.88 -3.92 0.29 0.24

E1.72 0.45 -1.40 -2.83 1.38 1.36

Fiscal year ended Feb. 28. Next earnings report expected: Early January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: STZ

Constellation Brands Inc Business Summary October 18, 2010 CORPORATE OVERVIEW. Through an aggressive acquisition program over the past few years, Constellation Brands (formerly Canandaigua Brands) has become a leading international producer and marketer of alcoholic beverages in North America, Europe and Australia. With the divestiture of its value spirits business and integration of the remaining spirits business into the wine business, STZ recently restructured into three divisions -- Constellation Wines (branded wine, spirits and other), Corporate Operations and Other, and Crown Imports (imported beer). Constellation Wines produces and markets table wines, dessert wines and sparkling wines. It is a leading producer and marketer of wine in the U.S., Canada, Australia and New Zealand, and the largest marketer of wine in the U.K. The company sells wines in the popular, premium, super-premium and ultra-premium categories. At the end of FY 10 (Feb.), the company operated 19 wineries in the U.S., eight in Australia, nine in Canada, four in New Zealand,

and one in South Africa. STZ has developed a premium wine portfolio through acquisitions, selling 16 of the top 100 U.S. table wines in FY 10. Leading wine brands include Robert Mondavi, Franciscan Estate, Wild Horse, Simi, Toasted Head, Estancia, Clos du Bois, Blackstone, Ravenswood, Black Box, Vendange, Arbor Mist, Inniskillin, Kim Crawford, Ruffino, Nobilo, Jackson-Triggs, Alice White, Hardys, Banrock Station, Stowells, and Kumala. It also produces and sells Paul Masson Grande Amber Brandy as well as SVEDKA vodka and Black Velvet Canadian Whisky.

Company Financials Fiscal Year Ended Feb. 28 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 1.26 0.45 0.83 Nil Nil 2009 17.56 10.72 39 24

2009 NM -0.69 -1.40 -0.04 Nil Nil 2008 23.81 10.66 NM NM

2008 NM -2.07 -2.83 1.13 Nil Nil 2007 29.17 18.83 NM NM

2007 NM 1.95 -1.38 1.41 Nil Nil 2006 29.14 23.32 22 18

2006 NM 1.86 1.36 1.24 Nil Nil 2005 31.60 21.15 23 16

2005 NM 1.59 1.19 1.02 Nil Nil 2004 23.91 14.65 20 12

2004 NM 1.39 1.03 0.96 Nil Nil 2003 17.33 10.95 17 11

2003 0.39 1.42 1.10 0.97 Nil Nil 2002 16.00 10.53 15 10

2002 NM 1.08 0.79 0.66 Nil Nil 2001 11.63 6.63 15 8

2001 NM 0.95 0.65 0.54 Nil Nil 2000 7.38 5.05 11 8

3,365 721 156 266 259 61.7% 99.3 190

3,655 711 150 316 -107 NM -301 -10.7

3,773 704 160 342 -441 NM -613 243

5,216 895 140 269 535 38.0% 332 334

4,603 840 128 190 477 31.8% 325 288

4,088 689 104 138 432 36.0% 276 230

3,552 601 82.0 145 344 36.0% 220 199

2,732 470 60.1 105 335 39.3% 203 181

2,821 394 51.9 114 230 40.0% 138 115

2,397 315 44.6 109 162 40.0% 97.3 80.7

Balance Sheet & Other Financial Data (Million $) Cash 43.5 Current Assets 2,589 Total Assets 8,094 Current Liabilities 1,373 Long Term Debt 3,277 Common Equity 2,576 Total Capital 6,041 Capital Expenditures 108 Cash Flow 249 Current Ratio 1.9 % Long Term Debt of Capitalization 54.3 % Net Income of Revenue 3.0 % Return on Assets 1.2 % Return on Equity 4.4

13.1 2,535 8,037 1,326 3,971 1,908 6,423 129 -151 1.9 61.8 NM NM NM

20.5 3,199 10,053 1,718 4,649 2,766 7,950 144 -454 1.9 58.5 NM NM NM

33.5 3,023 9,438 1,591 3,715 3,418 7,607 192 467 1.9 48.8 6.4 3.9 10.2

10.9 2,701 7,401 1,298 2,516 2,975 5,862 132 444 2.1 42.9 7.1 4.3 11.0

17.6 2,734 7,804 1,138 3,205 2,780 6,375 120 370 2.4 50.3 6.8 4.1 10.3

37.1 2,071 5,559 1,030 1,779 2,378 4,344 105 297 2.0 41.0 6.2 5.0 12.1

13.8 1,330 3,196 585 1,192 1,207 2,544 71.6 263 2.3 46.8 7.4 6.5 18.5

8.96 1,231 3,069 595 1,293 956 2,412 71.1 190 2.1 53.6 4.9 4.9 17.5

146 1,191 2,512 427 1,307 616 2,056 68.2 142 2.8 63.6 4.1 4.0 17.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 207 High Point Drive, Building 100, Victor, NY 14564. Telephone: 585-678-7100. Website: http://www.cbrands.com Chrmn: R. Sands

Pres & CEO: R. Sands EVP, CFO & Chief Acctg Officer: R.P. Ryder EVP & Chief Admin Officer: W.K. Wilson EVP & General Counsel: T.J. Mullin

Investor Contact: P. Yahn-Urlaub (585-218-3838) Board Members: J. Fowden, B. A. Fromberg, J. K. Hauswald, J. A. Locke, III, R. Sands, R. Sands, P. L. Smith, M. Zupan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1972 Domicile: Delaware Employees: 6,000

Stock Report | October 23, 2010 | NYS Symbol: CEG | CEG is in the S&P 500

Constellation Energy Group Inc. S&P Recommendation HOLD

★★★★★

Price $31.38 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Independent Power Producers & Energy Traders

12-Mo. Target Price $39.00

Investment Style Large-Cap Blend

Summary This company, the largest wholesale power supplier in the U.S. and the parent of Baltimore Gas and Electric, closed on a major joint venture agreement with Electricite de France in late 2009.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.73– 28.21 Trailing 12-Month EPS $23.88 Trailing 12-Month P/E 1.3 $10K Invested 5 Yrs Ago $6,939

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.35 3.40 9.4 202.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

MEDIUM

HIGH

Quantitative Evaluations

Vol. 142

Mil.

S&P Quality Ranking

15 10 5 0

D 4

4

C

B-

B B

B+

A-

A

Relative Strength Rank

3

A+ WEAK

25

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Justin McCann on September 16, 2010, when the stock traded at $ 31.44. Highlights Excluding net one-time charges of $0.83, we expect operating EPS in 2010 to remain essentially flat with 2009's $3.36, which excluded net onetime gains of $18.33 primarily related to the transaction with Electricite de France. Operating EPS in the first half of 2010 were aided by higher generation earnings and sharply improved retail power margins in the first quarter. This was partially offset by the impact of severe winter storms at Baltimore Gas & Electric. For the second half of 2010 and for 2011, we expect earnings to be restricted by the ongoing weakness in power markets. However, we believe this will be largely offset by reduced operating expenses. CEG is seeking to purchase generation assets in New England, where it has significant obligations for power demand. We believe the $4.5 billion joint venture agreement with Electricite de France, which was completed in November 2009, has long-term strategic value given the potential for the upgrading and expansion of nuclear facilities in the U.S. We believe the most critical near-term impact of the transaction was the strengthening of the company's liquidity position.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects our view that the stability of earnings provided by CEG's regulated electric and gas utility operations is more than offset by the cyclical and volatile earnings of the unregulated merchant energy business, including power generation, energy, and energy-related marketing and trading.

40

➤

1.05 -1 BBB-

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

120

5

$6.338 3.06 $0.96 73

The stock is down about 10% year to date, hurt, in our view, by the extended weakness in the power markets. This follows a 40% gain in 2009, driven by the substantial strengthening of CEG's balance sheet and liquidity, and the transaction with Electricite de France. CEG had initially sought to be acquired, given a severe liquidity crisis brought about by the adverse effects of sharply higher commodity prices on its derivative assets and liabilities, collateral requirements and counterparty credit exposures. Risks to our recommendation and target price include prolonged weakness in the economy and power markets, and a sharp decline in the average P/E multiple of the group as a whole. While the transaction with Electricite de France valued CEG's assets at nearly twice the $4.7 billion ($26.50 a share) that was offered in the terminated acquisition with MidAmerican Energy, the transaction was an asset sale and not a purchase of CEG shares. With the 50% cut in its dividend in February 2009, CEG realized annual savings of about $190 million. Our 12-month target price of $39 represents a discount-to-peers P/E of 11.5X our EPS forecast for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,587 3,310 2009 4,303 3,864 2008 4,827 5,077 2007 5,111 4,876 2006 4,859 4,379 2005 3,630 3,549

3Q -4,028 5,324 5,856 5,393 4,922

4Q -3,404 4,926 5,349 4,644 5,159

Year -15,599 19,818 21,193 19,285 17,132

Earnings Per Share ($) 2010 0.95 0.36 2009 -0.62 0.04 2008 0.81 0.95 2007 1.08 0.64 2006 0.56 0.41 2005 0.67 0.66

E0.80 0.69 -1.26 1.37 1.69 1.02

E0.41 21.96 -7.75 1.42 1.46 1.04

E3.35 22.18 -7.34 4.51 4.12 3.38

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.240 0.240 0.240 0.240

01/22 05/28 07/23 10/22

03/08 06/08 09/08 12/08

03/10 06/10 09/10 12/10

04/01/10 07/01/10 10/01/10 01/03/11

Dividends have been paid since 1910. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CEG

Constellation Energy Group Inc. Business Summary September 16, 2010 CORPORATE OVERVIEW. Constellation Energy is the largest U.S. wholesale power seller and the biggest competitive supplier of electricity to large commercial and industrial customers. It is also the holding company for Baltimore Gas & Electric Company, a regulated utility. IMPACT OF MAJOR DEVELOPMENTS. On November 6, 2009, Constellation Energy completed a transaction (agreed to on December 17, 2008) with EDF Development, Inc., a wholly owned subsidiary of Electricite de France, which has the largest and most modern nuclear capacity in the world, in which EDF acquired a 49.99% interest in CEG's nuclear business for $4.5 billion. The agreement was announced on the same day that CEG and MidAmerican Energy Holdings, a privately held subsidiary of Berkshire Hathaway, announced that they had jointly agreed to terminate their merger agreement of September 19, 2008. The agreement with EDF (84%-owned by the French state and with a 9.5% stake in CEG) included an immediate $1 billion cash investment in the form of nonconvertible preferred stock, which was surrendered to CEG upon the completion of the transaction and credited against the $4.5 billion purchase price. EDF also provided CEG with a two-year asset put option to sell to EDF non-nuclear generation assets with a value of up to $2 billion, and a $600 million interim backstop liquidity facility that would remain available until either six months after the investment agreement or, if earlier, receipt of all the regulatory approvals related to the transfer of the non-nuclear generation as-

sets. While the asset sale transaction received the approval of federal and state regulators, it did not require the approval of shareholders. Under the terms of the September 19, 2008, merger agreement that was terminated on December 17, 2008, MidAmerican had agreed to purchase all of the outstanding shares of CEG for $4.7 billion in cash, or $26.50 a share. The announcement of that agreement followed several days of unprecedented volatility in CEG shares, which reflected, we believe, investor fears that the company would risk bankruptcy if it were unable to access the liquidity it needed for its commodities-trading business. Upon the signing of that agreement, CEG received $1 billion from MidAmerican in the form of preferred equity yielding 8.0%. Under the provisions of the termination agreement, these preferred shares were converted into a $1 billion note at 14% interest, maturing on December 31, 2009. MidAmerican also received about 20 million shares of CEG common stock (about 9.9%), as well as a termination fee of $175 million and an additional $418 million for common stock that could not be issued due to regulatory limits.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 40.14 22.18 -0.40 0.96 4% 36.55 15.05 2 1

2008 15.08 -7.34 -7.77 1.91 NM 107.97 13.00 NM NM

2007 27.46 4.51 4.26 1.74 39% 104.29 68.78 23 15

2006 24.66 4.12 3.93 1.51 37% 70.20 50.55 17 12

2005 26.76 3.38 3.31 1.34 40% 62.60 43.01 19 13

2004 25.99 3.40 3.33 1.14 34% 44.90 35.89 13 11

2003 23.81 2.85 2.66 1.04 36% 39.61 25.17 14 9

2002 22.71 3.20 1.75 0.96 30% 32.38 19.30 10 6

2001 23.44 0.52 0.34 0.48 92% 50.14 20.90 96 40

2000 20.88 2.30 NA 1.68 73% 52.06 27.06 23 12

15,599 1,258 NA 3.29 NA 39.9% 4,443 -81.3

19,818 560 NA 2.52 NA NM -1,314 -1,391

21,193 558 NA 4.96 NA 33.9% 822 777

19,285 524 NA 4.01 NA 31.9% 749 714

17,132 542 NA 3.50 NA 25.2% 607 594

12,550 526 NA 3.40 NA 22.6% 589 578

9,703 479 NA 3.12 NA 36.2% 476 444

4,703 481 NA 2.90 NA 37.1% 526 290

3,928 419 NA 3.01 NA 31.5% 82.4 54.9

3,879 470 NA 3.12 NA 40.0% 345 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 12,535 Capital Expenditures 1,530 Net Property 8,454 Capitalization:Long Term Debt 5,004 Capitalization:% Long Term Debt 36.5 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 8,697 Capitalization:% Common 63.5 Total Capital 13,833 % Operating Ratio 110.9 % Earned on Net Property 13.5 % Return on Revenue 28.5 % Return on Invested Capital NM % Return on Common Equity 74.8

15,729 1,934 10,717 5,289 62.4 Nil Nil 3,181 37.6 9,211 94.7 9.4 NM 9.4 NM

14,513 1,296 9,767 4,851 47.6 Nil Nil 5,340 52.4 11,849 95.6 14.3 3.9 9.7 16.5

13,680 963 9,222 4,222 47.8 Nil Nil 4,609 52.2 10,419 94.7 13.1 3.9 11.4 15.7

14,403 760 10,067 4,559 48.1 Nil Nil 4,916 51.9 10,720 94.5 10.5 3.5 9.2 12.6

14,315 704 10,087 5,003 51.4 Nil Nil 4,727 48.6 11,105 92.2 17.0 4.7 9.0 13.3

13,580 658 9,602 5,229 55.8 Nil Nil 4,141 44.2 10,833 91.6 17.1 4.9 8.2 11.9

12,354 850 7,957 4,804 55.4 Nil Nil 3,862 44.6 10,083 87.2 17.8 11.2 9.8 13.6

11,862 1,318 7,700 2,903 43.0 Nil Nil 3,844 57.0 8,271 78.3 5.0 2.1 10.5 2.3

10,442 1,079 6,644 3,349 51.5 Nil Nil 3,153 48.5 7,943 84.3 13.3 8.9 8.2 11.2

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Constellation Way, Baltimore, MD 21202-3142. Telephone: 410-470-2800. Website: http://www.constellation.com Chrmn, Pres & CEO: M.A. Shattuck, III

Vice Chrmn, COO & EVP: M.J. Wallace SVP & CFO: J.W. Thayer SVP, Secy & General Counsel: C.A. Berardesco Chief Acctg Officer & Cntlr: B.P. Wright

Investor Contact: K. Hadlock (410-864-6440) Founded: 1906 Board Members: A. C. Berzin, J. T. Brady, D. Camus, J. Domicile: Maryland R. Curtiss, F. A. Hrabowski, III, N. Lampton, R. J. Employees: 7,200 Lawless, M. A. Shattuck, III, J. L. Skolds, M. D. Sullivan, M. J. Wallace, Y. C. de Balmann

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GLW | GLW is in the S&P 500

Corning Inc S&P Recommendation BUY

★★★★★

Price $18.60 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Electronic Components

12-Mo. Target Price $22.00

Investment Style Large-Cap Blend

Summary GLW, once an old-line housewares company, is now a leading maker of glass substrates used by the electronics industry and fiber optic equipment used by the telecommunications industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $21.10– 14.14 Trailing 12-Month EPS $1.97 Trailing 12-Month P/E 9.4 $10K Invested 5 Yrs Ago $10,422

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.11 2.15 8.8 1,561.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$29.046 1.08 $0.20 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.37 9 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Corning's exposure to intense competition in its major businesses, offset by its market leadership and positive cash flow, and our view of its strong balance sheet.

30 20 15

Quantitative Evaluations

10

S&P Quality Ranking Vol.

D

C

B-

B B

B+

A-

A

A+

Mil. 120 80 40 0

Relative Strength Rank

MODERATE 61

LOWEST = 1

5

5

3

4

3

2

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Todd Rosenbluth on September 15, 2010, when the stock traded at $ 17.22. Highlights ➤

➤

➤

Investment Rationale/Risk

We expect GLW's sales to advance 24% in 2010, after a 9% decline in 2009. We believe improved global consumer spending led to a recovery in the previously hard-hit display segment, and we see this continuing as economies in the U.S. and China improve, despite lower capacity utilization by certain customers. We look for the environmental segment to also recover on increased demand for its automotive and diesel-related products, although the telecom segment is likely to lag the U.S. economy.

➤

We believe gross margins bottomed at 27% in the first quarter of 2009. We forecast an average of 47% in 2010 and 48% in 2011, up from 39% in 2009. We expect the high-margin display segment to improve, as glass volumes rise, even as investment in next-generation technology increases and industry capacity utilization rates are slightly reduced. Despite higher R&D, we see operating margin expansion in 2010.

➤

We expect equity earnings and a minuscule tax rate to support net income in 2010. We look for EPS to grow to $2.11 in 2010 and to $2.15 in 2011, when taxes should be much higher.

➤

Demand for GLW's LCD glass and for endproduct TVs remained strong in the first half of 2010, which we think will support continued sales growth. We expect that improvement in display volume and growth in environmental operations will result in wider margins in 2010 and 2011. We think recent cost reductions and what we consider to be a sound balance sheet provide additional investment merits. Following strong second-quarter results, we believe GLW remains undervalued. Risks to our recommendation and target price include weaker-than-expected demand for flat panel displays in China, worsening pricing on display technologies products, and lackluster demand for products at the telecom unit. GLW recently traded at a P/E multiple of about 8X, a sizable discount to telecom equipment peers we cover. Our 12-month target price of $22 is based on a multiple of 10X our 2011 EPS estimate, a narrower discount to peers, as we believe that while growth is relatively modest, GLW fundamentals have improved. The recent dividend yield was about 1.2%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,553 1,712 2009 989.0 1,395 2008 1,617 1,692 2007 1,307 1,418 2006 1,262 1,261 2005 1,050 1,141

3Q -1,479 1,555 1,553 1,282 1,188

4Q -1,532 1,084 1,582 1,369 1,200

Year -5,395 5,948 5,860 5,174 4,579

Earnings Per Share ($) 2010 0.52 0.58 2009 0.01 0.39 2008 0.64 2.01 2007 0.20 0.30 2006 0.16 0.32 2005 0.17 0.11

E0.52 0.41 0.49 0.38 0.27 0.13

E0.49 0.47 0.16 0.45 0.41 -0.02

E2.11 E1.31 3.32 1.34 1.16 0.38

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

02/03 04/29 07/21 10/06

02/24 05/26 08/26 11/15

02/26 05/28 08/30 11/17

03/31/10 06/30/10 09/30/10 12/17/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GLW

Corning Inc Business Summary September 15, 2010 CORPORATE OVERVIEW. Corning (GLW) is a maker of high-technology fiber optics for the global telecom industry and high-performance glass components for the personal computer and television manufacturing industries. Results are reported in the following primary business segments: display technologies (49% of sales in the first half of 2010), telecommunications (25%), environmental technologies (12%), life sciences (7%), and specialty materials and other (7%). PRIMARY BUSINESS DYNAMICS. The display technologies segment manufactures glass substrates for active matrix liquid crystal displays (LCDs), which are used primarily in notebook computers, flat panel desktop monitors, and LCD televisions. Large substrates (Generation 5 and higher) allow LCD manufacturers to produce larger and a greater number of panels from each substrate. The larger size leads to economies of scale for LCD manufacturers and has enabled lower display prices for consumers, which may continue in the future. During 2009, volume was improved from the recent lows of late 2008 due to TV sales growth in China, Europe and North America, and improvement in the supply chain. Volume more than doubled sequentially in the second quarter of 2009, but was up only 4% in the third quarter and 3% in the fourth quarter. During the second quarter of 2010, volumes rose more than 10% from a strong first quarter, but we expect some pressure in the second

half of 2010 as capacity utilization at key customers slows. Strong demand helped support GLW's gross margin expansion in 2009 and the first half of 2010. The telecom segment produces optical fiber and cable, and hardware and equipment products including cable assemblies, fiber optic hardware and components. We believe demand for fiber-to-the-premise products, which had a 13% sales increase in the second half of 2009, from the first half of 2009, was being driven by demand from China. We believe sales growth for the telecom segment will lag the economic recovery, but are encouraged by gains achieved in the second quarter of 2010. The environmental technologies segment includes solutions for emissions and pollution control. Although sales are to the emission control systems manufacturers, substrates and filters are also required by the automotive and diesel engine manufacturers following new regulations in the U.S., Europe and Japan.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.57 1.79 1.28 1.31 0.20 16% 19.55 8.97 15 7

2008 8.49 3.76 3.32 3.29 0.20 6% 28.07 7.36 8 2

2007 5.97 1.72 1.34 1.33 0.10 7% 27.25 18.12 20 14

2006 4.43 1.56 1.16 1.17 Nil Nil 29.61 17.50 26 15

2005 3.43 0.71 0.38 0.34 Nil Nil 21.95 10.61 58 28

2004 2.38 -1.20 -1.57 -1.03 Nil Nil 13.89 9.29 NM NM

2003 2.65 0.23 -0.18 -0.37 Nil Nil 12.34 3.34 NM NM

2002 2.14 -1.04 -1.85 -1.89 Nil Nil 11.15 1.10 NM NM

2001 3.39 -4.74 -5.89 -3.11 0.12 NM 72.19 6.92 NM NM

2000 3.56 1.34 0.46 NA 0.24 52% 113.29 34.33 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,395 1,435 792 82.0 1,934 NM 2,008 2,048

5,948 1,894 695 90.0 2,851 NM 5,257 5,200

5,860 1,869 607 101 2,233 3.58% 2,150 2,134

5,174 1,489 591 76.0 2,421 22.9% 1,855 1,865

4,579 1,284 512 116 1,170 49.4% 585 520

3,854 892 523 141 -1,137 NM -2,185 -1,442

3,090 386 517 154 -550 NM -223 -463

3,164 21.0 661 179 -2,604 NM -1,780 -1,947

6,272 805 1,080 153 -5,963 NM -5,498 -2,908

7,127 1,929 765 107 840 48.4% 410 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,583 Current Assets 5,521 Total Assets 21,295 Current Liabilities 1,539 Long Term Debt 1,930 Common Equity 15,543 Total Capital 17,599 Capital Expenditures 890 Cash Flow 2,800 Current Ratio 3.6 % Long Term Debt of Capitalization 11.0 % Net Income of Revenue 37.2 % Return on Assets 9.9 % Return on Equity 13.9

2,816 4,619 19,256 2,052 1,527 13,443 15,034 1,921 5,952 2.3 10.2 88.4 30.5 45.8

3,516 5,294 15,215 2,512 1,514 9,496 11,077 1,262 2,757 2.1 13.7 36.7 15.2 25.7

1,157 4,798 13,065 2,319 1,696 7,246 8,987 1,182 2,446 2.1 18.9 35.9 15.3 29.1

1,342 3,860 11,175 2,216 1,789 5,609 7,441 1,553 1,097 1.7 24.0 12.8 5.6 12.5

1,009 3,281 9,710 2,336 2,214 3,752 6,059 857 -1,662 1.4 36.5 NM NM NM

833 2,694 10,752 1,553 2,668 5,379 8,168 366 294 1.7 32.7 NM NM NM

1,471 3,825 11,548 1,680 3,963 4,536 8,713 357 -1,247 2.3 45.5 NM NM NM

1,037 4,107 12,793 1,994 4,461 5,414 10,001 1,800 -4,418 2.1 44.6 NM NM NM

138 4,634 17,526 1,949 3,966 10,633 14,808 1,525 1,175 2.4 26.8 5.7 3.4 6.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Riverfront Plaza, Corning, NY 14831-0001. Telephone: 607-974-9000. Email: [email protected] Website: http://www.corning.com

Chrmn & CEO: W.P. Weeks Pres & COO: P.F. Volanakis Vice Chrmn & CFO: J.B. Flaws EVP & Chief Admin Officer: K.P. Gregg

EVP & CTO: J.A. Miller, Jr. Founded: 1851 Board Members: J. S. Brown, J. A. Canning, Jr., R. F. Domicile: New York Cummings, Jr., J. B. Flaws, G. Gund, C. M. Gutierrez, K. Employees: 23,500 M. Landgraf, J. O'Connor, D. Rieman, H. O. Ruding, W. D. Smithburg, H. E. Tookes, II, P. F. Volanakis, W. P. Weeks, M. S. Wrighton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: COST | COST is in the S&P 500

Costco Wholesale Corp S&P Recommendation HOLD

★★★★★

Price $64.03 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Hypermarkets & Super Centers

12-Mo. Target Price $67.00

Investment Style Large-Cap Blend

Summary This company operates about 570 membership warehouses in the U.S., Puerto Rico, Canada, the U.K., Taiwan, Japan, Korea, Mexico and Australia.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $65.46– 53.41 Trailing 12-Month EPS $2.92 Trailing 12-Month P/E 21.9 $10K Invested 5 Yrs Ago $14,178

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.30 3.55 19.4 432.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$27.682 1.28 $0.82 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.69 11 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Costco Wholesale incorporates our view of its strong balance sheet, its market leadership position, and our expectation that consistent earnings and dividend growth will continue.

70 60 50 40

Quantitative Evaluations

30

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 63

4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Joseph Agnese on October 07, 2010, when the stock traded at $ 64.70. Highlights ➤

➤

➤

We see net revenues increasing 6.0% to $82.6 billion in FY 11 (Aug.) from $77.9 billion in FY 10, reflecting a same-store sales rise of 4%, excluding fuel and foreign exchange rates, and square footage growth of about 4.5% (reflecting the expected opening of 29 new clubs). We believe comparable store sales will be driven mostly by increased traffic as average basket sizes are negatively impacted by the company's competitively priced offerings, despite an improved food inflation environment and increased discretionary spending in a more stable economic environment. We project that margins will widen in FY 11, reflecting increased sales leverage and rising demand for discretionary goods, partially offset by higher employee health care and benefit costs. We see pre-opening expenses rising as the company increases new club store openings, and we project higher net interest income due to increased investment income. We estimate that FY 11 EPS will rise 11% to $3.30 from FY 10 operating EPS of $2.92, excluding one-time charges.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We expect COST to increase its market share in the near term, as we see it pricing aggressively as it maintains a strong value proposition and a relatively upscale product mix that appeals to a more affluent customer base. We think the company is well positioned to generate long term earnings growth due to new store expansion and what we view as a strong balance sheet. Risks to our recommendation and target price include a slowdown in sales due to weakness in the economy, more difficult foreign currency comparisons, and increased cannibalization from new store expansion. We believe the stock's valuation will be supported by increased traffic and average transaction gains as consumers continue to seek value as they increase discretionary goods purchases in a more stable economic environment. We apply a P/E of 18.8X to our FY 12 EPS estimate of $3.55, a 34% premium compared to the S&P 500, versus a 28% five-year median premium to the S&P 500, but a 8.3% discount to its five-year median P/E, to arrive at our 12-month target price of $67.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 17,299 18,742 2009 16,395 16,843 2008 15,810 16,960 2007 14,152 15,112 2006 12,933 14,059 2005 11,578 12,658

3Q 17,780 15,806 16,614 14,659 13,284 11,997

4Q 24,125 22,378 23,100 20,477 19,875 16,702

Year 77,946 71,422 72,483 64,400 60,151 52,935

Earnings Per Share ($) 2010 0.60 0.67 2009 0.60 0.55 2008 0.59 0.74 2007 0.51 0.54 2006 0.45 0.62 2005 0.40 0.62

0.68 0.48 0.67 0.49 0.49 0.43

0.97 0.85 0.90 0.83 0.75 0.73

2.92 2.47 2.89 2.37 2.30 2.18

Fiscal year ended Aug. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.180 0.205 0.205 0.205

01/28 04/22 07/19 10/07

02/10 05/05 08/04 10/27

02/12 05/07 08/06 10/29

02/26/10 05/21/10 08/20/10 11/12/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: COST

Costco Wholesale Corp Business Summary October 07, 2010 CORPORATE OVERVIEW. Costco Wholesale (formerly Costco Companies, Inc., and prior to that, Price/Costco, Inc.) began the pioneering "I can get it for you wholesale" membership warehouse concept in 1976, in San Diego, CA. The company operated 573 warehouses worldwide as of September 2010, mainly in the U.S. and Canada (including 32 stores operated through a joint venture in Mexico). COST also operates an e-commerce Web site, costco.com. A typical warehouse format averages about 143,000 sq. ft. Floor plans are designed for economy and efficiency in the use of selling space, in the handling of merchandise, and in the control of inventory. Merchandise is generally stored on racks above the sales floor, and is displayed on pallets containing large quantities of each item, reducing the labor required for handling and stocking. Specific items in each product line are limited to fast-selling models, sizes and colors. COST carries an average of about 4,000 stock keeping units (SKUs) per warehouse, well below the 45,000 to 60,000 SKUs of a typical discount store or supermarket. By using a membership format, and strictly controlling entrances and exits, the company limits inventory losses (shrinkage) to well below the average of discount competitors.

state and local governments; financial institutions; corporations; utility and transportation companies; public and private educational institutions; and other organizations. Gold Star membership is $50 annually. There were 22.5 million Gold Star memberships as of September 2010, up from 21.5 million as of September 2009. Businesses, including individuals with retail sales or business licenses, may become Business members by paying an annual $50 fee, with add-on membership cards available for an annual fee of $40. As of September 2010, there were 5.8 million Business memberships, compared to 5.7 million in September 2009. Executive memberships, available for a $100 annual fee, offer business and individual members savings on services such as merchant credit card processing and small business loans, as well as a 2% annual reward, up to a maximum of $500 annually, on qualified purchases. Executive members made up approximately one third of the primary membership base in FY 10 (Aug.), up from 29% and 26% in FY 09 and FY 08, respectively.

COST has two primary types of memberships: Gold Star (individual) and Business members. Individual memberships are available to employees of federal, Company Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 24.82 4.70 2.92 2.91 0.77 26% 65.46 53.41 22 18

2009 23.27 4.12 2.47 2.53 0.68 28% 61.25 38.17 25 15

2008 21.08 4.36 2.89 2.89 0.61 21% 75.23 30.70 26 11

2007 19.73 3.60 2.37 2.37 0.55 23% 72.68 51.52 31 22

2006 19.78 3.37 2.30 2.30 0.49 21% 57.94 46.00 25 20

2005 18.80 3.13 2.18 2.12 0.43 20% 51.21 39.48 23 18

2004 16.48 2.74 1.85 1.76 0.20 11% 50.46 35.05 27 19

2003 14.33 2.32 1.53 1.40 Nil Nil 39.02 27.00 26 18

2002 12.51 2.17 1.48 1.32 Nil Nil 46.90 27.09 32 18

2001 10.71 1.90 1.29 1.12 Nil Nil 46.38 29.83 36 23

77,946 2,817 795 111 2,054 NA 1,303 1,300

71,422 2,522 728 108 1,714 36.6% 1,086 1,114

72,483 2,622 653 103 1,999 35.8% 1,283 1,283

64,400 2,189 566 64.1 1,710 36.7% 1,083 1,082

60,151 2,146 515 12.6 1,751 37.0% 1,103 1,104

52,935 1,969 478 34.4 1,549 31.4% 1,063 1,044

48,107 1,827 441 36.7 1,401 37.0% 882 837

42,546 1,567 391 36.9 1,158 37.8% 721 660

38,763 1,494 342 29.1 1,138 38.5% 700 624

34,797 1,312 301 32.0 1,003 40.0% 602 525

Balance Sheet & Other Financial Data (Million $) Cash 4,749 Current Assets 11,708 Total Assets 23,815 Current Liabilities 10,063 Long Term Debt 2,141 Common Equity 10,829 Total Capital 13,071 Capital Expenditures 1,055 Cash Flow 2,098 Current Ratio 1.2 % Long Term Debt of Capitalization 16.4 % Net Income of Revenue 1.7 % Return on Assets 5.7 % Return on Equity 12.5

3,727 10,337 21,979 9,281 2,135 10,018 12,319 1,250 1,814 1.1 17.3 1.5 5.1 11.3

3,275 9,462 20,682 8,874 2,206 9,192 11,480 1,599 1,936 1.1 19.2 1.8 6.4 14.4

2,780 9,324 19,607 8,582 2,108 8,623 10,801 1,386 1,649 1.1 19.5 1.7 5.8 12.2

1,511 8,232 17,495 7,819 215 9,143 9,422 1,213 1,619 1.1 2.3 1.8 6.5 12.2

2,063 8,086 16,514 6,609 711 8,881 9,650 995 1,541 1.2 7.4 2.0 6.7 12.9

2,823 7,269 15,093 6,171 994 7,625 8,922 706 1,323 1.2 11.1 1.8 6.2 12.4

1,545 5,712 13,192 5,011 1,290 6,555 8,181 811 1,112 1.1 15.8 1.7 5.8 11.8

806 4,631 11,620 4,450 1,211 5,694 7,025 1,039 1,042 1.0 17.2 1.8 6.4 13.2

603 3,882 10,090 4,112 859 4,883 5,858 1,448 903 0.9 14.7 1.7 6.4 13.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 999 Lake Dr Ste, Issaquah, WA 98027. Telephone: 425-313-8100. Email: [email protected] Website: http://www.costco.com

Chrmn: J.H. Brotman Pres & COO: W.C. Jelinek CEO: J.D. Sinegal Investor Contact: R.A. Galanti (425-313-8203)

EVP & CFO: R.A. Galanti Founded: 1976 Board Members: J. H. Brotman, B. S. Carson, S. Domicile: Washington Decker, R. D. DiCerchio, D. J. Evans, R. A. Galanti, W. H. Employees: 147,000 Gates, H. E. James, W. C. Jelinek, R. M. Libenson, J. W. Meisenbach, C. Munger, J. Raikes, J. S. Ruckelshaus, J. D. Sinegal

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CVH | CVH is in the S&P 500

Coventry Health Care Inc. S&P Recommendation HOLD

★★★★★

Price $23.54 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Managed Health Care

12-Mo. Target Price $24.00

Investment Style Large-Cap Growth

Summary This national managed health care company operates health plans, insurance companies, network rental/managed care services companies, and workers' compensation services companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $27.27– 16.61 Trailing 12-Month EPS $1.89 Trailing 12-Month P/E 12.5 $10K Invested 5 Yrs Ago $3,997

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.15 2.60 7.5 148.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.493 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.93 9 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects CVH's increasingly diversified operations and its January 2005 acquisition of First Health, which we think provided good growth prospects. Even so, we think competition amid the soft economy and our view of rising unemployment will take a toll on commercial enrollment, but we see gains in Medicare and Medicaid enrollment.

60

30 20

10

Vol. 35

Mil.

Quantitative Evaluations

26

12 8 4 0 5

S&P Quality Ranking D 4

3

C

B-

B+ B

B+

A-

Relative Strength Rank

1

STRONG

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

We expect revenues to fall 17.5% in 2010, to slightly under $11.5 billion, reflecting CVH's exit from its Medicare Advantage (MA; Medicare health plan) Private Fee-for-Service (PFFS) business, lower MA premium rates, and 70,000 fewer Medicare Part D (drug plan) members. We also expect 25,000 more Medicaid, 40,000 more MA coordinated care plan, and 270,000 additional commercial members by year-end from acquisitions, partly offset by low single digit losses from the existing commercial book. We project medical costs will drop 380 basis points (bps) as a percentage of total premiums (MLR; medical loss ratio), on cost control, higher prices, the exit from PFFS and favorable prior-year claims reserve development, including the release of PFFS reserves. We expect the SG&A cost ratio to rise 140 bps, on PFFS-related costs CVH still has to eliminate and health care reform-related investments. We estimate EPS of $3.15 in 2010 before a onetime charge, versus 2009's $2.14. We look for $2.60 in 2011, before reserve development, which adds about $0.90 (as of June 30), including $0.35 tied to PFFS, to our 2010 estimate.

Investment Rationale/Risk ➤

HIGHEST = 99

2010

Analysis prepared by Phillip M. Seligman on October 05, 2010, when the stock traded at $ 20.98. Highlights

A+

82

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

A

3

We think CVH has made solid turnaround progress, noting its cost management focus, improved underwriting, and diversity. However, we believe CVH faces more challenges under health care reform than some peers, given its focus on individual and small group plans, many with MLRs well below health care reform's required floor. We think CVH has room to add attractive benefits, but needs to expand meaningfully to achieve improved SG&A cost efficiencies to help compensate for the higher MLRs. In this regard, we are positive on its recent acquisition of Mercy Health Plans, which adds 150,000 commercial and 30,000 MA members to its Midwest region. We expect CVH to seek more acquisitions, and we believe the $1 billion in deployable cash it expects by mid-2011, partly on the freeing up of capital supporting PFFS, will give it financial flexibility.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,859 2,868 2009 3,574 3,537 2008 2,941 2,978 2007 2,237 2,332 2006 1,939 1,945 2005 1,565 1,653

3Q -3,444 2,975 2,523 1,909 1,674

4Q -3,428 3,020 2,788 1,941 1,719

Year -13,904 11,914 9,880 7,734 6,611

Earnings Per Share ($) 2010 0.66 0.01 2009 0.30 0.13 2008 0.81 0.55 2007 0.76 0.96 2006 0.74 0.84 2005 0.73 0.79

E0.66 0.68 0.58 1.08 0.92 0.81

E0.64 0.74 0.60 1.18 0.97 0.77

E3.15 2.14 2.54 3.98 3.47 3.10

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤

Risks to our recommendation and target price include intensified competition, sharply higher medical costs, and a weak economy.

➤

Our 12-month target price of $24 is based on a below-peers forward P/E of 7.5X applied to our 2010 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CVH

Coventry Health Care Inc. Business Summary October 05, 2010 CORPORATE OVERVIEW. Coventry Health Care is a diversified national managed care company. It traditionally offered individual and employer groups a full range of commercial risk products, including health maintenance organization (HMO), preferred provider organization (PPO) and point-of service (POS) products. Through its January 2005 acquisition of First Health Group (FH), it gained a nationwide provider network and high-margin, fee-based service businesses, such as network rental, clinical programs, workers' compensation administration, Medicaid health care management services, and pharmacy benefit management. CVH also gained additional PPO members, including the Federal Employee Health Benefit program, the largest employersponsored group health program in the U.S., and an administrative services only (ASO, or non-risk) product for large employers with locations in several states that self-insure. Starting in 2007, CVH combined the enrollment of its existing business with that of FH.

The Health Plan division is comprised of Health Plan Commercial Risk members (1,522,000, versus 1,418,000), Health Plan Commercial ASO (657,000, versus 685,000), Medicare Advantage Coordinated Care Plans (192,000, versus 186,000), and Medicaid Risk (413,000, versus 402,000). Health Plan Commercial Risk membership includes the Individual business (under 65 years of age). Other medical membership consists of other National ASO (466,000, versus 564,000). In the ASO businesses, CVH offers management services and access to its provider networks to employers that self-insure their employee health benefits. The Other National ASO membership includes active National Accounts and Federal Employees Health Benefits Plan (FEHBP) administrative services business. Medicare Part D (Prescription Drug Program) had 1,631,000 members (versus 1,683,000). The Medicare Advantage Private Fee-for-Service (PFFS) program had 329,000 members when it ended as of December 31, 2009.

As of June 30, 2010, the company had a total of 3,250,000 members (versus 3,586,000 at December 31, 2009), excluding standalone Medicare prescription drug program members.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.81 NA 2.14 2.09 Nil Nil 25.78 7.97 12 4

2008 1.28 3.54 2.54 2.69 Nil Nil 63.89 9.44 25 4

2007 1.15 4.89 3.98 3.98 Nil Nil 64.00 48.78 16 12

2006 5.92 4.17 3.47 3.47 Nil Nil 61.88 44.33 18 13

2005 3.21 3.63 3.10 3.01 Nil Nil 60.31 34.21 19 11

2004 6.60 2.61 2.48 2.41 Nil Nil 36.20 24.66 15 10

2003 4.57 1.97 1.83 1.80 Nil Nil 29.46 10.80 16 6

2002 2.85 1.24 1.06 1.03 Nil Nil 16.89 8.67 16 8

2001 2.89 0.72 0.55 0.52 Nil Nil 12.22 5.78 22 11

2000 2.31 0.60 0.41 NA Nil Nil 13.31 3.06 32 7

13,904 NA NA 84.9 505 37.5% 315 308

11,914 770 150 96.4 606 37.0% 382 404

9,880 1,075 143 73.1 995 37.1% 626 627

7,734 954 113 52.4 896 37.5% 560 560

6,611 878 86.2 58.4 799 37.3% 502 485

5,312 514 17.6 14.3 527 36.0% 337 328

4,535 384 18.2 15.1 393 36.4% 250 245

3,577 220 18.9 13.4 226 35.5% 146 143

3,147 117 25.9 Nil 135 38.0% 83.5 78.5

2,605 81.1 27.0 Nil 102 39.9% 61.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,419 Current Assets NA Total Assets 8,167 Current Liabilities NA Long Term Debt 1,599 Common Equity 3,713 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 1.2 % Long Term Debt of Capitalization 30.1 % Net Income of Revenue 2.3 % Return on Assets 4.0 % Return on Equity 8.8

1,123 2,410 7,727 2,026 1,902 3,431 5,551 69.4 532 1.2 34.3 3.2 5.1 11.4

1,101 1,847 7,159 1,750 1,662 3,301 5,193 61.3 769 1.1 33.5 6.3 9.8 20.0

1,371 2,134 5,665 1,652 750 2,953 3,704 72.6 673 1.3 20.3 7.2 10.6 20.3

392 1,326 4,895 1,270 760 2,555 3,315 71.4 588 1.0 22.9 7.6 13.9 26.6

418 973 2,341 932 171 1,212 1,383 15.0 355 1.0 12.3 6.3 15.6 31.5

253 534 1,982 855 171 929 1,099 13.4 268 0.6 15.5 5.5 13.8 31.8

187 424 1,643 801 175 646 821 13.0 164 0.5 21.3 4.1 9.4 21.8

312 579 1,451 752 Nil 689 689 11.9 109 0.8 Nil 2.7 6.2 13.0

256 507 1,239 632 Nil 662 662 16.0 88.4 0.8 Nil 2.4 5.3 10.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6705 Rockledge Drive, Bethesda, MD 20817. Telephone: 301-581-0600. Email: [email protected] Website: http://www.coventryhealth.com

Chrmn & CEO: A.F. Wise EVP & General Counsel: T.C. Zielinski SVP & Cntlr: J.J. Ruhlmann SVP & CIO: M. Fitzpatrick

CFO & Treas: J.J. Stelben Board Members: J. Ackerman, L. D. Crandall, L. N. Kugelman, D. Mendelson, R. W. Moorhead, III, M. A. Stocker, J. R. Swedish, E. E. Tallett, A. F. Wise

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1986 Domicile: Delaware Employees: 14,400

Stock Report | October 23, 2010 | NYS Symbol: CSX | CSX is in the S&P 500

CSX Corp S&P Recommendation BUY

★★★★★

Price $61.18 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Railroads

12-Mo. Target Price $66.00

Investment Style Large-Cap Value

Summary CSX operates a major U.S. rail network, transporting bulk commodities, industrial products and intermodal containers over its network of approximately 21,000 route miles.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $62.00– 41.81 Trailing 12-Month EPS $3.71 Trailing 12-Month P/E 16.5 $10K Invested 5 Yrs Ago $30,718

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.98 4.35 15.4 374.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$22.893 1.70 $1.04 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.22 15 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we believe is CSX's exposure to economic cycles, freight demand and pricing, offset by its consistently positive cash flow generation and diverse customer base.

60

40 30

Quantitative Evaluations 20

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

84 4

3

3

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Kevin Kirkeby on October 20, 2010, when the stock traded at $ 59.17. Highlights ➤

➤

➤

Investment Rationale/Risk

Following an expected 15% increase during 2010, we look for revenue growth at CSX to slow to about 5% in 2011. We see volumes rising almost 4%, with the remainder from price and mix. This is based on S&P's forecast for a gradually improving economy, and our view that inventory rebuilding will be a much smaller contributor to the overall increase in railroad carloadings. For CSX, the increase in carloadings will be driven, in our view, by a resumption in domestic thermal coal shipments, as well as further gains in intermodal containers.

➤

Margins should widen fractionally in 2011 due to the increased volumes and ongoing efforts to limit cost increases. However, we anticipate that labor costs will rise due to increases in health care expenses and a resumption in bonus accruals. We also think the equipment remaining in storage at this point of the volume recovery is the least efficient, in terms of capacity and fuel usage.

➤

Our EPS estimate for 2010 of $3.98 excludes $0.05 in net charges. Our estimate does not factor in additional stock buybacks, despite $650 million remaining under its current authorization as of September 2010.

➤

Revenue/Earnings Data

2010

We believe CSX will benefit from economic recovery in the U.S., given its role in transporting many of the basic materials required in manufacturing and construction, including coal and scrap used by steel mills. We also think the recession forced a more intense focus on operating efficiencies, which should support wider margins during a period of rising volumes. In our view, a valuation above the historical average is warranted as we weigh CSX's solid cash flow generation and recovery in volumes against elevated regulatory risk. Risks to our opinion and target price include greater-than-expected regulatory oversight, and renewed softness in export coal shipments that we believe generate wider margins than most other shipments. Our discounted cash flow model, assuming a 10.9% cost of equity and a 3.5% terminal growth rate, derives an intrinsic value of about $63. Applying an enterprise value-to-EBITDA multiple of 8.3X, which is modestly above the midpoint of the historical range, to our four-quarter forward EBITDA forecast, we derive a value approaching $69. Blending these models, we arrive at our 12-month target price of $66.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,491 2,663 2009 2,247 2,185 2008 2,713 2,907 2007 2,422 2,530 2006 2,331 2,421 2005 2,108 2,166

3Q 2,666 2,289 2,961 2,501 2,418 2,125

4Q -2,320 2,674 2,577 2,396 2,219

Year -9,041 11,255 10,030 9,566 8,618

Earnings Per Share ($) 2010 0.78 1.07 2009 0.64 0.72 2008 0.85 0.93 2007 0.52 0.71 2006 0.53 0.83 2005 0.34 0.37

1.08 0.74 0.94 0.67 0.71 0.36

E1.01 0.77 0.63 0.86 0.75 0.52

E3.98 2.87 3.34 2.74 2.82 1.59

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.240 0.240 0.240 0.260

02/10 05/05 07/14 09/29

02/24 05/26 08/27 11/26

02/26 05/31 08/31 11/30

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1922. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CSX

CSX Corp Business Summary October 20, 2010 CORPORATE OVERVIEW. CSX operates the largest rail network in the eastern U.S., with a 21,000-mile rail network linking commercial markets in 23 states and two Canadian provinces, and owns companies providing intermodal and rail-to-truck transload services. In 1997, the company purchased a 42% stake in Conrail, bringing CSX's system into New York City, Boston, Philadelphia and Buffalo; in 2004, CSX gained direct ownership and control of Conrail's New York Central Lines. With these routes, the company was able to offer shippers broader geographic coverage, access more ports, and expand its share of north-south traffic. MARKET PROFILE. We consider railroads to be a mature industry, and expect 2.0% annualized U.S. rail tonnage growth between 2009 and 2020. We believe CSX's growth opportunities are slightly ahead of the industry average, as we see above-average future growth in intermodal traffic, but average prospects in coal and chemicals shipments. We believe growth in CSX's intermodal business, representing 13% of 2009 revenue, will be above the peer average. This, in our view, will be driven by the overall level of economic activity and population density in the Eastern markets it serves. Its initiatives, like the National Gateway project, are designed to capitalize on highway congestion along a key East Coast freight corridors, by converting truck traffic over to rail containers. Still, as evidenced in 2009, these types of intermodal shipments,

having a length of haul under 750 miles, are more susceptible to price competition from trucks than transcontinental moves. Coal accounted for 30% of 2009 revenues. Most of this traffic originates from the Appalachian coal fields and is primarily delivered to power utilities. We expect CSX's domestic coal tonnage to experience average growth as its customers balance the high sulfur content of coal against using natural gas or other fuel alternatives. Coal shipments directed to export markets is expected to be more volatile than the domestic business, and be somewhat correlated to exchange rate fluctuations. CSX's merchandise freight provided 48% of freight revenues in 2009, and includes chemical, forest products, metals, and agricultural products. We believe this business is sensitive to U.S. GDP trends, and faces average long-term volume growth prospects. We think automotive freight, at 6% of revenues in 2009, has an average volume growth outlook. Following the sharp reduction in 2009, we see production improving steadily in 2010 and beyond, as the average age of vehicles in use rises and consumer finances improve.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 22.32 5.17 2.87 2.88 0.88 31% 50.80 20.70 18 7

2008 20.44 5.55 3.34 3.41 0.77 23% 70.70 30.01 21 9

2007 21.14 4.71 2.74 2.74 0.54 20% 51.88 33.50 19 12

2006 20.42 4.67 2.82 2.57 0.63 22% 38.30 24.29 14 9

2005 18.25 3.41 1.59 1.60 0.22 14% 25.80 18.45 16 12

2004 15.77 2.55 0.94 0.90 0.20 21% 20.23 14.40 22 15

2003 15.01 1.94 0.44 0.66 0.20 45% 18.15 12.75 41 29

2002 14.52 2.62 1.10 0.85 0.20 18% 20.70 12.55 19 11

2001 14.32 2.16 0.69 0.59 0.40 58% 20.65 12.41 30 18

2000 14.13 2.76 0.44 NA 0.60 136% 16.72 9.75 38 22

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

9,041 3,193 908 558 1,761 35.4% 1,137 1,142

11,255 3,667 904 519 2,146 36.4% 1,365 1,392

10,030 3,112 883 417 1,932 36.5% 1,226 1,228

9,566 2,837 867 392 1,841 28.8% 1,310 1,194

8,618 2,345 833 423 1,036 30.5% 720 729

8,020 1,730 730 435 637 34.4% 418 405

7,793 1,269 643 418 265 28.7% 189 280

8,152 1,776 649 445 723 35.4% 467 363

8,110 1,579 622 518 448 34.6% 293 249

8,191 1,405 600 543 656 13.9% 565 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,090 Current Assets 2,570 Total Assets 27,036 Current Liabilities 1,865 Long Term Debt 7,895 Common Equity 8,846 Total Capital 16,868 Capital Expenditures 1,447 Cash Flow 2,045 Current Ratio 1.4 % Long Term Debt of Capitalization 46.8 % Net Income of Revenue 12.6 % Return on Assets 4.3 % Return on Equity 13.5

745 2,391 26,288 2,404 7,512 8,048 21,816 1,740 2,269 1.0 34.4 12.1 5.3 16.3

714 2,491 25,534 2,671 6,470 8,685 21,272 1,773 2,109 0.9 30.4 12.2 4.8 13.9

461 2,672 25,129 2,522 5,362 9,863 21,335 1,639 2,177 1.1 25.1 13.7 5.3 14.0

309 2,372 24,232 2,979 5,093 8,918 20,093 1,136 1,553 0.8 25.3 8.4 2.9 8.6

859 2,987 24,581 3,317 6,234 7,858 20,071 1,030 1,148 0.9 31.1 5.2 1.8 5.4

368 1,903 21,760 2,210 6,886 7,569 18,207 1,059 832 0.9 37.8 2.4 0.9 2.6

264 1,789 20,951 2,454 6,519 7,091 17,177 1,080 1,116 0.7 38.0 5.7 2.2 6.6

618 2,074 20,801 3,303 5,839 7,060 16,520 930 915 0.6 35.3 3.6 1.4 4.2

684 2,046 20,491 3,280 5,810 6,017 15,211 913 1,165 0.6 38.2 6.9 2.7 9.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 Water Street , Jacksonville , FL 32202. Telephone: 904-359-3200. Website: http://www.csx.com Chrmn, Pres & CEO: M.J. Ward

COO & EVP: D.A. Brown EVP & CFO: O. Munoz SVP, Secy & General Counsel: E.M. Fitzsimmons Chief Acctg Officer & Cntlr: C.T. Sizemore

Investor Contact: D. Baggs (904-359-4812) Founded: 1978 Board Members: D. M. Alvarado, A. Behring, J. B. Domicile: Virginia Breaux, P. L. Carter, S. T. Halverson, E. J. Kelly, III, G. H. Employees: 30,088 Lamphere, J. D. McPherson, T. O'Toole, D. M. Ratcliffe, D. J. Shepard, M. J. Ward

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CMI | CMI is in the S&P 500

Cummins Inc. S&P Recommendation STRONG BUY

★★★★★

Price $93.63 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Farm Machinery & Heavy Trucks

12-Mo. Target Price $112.00

Investment Style Large-Cap Value

Summary This leading manufacturer of truck engines also makes stand-by power equipment and industrial filters.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $94.87– 42.10 Trailing 12-Month EPS $3.84 Trailing 12-Month P/E 24.4 $10K Invested 5 Yrs Ago $51,309

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.30 6.53 17.7 195.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.342 1.12 $1.05 92

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.98 17 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly cyclical nature of the North America medium (class 5-7) and heavy-duty (class 8) truck markets and significant pension and post-retirement benefit obligations, offset by a geographically diverse mix of business and the low leverage of CMI's balance sheet.

120

60 40

2-for-1 20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

24 16 8 0 5

D 5

4

3

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Jim Corridore on August 04, 2010, when the stock traded at $ 81.49. Highlights We expect revenues to rise about 20% in 2010. North American truck engine sales were weak in the first half of 2010, but should pick up in the back half on pent-up demand and as customers become more comfortable with new engines being sold to meet more stringent EPA emissions regulations. We expect strong growth in engine sales in India, China, and Brazil, fueled by GDP growth and infrastructure projects in those regions. CMI has issued sales forecasts of 25% growth in engines, 30% growth in components, 20% growth in power generation, and 25% growth in its distribution segment. We think these forecasts are achievable. CMI has forecast EBIT margins of 12% for 2010, versus 6.3% in 2009. We think it can achieve this target, benefiting from cost reductions, a recent pullback in raw material and energy costs, and strong improvements in productivity at several of its plants. We also expect top-line growth to aid EBIT margins on fixed cost leverage and better capacity utilization. We estimate that operating EPS will improve to $5.30 in 2010, from $2.49 in 2009. For 2011, we forecast EPS of $6.53.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

82 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

For the long term, with over 50% of sales derived from outside North America, CMI should benefit from its leading edge technology in truck engines, which should help gain market share in emerging market countries and infrastructure-related power generation equipment. We think CMI will continue to use technology and its strong balance sheet to increase market share. Though visibility into the timing of the recovery is uncertain, we expect improving investor sentiment on good economic news. Risks to our recommendation and target price include weaker-than-projected demand in the truck manufacturing and/or power generation markets; slower-than-anticipated economic growth and/or industrial production; adverse forex volatility; and, lower-than-estimated savings from expense reduction initiatives. Our 12-month target price of $112 values the shares at 17X our 2011 EPS estimate of $6.53, toward the higher end of CMI's five-year historical P/E range of 4.3X-19.4X EPS, reflecting our view that we are near the start of a new earnings upcycle that we think will last for several years.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,478 3,208 2009 2,439 2,431 2008 3,474 3,887 2007 2,817 3,343 2006 2,678 2,842 2005 2,208 2,490

3Q -2,530 3,693 3,372 2,809 2,467

4Q -3,400 3,288 3,516 3,033 2,753

Year -10,800 14,342 13,048 11,362 9,918

Earnings Per Share ($) 2010 0.75 1.25 2009 0.04 0.28 2008 0.97 1.49 2007 0.71 1.06 2006 0.68 1.10 2005 0.49 0.71

E1.45 0.48 1.17 0.92 0.84 0.73

E1.85 1.36 0.45 1.00 0.94 0.83

E5.30 2.16 4.08 3.70 3.55 2.75

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.175 0.175 0.263 0.263

02/09 05/11 07/13 10/19

02/17 05/19 08/19 11/18

02/19 05/21 08/23 11/22

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1948. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CMI

Cummins Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. This global equipment company makes and services diesel and natural gas engines, electric power generation systems and engine-related component products. Cummins (CMI), founded in 1919, has long-standing relationships with many of the customers it serves, including Chrysler LLC, Daimler AG, Volvo AB, PACCAR Inc., International Truck and Engine Corp. (a unit of Navistar), CNH Global N.V., Komatsu, Scania AB, Ford Motor Corp., and Volkswagen. CMI has over 500 company-owned and independent distributor locations and about 5,200 dealer locations in over 190 countries and territories. CMI's key markets are the on-highway, construction, and general industrial markets.

reduction of diesel engine emissions. CMI's engines met the EPA's heavy-duty on-highway emission standards that went into effect in January 2010. The engine segment (49% of sales in 2009) manufactures and markets a broad range of diesel and natural-gas powered engines under the Cummins brand name for the heavy- and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive, agricultural, construction, mining, marine, oil and gas, rail and governmental equipment markets. CMI manufactures engines with displacements from 1.4 to 91 liters and horsepower ranging from 31 to 3,500. In addition, it provides new parts and service, as well as remanufactured parts and engines, through its extensive distribution network.

The company believes that its competitive strengths include a group of leading brand names, alliances it has established with customers and partners, its global presence (international sales accounted for 52% of total sales in 2009), and its leading technology. In particular, Cummins' technology addresses the Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 16.04 3.80 2.16 2.21 0.70 32% 51.65 18.34 24 8

2008 13.48 5.44 4.08 3.20 0.60 15% 75.98 17.70 19 4

2007 14.20 5.15 3.70 3.73 0.43 12% 71.73 28.16 19 8

2006 11.12 4.96 3.55 3.62 0.33 9% 34.80 22.17 10 6

2005 7.56 4.54 2.75 2.85 0.30 11% 23.47 15.90 9 6

2004 5.18 3.38 1.85 2.00 0.30 16% 21.17 12.03 11 7

2003 2.79 1.75 0.34 0.40 0.30 88% 13.08 5.43 38 16

2002 2.42 1.79 0.52 -0.39 0.30 58% 12.57 4.90 24 10

2001 4.06 0.85 -0.67 -1.44 0.30 NM 11.38 7.00 NM NM

2000 5.05 1.62 -0.05 NA 0.30 NM 12.50 6.77 NM NM

10,800 887 326 35.0 640 24.4% 428 438

14,342 1,382 314 60.0 1,251 30.9% 801 631

13,048 1,221 290 59.0 1,169 32.6% 739 744

11,362 1,287 296 96.0 1,083 29.9% 715 729

9,918 1,058 295 109 798 27.1% 550 570

8,438 696 272 113 432 13.0% 350 380

6,296 316 223 101 80.0 15.0% 54.0 62.8

5,853 327 219 82.0 57.0 NM 79.0 -61.4

5,681 304 231 87.0 -129 NM -102 -221

6,597 479 240 86.0 3.00 NM 8.00 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,120 Current Assets 5,003 Total Assets 8,816 Current Liabilities 2,432 Long Term Debt 637 Common Equity 3,773 Total Capital 4,657 Capital Expenditures 310 Cash Flow 752 Current Ratio 2.1 % Long Term Debt of Capitalization 13.7 % Net Income of Revenue 4.0 % Return on Assets 4.9 % Return on Equity 12.2

503 4,713 8,491 2,639 629 3,277 4,139 543 1,069 1.8 15.1 5.6 9.6 24.0

697 4,815 8,195 2,711 555 3,409 4,257 353 1,029 1.8 13.0 5.7 9.4 23.8

935 4,488 7,465 2,399 647 2,802 3,703 249 1,011 1.9 17.5 6.3 10.0 30.6

840 3,916 6,885 2,218 1,213 1,864 3,302 186 845 1.8 36.7 5.5 8.2 33.7

690 3,273 6,527 2,197 1,299 2,802 4,309 151 622 1.5 30.1 4.1 6.0 14.9

195 2,130 5,126 1,391 1,380 949 2,452 111 277 1.5 56.3 0.9 1.1 6.0

298 1,982 4,837 1,329 1,290 841 2,223 90.0 298 1.5 58.0 1.3 1.7 8.7

92.0 1,635 4,335 970 1,206 1,025 2,314 206 129 1.7 52.1 NM NM NM

62.0 1,830 4,500 1,223 1,032 1,336 2,440 228 248 1.5 42.3 0.1 0.2 0.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 Jackson Street, PO Box 3005, Columbus, IN 47202-3005. Telephone: 812-377-5000. Email: [email protected] Website: http://www.cummins.com

Chrmn & CEO: T.M. Solso Pres & COO: N.T. Linebarger CFO: P.J. Ward CTO: J. Wall

Chief Acctg Officer & Cntlr: M.L. Hunt Founded: 1919 Investor Contact: D.A. Cantrell (812-377-3121) Domicile: Indiana Board Members: R. J. Bernhard, F. R. Chang-Diaz, S. B. Employees: 34,900 Dobbs, R. Herdman, A. Herman, N. T. Linebarger, W. I. Miller, G. R. Nelson, T. M. Solso, C. Ware

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CVS | CVS is in the S&P 500

CVS Caremark Corp S&P Recommendation STRONG BUY

★★★★★

Price $31.36 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Drug Retail

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary This company is a leading operator of retail drug stores and pharmacy benefit management services in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.82– 26.84 Trailing 12-Month EPS $2.61 Trailing 12-Month P/E 12.0 $10K Invested 5 Yrs Ago $12,485

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.70 3.10 11.6 1,358.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.85 12 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's leadership position and strong market share position in the relatively stable U.S. retail drug industry, offset by acquisition integration risk and the growth of non-traditional competitors.

40 35 30 25

Quantitative Evaluations S&P Quality Ranking

Vol. 262

Mil. 90 60 30 0

$42.594 1.12 $0.35 83

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank 5

4

5

A+

MODERATE

49

5

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Joseph Agnese on July 29, 2010, when the stock traded at $ 30.77. Highlights ➤

➤

➤

We expect total sales in 2010 to decline 0.5%, to $98.3 billion, from $98.7 billion in 2009, reflecting strong retail drug store market share gains and about 2.0% net new square footage growth, partially offset by significant client losses in the pharmacy benefit management (PBM) business segment. Our estimate assumes retail drugstore same-store sales growth of approximately 3%. We see margins widening in 2010, reflecting significant accretion from the turnaround of acquired drug stores versus a dilutive impact in 2009, and reduced investment costs for expansion of in-store health clinics. We expect retail business margin benefits to be partially offset by negative sales leverage in the PBM segment due to significant client losses and with the renegotiation of a large federal employee contract entering a less profitable contract year. With strength in the retail drug store business partially offset by weaker PBM business, we estimate that 2010 operating EPS will rise 4.2%, to $2.70 (excluding amortization of intangibles), from operating EPS of $2.59 in 2009 (before amortization of intangibles).

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

CVS is an experienced consolidator, and we have confidence in its ability to realize significant long-term synergies from recent drug store acquisitions. However, we expect earnings growth in 2010 to be pressured by ongoing weakness in its PBM business. Despite poor visibility in regard to the near-term outlook for its PBM services, we believe the valuation will be supported by its strong market share positions. Risks to our recommendation and target price include decreased drug reimbursement from federal and state governments, as well as continued deterioration in demand for PBM services. Due to our expectation for modest earnings growth in 2010 as strong earnings generation from the retail drug store business offsets weak PBM profitability, we believe the stock should trade in line with its three-year P/E ratio discount when compared to the S&P 500. Assuming that the shares trade at 12.2X, a 16% discount to the forward P/E ratio of the S&P 500, applied to our 2011 EPS estimate of $3.10, we arrive at our 12-month target price of $38.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 23,760 2,401 2009 23,394 24,871 2008 21,326 21,140 2007 13,189 20,703 2006 9,979 10,561 2005 9,182 9,122

3Q -24,642 20,863 20,495 11,207 8,970

4Q -25,822 24,142 21,942 12,066 9,732

Year -98,729 87,472 76,330 43,814 37,006

Earnings Per Share ($) 2010 0.55 0.60 2009 0.51 0.60 2008 0.51 0.56 2007 0.43 0.47 2006 0.39 0.40 2005 0.35 0.33

E0.64 0.71 0.56 0.45 0.33 0.30

E0.82 0.74 0.65 0.55 0.49 0.48

E2.70 2.56 2.27 1.92 1.60 1.45

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.088 0.088 0.088 0.088

01/12 03/10 07/07 09/22

01/20 04/21 07/20 10/20

01/22 04/23 07/22 10/22

02/02/10 05/04/10 08/02/10 11/02/10

Dividends have been paid since 1916. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: CVS

CVS Caremark Corp Business Summary July 29, 2010 CORPORATE OVERVIEW. CVS Caremark Corporation operates one of the largest drug store chains and pharmacy benefit managers in the U.S., based on revenues, net income and store count. Drug stores offer prescription drugs and a wide assortment of general merchandise, including OTC drugs, beauty products and cosmetics, film and photo finishing services, seasonal merchandise, greeting cards and convenience foods. Pharmacy benefit management offerings include mail order pharmacy service, specialty pharmacy services, plan design and administration, formulary management and claims processing. MARKET PROFILE. CVS operated about 7,000 stores as of December 2009, in 41 states and the District of Columbia. As of December 2009, the company had stores in 91 of the top 100 U.S. drug store markets, holding the number one or number two market share in 68 of these markets, and 75% of all markets in which it operates. It filled more than 615 million prescriptions in 2009, accounting for about 18% of the U.S. retail pharmacy market. Pharmacy operations are critical to CVS's success, in our view, accounting for 68% of retail store sales in 2009. Payments by third-party managed care providers under

prescription drug plans accounted for 97% of pharmacy sales in 2009. CVS's pharmacy benefit management (PBM) business generated $51.1 billion of sales in 2009, or 48% of total company sales (excluding intersegment eliminations). The company's specialty pharmacy business operates 49 retail specialty pharmacy stores and 18 specialty mail order pharmacies. CORPORATE STRATEGY. Through its retail and PBM services, the company plans to benefit from favorable industry trends, which include an aging U.S. population, increased generic drug utilization, the discovery of new drugs, growth of specialty pharmacy services, and health care reform. CVS's longterm strategy focuses on expanding its retail drug store business in highgrowth markets and increasing the size and product offerings of its PBM business. Historically, the company has grown, in large part, through acquisitions.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.52 2.56 2.56 0.30 12% 38.27 23.74 15 9

2008 NM 3.13 2.27 2.27 0.26 11% 44.29 23.19 20 10

2007 NM 2.71 1.92 1.92 0.23 12% 42.60 30.45 22 16

2006 6.29 2.45 1.60 1.61 0.16 10% 36.14 26.06 23 16

2005 6.77 2.14 1.45 1.41 0.15 10% 31.60 22.02 22 15

2004 4.98 1.69 1.10 1.06 0.13 12% 23.67 16.87 22 15

2003 5.98 1.46 1.03 0.98 0.12 11% 18.78 10.92 18 11

2002 5.05 1.25 0.88 0.80 0.12 13% 17.85 11.52 20 13

2001 4.45 0.88 0.50 0.41 0.12 23% 31.88 11.45 64 23

2000 4.11 1.26 0.92 NA 0.12 13% 30.22 13.88 33 15

98,729 7,827 1,389 530 5,913 37.3% 3,708 3,708

87,472 7,343 1,274 558 5,537 39.6% 3,344 3,330

76,330 5,970 1,095 492 4,359 39.5% 2,637 2,623

43,814 3,175 733 216 2,226 38.5% 1,369 1,365

37,006 2,609 589 111 1,909 35.8% 1,225 1,171

30,594 1,952 497 58.3 1,396 34.2% 919 869

26,588 1,765 342 48.0 1,376 38.4% 847 785

24,182 1,517 310 50.4 1,156 38.0% 717 635

22,241 1,091 321 61.0 710 41.8% 413 323

20,088 1,619 297 79.3 1,243 40.0% 746 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,091 Current Assets 17,537 Total Assets 61,641 Current Liabilities 12,300 Long Term Debt 8,756 Common Equity 35,768 Total Capital 46,665 Capital Expenditures 2,548 Cash Flow 5,097 Current Ratio 1.4 % Long Term Debt of Capitalization 18.8 % Net Income of Revenue 3.8 % Return on Assets 6.1 % Return on Equity 10.6

1,352 16,526 60,960 13,490 8,057 34,383 46,333 2,180 4,604 1.2 17.4 3.8 5.8 10.2

1,084 14,149 54,722 10,766 8,350 31,163 43,048 1,805 3,717 1.3 19.4 3.5 7.0 12.8

531 10,392 20,570 7,001 2,870 9,704 12,788 1,769 2,088 1.5 22.4 3.1 7.6 15.2

513 8,393 15,283 4,584 1,594 8,109 9,925 1,495 1,800 1.8 16.1 3.3 8.2 16.3

392 7,920 14,547 4,859 1,926 6,759 8,913 1,348 1,401 1.6 21.6 3.0 7.3 14.4

843 6,497 10,543 3,489 753 6,022 6,817 1,122 1,189 1.9 11.0 3.2 8.4 15.4

700 5,982 9,645 3,106 1,076 4,991 6,318 1,109 1,012 1.9 17.0 3.0 7.8 15.1

236 5,454 8,628 3,066 810 4,306 12,706 714 719 1.8 63.8 1.9 5.0 9.6

337 4,937 7,950 2,964 537 4,037 4,869 695 1,028 1.7 11.0 3.7 9.8 19.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One CVS Drive, Woonsocket, RI 02895-6184. Telephone: 401-765-1500. Email: [email protected] Website: http://www.cvs.com

Chrmn & CEO: T.M. Ryan Pres & COO: L.J. Merlo EVP & CFO: D.M. Denton EVP & General Counsel: D.A. Sgarro

SVP, Chief Acctg Officer & Cntlr: L.K. Daniels Investor Contact: N.R. Christal (914-722-4704) Board Members: E. M. Banks, C. D. Brown, II, D. W. Dorman, M. L. Heard, W. H. Joyce, L. J. Merlo, J. Millon, T. Murray, C. L. Piccolo, S. Z. Rosenberg, T. M. Ryan, R. J. Swift, K. E. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1892 Domicile: Delaware Employees: 295,000

Stock Report | October 23, 2010 | NYS Symbol: DHR | DHR is in the S&P 500

Danaher Corp S&P Recommendation BUY

★★★★★

Price $43.18 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $50.00

Investment Style Large-Cap Growth

Summary This company is a leading maker of tools, including Sears Craftsman hand tools, and process/environmental controls and telecommunications equipment.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $81.40– 19.72 Trailing 12-Month EPS $1.92 Trailing 12-Month P/E 22.5 $10K Invested 5 Yrs Ago $17,467

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.32 2.78 18.6 652.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$28.180 0.19 $0.08 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.83 24 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of favorable growth prospects in most of the company's markets, good corporate leadership, and a solid balance sheet, offset by corporate governance issues.

50

40

30

2-for-1

Quantitative Evaluations

25

S&P Quality Ranking

Vol. Mil.

D

30 20 10 0

C

B-

A+ B

B+

A-

A

Relative Strength Rank

STRONG 75

5

5

A+

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Efraim Levy, CFA on October 22, 2010, when the stock traded at $ 43.18. Highlights ➤

➤

➤

S&P Economics expects U.S. and global growth in 2010. We expect revenues to rise 16% in 2010, aided by acquisitions and global economic growth. We expect further sales gains in 2011 and see net income rising in both years. We see streamlining activities aiding margins, partly offset by narrower margins at acquired businesses. Our EPS estimates include most restructuring charges as part of ongoing operations. EPS also includes about $0.03 per share accretion (adjusted for a 2-for-1 stock split) from the recently closed AB SCIEX acquisition, but does not include an estimated $0.075 of one-time acquisition-related costs. For the long term, we look for sales increases to be driven by internal growth, supplemented by acquisitions. We anticipate that a steady flow of new and enhanced products, as well as greater sales of traditional tool lines, will aid comparisons. We expect margins to widen over time, as DHR consolidates acquisitions and likely benefits from higher capacity utilization, productivity gains, and cost-cutting efforts. In addition, the company has targeted acquisitions of companies with gross margins above 50%.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our buy opinion is based on our forecast for improving global economic activity. In addition, we view DHR's balance sheet as strong. Based on several valuation measures, the shares trade at a premium to some peers, which we believe reflects DHR's wider net margins and faster growth. Its earnings quality appears high to us, as we expect free cash flow in 2010 and 2011 to exceed net income. We view positively DHR's 10 million share buyback program. Risks to our recommendation and target price include slowing demand for DHR's products, and unfavorable changes in foreign exchange rates. Also, we are concerned about some of Danaher's corporate governance practices, particularly its classified board of directors with staggered terms, which may allow certain policies to be entrenched longer despite shareholders' possible desire to change them. Our 12-month target price of $50 is derived by applying a multiple of 18X to our 2011 EPS estimate of $2.78, reflecting relative historical multiples, peer multiples, and brighter prospects for global GDP. Our 2010 EPS forecast includes about $0.04 of dilution from the creation of a tools joint venture with Cooper Industries.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 3,092 3,311 2009 2,628 2,674 2008 3,029 3,284 2007 2,556 2,671 2006 2,144 2,350 2005 1,826 1,929

3Q -2,751 3,208 2,731 2,443 1,966

4Q -3,133 3,177 3,141 2,660 2,264

Year -11,185 12,697 11,026 9,596 7,985

Earnings Per Share ($) 2010 0.45 0.53 2009 0.36 0.45 2008 0.42 0.55 2007 0.39 0.48 2006 0.34 0.49 2005 0.29 0.35

E0.60 0.52 0.56 0.52 0.42 0.35

E0.68 0.40 0.46 0.49 0.50 0.39

E2.32 1.73 1.96 1.86 1.74 1.38

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 2-for-1 0.020 0.020

02/24 05/12 05/12 09/14

03/24 06/14 06/23 09/22

03/26 05/25 06/25 09/24

04/30/10 06/11/10 07/30/10 10/29/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DHR

Danaher Corp Business Summary October 22, 2010 CORPORATE OVERVIEW. Danaher Corp. is a leading maker of hand tools and process and environmental controls. The company has four reporting segments: professional instrumentation (39% of 2009 sales), industrial technologies (24%), tools and components (9%), and medical technologies, formerly included in professional instrumentation (28%). The professional instrumentation segment offers professional and technical customers various products and services that are used in connection with the performance of their work. The industrial technologies segment manufactures products and sub-systems that are typically incorporated by original equipment manufacturers (OEMs) into various end-products and systems, as well as by customers and systems integrators into production and packaging lines. The tools and components segment encompasses one strategic line of business -- mechanics' hand tools, and four focused niche businesses -- Delta Consolidated Industries, Hennessy Industries, Jacobs Chuck Manufacturing Company, and Jacobs Vehicle Systems.

CORPORATE STRATEGY. The company seeks to expand revenues through a combination of internal growth and acquisitions. We expect the company to continue its tradition of successful acquisition integrations. During 2009, the company bought 15 businesses for an aggregate purchase price of $704 million, versus 17 businesses for about $423 million in 2008, and 12 businesses in 2007 for approximately $3.6 billion. In November 2007, as part of its acquisition strategy, the company purchased Tektronix Inc. for about $2.8 billion, including debt. Tektronix is a supplier of test, measurement and monitoring products, with about $1.1 billion in annual sales. In May 2006, the company purchased Sybron Dental Specialties Inc. for about $2 billion, including the assumption of debt. Sybron manufactures a broad range of equipment for the dental industry and had about $650 million in revenues in its fiscal year ended September 30, 2005.

Sales in 2009 by geographic destination were: U.S. 48%, Europe 29%, Asia/ Australia 14%, and other regions 9%. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.11 1.73 1.66 0.07 4% 38.28 23.87 22 14

2008 NM 2.46 1.96 1.87 0.06 3% 44.10 23.60 23 12

2007 NM 2.25 1.86 1.86 0.06 3% 44.61 34.56 24 19

2006 NM 2.06 1.74 1.74 0.04 2% 37.64 27.02 22 16

2005 NM 1.64 1.38 1.35 0.03 2% 29.20 24.16 21 18

2004 NM 1.38 1.15 1.10 0.03 2% 29.45 21.91 26 19

2003 0.50 1.04 0.84 0.78 0.03 4% 23.09 14.89 27 18

2002 0.00 0.94 0.75 0.60 0.02 3% 18.87 13.15 25 18

2001 NM 0.78 0.50 0.42 0.02 4% 17.17 10.98 34 22

2000 0.14 0.81 0.56 NA 0.02 3% 17.45 9.11 31 16

11,185 2,037 342 123 1,425 19.2% 1,152 1,105

12,697 2,350 339 130 1,749 24.7% 1,318 1,243

11,026 2,055 268 110 1,637 25.9% 1,214 1,215

9,596 1,719 217 79.8 1,446 22.4% 1,122 1,121

7,985 1,446 177 44.9 1,234 27.3% 898 876

6,889 1,253 156 55.0 1,058 29.5% 746 715

5,294 957 133 59.0 797 32.6% 537 491

4,577 824 130 43.7 657 29.4% 464 373

3,782 750 178 25.7 476 37.5% 298 249

3,778 702 150 29.2 523 38.0% 324 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,722 Current Assets 5,221 Total Assets 19,595 Current Liabilities 2,761 Long Term Debt 2,889 Common Equity 11,630 Total Capital 14,563 Capital Expenditures 189 Cash Flow 1,493 Current Ratio 1.9 % Long Term Debt of Capitalization 19.8 % Net Income of Revenue 10.3 % Return on Assets 6.2 % Return on Equity 10.7

393 4,187 17,458 2,745 2,553 9,809 12,428 194 1,657 1.5 20.5 10.4 7.5 14.0

239 4,050 17,472 2,900 3,396 9,086 12,481 162 1,482 1.4 27.2 11.0 8.0 15.4

318 3,395 12,864 2,460 2,423 6,645 9,068 138 1,339 1.4 26.7 11.7 10.2 19.1

316 2,945 9,163 2,269 858 5,080 5,938 121 1,075 1.3 14.4 11.2 10.2 18.5

609 2,919 8,494 2,202 926 4,620 5,545 116 902 1.3 16.7 10.8 9.7 18.0

1,230 2,942 6,890 1,380 1,284 3,647 4,931 80.3 670 2.1 26.0 10.1 8.3 16.1

810 2,387 6,029 1,265 1,197 3,010 4,207 65.4 594 1.9 28.5 10.1 8.6 17.7

707 1,875 4,820 1,017 1,119 2,229 3,348 80.6 476 1.8 33.4 7.9 6.7 14.3

177 1,474 4,032 1,019 714 1,942 2,656 88.5 474 1.4 26.9 8.6 9.2 17.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2099 Pennsylvania Ave NW Fl 12, Washington, DC 20006-1813. Telephone: 202-828-0850. Email: [email protected] Website: http://www.danaher.com

Chrmn: S.M. Rales Pres & CEO: H.L. Culp, Jr. EVP & CFO: D.L. Comas SVP & Chief Acctg Officer: R.S. Lutz

SVP & General Counsel: J.P. Graham Board Members: M. M. Caplin, H. L. Culp, Jr., D. J. Ehrlich, L. Hefner, W. G. Lohr, Jr., M. P. Rales, S. M. Rales, J. T. Schwieters, A. G. Spoon, E. A. Zerhouni

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1969 Domicile: Delaware Employees: 46,600

Stock Report | October 23, 2010 | NYS Symbol: DRI | DRI is in the S&P 500

Darden Restaurants Inc. S&P Recommendation HOLD

★★★★★

Price $46.87 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Restaurants

12-Mo. Target Price $47.00

Investment Style Large-Cap Growth

Summary This restaurant company operates the Red Lobster, Olive Garden, Bahama Breeze and Seasons 52 chains, as well as the LongHorn Steakhouse and Capital Grille chains, which it acquired in October 2007.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.01– 29.94 Trailing 12-Month EPS $2.97 Trailing 12-Month P/E 15.8 $10K Invested 5 Yrs Ago $16,733

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.33 3.81 14.1 138.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.488 2.73 $1.28 83

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.94 11 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

DRI competes in the casual dining industry, and we believe that its Red Lobster and Olive Garden concepts have among the strongest brand name recognition in the industry. However, the casual dining segment over-expanded in recent years, in our opinion, with an industry consolidation being accelerated by the recession. A slow recovery for the industry is likely.

50 40

25 20 15

Vol.

Quantitative Evaluations

39

Mil. 15 10 5 0

S&P Quality Ranking D

5

3

4

4

3

C

B-

A B

B+

A-

A

2

Relative Strength Rank

1

STRONG 76

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

In FY 11 (May), we expect DRI to increase its restaurant base by about 4%. We think traffic is likely to be up slightly despite the sluggish economy, as we think pricing remains attractive. All told, we see comparable sales increasing about 2.0% to 3.0%. We see total sales increasing 3.0% to 4.0%. Capital expenditures supporting the restaurant expansion are likely to range from $475 million to $525 million. We look for flat margins overall. Although Darden has contracted for various commodities to various dates into FY 11, we remain concerned about the availability and cost of seafood. Interest expenses should decline somewhat, reflecting lower debt balances. The company expects its effective income tax rate to rise to 27.0%, from 25.1% in FY 10. We estimate EPS will increase to $3.33 from $2.86 in FY 09. For FY 12, we project revenues will increase 5.0% to 6.0%. We expect restaurant operating margins to narrow slightly, including a small increase in food costs. Partly offset by higher overhead as incentive compensation rises and delayed maintenance spending is accelerated, we see EPS of $3.81 in FY 12.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Erik Kolb on September 27, 2010, when the stock traded at $ 43.61. Highlights

A+

3

We have a relatively positive view of DRI's restaurants relative to other peers in the casual dining segment, and think same store sales will slightly outpace the average over the next six to 12 months. However, this industry remains highly competitive and given our current economic concerns, we expect customers to remain extremely sensitive to price. Recent results for Red Lobster were relatively weak, but we think this was primarily a pricing issue, and, thus far, fallout from the Gulf oil spill appears to be minimal. Risks to our recommendation and target price include an unexpected acceleration in food cost inflation. Also, consumers may be less resilient than we expect, leading to lower traffic than we anticipate, possibly exacerbated by higher unemployment and ongoing economic uncertainty. Our 12-month target price of $47 is based on our relative P/E analysis. We apply a multiple of 14.0X to our FY11 EPS estimate of $3.33, a multiple that is well within the range for DRI's peer group.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 1,807 -2010 1,734 1,641 2009 1,774 1,669 2008 1,468 1,522 2007 1,360 1,298 2006 1,409 1,325

3Q -1,874 1,799 1,811 1,450 1,474

4Q -1,864 1,976 1,826 1,460 1,414

Year -7,113 7,218 6,627 5,567 5,721

Earnings Per Share ($) 2011 0.80 E0.78 2010 0.67 0.43 2009 0.58 0.42 2008 0.58 0.30 2007 0.62 0.45 2006 0.53 0.35

E0.89 0.95 0.78 0.80 0.79 0.67

E0.86 0.81 0.87 0.72 0.67 0.62

E3.33 2.86 2.65 2.55 2.53 2.16

Fiscal year ended May 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.320 0.320

12/17 03/23 06/23 09/21

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

02/01/10 05/03/10 08/02/10 11/01/10

Dividends have been paid since 1995. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DRI

Darden Restaurants Inc. Business Summary September 27, 2010 CORPORATE OVERVIEW. With systemwide sales from continuing operations of more than $7.1 billion in FY 10 (May), Darden Restaurants is the world's largest publicly held casual dining restaurant company. As of May 30, 2010, it operated 1,824 restaurants in the U.S. and Canada, including 694 Red Lobster units, 723 Olive Garden units, 331 LongHorn Steakhouse locations, and 76 other restaurants divided among The Capital Grille, Bahama Breeze, and Seasons 52 chains. Olive Garden is the U.S. market share leader among casual dining Italian food restaurants. FY 09 systemwide sales (latest available) grew 7.9%, to $3.3 billion (including a 53rd week). Same-restaurant sales increased 0.3%, compared to 4.9% in FY 08. Average restaurant sales were $4.8 million. The average check per person was $15.50 to $16.00 in FY 09.

following a 1.1% increase in FY 08. The average check per person was $19.00 to $19.50. On October 1, 2007, DRI acquired RARE Hospitality International, Inc., in a cash tender offer for all RARE common shares at $38.15 per share, or total consideration of $1.41 billion in cash. Financing was obtained under a $1.2 billion senior interim credit facility and a $700 million senior revolver. Most members of RARE management agreed to join DRI in roles generally similar to those they had at RARE. RARE operations included the LongHorn Steakhouse chain. Total sales increased 3.6% in FY 09. Annual sales per restaurant in FY 09 dipped slightly to $2.8 million from $2.9 million in FY 08. Same-store sales decreased 5.6%, following on a 1.1% decline in FY 08.

Red Lobster, founded by William Darden in 1968, is the largest U.S. casual dining seafood-specialty restaurant operator. Systemwide sales totaled $2.62 billion in FY 09, down 0.2% from FY 08. Average restaurant sales were $3.8 million in FY 09, down from $3.9 million in FY 08. Same-store sales fell 2.2% in FY 09, Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 5.92 4.97 2.86 2.82 NA NA 2009 41.21 23.32 14 8

2009 3.89 4.61 2.65 2.56 0.72 27% 2008 37.83 13.21 14 5

2008 2.45 4.19 2.55 2.54 0.46 18% 2007 47.60 26.90 19 11

2007 7.57 3.88 2.53 2.53 0.40 16% 2006 44.43 32.91 18 13

2006 8.20 3.57 2.16 2.10 0.08 4% 2005 39.53 25.78 18 12

2005 8.25 3.08 1.78 1.68 0.08 4% 2004 28.54 18.48 16 10

2004 7.86 2.60 1.36 1.27 0.08 6% 2003 23.01 16.50 17 12

2003 7.03 2.43 1.31 1.18 0.05 4% 2002 29.76 18.00 23 14

2002 6.56 2.20 1.30 1.16 0.05 4% 2001 24.98 12.67 19 10

2001 5.66 1.85 1.06 0.97 0.05 5% 2000 18.00 8.29 17 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,113 945 301 93.9 544 NA 407 402

7,218 895 275 118 513 27.5% 372 360

6,627 878 238 35.2 515 28.2% 370 367

5,567 774 200 40.7 531 29.0% 377 378

5,721 757 221 43.1 483 29.9% 338 330

5,278 685 213 43.1 424 31.4% 291 274

5,003 636 210 43.7 340 31.9% 231 214

4,655 588 198 44.1 348 33.2% 232 208

4,369 563 166 37.8 363 34.5% 238 212

4,021 479 147 31.5 301 34.6% 197 181

Balance Sheet & Other Financial Data (Million $) Cash 249 Current Assets 678 Total Assets 5,247 Current Liabilities 1,255 Long Term Debt 1,409 Common Equity 1,894 Total Capital 3,528 Capital Expenditures 432 Cash Flow 708 Current Ratio 0.5 % Long Term Debt of Capitalization 39.9 % Net Income of Revenue 5.7 % Return on Assets 7.9 % Return on Equity 23.3

62.9 555 5,025 1,096 1,632 1,606 3,238 535 646 0.5 50.4 5.2 7.6 24.7

43.2 468 4,731 1,136 1,634 1,409 3,043 429 608 0.4 53.6 5.6 9.7 29.5

30.2 545 2,881 1,074 492 1,115 1,633 345 578 0.5 30.1 6.8 12.8 31.6

42.3 378 3,010 1,026 495 1,230 1,815 338 560 0.4 27.3 5.9 11.4 27.0

42.8 407 2,938 1,045 350 1,273 1,738 329 504 0.4 20.2 5.5 10.2 23.7

36.7 346 2,780 683 653 1,246 2,075 354 441 0.5 31.5 4.6 8.5 19.0

48.6 326 2,665 640 658 1,196 2,005 423 430 0.5 32.8 5.0 8.9 20.0

153 450 2,530 601 663 1,129 1,909 318 404 0.7 34.7 5.4 10.0 22.0

61.8 328 2,218 554 518 1,035 1,644 355 344 0.6 31.5 4.9 9.4 19.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5900 Lake Ellenor Drive, Orlando, FL 32809-4634. Telephone: 407-245-4000. Email: [email protected] Website: http://www.darden.com

Chrmn & CEO: C. Otis, Jr. Pres & COO: A.H. Madsen Investor Contact: C.B. Richmond (407-245-4000) SVP, CFO & Chief Acctg Officer: C.B. Richmond

SVP, Secy & General Counsel: T.M. Sebastian Board Members: L. L. Berry, O. C. Donald, C. J. Fraleigh, V. D. Harker, D. H. Hughes, C. A. Ledsinger, Jr., W. M. Lewis, Jr., A. H. Madsen, C. McGillicuddy, III, C. Otis, Jr., M. D. Rose, M. Sastre

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1968 Domicile: Florida Employees: 174,079

Stock Report | October 23, 2010 | NYS Symbol: DVA | DVA is in the S&P 500

DaVita Inc S&P Recommendation BUY

★★★★★

Price $71.65 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Services

12-Mo. Target Price $74.00

Investment Style Large-Cap Growth

Summary This company is one of the largest worldwide providers of integrated dialysis services for patients suffering from chronic kidney failure.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $72.96– 52.71 Trailing 12-Month EPS $4.20 Trailing 12-Month P/E 17.1 $10K Invested 5 Yrs Ago $14,834

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.36 4.60 16.4 102.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.351 Nil Nil 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.28 12 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of stable demand for dialysis services, driven by a rising senior population in the U.S., offset by DVA's dependence on third-party payments, including Medicare and Medicaid.

70 60

50

Quantitative Evaluations 40

S&P Quality Ranking

Vol. Mil.

25

D

9 6 3 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

72 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Steven Silver on September 24, 2010, when the stock traded at $ 68.08. Highlights ➤

➤

➤

We see sales rising 4% in 2010 and 5% in 2011, reflecting an aging U.S. population, stable demand for dialysis services, and contributions from acquired dialysis centers. However, we see per treatment revenues being pressured over the near term by more conservative physician utilization among higher risk patients, and by a less favorable shift in payer mix toward Medicare and Medicaid from commercial payers for patients who have lost insurance due to continued high unemployment. We forecast a very slight decline in gross margin in 2010 on increases in center operating and Heparin costs. We see a modest rise in bad debt as a percentage of sales leading to a lesser decline in EBITDA margins. For 2011, we look for a rise in gross margins, as patient care costs should decline as a percentage of sales. We look for G&A expenses and bad debt to be essentially flat, all relative to sales, leading to a rise in EBITDA margins in 2011. We estimate operating EPS of $4.36 in 2010 and $4.60 in 2011. We assume approximately 105 million shares outstanding for both 2010 and 2011.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We believe dialysis provider fundamentals are favorable, and view DVA as well positioned to make new acquisitions to expand its patient base and drive efficiencies through economies of scale. We see DVA as increasingly dependent on commercial pricing, which is sharply above Medicare rates, for its profits, and expect the company to secure long-term contracts with managed care companies, which we expect to stabilize its revenue environment. Although we anticipate some near-term impacts from Medicare's recently released bundling rules, we expect DVA to benefit over the long term from more favorable pricing on medicines used in its dialysis treatment operations.

➤

Risks to our recommendation and target price include risk of restrictions over EPO utilization, unfavorable Medicare rule changes, heightened competition, and reduced reimbursement.

➤

Our 12-month target price of$74 assumes a 16X multiple of our 2011 EPS estimate and an 8.2X EV/EBITDA multiple of our 2011 EBITDA estimate, modest discounts to DVA's historical averages to reflect greater regulatory uncertainty.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,559 1,587 2009 1,448 1,519 2008 1,345 1,407 2007 1,278 1,313 2006 1,163 1,208 2005 578.6 617.1

3Q -1,574 1,447 1,318 1,237 644.9

4Q -1,568 1,461 1,355 1,273 1,133

Year -6,109 5,660 5,264 4,881 2,974

Earnings Per Share ($) 2010 1.04 1.03 2009 0.92 1.02 2008 0.80 0.90 2007 0.72 1.17 2006 0.55 0.61 2005 0.50 0.49

E1.13 1.06 0.89 0.88 0.88 0.49

E1.13 1.06 0.94 0.79 0.70 0.54

E4.36 4.06 3.53 3.55 2.73 1.99

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: DVA

DaVita Inc Business Summary September 24, 2010 CORPORATE OVERVIEW. Da Vita is a leading U.S. provider of dialysis and related services for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). As of December 31, 2009, DVA provided dialysis and ancillary services to about 118,000 patients through a network of 1,530 outpatient dialysis facilities in 43 states. In addition, the company provided acute inpatient dialysis services at over 700 hospitals. As a result of DVA's growth through acquisitions, it became highly leveraged, in our opinion. Since a management overhaul in 1999, the company has implemented a new strategy focusing on improving operations and restructuring the balance sheet. In 2005, DVA acquired 492 centers through the Gambro acquisition, as well as 12 independent centers. The company also opened 13 new centers.

closed eight. As of year end, it owned 1,530 centers outright, and provided administrative services to 17 third-party owned centers. Average revenue per treatment in 2009 was $340, up 1.8% from 2008 ($334). Hemodialysis uses an artificial kidney, called a dialyze, to remove certain toxins, fluids and salt from the patient's blood, together with a machine to control external blood flow and to monitor certain vital signs of the patient. Peritoneal dialysis uses the patient's peritoneal (abdominal) cavity to eliminate fluid and toxins. In 2009, outpatient hemodialysis, peritoneal dialysis and hospital inpatient dialysis accounted for 84%, 11% and 5% of total treatments, respectively.

In 2009, the company acquired 19 centers, developed 78 new centers, and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 6.26 4.06 4.06 Nil Nil 61.97 41.21 15 10

2008 NM 5.43 3.53 3.53 Nil Nil 60.23 40.96 17 12

2007 NM 5.36 3.55 3.48 Nil Nil 67.44 50.75 19 14

2006 NM 4.37 2.73 2.73 Nil Nil 60.70 46.70 22 17

2005 NM 3.14 1.99 1.89 Nil Nil 53.90 38.87 27 20

2004 NM 3.00 2.16 2.07 Nil Nil 41.10 25.23 19 12

2003 NM 2.20 1.66 1.59 Nil Nil 26.94 12.77 16 8

2002 NM 1.85 1.52 1.41 Nil Nil 17.63 12.67 12 8

2001 NM 1.56 1.01 0.89 Nil Nil 16.33 9.33 16 9

2000 NM 1.03 0.13 NA Nil Nil 11.88 1.38 85 10

6,109 1,167 229 186 758 36.7% 423 423

5,660 1,069 201 229 656 35.9% 374 374

5,264 1,046 193 257 628 39.2% 382 374

4,881 911 173 277 512 36.4% 289 289

2,974 607 120 140 353 35.0% 207 197

2,299 510 86.7 52.4 376 37.2% 222 213

2,016 461 74.7 66.8 296 38.1% 176 167

1,855 456 64.7 71.6 325 39.8% 187 175

1,651 423 105 71.7 250 41.8% 136 118

1,486 291 112 117 45.0 62.2% 16.9 NA

Balance Sheet & Other Financial Data (Million $) Cash 566 Current Assets 2,303 Total Assets 7,558 Current Liabilities 1,047 Long Term Debt 3,532 Common Equity 2,135 Total Capital 6,158 Capital Expenditures 275 Cash Flow 652 Current Ratio 2.2 % Long Term Debt of Capitalization 57.4 % Net Income of Revenue 6.9 % Return on Assets 5.7 % Return on Equity 20.7

446 2,128 7,286 1,163 3,618 1,952 5,808 318 575 1.8 60.5 6.6 5.3 20.3

487 1,976 6,944 1,087 3,684 1,732 5,733 272 575 1.8 66.2 7.3 5.7 25.6

310 1,709 6,492 1,112 3,730 1,246 5,224 263 463 1.5 71.4 5.9 4.5 27.6

432 1,654 6,280 990 4,085 851 5,100 161 327 1.7 80.1 7.0 4.7 30.2

252 869 2,512 442 1,322 523 2,048 128 309 2.0 64.6 9.7 10.0 53.6

61.7 605 1,946 363 1,117 307 1,563 100 250 1.7 71.4 8.7 9.4 93.2

96.5 545 1,776 293 1,311 70.3 1,474 103 251 1.9 89.0 10.1 10.9 65.1

36.7 475 1,663 299 811 504 1,359 51.2 242 1.6 59.7 8.3 8.4 32.0

31.2 398 1,597 250 974 349 1,342 41.1 129 1.6 72.5 1.1 0.1 5.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1551 Wewatta Street, Denver, CO 80202. Telephone: 303-405-2100. Email: [email protected] Website: http://www.davita.com

Chrmn & CEO: K.J. Thiry COO: D. Kogod SVP & CFO: L. Borgen Chief Acctg Officer & Cntlr: J.K. Hilger

Secy & General Counsel: K.M. Rivera Investor Contact: L. Zumwalt (800-310-4872) Board Members: P. M. Arway, C. G. Berg, W. W. Brittain, Jr., P. J. Diaz, P. T. Grauer, J. M. Nehra, W. Roper, K. J. Thiry, R. J. Valine

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1994 Domicile: Delaware Employees: 34,000

Stock Report | October 23, 2010 | NYS Symbol: DF | DF is in the S&P 500

Dean Foods Co S&P Recommendation HOLD

★★★★★

Price $9.97 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $10.00

Investment Style Large-Cap Blend

Summary This leading U.S. dairy processor and distributor was formed in December 2001 when Suiza Foods, the largest U.S. dairy, acquired Dean Foods and adopted the Dean Foods name.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$18.79– 9.38 $1.03 9.7 $3,969

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.98 1.08 10.2 182.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.816 Nil Nil 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.65 NA BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of DF's leading position in the U.S. milk market, and our expectation of future free cash flow. However, milk prices can be volatile, and some products are likely to enjoy stronger demand and growth than others.

40 30 20 15 10

Quantitative Evaluations Vol.

S&P Quality Ranking

113

Mil. 24 16 8 0

D

C

B-

B B

B+

A-

A

Relative Strength Rank

5

3

2

4

3

2

1

WEAK

17

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Tom Graves, CFA on August 23, 2010, when the stock traded at $ 10.16. Highlights ➤

➤

➤

In 2010, we look for net sales to increase about 8% from the $11.2 billion reported for 2009, largely due to the pass-through of higher dairy costs, especially for conventional milk. However, we expect profit margins to be adversely affected by pricing pressure, and we expect some consumer trade-down to less expensive dairy products. We think that much of the revenue decline reported for 2009 reflected the pass-through of lower commodity costs to DF's customers. Following a recent credit agreement revision, we expect that interest expense in the second half of 2010 will be higher than it was in the first half. For the full year, before special items, we estimate diluted EPS of $0.98, on about 5% more shares outstanding, compared with $1.59 in 2009, which was before a negative impact of about $0.21 from some special items. In 2011, we look for an EPS increase to $1.08. In May 2009, DF received net proceeds of about $445 million in connection with the public sale of some 25.4 million common shares. Proceeds were used to repay debt.

Investment Rationale/Risk ➤

➤

➤

In the future, we expect that Dean Foods will aim for clear cost leadership in the fluid milk industry, through a focus on such areas as product standardization and sourcing, facility network optimization, improved productivity, and lower distribution costs. We expect that there will be some related investment costs. In July 2009, DF acquired a European provider of soybased beverage and food products. Risks to our recommendation and target price include the possibility that commodity costs, milk prices, and consumer spending on dairy products will be more unfavorable than we expect, and that competitive conditions will be more difficult than anticipated. Our 12-month target price of $10 represents a P/E discount to what we expect, on average, from a group of other food stocks. This reflects, in part, our view that recent profits at DF were disappointing, and that the profit outlook has weakened. Also, we have concerns about price competition, and we view DF as more weighted toward being a commodity-type business than some other food companies. DF does not pay a quarterly dividend to common shareholders.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,972 2,955 2009 2,703 2,681 2008 3,077 3,103 2007 2,630 2,844 2006 2,509 2,478 2005 2,562 2,603

3Q -2,774 3,195 3,117 2,518 2,647

4Q -3,001 3,080 3,232 2,594 2,695

Year -11,158 12,455 11,822 10,099 10,506

Earnings Per Share ($) 2010 0.23 0.25 2009 0.48 0.38 2008 0.21 0.31 2007 0.47 0.21 2006 0.37 0.53 2005 0.43 0.52

E0.21 0.27 0.24 0.05 0.54 0.43

E0.25 0.27 0.43 0.24 0.56 0.49

E0.98 1.38 1.21 0.95 2.01 1.78

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data A special cash dividend of $15 a share was paid in April 2007.

Stock Report | October 23, 2010 | NYS Symbol: DF

Dean Foods Co Business Summary August 23, 2010 CORPORATE OVERVIEW. Dean Foods Co. is a leading U.S. processor and distributor of milk and other dairy products. In December 2001, Suiza Foods Corp., the largest U.S. dairy, acquired Dean Foods Co. Suiza subsequently changed its name to Dean Foods Co. The company has grown partly through an acquisition strategy and by realizing regional economies of scale and operating efficiencies by consolidating manufacturing and distribution operations. Some of DF's products are sold under licensed brand names. In 2010, DF changed its presentation of business segments. Fresh Dairy Direct-Morningstar is DF's largest segment (about 84% of consolidated net sales in the first half of 2010), and includes more than 90 manufacturing facilities. Its products include milk, ice cream, cultured dairy products, creamers, ice cream mix and other dairy products, which are distributed under regional brands such as Country Fresh, Dean's, Garelick Farms, Mayfield and Oak Farms, as well as familiar local brands and private labels. Products are delivered through what the company believes to be one of the most extensive refrigerated direct-store-delivery (DSD) systems in the U.S., as well as through customer warehouse delivery systems.

products, International Delight coffee creamers, and LAND O LAKES creamers and fluid dairy products. DF's Alpro business manufactures and sells branded soy beverages and soybased food products across Europe under the Alpro and Provamel brand names. In July 2009, DF acquired the Alpro division of Vandemoortele N.V. for about EUR315 million, excluding transaction costs, Alpro had net sales of about EUR260 million in 2008. Also, with its Hero/WhiteWave joint venture, which was formed in 2008, DF expanded into the chilled fruit-based beverage area with the introduction of Fruit2Day. DF's partner in the joint venture is Hero Group, a producer of international fruit and infant nutrition brands Hero and Beech-Nut. The Hero joint venture reduced WhiteWave-Morningstar operating profit by $12.5 million in 2009. DF has decided to sell its Rachel's business operations, which provide dairyrelated products primarily in the U.K. Rachel's, which we believe had net sales of about $23 million in 2010's first half, was previously part of the WhiteWave-Alpro segment. It has been reclassified as discontinued operations.

DF's WhiteWave-Alpro segment (about 16% of net sales) includes the WhiteWave business, which manufactures and sells a variety of nationally branded soy, dairy and dairy-related products, such as Horizon Organic milk and other dairy products, Silk soymilk and cultured soy products, The Organic Cow dairy Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.85 1.38 1.45 Nil Nil 22.09 15.74 16 11

2008 NM 2.74 1.21 1.15 Nil Nil 29.23 11.20 24 9

2007 NM 2.64 0.95 0.92 Nil Nil 50.50 24.11 53 25

2006 NM 3.63 2.01 2.00 Nil Nil 43.55 34.66 22 17

2005 NM 3.22 1.78 1.66 Nil Nil 42.10 31.60 24 18

2004 NM 1.58 1.78 1.58 Nil Nil 38.00 28.25 21 16

2003 NM 3.41 2.27 1.85 Nil Nil 33.75 24.60 15 11

2002 NM 2.71 1.77 1.57 Nil Nil 27.03 18.05 15 10

2001 NM 2.44 1.23 0.91 Nil Nil 24.16 14.00 20 11

2000 NM 2.35 1.27 NA Nil Nil 17.48 12.00 14 9

11,158 939 9.64 246 380 40.0% 240 252

12,455 869 236 310 300 38.3% 185 175

11,822 810 232 322 214 39.2% 130 126

10,099 903 228 195 456 38.5% 280 278

10,506 867 221 169 439 37.9% 272 254

10,822 919 224 205 462 38.3% 285 253

9,185 889 192 195 574 38.0% 356 288

8,991 856 174 231 421 36.4% 268 236

6,230 542 155 135 231 36.3% 116 79.2

5,756 524 145 147 234 38.4% 114 NA

Balance Sheet & Other Financial Data (Million $) Cash 47.6 Current Assets 1,629 Total Assets 7,844 Current Liabilities 1,479 Long Term Debt 4,229 Common Equity 1,352 Total Capital 5,596 Capital Expenditures 268 Cash Flow 495 Current Ratio 1.3 % Long Term Debt of Capitalization 75.6 % Net Income of Revenue 2.2 % Return on Assets 3.2 % Return on Equity 25.2

36.0 1,481 7,040 1,427 4,174 558 5,201 257 421 1.0 80.3 1.5 2.6 60.7

32.6 1,532 7,033 933 5,271 51.3 5,781 241 362 1.6 99.0 1.1 1.9 14.0

31.1 1,379 6,770 1,337 2,872 1,809 5,186 237 508 1.0 55.4 2.8 4.1 15.1

25.1 1,477 7,051 1,137 3,329 1,872 5,688 307 494 1.3 58.5 2.6 3.7 12.0

27.6 1,596 7,756 1,106 3,116 2,661 6,308 356 509 1.4 49.4 2.6 3.9 11.0

47.1 1,401 6,993 1,170 2,611 2,543 5,542 292 548 1.2 47.1 3.9 5.2 17.0

45.9 1,311 6,582 1,268 3,140 1,643 5,077 242 442 1.0 61.8 3.0 4.0 17.2

78.3 1,482 6,732 1,175 3,556 1,476 5,313 137 270 1.3 66.9 1.9 2.2 11.1

31.0 818 3,780 700 1,809 599 3,047 137 259 1.2 59.3 1.9 3.5 19.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2711 North Haskell Avenue, Suite 3400, Dallas, TX 75204. Telephone: 214-303-3400. Website: http://www.deanfoods.com Chrmn: G.L. Engles

Pres, CEO & COO: J. Scalzo EVP & CFO: J.F. Callahan, Jr. EVP, Secy & General Counsel: S.J. Kemps SVP & Chief Acctg Officer: S. Mara

Investor Contact: B. Sievert (214-303-3437) Founded: 1925 Board Members: T. C. Davis, G. L. Engles, S. L. Green, J. Domicile: Delaware S. Hardin, Jr., J. Hill, W. Mailloux, J. R. Muse, H. M. Employees: 27,157 Nevares, J. L. Turner, D. A. Wright

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DE | DE is in the S&P 500

Deere & Co S&P Recommendation BUY

★★★★★

Price $77.25 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Farm Machinery & Heavy Trucks

12-Mo. Target Price $82.00

Investment Style Large-Cap Blend

Summary Deere, the world's biggest producer of farm equipment, is also a large maker of construction machinery and lawn and garden equipment.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $77.72– 45.19 Trailing 12-Month EPS $2.77 Trailing 12-Month P/E 27.9 $10K Invested 5 Yrs Ago $29,819

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.35 5.05 17.8 423.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.57 23 B+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Deere's leading position in many of the markets it serves, and a balance sheet that typically carries large cash balances. On the other hand, the company's businesses are highly cyclical.

80 60

40

2-for-1

30

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

$32.743 1.55 $1.20 72

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ STRONG

84 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Michael W. Jaffe on August 19, 2010, when the stock traded at $ 65.54. Highlights ➤

➤

➤

After being hampered for several quarters by the very soft global economy, revenues started to pick up in the second quarter of FY 10 (Oct). Based on our outlook for a continuation of these more favorable demand trends, we expect revenues in FY 11 to increase by 9%. We see these forecasted gains being driven by an ongoing recovery of global economies, and its likely impact on the markets that DE serves, including an expected increase in crop prices. We see a resultant upturn in U.S. farm cash receipts boosting demand for agricultural equipment, and better residential construction markets lifting demand for construction equipment. We see these factors outweighing some likely ongoing sluggishness in European equipment markets. We project wider margins in FY 11, on our outlook for improving business trends. We also see DE being aided by incremental benefits from its cost cuts of the past couple of years. Our FY 11 EPS estimate compares with an FY 10 forecast which excludes $0.30 a share of second quarter charges related to the enactment of U.S. health care legislation. Operating EPS were $2.84 in FY 09.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Following a sharp downturn in its business between late 2008 and late 2009, we believe better economic trends are allowing most of Deere's end markets to start recoveries, although recent uncertainties across Europe pose a challenge. We see these conditions bringing an extended upturn in DE's operating results. Based on these factors and our valuation model, we believe the stock is undervalued. Risks to our recommendation and target price include a resumed downturn in the global economy, a further decline in crop prices and farm equipment spending, and larger-than-expected loan provisions in the credit segment. The stock recently traded at about 13X our calendar 2011 EPS forecast of $5.12. We believe it is undervalued, as this falls slightly below the low end of DE's typical valuation during the second year of business recoveries, which we see taking place over the coming year. Based on these views, our 12-month target price is $82, or 16X our calendar 2011 forecast, which is in the bottom half of DE's typical valuation at this stage of its business cycle, to account for global economic uncertainties.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 4,835 7,131 2009 5,146 6,748 2008 5,201 8,097 2007 4,425 6,883 2006 4,202 6,562 2005 4,127 6,621

3Q 6,837 5,884 7,739 6,634 6,267 6,005

4Q -5,334 7,401 6,141 5,118 5,177

Year -23,112 28,438 24,082 22,148 21,931

Earnings Per Share ($) 2010 0.57 1.28 2009 0.48 1.11 2008 0.83 1.74 2007 0.52 1.36 2006 0.47 1.09 2005 0.45 1.22

1.44 0.99 1.32 1.32 0.93 0.79

E0.76 -0.53 0.81 0.94 0.60 0.48

E4.35 2.06 4.70 4.00 3.08 2.94

Fiscal year ended Oct. 31. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.280 0.280 0.300 0.300

12/02 02/24 05/26 08/25

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

02/01/10 05/03/10 08/02/10 11/01/10

Dividends have been paid since 1937. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DE

Deere & Co Business Summary August 19, 2010 CORPORATE OVERVIEW. Deere & Co. is the world's largest maker of farm tractors and combines, and a leading producer of construction equipment. During FY 09 (Oct.), the company derived 37% of its equipment sales outside of North America.

and service parts for commercial and residential uses. These products include small tractors for lawn, garden, commercial and utility purposes; lawn mowers; golf course equipment; utility vehicles; landscape and irrigation equipment; and other outdoor products.

Effective May 1, 2009, DE combined its agricultural equipment and commercial and consumer equipment segments to form the agriculture and turf division. This streamlining action was an attempt by Deere to act on global market opportunities, leverage its global scale, optimize global product line results, standardize processes, share resources and reduce costs.

The construction and forestry segment (11%; -3.2%) manufactures and distributes a broad range of machines and service parts used in construction, earth moving, material handling and timber harvesting. Products include backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, harvesters and related attachments.

The agricultural and turf segment (78% of FY 09 revenues; 8.0% operating margin) makes tractors, combines, and cotton and sugar cane harvesters; tillage, seeding and soil preparation machinery; and hay and forage equipment for the global farming industry. It also manufactures and distributes equipment Company Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.61 4.12 2.06 2.81 1.12 54% 56.87 24.51 28 12

2008 12.19 6.61 4.70 3.55 1.06 23% 94.89 28.50 20 6

2007 13.17 5.64 4.00 4.22 0.91 23% 93.74 45.12 23 11

2006 13.92 4.55 3.08 3.25 0.78 22% 50.70 33.45 14 9

2005 12.13 4.23 2.94 3.02 0.61 21% 37.21 28.50 13 10

2004 10.93 4.00 2.78 2.84 0.53 19% 37.47 28.36 13 10

2003 5.91 2.62 1.32 1.54 0.44 33% 33.71 18.78 26 14

2002 4.75 2.17 0.67 -0.19 0.44 66% 25.80 18.75 39 28

2001 6.57 1.39 -0.14 -0.82 0.44 NM 23.06 16.75 NM NM

2000 7.78 2.40 1.03 NA 0.44 43% 24.81 15.16 24 15

23,112 2,731 873 NA 1,334 34.5% 874 1,187

28,438 4,774 829 1,163 3,164 35.1% 2,053 1,556

24,082 4,571 744 1,151 2,676 33.0% 1,822 1,917

22,148 3,883 691 1,018 2,195 33.8% 1,453 1,534

21,931 3,553 636 761 2,162 33.1% 1,447 1,483

19,986 2,976 621 592 2,115 33.5% 1,406 1,430

15,535 2,231 631 1,257 980 34.4% 643 743

13,947 1,696 725 637 578 44.7% 319 -94.8

13,293 1,274 718 766 -46.3 NM -64.0 -385

13,137 2,102 648 676 779 37.7% 486 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,690 Current Assets 29,124 Total Assets 41,133 Current Liabilities 12,549 Long Term Debt 3,073 Common Equity 4,819 Total Capital 7,891 Capital Expenditures 1,308 Cash Flow 1,747 Current Ratio 2.3 % Long Term Debt of Capitalization 38.9 % Net Income of Revenue 3.8 % Return on Assets 2.2 % Return on Equity 15.4

1,834 27,837 38,735 14,927 13,899 6,533 20,603 1,608 2,882 1.9 67.5 7.2 5.3 30.0

3,902 27,840 38,576 15,605 11,798 7,156 19,137 1,023 2,566 NA 61.6 7.5 4.9 24.7

3,504 27,987 34,720 12,790 11,584 7,565 19,214 766 2,145 2.2 60.3 6.6 4.3 20.2

4,708 27,530 33,637 11,494 11,739 6,825 18,564 513 2,083 2.4 63.2 6.6 4.6 22.0

3,428 23,040 28,754 7,612 11,090 6,350 17,441 364 2,027 3.0 63.6 7.0 5.1 30.6

4,616 19,370 26,258 7,679 10,404 2,834 13,238 310 1,275 2.5 78.6 4.2 2.6 27.8

3,004 16,919 23,768 7,667 8,950 1,797 10,772 359 1,045 2.2 83.1 2.4 1.4 11.8

1,206 16,191 22,663 9,340 6,561 3,992 10,566 491 654 1.7 62.1 NM NM NM

419 14,678 20,469 8,792 4,764 4,302 9,141 427 1,133 1.7 52.1 3.8 2.6 11.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One John Deere Place, Moline, IL 61265-8098. Telephone: 309-765-8000. Email: [email protected] Website: http://www.deere.com

Chrmn & CEO: S.R. Allen SVP, CFO & Chief Acctg Officer: J.M. Field SVP & CTO: J.H. Gilles SVP & General Counsel: J.R. Jenkins

Treas: J.A. Davlin Investor Contact: M. Ziegler (309-765-4491) Board Members: S. R. Allen, C. C. Bowles, V. D. Coffman, C. O. Holliday, Jr., D. Jain, C. Jones, J. Milberg, R. B. Myers, T. H. Patrick, A. L. Peters, D. B. Speer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1837 Domicile: Delaware Employees: 51,262

Stock Report | October 23, 2010 | NNM Symbol: DELL | DELL is in the S&P 500

Dell Inc S&P Recommendation SELL

★★★★★

Price $14.59 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Hardware

12-Mo. Target Price $11.00

Investment Style Large-Cap Growth

Summary This company is one of the world's 10 leading manufacturers of personal computers. Dell also offers server and storage products and provides IT services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.52– 11.34 Trailing 12-Month EPS $0.79 Trailing 12-Month P/E 18.5 $10K Invested 5 Yrs Ago $4,551

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.29 1.40 11.3 1,944.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$28.364 Nil Nil 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.36 10 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of Dell's economies of scale and strong execution in asset management, offset by what we see as competitive pressures on product design and pricing, industry cyclicality, and a shift to greater reliance on retail partners around the world.

30

20 15

10

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 240 160 80 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

3

3

2

3

2

3

2

1

A+ STRONG

83 LOWEST = 1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Thomas W. Smith, CFA on September 22, 2010, when the stock traded at $ 12.55. Highlights ➤

➤

➤

We project revenues will rise 18% in FY 11 (Jan.) and 5% in FY 12, reflecting a rebound in demand for computers, plus acquisitions. On August 16, 2010, the company agreed to acquire data storage technology provider 3PAR Inc. (PAR 33, NR) for an enterprise value of about $1.15 billion. However, rival Hewlett-Packard (HPQ 39, Buy) joined the bidding and prevailed with a price near $2.35 billion on September 2. Dell received a $72 million deal break-up payment from 3PAR, which should help offset expenses from the extended bargaining. We see potential for overall margin improvement in FY 11 and FY 12 as higher volumes, a richer product mix, and potential savings from improved supply chain management outweigh pressure on PC selling prices. On September 16, Dell announced plans to open a major manufacturing facility in Chengdu, in western China, and to expand existing operations in Xiamen, China. We estimate FY 11 operating EPS of $1.29, excluding restructuring and acquisition-related expenses. For FY 12, we estimate operating EPS of $1.40. Share buybacks should help per-share results.

Investment Rationale/Risk ➤

➤

➤

We believe that DELL's multi-year effort to move into new markets was enhanced with the addition of the Perot Systems service operations in November 2009. However, the bidding for storage provider 3PAR suggests to us that key acquisitions to expand in the data center area may prove expensive, or that prime targets might go to rivals, which would hinder DELL's growth strategies. While a cyclical rebound in PC unit demand that we project to continue into 2011 should aid margins ahead, we also see near-term headwinds from price competition in consumer PCs. Overall, we view the shares as overvalued, based on our P/E analysis. Risks to our recommendation and target price include the potential for stronger PC market share and margin performance than we project. Acquisitions might prove more affordable than we estimate. Applying a target multiple of 8X, a discount to Information Technology Sector peers in the S&P 500 Index and toward the low end of DELL's historical range, to our 12-month forward operating EPS estimate of $1.33, we arrive at our 12-month target price of $11.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 14,874 15,534 2010 12,342 12,764 2009 16,077 16,434 2008 14,722 14,776 2007 14,320 14,211 2006 13,386 13,428

3Q -12,896 15,162 15,646 14,419 13,911

4Q -14,900 13,428 15,989 14,470 15,183

Year -52,902 61,101 61,133 57,420 55,908

Earnings Per Share ($) 2011 0.17 0.28 2010 0.15 0.24 2009 0.38 0.31 2008 0.34 0.31 2007 0.34 0.21 2006 0.37 0.41

E0.32 0.17 0.37 0.34 0.27 0.25

E0.35 0.17 0.18 0.31 0.32 0.43

E1.29 0.73 1.25 1.31 1.14 1.46

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: DELL

Dell Inc Business Summary September 22, 2010 CORPORATE OVERVIEW. Dell Inc. is a key player in the personal computer markets. It was number two in global PC unit shipments in 2009, with about a 13.1% market share according to IDC, up from 10.5% over the past decade, but below 2005's 18.2%. In 2009, DELL was number two by unit shipments in the U.S. market, with about a 24.5% market share. The majority of DELL's sales are from PCs (56% of FY 10 (Jan.) total revenue), with 25% from Desktop PCs and 31% from Mobility. Other categories include Software and Peripherals (18%), Servers and Networking (11%), Services (11%), and Storage (4%). Within the PC category, sales of Mobility (mainly notebook PCs) are rising faster than sales of Desktop PCs. Revenue from notebooks pulled approximately even with desktop revenue for the first time in the FY 08 third quarter, and we expect notebooks to lead in the future.

The customer base is broad, with no single customer accounting for 10% of sales in FY 10 or the prior two fiscal years. The company is expanding in rapidgrowth emerging markets including Brazil, Russia, India and China (BRIC), and DELL's revenue from the BRIC countries rose 4% in FY 10 despite slow conditions in global computer hardware markets. Revenues derived from outside the U.S. represented 47% of total revenue in FY 10, near the 48% level in FY 09. About 70% of the company's long-lived assets were located in the U.S at the end of FY 10. IMPACT OF MAJOR DEVELOPMENTS. In January 2007, Michael Dell reassumed his role as CEO, while retaining his duties as chairman of the board. We are encouraged by this development, as we think it will reinvigorate the corporate culture and streamline the decision-making process.

Broken out by global segment, Large Enterprise represented 27% of DELL's FY 10 total revenue (30% in FY 09), Public 27% (25%), Small and Medium Business 23% (24%), and Consumer 23% (21%).

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 1.16 0.73 0.73 NA Nil 2009 17.26 7.84 24 11

2009 0.95 1.64 1.25 1.23 Nil Nil 2008 26.04 8.72 21 7

2008 1.03 1.58 1.31 1.28 Nil Nil 2007 30.77 21.61 23 16

2007 1.60 1.34 1.14 1.13 Nil Nil 2006 30.77 21.61 27 19

2006 1.77 1.62 1.46 1.03 Nil Nil 2005 42.30 28.62 29 20

2005 2.61 1.32 1.18 0.88 Nil Nil 2004 42.57 31.14 36 26

2004 2.46 1.11 1.01 0.68 Nil Nil 2003 37.18 22.59 37 22

2003 1.89 0.88 0.80 0.49 Nil Nil 2002 31.06 21.90 39 27

2002 1.80 0.54 0.46 0.28 Nil Nil 2001 31.32 16.01 68 35

2001 2.16 0.90 0.81 0.58 Nil Nil 2000 59.69 16.25 74 20

52,902 3,620 852 160 2,024 29.2% 1,433 1,432

61,101 4,193 769 93.0 3,324 25.5% 2,478 2,445

61,133 4,344 599 45.0 3,856 22.8% 2,947 2,871

57,420 3,541 471 45.0 3,345 22.8% 2,583 2,563

55,908 4,740 393 28.0 4,574 21.9% 3,572 2,494

49,205 4,588 334 16.0 4,445 31.5% 3,043 2,227

41,444 3,807 263 14.0 3,724 29.0% 2,645 1,806

35,404 3,055 211 17.0 3,027 29.9% 2,122 1,356

31,168 2,510 239 29.0 1,731 28.0% 1,246 781

31,888 3,008 240 47.0 3,194 30.0% 2,236 1,602

Balance Sheet & Other Financial Data (Million $) Cash 11,008 Current Assets 24,245 Total Assets 33,652 Current Liabilities 18,960 Long Term Debt 3,417 Common Equity 5,641 Total Capital 9,058 Capital Expenditures 367 Cash Flow 2,285 Current Ratio 1.3 % Long Term Debt of Capitalization 37.7 % Net Income of Revenue 2.7 % Return on Assets 4.8 % Return on Equity 28.9

9,092 20,151 26,500 14,859 1,898 4,271 6,169 440 3,247 1.4 30.8 4.1 9.2 61.9

7,972 19,880 27,561 18,526 362 3,735 4,191 831 3,546 1.1 8.6 4.8 11.1 73.1

9,546 19,939 25,635 17,791 569 4,328 5,008 896 3,054 1.1 11.4 4.5 10.6 61.1

7,042 17,706 23,109 15,927 504 4,129 4,633 728 3,965 1.1 10.9 6.4 15.4 67.3

4,747 16,897 23,215 14,136 505 6,485 6,990 525 3,377 1.2 7.2 6.2 14.3 47.7

4,317 10,633 19,311 10,896 505 6,280 6,785 329 2,908 1.0 7.4 6.4 15.2 47.4

4,232 8,924 15,470 8,933 506 4,873 5,379 305 2,333 1.0 9.4 6.0 14.6 44.4

3,641 7,877 13,535 7,519 520 4,694 5,214 303 1,485 1.0 10.0 4.0 9.2 24.2

4,910 9,491 13,435 6,543 509 5,622 6,131 482 2,476 1.5 8.3 7.0 18.0 40.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Dell Way, Round Rock, TX 78682. Telephone: 512-338-4400. Email: [email protected] Website: http://www.dell.com

Chrmn & CEO: M.S. Dell COO & CTO: J.W. Clarke SVP & CFO: B.T. Gladden SVP, Secy & General Counsel: L.P. Tu

Chief Acctg Officer: T.W. Sweet Investor Contact: L.A. Tyson (512-723-1130) Board Members: J. W. Breyer, D. J. Carty, M. S. Dell, W. H. Gray, III, J. C. Lewent, T. W. Luce, III, K. S. Luft, A. J. Mandl, S. Narayen, S. A. Nunn, R. Perot, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1984 Domicile: Delaware Employees: 96,000

Stock Report | October 23, 2010 | NYS Symbol: DNR | DNR is in the S&P 500

Denbury Resources Inc. S&P Recommendation BUY

★★★★★

Price $17.07 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $21.00

Investment Style Large-Cap Growth

Summary This independent oil and gas company acquires, develops, exploits and produces oil and gas in the U.S., primarily in Mississippi and the Barnett Shale in Texas. DNR owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.48– 12.51 Trailing 12-Month EPS $0.88 Trailing 12-Month P/E 19.4 $10K Invested 5 Yrs Ago $17,304

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.11 0.76 15.4 399.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.816 Nil Nil 96

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 -21 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's operations in a capital-intensive industry that derives value from producing commodities whose price is very volatile.

40 30 20

10

Quantitative Evaluations 2-for-1

S&P Quality Ranking

Vol.

D

Mil.

C

B-

B B

B+

A-

A

A+

113

68

24 16 8 0

Relative Strength Rank

MODERATE 59

LOWEST = 1

5

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on August 16, 2010, when the stock traded at $ 15.47. Highlights ➤

➤

➤

DNR has ramped up activity at Bakken Shale, where it holds about 300,000 net acres. DNR is shifting capex from the gas-rich Haynesville Shale to the oilier Bakken play, where it will run 4 rigs in the second half of 2010. With DNR's completion of the acquisition of Encore Acquisition Company (EAC) and $900 million in noncore asset sales, we see remaining 2010 production averaging 70.8 MBOE/day, up 36%. We see a 14% production boost in 2011 and DNR sees a 10%-20% production CAGR at tertiary fields through 2015 on existing project inventory. DNR has repositioned its portfolio, and we expect a focus on execution going forward. DNR will drill 25-35 operated wells at Bakken in 2010, will ramp to 5 rigs in early 2011, and is currently producing 4,518 BOE/day. DNR sees a total resource potential of 350 MMBOE on its acreage. DNR has set 2010's capex at $1.06 billion, above cash flow forecasts, with 39% slated for tertiary floods and 19% for Bakken. DNR posted a 2009 loss per share of $0.25 ($0.94 non-cash charge). We see EPS of $1.11 ($0.20 asset sale gain and $0.39 non-cash gain) in 2010 and $0.76 in 2011 on production and price gains.

Investment Rationale/Risk ➤

In March, DNR closed its acquisition of EAC for $4.5 billion, including $1.6 billion in debt, $830 in cash, and the issuance of about 134 million new shares. The acquisition more than doubles DNR's production and reserve base and adds a new core region in the Rockies. EAC's enhanced recovery program in the Rockies should complement DNR's Gulf Coast tertiary operations, and we view positively its entry into the Bakken Shale and acquired acreage in Haynesville Shale. We expect DNR to use $900 million in Permian Basin asset sale proceeds to cover a capex shortfall and pay debt. DNR plans to sell its general partner interest in Encore Energy Partners LP (ENP), purchased in the EAC acquisition.

➤

Risks to our opinion and target price include a sustained decline in oil and gas prices, and inability to replace reserves at a reasonable cost.

➤

Our 12-month target price of $21 blends a ratio of 8.5X enterprise value to 2011 EBITDA forecasts, our proved NAV projection of $27 and above-peer metrics on significant tertiary oil potential, a strong Bakken Shale position, and complementary Haynesville acreage.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 335.4 492.7 2009 171.2 214.4 2008 317.3 416.6 2007 174.2 222.5 2006 178.9 193.3 2005 113.4 128.0

3Q -225.0 405.6 253.5 192.0 141.9

4Q -269.5 222.6 321.8 167.3 177.2

Year -880.1 1,361 972.0 731.5 560.4

Earnings Per Share ($) 2010 0.32 0.34 2009 -0.07 -0.35 2008 0.29 0.45 2007 0.07 0.25 2006 0.19 0.18 2005 0.13 0.17

E0.12 0.11 0.63 0.27 0.24 0.16

E0.16 0.01 0.18 0.42 0.23 0.24

E1.11 -0.30 1.54 1.00 0.82 0.70

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: DNR

Denbury Resources Inc. Business Summary August 16, 2010 CORPORATE OVERVIEW. Denbury Resources, Inc. (DNR) engages in the acquisition, development, operation and exploitation of oil and natural gas properties in the Gulf Coast region of the U.S., primarily in Louisiana, Mississippi, Alabama and Texas, and the Rocky Mountains. DNR is the largest oil and natural gas operator in Mississippi and also owns the rights to a natural source of carbon dioxide (CO2) reserves that it uses for injection in its tertiary oil recovery operations. In March 2010, DNR acquired Encore Acquisition Company (EAC) for $4.5 billion, including $1.6 billion in debt, $830 in cash and the issuance of about 134 million new shares. With the completion of the EAC acquisition, DNR has more than doubled its proved reserve base. As of December 31, 2009, DNR had estimated proved reserves (including tertiary-related reserves) of 428 MMBOE. This compares to estimated proved reserves of 250.5 MMBOE, of which 71% consisted of crude oil and 58% was proved developed, at year-end 2008. CORPORATE STRATEGY. After a year of repositioning its portfolio in 2009, with the acquisition of Encore, the purchase of two additional enhanced oil recovery fields (Conroe and Hastings) and the sale of 100% of its Barnett Shale assets, DNR is now positioned to execute on its plan of tertiary oil growth, in our view. DNR added a new core area with EAC's enhanced oil recovery projects in the Rockies, where it sees significant similarities to its own fields, and now

has one of the largest positions in the prolific Bakken Oil Shale and added acreage at Haynesville Shale, one of the hottest onshore domestic reservoirs. DNR sees a 10%-20% production compound annual growth rate (CAGR) on tertiary flood fields through 2015. For 2010, DNR sees tertiary oil production of 27,000 bbls/day. Also, the company has issued pro-forma production guidance of around 76.7 MBOE/day for 2010, on a capital budget of $1.06 billion. DNR expects to sell about 8.5 MBOE/day in production from its interest in Encore Energy Partners LP (ENP). DNR has invested over $2 billion in the last two years to expand its CO2 pipeline network from Louisiana to Texas and to implement and expand additional tertiary floods, as part of its strategic plan. If oil prices remain at their current levels, DNR believes most of this can be funded with internally generated cash flow, but if needed, it can tap into other resources. DNR's biggest project during this period will be the construction of the $700 million Green Pipeline, a CO2 pipeline that was completed around year-end 2009. DNR believes this project will create the backbone for a CO2 gathering and distribution system in the southern Gulf Coast region.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.89 0.66 -0.30 -0.30 Nil Nil 18.84 9.61 NM NM

2008 7.50 2.42 1.54 1.54 Nil Nil 40.32 5.59 26 4

2007 5.75 1.77 1.00 1.00 Nil Nil 30.56 12.98 31 13

2006 4.61 1.42 0.82 0.82 Nil Nil 18.30 11.79 22 14

2005 3.20 1.11 0.70 0.68 Nil Nil 12.86 6.18 18 9

2004 2.40 0.79 0.36 0.35 Nil Nil 7.33 3.32 20 9

2003 1.94 0.67 0.24 0.23 Nil Nil 3.56 2.55 15 10

2002 1.71 0.65 0.22 0.21 Nil Nil 2.99 1.55 14 7

2001 1.65 0.63 0.28 0.27 Nil Nil 3.08 1.46 11 5

2000 1.17 0.96 0.77 NA Nil Nil 2.88 0.91 4 1

880 NA 238 47.4 -122 38.5% -75.2 -75.2

1,361 699 222 32.6 624 37.8% 388 388

972 636 193 51.2 393 35.7% 253 253

732 482 149 23.6 330 38.6% 202 202

560 393 98.8 18.0 248 32.9% 166 161

383 254 97.5 19.5 122 32.3% 82.4 79.7

333 276 94.7 23.2 80.2 32.7% 53.9 49.8

285 190 94.2 26.8 70.3 33.4% 46.8 43.9

266 156 71.3 22.3 81.4 30.5% 56.6 53.8

179 124 36.2 15.3 74.9 NM 142 NA

Balance Sheet & Other Financial Data (Million $) Cash 20.6 Current Assets 256 Total Assets 4,270 Current Liabilities 394 Long Term Debt 1,301 Common Equity 1,972 Total Capital 3,279 Capital Expenditures 1,463 Cash Flow 163 Current Ratio 0.7 % Long Term Debt of Capitalization Nil % Return on Assets NM % Return on Equity NA

17.1 415 3,590 386 853 1,840 3,126 1,086 610 1.1 27.3 12.2 23.9

60.1 240 2,771 265 675 1,404 2,432 834 446 0.9 32.6 10.3 20.2

53.9 183 2,140 200 514 1,106 1,856 826 352 0.9 27.7 11.1 22.0

165 299 1,505 154 379 734 1,284 379 265 1.9 29.6 13.3 26.1

33.0 173 993 82.9 0.23 542 639 178 180 2.1 0.0 8.3 17.1

24.2 108 983 127 298 421 788 147 149 0.9 37.8 5.7 13.7

23.9 128 895 95.9 345 374 790 156 141 1.3 43.6 5.6 12.9

23.5 103 790 79.9 335 353 707 172 128 1.3 47.4 9.1 19.8

22.3 98.0 457 38.8 199 216 415 75.4 178 2.5 47.9 40.1 98.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5100 Tennyson Pkwy Ste 1200, Plano, TX 75024-7164. Telephone: 972-673-2000. Website: http://www.denbury.com Co-Chrmn: W.F. Wettstein

Co-Chrmn: G. Roberts Pres & COO: R.T. Evans CEO: P. Rykhoek SVP, CFO & Treas: M.C. Allen

Investor Contact: L. Burkes (972-673-2166) Board Members: M. L. Beatty, M. B. Decker, R. G. Greene, D. I. Heather, G. L. McMichael, G. Roberts, R. Stein, W. F. Wettstein

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1951 Domicile: Delaware Employees: 830

Stock Report | October 23, 2010 | NNM Symbol: XRAY | XRAY is in the S&P 500

DENTSPLY International Inc S&P Recommendation HOLD

★★★★★

Price $32.63 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Supplies

12-Mo. Target Price $34.00

Investment Style Large-Cap Growth

Summary This company is a designer, developer, manufacturer and marketer of a broad range of products for the dental market.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.15– 27.76 Trailing 12-Month EPS $1.85 Trailing 12-Month P/E 17.6 $10K Invested 5 Yrs Ago $12,972

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.91 2.10 17.1 142.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Our risk assessment reflects XRAY's long-term trend of relative earnings stability and its broad product and geographic diversification, which we believe limits the impact of competition. We also believe XRAY's relatively low long-term debt to capitalization ratio provides some degree of protection from financial difficulties.

30 25

Quantitative Evaluations

Vol. 33

Mil.

S&P Quality Ranking

9 6 3 0

D 4

5

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Phillip M. Seligman on August 06, 2010, when the stock traded at $ 31.01.

We forecast 2010 net sales, excluding precious metal content, rising about 3% from 2009's $2.0 billion. One driver we see is easy comparisons, since performance in 2009 was hurt by U.S. economic softness, channel destocking and softer European dental markets. Other revenue enhancers include improved growth in international markets, relative strength in the consumable lines and specialty products, acquisitions, and new product. However, we see a stronger U.S. dollar tempering reported results. We expect gross margins to be flat with 2009 levels, assuming the unfavorable product mix that pressured first-half margins is offset by better fixed cost absorption, higher pricing and an improved product mix in the second half. We expect SG&A costs to expand by 10 basis points as a percentage of sales, despite cost improvements, on the company's plans to invest in key growth opportunities.

Investment Rationale/Risk ➤

➤

➤

We estimate operating EPS of $1.91 in 2010, versus 2009's $1.84 before $0.01 of net one-time costs. We project $2.10 in 2011.

AB

B+

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, P, Ph

Highlights

B-

61

1

2007

C

Relative Strength Rank

3

2

➤

1.01 9 NA

Below Avg.

35

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

40

➤

$4.660 0.61 $0.20 86

We are encouraged by XRAY's view of signs of improvement in certain geographies and product categories, such as chairside consumables, dental implants and orthodontics. But the company also cited areas of continued weakness, such as the overall U.S. market, where it has been realizing negative comparisons due to equipment promotions in 2009, and the lab market, which we think should eventually improve as a result of pent-up demand from the recession. Nonetheless, long-term fundamentals of the dental products business look favorable to us, given aging populations in developed countries and rising standards of living in developing countries. Meanwhile, we view cash flow as healthy, providing financial flexibility. Risks to our recommendation and target price include intensified competition and persistent weakness in dental care in the U.S. and Europe. Applying a multiple of 18X to our 2010 EPS estimate, a discount to XRAY's historical mid-point, given recent groupwide valuation compression, we derive our 12-month target price of $34.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 545.9 565.1 2009 507.0 553.2 2008 560.8 594.9 2007 472.9 507.4 2006 431.0 472.4 2005 407.0 444.8

3Q -531.0 530.0 488.1 435.7 416.0

4Q -568.7 508.1 541.5 471.3 447.4

Year -2,160 2,194 2,010 1,811 1,715

Earnings Per Share ($) 2010 0.41 0.49 2009 0.41 0.47 2008 0.45 0.52 2007 0.38 0.42 2006 0.31 0.37 2005 0.30 0.36

E0.46 0.45 0.44 0.42 0.31 -0.39

E0.51 0.50 0.47 0.45 0.42 Nil

E1.91 1.83 1.87 1.68 1.41 0.28

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

02/10 05/11 07/28 09/30

03/24 06/23 09/27 12/27

03/26 06/25 09/29 12/29

04/06/10 07/08/10 10/07/10 01/07/11

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: XRAY

DENTSPLY International Inc Business Summary August 06, 2010 CORPORATE OVERVIEW. Dentsply International, Inc. (XRAY) was created by a merger of a predecessor Dentsply International Inc. and Gendex Corp. in 1993. The predecessor Dentsply, founded in 1899, manufactured and distributed artificial teeth, dental equipment and dental consumable products. Gendex, founded in 1983, manufactured dental x-ray equipment and handpieces. In early 2004, the company divested the dental X-ray equipment business. Dentsply believes it is the world's largest developer and manufacturer of a broad range of products for the dental market. Dental consumables (35% of net sales in 2009 and 34% in 2008, excluding precious metal content) include dental sundries, such as dental anesthetics, prophylaxis paste, dental sealants, impression materials, restorative materials, bone grafting materials, tooth whiteners, and topical fluoride; and small equipment products, such as high and low speed handpieces, intraoral curing light systems, dental diagnostic systems, and ultrasonic scalers and polishers.

porcelain furnaces. Dental specialty products (45%; 45%) include specialized treatment products, such as endodontic (root canal) instruments and materials, implants and related products, bone grafting materials, and orthodontic appliances and accessories. In addition to the U.S., Dentsply conducts its business in over 120 foreign countries, principally through its foreign subsidiaries. In 2009 and 2008, net sales, excluding precious metal content, to customers outside the U.S., including export sales, accounted for approximately 62% and 62%, respectively, of net sales. During 2009 and 2008, one customer, Henry Schein Incorporated, a dental distributor, accounted for 11% and 11%, respectively, of the company's net sales.

Dental laboratory products (17%; 18%) are used in dental laboratories in the preparation of dental appliances. Products include dental prosthetics, including artificial teeth, precious metal dental alloys, dental ceramics, crown and bridge materials, computer aided machining (CAM) ceramics systems, and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.93 2.26 1.83 1.84 0.20 11% 36.80 21.80 20 12

2008 1.39 2.25 1.87 1.92 0.19 10% 47.06 22.85 25 12

2007 2.07 2.00 1.67 1.72 0.17 10% 47.84 29.44 29 18

2006 1.39 1.71 1.41 1.41 0.15 10% 33.76 26.07 24 18

2005 1.52 0.59 0.28 0.20 0.13 45% 29.22 25.37 NM NM

2004 1.17 1.58 1.28 1.21 0.11 8% 28.42 20.88 22 16

2003 NM 1.34 1.05 0.95 0.10 9% 23.70 16.05 22 15

2002 NM 1.20 0.93 0.84 0.09 10% 21.75 15.63 24 17

2001 NM 1.11 0.77 0.60 0.09 12% 17.34 10.83 23 14

2000 1.13 0.91 0.64 NA 0.09 13% 14.46 7.71 22 12

2,160 453 65.2 21.9 363 24.5% 274 276

2,194 469 56.6 32.5 355 20.1% 284 292

2,010 416 50.3 23.8 358 27.5% 260 265

1,810 370 47.4 10.8 315 28.9% 224 223

1,715 356 50.6 17.8 71.0 36.1% 45.4 32.0

1,694 352 49.3 25.1 274 23.3% 210 198

1,571 317 45.7 26.1 251 32.4% 170 153

1,514 298 43.9 29.2 221 33.0% 148 134

1,129 238 54.3 21.7 185 34.4% 121 94.6

890 205 41.4 10.2 152 33.5% 101 NA

Balance Sheet & Other Financial Data (Million $) Cash 450 Current Assets 1,218 Total Assets 3,088 Current Liabilities 445 Long Term Debt 387 Common Equity 1,832 Total Capital 2,294 Capital Expenditures 56.5 Cash Flow 339 Current Ratio 2.7 % Long Term Debt of Capitalization 16.9 % Net Income of Revenue 12.7 % Return on Assets 9.3 % Return on Equity 16.0

204 950 2,830 360 424 1,588 2,152 76.4 340 2.6 19.7 12.9 10.3 18.3

169 982 2,676 312 482 1,516 2,060 64.2 310 3.1 23.4 12.9 10.7 18.6

65.1 718 2,181 311 367 1,274 1,694 50.6 271 2.3 21.7 12.4 9.7 17.8

435 1,030 2,407 741 270 1,242 1,555 45.3 96.0 1.4 17.4 2.6 1.7 3.4

506 1,056 2,798 405 780 1,444 2,283 56.3 260 2.6 34.2 12.4 8.0 16.4

164 727 2,446 338 790 1,122 1,964 76.6 216 2.2 40.2 10.8 7.5 17.3

25.7 541 2,087 366 770 836 1,634 3.31 192 1.5 47.1 9.8 7.6 20.5

33.7 484 1,798 359 724 610 1,366 49.3 176 1.4 53.0 10.8 9.1 21.5

15.4 325 867 168 110 520 651 28.4 142 1.9 16.8 11.4 11.7 20.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 221 W Philadelphia St, York, PA, USA 17405-0872. Telephone: 717-845-7511. Email: [email protected] Website: http://www.dentsply.com

Chrmn & CEO: B.W. Wise Pres & COO: C.T. Clark Investor Contact: W.R. Jellison (717-849-4243) SVP, CFO & Chief Acctg Officer: W.R. Jellison

CTO: S.R. Jeffries Founded: 1983 Board Members: M. C. Alfano, E. K. Brandt, P. H. Domicile: Delaware Cholmondeley, M. Coleman, W. F. Hecht, L. A. Jones, F. Employees: 9,300 J. Lunger, J. L. Miclot, J. C. Miles, II, B. W. Wise

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DVN | DVN is in the S&P 500

Devon Energy Corp S&P Recommendation BUY

★★★★★

Price $65.23 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $76.00

Investment Style Large-Cap Blend

Summary Devon Energy is one of the largest independent oil and gas exploration and production companies in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $76.79– 58.58 Trailing 12-Month EPS $6.89 Trailing 12-Month P/E 9.5 $10K Invested 5 Yrs Ago $11,691

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.18 6.02 10.6 435.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$28.375 0.98 $0.64 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.07 -14 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of its position as a large independent exploration and production company in a highly capital-intensive industry that derives value from producing crude oil and natural gas -- commodities with very volatile prices.

120

80 60

40

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 30 20 10 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

4

A+

MODERATE

39 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Michael Kay on October 08, 2010, when the stock traded at $ 66.69. Highlights ➤

➤

Investment Rationale/Risk

In late 2009, DVN began to reposition itself as a pure-play onshore E&P entity. Production growth is expected at Barnett Shale, where DVN is the largest producer, the CanaWoodford Shale, and Jackfish Canadian oil sands, partly offsetting natural gas declines elsewhere from asset sales. DVN will spend $2.3-$2.5 billion on shale plays in 2010, and $588-$636 million on oil sands. We forecast a 4% production decline in 2010, on divestitures, but see 7%-9% growth through 2014. DVN sees 8% growth from onshore in 2010. In 2010, DVN plans to drill 425 wells at Barnett, 115 at Washakie in Wyoming, 85 at Woodford Shale, 100 at Cana-Woodford Shale, and 100 at Wolfberry in the Permian Basin.

➤

After asset sales, DVN will focus 83%, or over $4 billion, of capex on liquids-rich activity. DVN has added rigs at the liquids-rich Wolfberry field and several prospects in the Rockies.

➤

➤ ➤

On higher prices, we see EPS of $6.18 in 2010 (with $0.41 non-cash gain in first half), and $6.02 in 2011, up from $3.89 in 2009. DVN sees 2010 capex of $4.9-$5.3 billion for 2010, up from $3.3 billion in 2009. In May, DVN announced a $3.5 billion share repurchase program.

DVN has sold close to $10 billion in assets from the deepwater GOM, the GOM shelf, Brazil, and Azerbaijan (pending close), and we expect after-tax proceeds near $8 billion. Remaining asset sales are expected by year end at other minor properties. Proceeds are expected to fund onshore drilling, buyback shares, and reduce debt. Through 2011, DVN plans to spend $2.1 billion of proceeds on onshore projects. Also, DVN recently formed a JV with BP plc in the Kirby Oil Sands adjacent to its Jackfish project. DVN is adding acreage at Kirby, CanaWoodford, and Permian Basin. We view DVN's repositioning as a high-growth onshore E&P company positively and believe its stock price does not reflect its growth potential. Risks to our opinion and target price include negative changes in economic, industry, and operating conditions. At 11X our 2011 EPS estimate and 4.6X EV to 2011 EBITDA, DVN trades at a discount to large-cap E&P peers and our $76 proved reserve NAV estimate, which, blended with relative metrics, gives us a 12-month target price of $76. With limited debt and no liquidity concerns, we see upside potential at current levels.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,600 2,232 2009 1,900 1,822 2008 3,763 4,763 2007 2,473 2,929 2006 2,684 2,589 2005 2,351 2,468

3Q -2,098 4,386 2,763 2,696 2,704

4Q -2,251 2,453 3,197 2,609 3,218

Year -8,015 15,365 11,362 10,578 10,741

Earnings Per Share ($) 2010 2.40 0.79 2009 -8.74 0.42 2008 1.45 1.31 2007 1.27 1.82 2006 1.56 1.92 2005 1.14 1.38

E1.26 0.86 5.63 1.43 1.57 1.63

E1.34 1.25 -15.46 2.45 1.26 2.14

E6.18 -6.20 -6.95 6.97 6.29 6.26

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.160 0.160 0.160 0.160

12/02 03/03 06/09 09/14

03/11 06/11 09/13 12/13

03/15 06/15 09/15 12/15

03/31/10 06/30/10 09/30/10 12/31/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DVN

Devon Energy Corp Business Summary October 08, 2010 CORPORATE OVERVIEW. Devon Energy Corp. (DVN) is an independent exploration and production company primarily engaged in the exploration, development and production of oil and natural gas; the acquisition of producing properties; the transportation of oil, natural gas and natural gas liquids (NGLs); and the processing of natural gas. DVN's operations are focused in the U.S. and Canada. So far in 2010, DVN has entered into transactions to sell over $9 billion in assets, mainly in the GOM, Brazil and Azerbaijan, transforming the company into a pure-play onshore North American E&P company. After recent asset dispositions, U.S. activities are concentrated in four regions: the Mid-Continent, the Permian Basin, the Rocky Mountains, and onshore areas of the Gulf Coast. Canadian operations are located in the provinces of Alberta, British Columbia and Saskatchewan. DVN also has marketing and midstream operations that perform various activities to support its oil and gas operations.

spend 47% of its budget on shale plays, 12% on oil sands, 23% on conventional plays and 18% on other unconventional plays. The budget reflects the recently formed $500 million Kirby oil sands joint venture. The Barnett Shale, among the largest onshore natural gas fields in North America, is DVN's most important asset, and DVN is the largest producer there with over 1 Bcfe/day. In Johnson County, Barnett's core, DVN holds 119,000 net acres. In 2010, DVN plans to drill 425 wells in Barnett, up from 336 in 2009. DVN estimates it holds a resource potential of 18 Tcfe in Barnett. In the Cana-Woodford Shale in Oklahoma, DVN holds a net acreage position of 118,000. DVN plans to drill 100 wells at the play in 2010, up from 41 last year. DVN estimates it holds a resource potential of 7 Tcfe in Cana-Woodford. At the Haynesville Shale, DVN holds about 110,000 net acres and plans to drill 25 wells in 2010, up from nine wells in 2009. DVN believes it holds a resource potential of 7 Tcfe in Haynesville.

CORPORATE STRATEGY. DVN recently raised it 2010 capex budget to between $4.9-$5.3 billion, up from $4.4-$4.8 billion, for North American onshore properties, which will be the main focus once asset sales are completed. DVN will Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 21.58 13.13 -6.20 -6.09 0.64 NM 75.05 38.55 NM NM

2008 NA 1.15 -6.95 -7.24 NA NA NA NA NA NA

2007 35.31 13.32 6.97 6.99 0.56 8% 94.75 62.80 14 9

2006 26.09 11.73 6.29 6.29 0.45 7% 74.75 48.94 12 8

2005 20.31 10.87 6.26 6.01 0.30 5% 70.35 36.48 11 6

2004 16.30 8.95 4.38 4.30 0.20 5% 41.64 25.90 10 6

2003 11.50 8.10 4.00 3.99 0.10 3% 29.40 21.23 7 5

2002 3.20 4.04 0.16 0.47 0.10 63% 26.55 16.94 NM NM

2001 4.32 3.54 0.17 0.09 0.10 59% 33.38 15.28 NM NM

2000 11.03 5.37 2.75 NA 0.10 4% 32.37 15.69 12 6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,631 NA 8,516 349 -4,526 39.2% -2,753 -2,671

15,365 -153 3,595 329 -4,033 23.7% -3,079 -3,210

11,362 7,380 2,858 532 4,224 25.5% 3,146 3,144

10,578 6,938 2,442 421 4,012 29.6% 2,823 2,815

10,741 7,290 2,191 533 4,552 35.6% 2,930 2,801

9,189 6,038 2,290 475 3,293 33.6% 2,186 2,136

7,352 4,589 1,793 504 2,245 22.9% 1,731 1,715

4,316 2,403 1,211 533 -134 NM 59.0 147

3,075 2,350 876 220 84.0 35.7% 54.0 22.9

2,784 2,094 693 154 1,142 36.0% 730 NA

Balance Sheet & Other Financial Data (Million $) Cash 646 Current Assets 2,992 Total Assets 29,686 Current Liabilities 3,802 Long Term Debt 5,847 Common Equity 15,570 Total Capital 22,849 Capital Expenditures 4,879 Cash Flow 5,763 Current Ratio 0.8 % Long Term Debt of Capitalization 25.6 % Return on Assets NM % Return on Equity NM

379 2,684 31,908 3,135 5,661 17,060 26,400 9,375 511 0.9 21.4 NM NM

1,736 3,914 41,456 3,657 7,928 22,005 34,972 6,158 5,994 1.1 23.9 8.2 15.9

739 3,212 35,063 4,645 5,568 17,441 28,660 7,551 5,255 0.7 19.4 8.6 17.4

1,606 4,206 30,273 2,934 5,957 14,999 26,362 4,090 5,111 1.4 22.6 9.7 20.3

2,119 3,583 29,736 3,100 7,031 13,673 25,505 3,103 4,466 1.2 27.6 7.7 17.6

1,273 2,364 27,162 2,071 8,635 11,055 24,061 2,587 3,514 1.1 35.9 8.0 21.9

292 1,064 16,225 1,042 7,562 4,652 14,842 3,426 1,260 1.0 51.0 NM NM

193 1,081 13,184 919 6,589 3,258 11,990 5,326 920 1.2 55.0 0.5 1.3

228 934 6,860 629 2,049 3,276 5,953 1,280 1,414 1.5 34.4 11.3 24.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 20 N Broadway, Oklahoma City, OK 73102-8260. Telephone: 405-235-3611. Website: http://www.devonenergy.com Chrmn: J.L. Nichols

Pres & CEO: J. Richels EVP & CFO: J.A. Agosta EVP & General Counsel: L.C. Taylor SVP & Chief Acctg Officer: D.J. Heatly

Investor Contact: V. White (405-552-4526) Founded: 1988 Board Members: R. H. Henry, J. A. Hill, M. Kanovsky, J. Domicile: Delaware T. Mitchell, R. A. Mosbacher, Jr., J. L. Nichols, D. C. Employees: 5,400 Radtke, M. P. Ricciardello, J. Richels

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DV | DV is in the S&P 500

DeVry Inc S&P Recommendation HOLD

★★★★★

Price $45.15 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Education Services

12-Mo. Target Price $50.00

Investment Style Large-Cap Growth

Summary DeVry offers career-oriented degree programs, preparatory coursework for the CPA and CFA exams, and medical, veterinary, and nursing education.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $74.36– 36.34 Trailing 12-Month EPS $3.87 Trailing 12-Month P/E 11.7 $10K Invested 5 Yrs Ago $22,128

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.40 4.95 10.3 70.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.39 12 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects DV's operating struggles for a few years in the middle part of the decade and high levels of regulatory scrutiny being given to for-profit educators, offset by what we consider positive turnaround initiatives.

60 50 40

Quantitative Evaluations

30

S&P Quality Ranking

Vol. Mil.

19

D

9 6 3 0 5

$3.194 0.44 $0.20 85

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ WEAK

20 4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Michael W. Jaffe on August 17, 2010, when the stock traded at $ 38.91. Highlights ➤

➤

➤

We think revenues will rise 14% in FY 11 (Jun.), on our outlook for growth in demand for DV's programs (particularly in the Business, Technology and Management segment), more campus openings, and tuition increases. We see these factors outweighing lower projected average tuition per student, on a likely higher proportion of part-time students and students taking fewer courses per semester. We also see growth being slowed somewhat by capacity constraints at Ross University, delays being experienced in the review process for a planned Ross University clinical education center in Freeport, Grand Bahama, and caution on the part of students considering Freeport. We forecast relatively flat margins in FY 11. We see margins being aided by the greater overall demand we forecast for DV's programs, and by ongoing attention to cost controls. We think these factors will be mostly offset by challenges recently being faced at Ross University. We also expect bad debt expense to remain within DV's historical range of 2.5% to 3%, as we think the favorable earnings potential of careers addressed by the company's programs boosts the loan repayment ability of graduates.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

DeVry continues to see solid overall demand for its programs. We are also positive about the September 2008 purchase of the Carrington Colleges Group (formerly U.S. Education), as we like DV's ongoing strategy of moving away from its previous dominant focus on technology programs. Yet, on some recent operating and regulatory challenges at several schools, and uncertainties from proposed regulations related to debt service-to-income ratios of graduates (where schools could be cut off from federal aid), we find DV shares near a fair valuation. Risks to our recommendation and target price include a major impact from proposed new industry regulations and weaker trends in DV's primary areas of education. The stock recently traded at 9X our calendar 2011 forecast of $4.67, which we think is a deserved premium to DV's peer group. We are positive on DV's prospects, and think its performance will be more consistent than most peers. Yet, DV also faces various issues that recently emerged at certain of its schools. After also factoring in regulatory issues, we apply a multiple of 10.7X to our calendar 2011 EPS estimate, for a 12-month target price of $50.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 431.1 473.0 2009 303.7 369.6 2008 250.3 273.7 2007 219.2 235.6 2006 196.8 209.9 2005 188.4 194.5

3Q 504.4 391.9 291.0 245.8 220.2 201.9

4Q 506.7 396.2 276.8 232.8 216.4 196.5

Year 1,915 1,461 1,092 933.5 843.3 781.3

Earnings Per Share ($) 2010 0.76 1.00 2009 0.48 0.59 2008 0.37 0.49 2007 0.29 0.23 2006 0.07 0.15 2005 0.04 0.08

1.12 0.70 0.53 0.32 0.22 0.17

0.99 0.51 0.34 0.22 0.17 0.09

3.87 2.28 1.73 1.07 0.61 0.38

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100

11/11 05/18

12/09 06/11

12/11 06/15

01/07/10 07/08/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DV

DeVry Inc Business Summary August 17, 2010 CORPORATE OVERVIEW. DeVry offers associate, undergraduate and graduate degree programs through its DeVry University institute. It also operates Becker Professional Education, which provides preparatory coursework for certification exams in accounting and finance; Ross University, which offers medical and veterinary education; Chamberlain College of Nursing, which offers nursing programs; Carrington Colleges Group (formerly U.S. Education; purchased in September 2008, for $290 million in cash), which operates Carrington College and Carrington College California in the western U.S. (names changed from Apollo College and Western Career College, respectively, on June 30), offering certificate and associate degree programs in health care; Fanor (now DeVry Brazil; 82% stake purchased on April 1, 2009, for $40.4 million in cash), a post-secondary education provider in Brazil; and Advanced Academics, which provides online secondary education to school districts throughout the U.S.

and Fanor); as of October 1, 2010, DV was combining its Other Educational Services units into a segment with Becker and DeVry's international business development effort. In FY 09 (Jun.), the Business, Technology and Management segment accounted for 68% of DV's revenues and 51% of operating profits; Medical and Healthcare schools accounted for 25% of revenues and 37% of operating profits; and the Professional Education segment contributed 6% and 12%, respectively. The remaining 2% and a small loss were derived from the Other Educational segment. CORPORATE STRATEGY. In an effort to boost its appeal, DV offers weekend classes, compressed and accelerated course schedules, technology-assisted delivery options for classroom-based courses, and online programs. In FY 01, DV began to operate DeVry University Centers, which are smaller than its campus facilities and more conveniently located for working adults.

In August 2009, DV reported that it had reorganized its operating structure into four segments: Business, Technology and Management (comprised of DeVry University), Medical and Healthcare (Ross University, Chamberlain College of Nursing, and Carrington Colleges Group), Professional Education (Becker Professional Education), and Other Educational Services (Advanced Academics Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 6.62 4.73 3.87 3.86 0.20 5% 74.36 36.34 19 9

2009 2.96 2.98 2.28 2.34 0.16 7% 64.69 38.19 28 17

2008 5.40 2.28 1.73 1.76 0.12 7% 61.57 39.25 36 23

2007 4.13 1.69 1.07 0.89 0.10 9% 59.97 26.10 56 24

2006 2.96 1.29 0.61 0.61 Nil Nil 28.75 18.50 47 30

2005 2.06 1.19 0.38 0.29 Nil Nil 24.84 15.45 65 41

2004 1.53 1.62 0.82 0.77 Nil Nil 32.38 13.00 39 16

2003 0.45 1.45 0.87 0.83 Nil Nil 30.15 15.90 35 18

2002 3.94 1.42 0.95 0.91 Nil Nil 34.76 12.10 37 13

2001 2.95 1.27 0.82 0.79 Nil Nil 40.25 22.75 49 28

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,915 473 62.2 1.59 413 NA 280 279

1,461 2,994 50.5 2.78 237 30.2% 166 170

1,092 206 39.7 0.52 172 27.1% 126 128

933 132 44.0 4.78 105 27.4% 76.2 63.5

843 116 48.1 10.2 57.5 25.1% 43.1 42.8

781 101 57.6 9.05 34.7 23.1% 26.7 20.2

785 139 55.6 7.80 81.4 28.6% 58.1 54.6

680 128 40.3 1.28 86.5 29.3% 61.1 58.4

648 144 33.5 0.81 111 39.4% 67.1 64.4

568 128 32.0 0.40 95.9 39.8% 57.8 55.8

Balance Sheet & Other Financial Data (Million $) Cash 323 Current Assets 500 Total Assets 1,628 Current Liabilities 344 Long Term Debt NA Common Equity 1,179 Total Capital 1,184 Capital Expenditures 131 Cash Flow 342 Current Ratio 1.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 14.6 % Return on Assets 18.3 % Return on Equity 26.6

225 385 1,434 392 20.0 927 999 74.0 216 1.0 2.0 11.3 13.5 19.7

220 326 1,018 211 Nil 756 778 62.8 165 1.6 Nil 11.5 13.5 18.0

129 219 844 166 0.01 642 660 38.6 120 1.3 0.0 8.2 8.9 12.6

131 228 872 211 65.0 565 642 25.3 91.2 1.1 10.1 5.1 4.8 8.0

162 242 910 187 175 508 704 42.9 84.3 1.3 24.8 3.4 3.0 5.4

160 209 884 156 215 478 711 42.8 114 1.3 30.2 7.4 6.7 13.0

123 170 857 139 275 416 704 43.8 101 1.2 39.1 9.0 9.2 15.9

78.9 118 468 104 Nil 354 354 85.9 101 1.1 Nil 10.4 15.6 21.0

49.7 88.6 392 94.4 Nil 285 285 74.6 89.8 0.9 Nil 10.2 16.1 22.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Tower Ln Ste 1000, Oakbrook Terrace, IL 60181-4624. Telephone: 630-571-7700. Website: http://www.devryinc.com Chrmn: H.T. Shapiro

Pres & CEO: D. Hamburger SVP, CFO, Chief Acctg Officer & Treas: R.M. Gunst SVP, Secy & General Counsel: G.S. Davis SVP & CIO: E.P. Dirst

Investor Contact: J. Bates (630-574-1949) Founded: 1931 Board Members: D. S. Brown, C. Curran, D. Domicile: Delaware Hamburger, D. R. Huston, W. T. Keevan, L. Logan, J. A. Employees: 12,117 McGee, L. W. Pickrum, F. Ruiz, H. T. Shapiro, R. L. Taylor

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DO | DO is in the S&P 500

Diamond Offshore Drilling Inc. S&P Recommendation SELL

★★★★★

Price $69.51 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Drilling

12-Mo. Target Price $61.00

Investment Style Large-Cap Blend

Summary This company provides offshore contract drilling services to the oil and gas industry, and owns one of the world's largest fleets of semisubmersible rigs.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $108.51– 54.70 Trailing 12-Month EPS $8.31 Trailing 12-Month P/E 8.4 $10K Invested 5 Yrs Ago $17,779

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

7.02 6.72 9.9 139.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.664 0.72 $0.50 97

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.82 -18 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects DO's exposure to volatile crude oil and natural gas prices, capital spending decisions made by its oil and gas producing customers, risks associated with operating in frontier regions, and an uncertain domestic regulatory regime.

120 100 80 60

Quantitative Evaluations Vol.

S&P Quality Ranking

40

Mil.

5

B

32

15 10 5 0

D

C

B-

B

B+

A-

A

Relative Strength Rank 4

3

4

3

2

1

A+

MODERATE 67

LOWEST = 1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Highlights ➤

The STARS recommendation for DO has recently been changed to 2 (sell) from 3 (hold). The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on DO from MarketScope, see below.

➤

10/21/10 11:17 am ET ... S&P MAINTAINS SELL OPINION ON SHARES OF DIAMOND OFFSHORE DRILLING (DO 68.47**): Q3 EPS of $1.43, vs. $2.62, is $0.01 below our estimate. Results were led by weaker dayrates and utilization for highspecification floaters. While the deepwater market appears to be rebounding in international markets, we remain concerned about prospects for midwater units. On the call, DO also echoed industry concerns that the U.S. Gulf will not recover until the permit process improves. Updating, we cut our '10 EPS estimate $0.09 to $7.02, and lower '11's by $0.12 to $6.72. On net asset value model and relative metrics, we keep our target price at $61. The shares yield 5%. /S. Glickman

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 859.7 822.6 2009 885.7 946.4 2008 786.1 954.4 2007 608.2 648.9 2006 447.7 512.2 2005 258.8 283.4

3Q -908.4 900.4 644.0 514.5 310.5

4Q -890.8 903.2 666.7 578.2 368.3

Year -3,631 3,544 2,568 2,053 1,221

Earnings Per Share ($) 2010 2.09 1.61 2009 2.51 2.79 2008 2.09 2.99 2007 1.64 1.81 2006 1.06 1.27 2005 0.23 0.31

E1.43 2.62 2.23 1.48 1.19 0.60

E1.89 1.98 2.11 1.19 1.60 0.78

E7.02 9.89 9.43 6.12 5.12 1.91

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

.75 Spl. 0.125 .775 Spl. 0.125

07/22 07/22 10/21 10/21

07/29 07/29 10/28 10/28

08/02 08/02 11/01 11/01

09/01/10 09/01/10 12/01/10 12/01/10

Dividends have been paid since 1997. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DO

Diamond Offshore Drilling Inc. Business Summary September 20, 2010 CORPORATE OVERVIEW. Diamond Offshore Drilling is engaged in contract drilling of offshore oil and gas wells, with a focus on deepwater drilling. As of January 2010, the company owned 47 mobile offshore drilling rigs: 32 semisubmersible rigs, 14 jackup rigs, and one drillship. The rigs operated in the Gulf of Mexico (GOM), the U.K. North Sea, South America, Africa, Australia and Southeast Asia. About 66% of 2009 revenues came from outside the United States. DO served 47 customers in 2009, with Petrobras accounting for 15% of total revenues.

and water depths of up to 7,500 ft. The other 19 semisubmersibles (48%, 47%) operate in maximum water depths of 4,000 ft.

Semisubmersible rigs, or floaters (87% of 2009 contract drilling revenues and 90% of segment operating income), operate in a semisubmerged position, afloat off the bottom, with the lower hull 55 ft. to 90 ft. below the water line, and the upper deck well above the surface. Floaters are typically anchored in position, but three company floaters are held in position by computer-controlled thrusters (dynamically positioned, or DP). Of DO's 33 floaters, 14 are high specification rigs (39%, 43%) capable of working in harsh environments

Drillships, typically self-propelled, are positioned over a drillsite through the use of either an anchoring or DP system. The company owns one drillship, the Ocean Clipper, operating offshore Brazil.

Jackup rigs (13%, 10%) are mobile, self-elevating drilling platforms equipped with legs that are lowered to the ocean floor until a foundation is established to support the rig. DO's 14 jackup rigs are used extensively for drilling in water depths from 20 ft. to 350 ft. The principal market for the jackups is the GOM, where seven of them are located.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 26.11 12.38 9.89 9.85 0.50 5% 108.78 53.30 11 5

2008 24.09 11.49 9.43 9.41 4.13 44% 147.77 54.52 16 6

2007 20.72 7.79 6.12 6.07 0.50 8% 149.30 73.50 24 12

2006 17.95 6.54 5.12 5.13 0.50 10% 97.90 62.26 19 12

2005 14.38 3.14 1.91 1.84 0.38 20% 71.97 37.91 38 20

2004 12.64 1.33 -0.06 -0.07 0.25 NM 40.47 20.00 NM NM

2003 12.91 0.98 -0.37 -0.35 0.44 NM 23.80 17.06 NM NM

2002 13.68 1.71 0.47 0.30 0.50 106% 34.99 17.30 74 37

2001 13.74 2.35 1.31 1.15 0.50 38% 45.65 22.83 35 17

2000 12.86 1.50 0.53 NA 0.50 94% 47.94 26.50 90 50

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,631 NA 346 49.6 1,868 26.3% 1,376 1,371

3,544 2,233 287 10.1 1,848 29.0% 1,311 1,308

2,568 1,454 235 28.5 1,247 32.1% 847 841

2,053 1,141 201 24.1 966 26.9% 707 707

1,221 510 184 41.8 356 27.0% 260 250

815 213 179 30.3 -3.53 NM -7.24 -10.5

681 138 176 23.9 -54.2 NM -48.4 -45.5

753 229 177 23.6 96.2 35.0% 62.5 36.9

885 395 170 26.2 272 33.3% 182 157

659 203 146 10.3 111 34.8% 72.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 777 Current Assets 1,723 Total Assets 6,264 Current Liabilities 413 Long Term Debt 1,495 Common Equity 3,631 Total Capital 5,130 Capital Expenditures 1,362 Cash Flow 1,723 Current Ratio 4.2 % Long Term Debt of Capitalization 29.2 % Return on Assets 24.6 % Return on Equity 39.4

737 1,467 4,939 509 503 3,349 4,311 667 1,598 2.9 11.7 28.3 42.1

639 1,265 4,341 453 507 2,877 3,778 647 1,082 2.8 14.9 20.0 32.6

826 1,482 4,133 334 964 2,320 3,284 551 907 4.4 29.4 18.3 33.9

843 1,282 3,607 269 978 1,853 3,276 294 444 4.8 29.8 7.5 15.0

266 1,196 3,379 614 709 1,626 2,705 89.2 172 1.9 26.2 NM NM

610 835 3,135 100 928 1,680 2,993 209 127 8.4 31.0 NM NM

813 1,034 3,259 118 924 1,808 3,107 274 240 8.7 29.8 1.8 3.4

1,147 1,427 3,503 335 921 1,853 3,150 269 352 4.3 29.2 5.5 10.0

862 1,101 3,080 123 857 1,768 2,941 324 218 8.9 29.1 2.5 4.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 15415 Katy Freeway, Houston, TX 77094-1803. Telephone: 281-492-5300. Website: http://www.diamondoffshore.com Chrmn: J.S. Tisch

Pres & CEO: L.R. Dickerson SVP & CFO: G.T. Krenek SVP, Secy & General Counsel: W.C. Long Chief Acctg Officer & Cntlr: B.G. Gordon

Investor Contact: L. Van Dyke (281-492-5370) Board Members: J. R. Bolton, L. R. Dickerson, C. L. Fabrikant, P. G. Gaffney, II, E. Grebow, H. C. Hofmann, A. L. Rebell, J. S. Tisch, R. S. Troubh

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1989 Domicile: Delaware Employees: 5,500

Stock Report | October 23, 2010 | NNM Symbol: DTV | DTV is in the S&P 500

DIRECTV S&P Recommendation HOLD

★★★★★

Price $42.72 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Cable & Satellite

12-Mo. Target Price $40.00

Investment Style Large-Cap Blend

Summary As the larger of the two major satellite TV providers -- with over 18.8 million subscribers across the U.S., and 7.7 million in Latin America (including Brazil, Mexico and the PanAmericana regions) -- DIRECTV merged with Liberty Media Entertainment in November 2009.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $43.28– 25.16 Trailing 12-Month EPS $1.52 Trailing 12-Month P/E 28.1 $10K Invested 5 Yrs Ago $30,406

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.28 2.83 18.7 900.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$38.475 Nil Nil 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.84 20 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as ample financial flexibility, and a projected acceleration of free cash flow, offset by increased competition from cable operators' bundled offerings.

40

25 20 15

Quantitative Evaluations S&P Quality Ranking

Vol. 227

Mil.

D

60 40 20 0 5

C

B-

BB

B+

A-

Relative Strength Rank

A

A+

MODERATE 67

4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Tuna N. Amobi, CFA, CPA on August 24, 2010, when the stock traded at $ 37.61. Highlights ➤

➤

➤

We project DTV U.S. gross subscriber addition of about 4.0 million and 4.2 million for 2010 and 2011, respectively, mainly on gains across the direct sales and independent retail channels, and relatively strong contributions from telco partners. Assuming stable average monthly churn of 1.5%-1.6%, we see 500,000 and 600,000 in the respective years, reaching over 19.6 million subscribers by the end of 2011. Factoring in solid subscriber growth at the DTV Latin America unit, higher ARPU on advanced HD DVR services, and improved advertising outlook, we expect consolidated revenue growth of 12% and 11% in 2010 and 2011, to over $24.1 billion and $26.8 billion, respectively. Further margin expansion should reflect some retention/upgrade cost control, versus higher SAC and programming costs. We see consolidated EBITDA up 21% and 14% in 2010 and 2011, respectively, to $6.3 billion and $7.2 billion. After D&A and interest expense, we forecast EPS of $2.28 and $2.83 in the respective years, with continued share buybacks.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Despite some notable deceleration of 2010 first half subscriber growth and tentative full year guidance for DTV U.S., we are encouraged by continued solid momentum at the Latin America unit. We believe DTV recently enhanced its corporate governance structure following the elimination of dual-class shares in the wake of a recent reduction of John Malone's voting stake. An ongoing strategic review could offer some operating and capitalization blueprints following the Liberty Entertainment merger. We see ample financial flexibility, noting DTV's plans to tap the capital markets toward a 2.5X debt/ EBITDA leverage target by 2011. Risks to our recommendation and target price include uncertainties with the strategic review, and ratcheted pay TV competition on bundled offerings from cable and telco providers. Our 12-month target price is $40, derived by using a 7.1X multiple on our 2010 estimate EV/ EBITDA, and $2,500 per subscriber, which we see as ample relative to DISH Network (DISH 18, Hold). DTV recently had about $1.7 billion of foreign net operating loss carryforwards.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 5,608 -2009 4,901 5,218 2008 4,591 4,807 2007 3,908 4,135 2006 3,386 3,520 2005 3,148 3,188

3Q -5,465 4,981 4,327 3,667 3,233

4Q -5,981 5,314 4,876 4,183 3,596

Year -21,565 19,693 17,246 14,756 13,165

Earnings Per Share ($) 2010 0.59 0.60 2009 0.20 0.40 2008 0.32 0.40 2007 0.27 0.36 2006 0.17 0.36 2005 -0.03 0.10

E0.53 0.38 0.33 0.27 0.30 0.07

E0.60 -0.03 0.31 0.30 0.29 0.09

E2.28 0.95 1.36 1.19 1.12 0.22

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 1997.

Stock Report | October 23, 2010 | NNM Symbol: DTV

DIRECTV Business Summary August 24, 2010 CORPORATE OVERVIEW. The DIRECTV Group (formerly Hughes Electronics) is a leading provider of direct broadcast satellite (DBS) television service, providing hundreds of digital video and audio channels to nearly 18.6 million monthly subscribers in the U.S., and a selection of local and international programming to almost 6.7 million subscribers in Latin America -- mostly through Sky Brazil (74% equity stake), Sky Mexico (41%) and PanAmericana (100%), including Venezuela, Puerto Rico and Argentina. DTV distributes its services mainly through direct sales and retail channels, and through co-branding partnerships with three of the four RBOCs. In November 2009, DTV completed its merger with Liberty Entertainment (LEI), and named Michael White, retiring CEO of PepsiCo International, as its CEO effective January 1, 2010. CORPORATE STRATEGY. DTV offers almost 160 national HD channels (which it plans to expand to nearly 200 after the recently successful launch of its D12 satellite), and local HD covering nearly 90% of U.S. TV homes. DTV also aims for differentiation on plans to launch new features such as whole-home functionality (including multi-room viewing) and broadband connectivity (for VOD,

TV and multi-media applications), as well as a search functionality, a movie service, and three 3D TV channels. DTV also offers NFL Sunday Ticket sports programming -- with a contract through the 2014 season. In February 2010, the new CEO articulated some key priorities (including multi-platform access, customer service and international expansion), and expects completion of the board's ongoing strategic review by spring. In July 2008, DTV acquired 180 Connect Inc., a major installation service provider, which it estimates fulfills 15%-20% of its work orders. In June 2007, DTV and DISH Network unveiled distribution pacts to offer WiMax-based wireless high-speed broadband service from Clearwire, which in turn will offer their DBS video services, with both DBS companies offering data, video and voice services in CLWR's markets starting in 2007. Earlier, in 2004, DTV divested assets such as Hughes Networks Systems and PanAmSat, and DTV Latin America emerged from a bankruptcy reorganization.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.61 0.95 0.98 Nil Nil 34.25 18.81 36 20

2008 NM 3.44 1.36 1.35 Nil Nil 29.10 19.40 21 14

2007 0.92 2.59 1.19 1.18 Nil Nil 27.73 20.73 23 17

2006 1.10 1.93 1.12 1.05 Nil Nil 25.57 13.28 23 12

2005 2.17 0.83 0.22 0.20 Nil Nil 17.01 13.17 77 60

2004 1.61 -0.16 -0.77 -0.96 Nil Nil 18.81 14.70 NM NM

2003 4.36 0.27 -0.27 -0.32 Nil Nil 16.91 9.40 NM NM

2002 2.76 0.88 -0.21 -0.78 Nil Nil 17.55 8.00 NM NM

2001 NM 0.50 -0.55 -0.86 Nil Nil 28.00 11.50 NM NM

2000 4.20 0.73 -0.34 NA Nil Nil 46.67 21.33 NM NM

NA NA NA 423 1,834 45.1% 942 976

19,693 5,029 2,320 360 2,471 35.0% 1,515 1,498

17,246 4,145 1,684 286 2,388 39.5% 1,434 1,410

14,756 3,274 1,034 246 542 NM 1,420 1,336

13,165 1,441 853 238 480 36.1% 305 279

11,360 -1,281 838 132 -1,734 NM -1,056 -1,312

9,372 617 755 156 -478 NM -375 -439

8,935 668 1,067 336 -140 NM -213 -862

8,262 390 1,148 196 -990 NM -614 -923

7,288 594 948 218 -816 NM -355 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,605 Current Assets NA Total Assets 18,260 Current Liabilities NA Long Term Debt 6,500 Common Equity 2,911 Total Capital NA Capital Expenditures NA Cash Flow 3,582 Current Ratio 0.9 % Long Term Debt of Capitalization 59.5 % Net Income of Revenue NA % Return on Assets 5.4 % Return on Equity 24.3

2,005 4,044 16,539 3,585 6,267 4,853 11,205 2,229 3,835 1.1 55.9 7.7 9.6 27.2

1,098 3,146 15,063 3,434 3,347 6,302 10,227 2,692 3,118 0.9 32.7 8.3 9.5 22.1

2,499 4,556 15,141 3,323 3,395 6,681 10,138 1,754 2,455 1.4 33.5 9.6 9.2 19.4

3,701 6,096 15,630 2,828 3,405 7,940 11,395 889 1,158 2.2 29.9 2.3 2.0 3.9

2,830 4,771 14,324 2,695 2,410 7,507 9,965 1,023 -218 1.8 24.2 NM NM NM

1,720 10,356 18,978 5,840 2,435 9,631 12,305 444 380 1.8 19.8 NM NM NM

1,129 3,656 17,885 3,203 2,390 9,063 12,590 566 808 1.1 19.0 NM NM NM

700 3,341 19,210 4,407 989 9,574 13,339 799 438 0.8 7.4 NM NM NM

1,508 4,154 19,279 2,691 1,292 10,830 14,941 939 496 1.5 8.6 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2230 E Imperial Hwy, El Segundo, CA 90245-3531. Telephone: 310-964-5000. Website: http://www.directv.com Chrmn, Pres & CEO: M.D. White

COO: M.W. Palkovic EVP & CFO: P.T. Doyle EVP, Chief Admin Officer & General Counsel: L.D. Hunter EVP & CTO: R.C. Pontual

Investor Contact: J. Rubin (212-462-5200) Founded: 1977 Board Members: N. R. Austrian, R. F. Boyd, Jr., S. A. Domicile: Delaware DiPiazza, Jr., C. R. Lee, P. A. Lund, N. S. Newcomb, M. Employees: 23,300 D. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DFS | DFS is in the S&P 500

Discover Financial Services Inc S&P Recommendation STRONG BUY

★★★★★

Price $17.41 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Consumer Finance

12-Mo. Target Price $21.00

Investment Style Large-Cap Growth

Summary This leading U.S. credit card issuer and payment services company offers credit and prepaid cards and provides payment processing services to merchants and financial institutions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.94– 12.11 Trailing 12-Month EPS $1.20 Trailing 12-Month P/E 14.5 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.08 1.99 16.1 544.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.481 0.46 $0.08 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.61 12 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as solid business fundamentals and an increasing merchant base, tempered by DFS's exposure to consumer spending habits and the U.S. economy.

30

15 10

Quantitative Evaluations 5

S&P Quality Ranking

Vol.

D

C

B-

NR B

B+

A-

A

A+

141

Mil. 45 30 15 0

Relative Strength Rank

STRONG 78

LOWEST = 1

5

5

3

3

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Rafay Khalid, CFA on September 20, 2010, when the stock traded at $ 16.00. Highlights ➤

➤

➤

We expect total revenue growth of 41% in FY 10 (Nov.), excluding one-time legal settlement revenue, and up 3% in FY 11. Our outlook reflects our view for an increase in average managed loans in the Discover credit card business. We see net interest margins of 9.14% in FY 10 and 9.30% FY 11, versus 9.48% in FY 09. On September 17, DFS agreed to acquire The Student Loan Corporation (STU $29.91, NR) for $600 million or $30 per share. We believe DFS's loss provisions will decline in FY 10 and FY 11, given our outlook for managed charge-offs to be below many industry peers. We note that DFS's managed charge-off rate in FY 09 was 8.0%, and below the industry average of 9.8%. We see expenses on an absolute dollar basis increasing in FY 10 and FY 11, reflecting our expectation for higher employee compensation costs. However, expenses as a percentage of total revenues, should decline to 31.3% in FY 10 and 31.0% in FY 11, from 46.5% in FY 09. We see operating EPS of $1.08 in FY 10 and $1.99 in FY 11, compared to operating EPS of $1.64 in FY 09. We assume an effective tax rate of 39.4% in FY 10 and 39.7% in FY 11.

Investment Rationale/Risk ➤

➤

➤

We believe DFS's managed charge-offs will continue to be below peers in FY 10 and FY 11, reflecting what we see as its conservative customer base and solid credit risk management. In addition, we think the company's judgmental decision process will help strengthen its risk management system, as it adds a human element to the traditional computer-generated system. We see Diners Club International increasing its contribution to the company's payment transaction volume, as we forecast international expansion, increasing global acceptance, and the creation of new partnerships. Risks to our recommendation and target price include a significant increase in U.S. unemployment levels, a rapid decline in consumer spending, and an increase in loan loss provisions. Our 12-month target price of $21 is based on a three-year historical premium book value ratio of 1.55X our FY 2011 book value per share estimate of $13.64. We believe this premium to the historical basis is warranted, reflecting what we see as below-industry charge-offs, and growth in the loan portfolio and payment transaction volume.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,105 2,065 2009 2,006 1,939 2008 1,638 1,457 2007 1,506 1,575 2006 --2005 ---

3Q 2,100 2,149 1,557 1,601 ---

4Q -1,892 2,305 1,752 ---

Year -7,986 6,957 6,434 6,211 --

Earnings Per Share ($) 2010 -0.22 0.33 2009 0.25 0.43 2008 0.50 0.42 2007 0.55 0.44 2006 -0.72 2005 ---

0.47 1.07 0.37 0.42 0.51 --

E0.50 0.60 0.92 -0.18 0.39 --

E1.08 2.39 2.20 1.23 1.89 --

Fiscal year ended Nov. 30. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.020 0.020 0.020 0.020

12/17 03/16 06/16 09/15

12/29 03/30 07/02 10/05

12/31 04/01 07/07 10/07

01/21/10 04/22/10 07/22/10 10/21/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DFS

Discover Financial Services Inc Business Summary September 20, 2010 CORPORATE OVERVIEW. Discover Financial Services (DFS), formerly a business segment of Morgan Stanley, is a credit card issuer and electronic payment services company. DFS offers credit and prepaid cards and other financial products and services to qualified customers in the United States, and provides payment processing and related services to merchants and financial institutions across the globe. DFS manages its operations through two business segments: Direct Banking and Payments Services. The Direct Banking segment is the major contributor to the company, in terms of income before income taxes. The Payments Services segment is modestly profitable but continues to comprise a growing portion of DFS's income stream.

cardmembers as well as to new customers. DFS accepts applications for installment loans online, by phone or by mail.

The Direct Banking segment offers Discover Card-branded credit cards issued to more than 50 million individuals and small businesses over the Discover Network, which is the company's proprietary credit card network in the United States. The segment also includes DFS's other consumer products and services businesses, including prepaid and other consumer lending and deposit products offered primarily through the company's Discover Bank subsidiary. The company entered the debit card business in 2006, allowing banks to offer Discover-branded debit cards.

The Payment Services segment includes the Discover network, PULSE and the Diners Club International business. PULSE, an automated teller machine (ATM), debit and electronic funds transfer network, serves more than 4,400 financial institutions and includes more than 289,000 ATMs, as well as pointof-sale terminals nationwide. The Diners Club International network is in over 185 countries. Diners Club International's 79 licensees issues credit cards and provide card acceptance services.

DFS offers money market accounts and certificates of deposit directly to its cardmembers using proprietary models to execute targeted statement insert, e-mail, and direct mail campaigns. Aside from direct-to-consumer deposits, DFS obtains deposits through third-party securities brokers that offer DFS's certificates of deposit to their customers. DFS uses deposits to finance its credit card and installment loan businesses. In the long-term, it expects to increase its direct-to-consumer deposit business.

In addition to credit cards, DFS offers installment loan products, including personal loans and student loans. It offers installment loan products to existing Company Financials Fiscal Year Ended Nov. 30 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.48 2.39 0.10 0.12 5% 17.36 4.73 7 2

2008 11.37 2.20 1.00 0.24 11% 19.87 6.59 9 3

2007 10.98 1.23 1.23 0.06 5% 32.17 14.81 26 12

2006 NA 1.89 2.26 Nil NA NA NA NA NA

2005 NA NA 1.21 NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

1,894 NA 4,841 2,362 33.4% 2,150 39.8% 1,294 4.74 47.2

1,405 NA 4,264 1,596 NA 1,658 35.9% 1,063 NA 485

1,506 NA 3,546 950 49.0% 945 37.7% 589 NA 587

1,459 NA 3,539 756 55.5% 1,467 31.8% 1,001 NA 1,078

NA NA NA NA NA 924 37.5% 578 NA 578

NA NA NA NA NA 1,219 36.3% 776 NA NA

NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 1,350 Investment Securities 5,035 Commercial Loans 404 Other Loans 19,826 Total Assets 46,021 Demand Deposits 64.5 Time Deposits 32,029 Long Term Debt 1,804 Common Equity 7,277 % Return on Assets 3.0 % Return on Equity 19.6 % Loan Loss Reserve 8.0 % Loans/Deposits 80.6 % Equity to Assets 15.4

9,378 1,228 466 24,751 39,892 78.4 28,452 1,330 5,916 2.8 18.5 NA NA 14.9

8,416 526 234 23,720 37,376 82.0 24,644 2,134 5,599 1.8 10.4 3.8 96.8 17.1

Nil 86.0 111 21,707 32,403 86.0 21,042 1,706 5,425 NM NM 3.5 NM NM

NA NA NA NA 26,944 NA NA NA 4,600 NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. 2006 data pro forma; bal. sheet as of Feb. 28 '07. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2500 Lake Cook Road, Riverwoods, IL 60015. Telephone: 224-405-0900. Website: http://www.discover.com Chrmn & CEO: D.W. Nelms

Pres & COO: R.C. Hochschild EVP, CFO & Treas: R.A. Guthrie EVP, Secy & General Counsel: K.M. Corley SVP, Chief Acctg Officer & Cntlr: M.A. Zaeske

Board Members: J. S. Aronin, M. K. Bush, G. Case, R. Founded: 1960 M. Devlin, C. A. Glassman, R. H. Lenny, T. G. Domicile: Delaware Maheras, M. H. Moskow, D. W. Nelms, E. F. Smith, L. A. Employees: 10,500 Weinbach

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: DISCA | DISCA is in the S&P 500

Discovery Communications Inc

★★★★★

S&P Recommendation STRONG BUY

Price $43.73 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Broadcasting & Cable TV

12-Mo. Target Price $55.00

Investment Style Large-Cap Growth

Summary This pure-play cable networks company, with brands such as Discovery, Animal Planet and TLC, is a leading global provider of non-fiction entertainment through 115 networks in 180 countries broadcasting in 35 languages.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.39– 26.64 Trailing 12-Month EPS $1.24 Trailing 12-Month P/E 35.3 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.87 2.26 23.4 284.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Our risk assessment reflects the company's leading position as a provider of niche programming with global appeal, combined with business and geographic diversification and a strong balance sheet, offset by some concerns with the corporate governance framework, such as the company's multi-class stock structure.

20

10

1-for-2

Quantitative Evaluations

Vol. Mil.

82

S&P Quality Ranking

12 8 4 0

D 5

C

B-

NR B

B+

A-

A

Relative Strength Rank

5

A+ STRONG

71

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Tuna N. Amobi, CFA, CPA on September 22, 2010, when the stock traded at $ 43.28. Highlights We expect consolidated revenues to advance about 7% in 2010 (ex- Discovery Kids, Animal Planet, Japan and Travel Channel), to nearly $3.8 billion, and then 6.5% in 2011, to $4.1 billion -- assuming double-digit growth in U.S. and, to a greater extent, international advertising revenues, and mid- to high single digit growth in worldwide affiliate fees. Conversely, we see continuing challenges in 2010 resulting in further sharp declines for the relatively small commerce and education businesses, improving to a relatively modest gain in 2011. We anticipate continued significant margin expansion across both the U.S. and international networks -- with potentially significant upside still ahead for the latter division, as it further benefits from increased operating leverage on restructuring actions. After modestly higher operating expenses (programming and SG&A), we see 15% and 9% adjusted EBITDA growth in 2010 and 2011, respectively, to nearly $1.7 billion and over $1.8 billion, and after D&A, interest expense and taxes, EPS of $1.87 and $2.26 -- with some share buybacks under a new $1 billion plan.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, Ph

➤

1.26 20 NA

Below Avg.

30

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

➤

$5.960 Nil Nil NM

DISCA's stronger-than-expected 2010 second quarter results reflected a global ad rebound, as the company exploits a ratings resurgence across its core networks -- coming off a strong upfront season for its domestic channels (including the imminent Oprah Winfrey Network). With a strong management team and an asset portfolio providing enhanced business and geographic diversification, we see the company as well positioned for above-average growth in earnings and free cash flow through economic cycles. We note DISCA's strong balance sheet -- with financial flexibility enhanced by a recent $3 billion debt refinancing. Risks to our recommendation and target price include a weaker-than-expected macroeconomic rebound, a sharp U.S. ratings decline, uncertainties with OWN and The Hub rebranding, potential governance issues on multiple classes of shares, and currency exposure. We see nearly $1.6 billion of free cash in 2010 and 2011 combined (after modest capex). Our 12-month target price is $55, on 14X 2011E EV/ EBITDA and 1.3X P/E-to-growth, warranted premiums to peers and the S&P 500, in our view.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 879.0 963.0 2009 817.0 881.0 2008 189.3 194.5 2007 173.9 177.2 2006 153.6 165.8 2005 174.3 178.0

3Q -854.0 845.0 177.9 169.9 167.9

4Q -964.0 904.0 178.2 198.9 174.3

Year -3,516 3,443 707.2 688.1 694.5

Earnings Per Share ($) 2010 0.39 0.25 2009 0.28 0.43 2008 0.24 0.32 2007 0.14 0.52 2006 0.08 0.10 2005 0.12 0.02

E0.48 0.22 0.31 0.06 -0.54 Nil

E0.51 0.36 0.25 -1.22 0.04 0.08

E1.87 1.30 0.85 -0.48 -0.32 0.24

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: DISCA

Discovery Communications Inc Business Summary September 22, 2010 CORPORATE OVERVIEW. Discovery Communications, Inc. (DISCA) is a leading global media and entertainment company (and a pure-play cable networks operator) reaching 368 million households and over 1.5 billion total subscribers, through 115 networks in 173 countries broadcasting in 35 languages. DISCA primarily provides nonfiction programming through networks such as Discovery Channel, TLC, Animal Planet, Science Channel, Planet Green, Investigation Discovery and HD Theater. DISCA also provides consumer and educational products and services, and owns a portfolio of digital media services (e.g., HowStuffWorks.com). In 2009, revenues and adjusted EBITDA contributions from the company's three divisions were: US Networks, 61% and 72%, respectively; International Networks, 34% and 27%; and Commerce, Education and Other, 5% and 1%. Three networks (Discovery Channel, TLC and Animal Planet) account for about 78% of U.S. revenues. Total revenues are mostly derived from distribution fees (50% of 2009 revenues) and advertising (39%) -- the latter comprising 52% and 29% of U.S. and international revenues, respectively.

ery Times Channel as ID: Investigation Discovery (November 2007). It has also decided to rebrand the Discovery Health Channel as OWN: The Oprah Winfrey Network (announced in January 2008); and Discovery Kids as The Hub (January 2010). Domestically, DISCA focuses on improving the visibility and image of some of its less profitable networks through 50/50 joint ventures with known brands such as Hasbro Inc. and Oprah Winfrey -- with The Hub and OWN set for launch in 2010 and 2011, respectively. In January 2010, as part of a three-member consortium that also includes Sony Corp. and IMAX Corp., the company announced plans for a joint venture to launch a linear 3D television channel in 2011. Meanwhile, the company also wants to get onto new distribution platforms such as brand-aligned Web properties, mobile devices and broadband channels. Internationally, growth is mostly focused on new subscription contracts and boosting the company's advertising business (which lacks the strength it has in the U.S.).

CORPORATE STRATEGY. To modernize its underdeveloped networks, DISCA rebranded Discovery Home Channel as Planet Green (April 2007) and DiscovCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.68 1.30 0.89 Nil Nil 32.69 12.46 25 10

2008 NM 3.35 0.85 0.85 Nil Nil 53.66 10.02 63 12

2007 NA NA -0.48 0.24 NA NA NA NA NA NA

2006 17.66 0.16 -0.32 0.34 Nil Nil 33.92 25.62 NM NM

2005 17.42 0.78 0.24 0.18 Nil Nil 32.60 27.02 NM NM

2004 NM 1.02 0.48 0.44 Nil Nil NA NA NA NA

2003 NM 0.12 -0.38 -0.40 Nil Nil NA NA NA NA

2002 NM -0.30 -0.78 NA Nil Nil NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

3,516 NA 155 250 1,031 45.8% 560 378

3,443 1,965 804 258 754 46.7% 274 274

707 NA 67.7 NA -9.23 NM -68.4 34.1

688 56.2 67.9 Nil -2.07 NM -46.0 46.1

695 74.2 76.4 Nil 82.1 59.5% 33.3 24.2

631 94.6 77.6 Nil 101 34.6% 66.1 62.2

506 72.2 70.5 72.2 -34.5 NM -52.4 -54.4

539 89.0 67.3 64.8 -141 NM -109 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 623 Current Assets 1,680 Total Assets 10,965 Current Liabilities 790 Long Term Debt 3,457 Common Equity 6,206 Total Capital 9,763 Capital Expenditures 57.0 Cash Flow 715 Current Ratio 2.1 % Long Term Debt of Capitalization 35.6 % Net Income of Revenue 15.9 % Return on Assets 5.2 % Return on Equity 9.5

100 1,109 10,484 1,070 3,331 5,534 9,325 102 1,078 1.0 36.4 8.0 3.4 5.5

209 372 5,866 120 NA 4,494 4,494 47.1 -0.66 3.1 Nil NM NM NM

155 317 5,871 122 Nil 4,549 5,724 77.5 21.9 2.6 Nil NM NM NM

250 400 5,819 89.9 Nil 4,575 5,707 90.5 110 4.5 Nil 4.8 0.6 0.7

34.4 212 5,565 109 Nil 4,347 5,431 49.3 144 2.0 Nil 10.5 1.2 1.5

8.60 131 5,397 60.6 Nil 4,260 5,313 25.9 18.1 2.2 Nil NM NM NM

NA NA NA NA NA NA NA 56.4 -41.7 NA Nil NM NM NM

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Discovery Pl, Silver Spring, MD 20910-3354. Telephone: 240-662-2000. Website: http://www.discoveryholdingcompany.com Chrmn: J.S. Hendricks

Pres & CEO: D. Zaslav COO & EVP: P. Liguori EVP, CFO & Treas: B.E. Singer EVP & Chief Acctg Officer: T.R. Colan

Board Members: R. R. Beck, R. R. Bennett, P. A. Founded: 2005 Gould, J. S. Hendricks, L. Kramer, J. C. Malone, R. J. Domicile: Delaware Miron, S. A. Miron, M. L. Robison, J. Wargo, D. Zaslav Employees: 4,400

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DIS | DIS is in the S&P 500

Walt Disney Co (The) S&P Recommendation BUY

★★★★★

Price $34.97 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Movies & Entertainment

12-Mo. Target Price $42.00

Investment Style Large-Cap Growth

Summary This media and entertainment conglomerate has diversified global operations in theme parks, filmed entertainment, television broadcasting and merchandise licensing.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.98– 27.01 Trailing 12-Month EPS $2.08 Trailing 12-Month P/E 16.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.25 2.44 15.5 1,912.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$66.884 1.00 $0.35 68

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.16 9 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the strength of the company's content-oriented media and entertainment brands, counterbalanced by relatively high exposure to cyclical advertising-related and theme park businesses.

40 30

20

Quantitative Evaluations

15

S&P Quality Ranking

Vol. Mil. 90 60 30 0

D

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

51

5

5

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Tuna N. Amobi, CFA, CPA on August 11, 2010, when the stock traded at $ 34.45. Highlights ➤

➤

➤

Including the December 2009 Marvel acquisition, we expect FY 10 (Sep.) and FY 11 consolidated revenues to advance 6.5% and 6.0%, to about $38.5 billion and $40.8 billion, respectively, with broad-based contributions from the cable networks (ESPN, Disney Channel, ABC Family), theme parks and resorts (Disney World, Disneyland), broadcasting (ABC network and stations), filmed entertainment (Disney, Pixar, Marvel) and consumer products (licensing, retail stores, publishing) businesses. After recent restructuring measures, we expect improved operating leverage to drive some margin expansion over the next two years (with further licensing and publishing of Marvel titles), against increased theme parks discounts and pension/other employee benefit costs in FY 10, higher TV programming costs, and further investments in the interactive space (video games, mobile/online). After interest expense, and an effective tax rate of about 37%, we forecast EPS of $2.25 and $2.44 for FY 10 and FY 11, respectively. As of early August, DIS had repurchased nearly 61 million shares -- entirely offsetting the shares recently issued toward the Marvel acquisition.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We think DIS's encouraging results for the first nine months of FY 10 (Sep.) showed broadbased improvements across the core businesses -- while reaffirming potentially compelling cross-platform upside from the Marvel acquisition. Despite a relatively measured pace of recovery in the domestic theme parks' attendance, we see potential FY 11 catalysts including a healthy TV ad rebound, a growing stream of local broadcast TV retransmission revenues, and a resurgent film studio -- recently buoyed by Toy Story 3 and Alice in Wonderland, as well as Marvel's Iron Man 2. We believe DIS's strong balance sheet provides ample financial flexibility for "tuck-in" acquisitions, further share buybacks and a possible dividend increase. Risks to our recommendation and target price include a slower-than-expected economic and consumer spending rebound; geopolitical disruptions affecting the theme parks; and inherent volatility of film results. Our 12-month target price of $42 is derived from our sum-of-the-parts valuation analysis, reflecting relative enterprise values for the various business segments. The dividend recently offered a yield of about 1.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 9,739 8,580 2009 9,599 8,087 2008 10,452 8,710 2007 9,581 7,954 2006 8,854 8,027 2005 8,666 7,829

3Q 10,002 8,956 9,236 9,045 8,620 7,715

4Q -9,867 9,445 8,930 8,784 7,734

Year -36,149 37,843 35,510 34,285 31,944

Earnings Per Share ($) 2010 0.44 0.48 2009 0.45 0.33 2008 0.63 0.58 2007 0.79 0.43 2006 0.37 0.37 2005 0.33 0.31

0.67 0.51 0.66 0.58 0.53 0.39

E0.63 0.47 0.40 0.44 0.36 0.20

E2.25 1.76 2.28 2.24 1.64 1.24

Fiscal year ended Sep. 30. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.350

12/02

12/10

12/14

01/19/10

Dividends have been paid since 1957. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DIS

Walt Disney Co (The) Business Summary August 11, 2010 CORPORATE OVERVIEW. The Walt Disney Co. is a leading media conglomerate with key operations in theme parks, television, filmed entertainment and merchandise licensing. Theme Parks and Resorts (29% of FY 09 (Sep.) revenues) includes the company's best-known assets: Disney World and Disneyland parks in Orlando, FL, and Anaheim, CA, respectively; the Disney Cruise Line; Euro Disney, Paris (39%-owned); and Hong Kong Disneyland (43%-owned), which opened in September 2005. The company plans to open another park in mainland China (Shanghai) by 2014. Media Networks (45% of revenues) includes the ABC broadcast network; 10 TV stations; and cable networks ESPN (80%-owned), The Disney Channel and ABC Family. In November 2006, DIS sold its 39.5% stake in the E! cable network to Comcast for $1.23 billion. Studio entertainment (17% of revenues) includes the film, television and home video businesses under the Walt Disney, Touchstone and Miramax brands. Consumer products (7% of revenues) includes merchandise licensing, children's book publishing, video game development, as well as over 200 retail stores in North America, over 100 in Europe, and over 50 in Japan. Interactive (2%) primarily includes the video games production businesses, web sites and online virtual worlds.

CORPORATE STRATEGY. As a content-oriented company, DIS's top strategic priorities include creativity and innovation, international expansion (including theme parks and DIS channels), and leveraging new technology applications. Under CEO Robert Iger, we see senior management aggressively exploring new avenues to offer its branded content, characters and entertainment franchises across newer digital platforms (broadband, wireless/mobile -- including iTunes, iPhone and iPad -- as well as video games). In July 2010, DIS agreed to acquire Playdom, an online social gaming platform, for up to $763 million, as well as Tapulous, a developer of mobile games/apps (for an undisclosed price). Also in July, DIS agreed to sell Miramax to private parties for about $660 million. In April 2008, DIS set a slate of 10 new animated films (from Disney and Pixar) to be released through 2012 -- after a 2006 restructuring that sharply pared down the annual film output (to 10 live-action/animation films plus two to three Touchstone titles), with a focus on Disney-branded films.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.27 2.63 1.76 1.58 0.35 20% 32.75 15.14 19 9

2008 4.18 3.09 2.28 2.16 0.35 15% 35.02 18.60 15 8

2007 3.15 3.08 2.24 1.97 0.31 14% 36.79 30.68 16 14

2006 3.10 2.40 1.64 1.70 0.27 16% 34.89 23.77 21 14

2005 3.24 1.93 1.24 1.27 0.24 19% 29.99 22.89 24 18

2004 3.15 1.69 1.12 1.04 0.21 19% 28.41 20.88 25 19

2003 2.01 1.17 0.65 0.49 0.21 32% 23.80 14.84 37 23

2002 1.78 1.11 0.60 0.29 0.21 35% 25.17 13.48 42 22

2001 3.99 0.89 0.11 0.21 0.21 191% 34.80 15.50 NM NM

2000 2.24 1.48 0.57 NA 0.21 37% 43.88 26.00 77 46

36,149 7,328 1,631 645 5,658 36.2% 3,307 2,975

37,843 8,986 1,582 774 7,402 36.1% 4,427 4,209

35,510 8,272 1,491 593 7,725 37.2% 4,674 4,091

34,285 6,914 1,436 592 5,447 34.7% 3,374 3,500

31,944 5,446 1,339 605 3,987 31.1% 2,569 2,635

30,752 5,258 1,210 629 3,739 32.0% 2,345 2,201

27,061 3,790 1,077 666 2,254 35.0% 1,338 1,006

25,329 3,426 1,042 453 2,190 38.9% 1,236 606

25,269 4,586 1,754 417 1,283 82.5% 120 458

25,402 5,043 2,195 558 2,633 61.0% 920 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,417 Current Assets 11,889 Total Assets 63,117 Current Liabilities 8,934 Long Term Debt 11,495 Common Equity 33,734 Total Capital 48,126 Capital Expenditures 1,753 Cash Flow 4,938 Current Ratio 1.3 % Long Term Debt of Capitalization 23.9 % Net Income of Revenue 9.2 % Return on Assets 5.3 % Return on Equity 10.0

3,001 11,666 62,497 11,591 11,351 32,323 47,368 1,586 6,009 1.0 24.0 11.7 7.2 14.0

3,670 11,314 60,928 11,391 11,892 30,753 45,218 1,566 6,165 1.0 26.2 13.1 7.7 14.9

2,411 9,562 59,998 10,210 10,843 31,820 46,657 1,299 4,810 0.9 23.2 9.8 6.0 11.6

1,723 8,845 53,158 9,168 10,157 26,210 40,045 1,823 3,908 1.0 25.4 8.0 4.8 9.8

2,042 9,369 53,902 11,059 9,395 26,081 39,224 1,427 3,555 0.8 24.0 7.6 4.5 9.4

1,583 8,314 49,988 8,669 10,643 23,791 37,574 1,049 2,415 1.0 28.3 4.9 2.7 5.7

1,239 7,849 50,045 7,819 12,467 23,445 38,943 1,086 2,278 1.0 32.0 4.9 2.6 5.4

618 7,029 43,699 6,219 8,940 22,672 34,724 1,795 1,874 1.1 25.7 0.5 0.3 0.5

842 10,007 45,027 8,402 6,959 24,100 34,248 2,013 3,115 1.2 20.3 3.6 2.1 4.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 South Buena Vista Street, Burbank, CA 91521. Telephone: 818-560-1000. Website: http://www.disney.com Chrmn: J. Pepper, Jr.

Pres & CEO: R.A. Iger EVP & CFO: J.A. Rasulo EVP & Treas: C.M. McCarthy EVP, Secy & General Counsel: A.N. Braverman

Investor Contact: L. Singer (818-560-6601) Board Members: S. E. Arnold, J. E. Bryson, J. S. Chen, J. L. Estrin, R. A. Iger, S. P. Jobs, F. H. Langhammer, A. B. Lewis, M. Lozano, R. W. Matschullat, J. Pepper, Jr., S. Sandberg, O. Smith

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1936 Domicile: Delaware Employees: 144,000

Stock Report | October 23, 2010 | NYS Symbol: D | D is in the S&P 500

Dominion Resources Inc. S&P Recommendation HOLD

★★★★★

Price $44.51 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $45.00

Investment Style Large-Cap Blend

Summary This energy holding company's principal subsidiaries are Virginia Electric & Power Co. and Consolidated Natural Gas.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $45.12– 34.00 Trailing 12-Month EPS $4.22 Trailing 12-Month P/E 10.6 $10K Invested 5 Yrs Ago $14,383

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.40 3.55 13.1 589.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$26.222 4.11 $1.83 58

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.60 4 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of Dominion's relatively large capitalization and balanced sources of earnings, which include low-risk regulated electric and gas distribution and pipeline operations, offset by higher-risk energy marketing businesses.

45 40 35

2-for-1 30

Quantitative Evaluations Vol. Mil.

S&P Quality Ranking

90

24 16 8 0 5

D

4

B-

B

B+

A-

A

Relative Strength Rank

5

4

C

B+ A+

MODERATE

45

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Christopher B. Muir on August 02, 2010, when the stock traded at $ 43.20. Highlights ➤

➤

➤

We think revenues will drop 6.9% in 2010, due to lower revenues from both unregulated electric and regulated operations. We expect revenues to be hurt by the continued weak economic conditions in the company's service territories, partly offset by a full year of service related to the Cove Point LNG expansion and the USA Storage projects. We see utility revenues falling 4.8% and nonutility revenues declining 9.0%. In 2011, we expect revenues to climb 4.0%. We forecast operating margins of 26.7% in 2010 and 27.3% in 2011, versus 24.0% in 2009, on lower per-revenue fuel costs and operations & maintenance expenses, partly offset by higher per-revenue operating taxes. We project pretax profit margins of 22.2% in 2010 and 22.1% in 2011, up from 19.0% in 2009. We believe pretax margins will be helped by higher non-operating income and lower interest costs. Our 2010 recurring EPS estimate, excluding net nonrecurring gains of $1.79, is $3.40, up 3.3% from 2009's $3.29, which excludes $0.81 of net non-recurring charges. Our 2011 EPS forecast is $3.55, an increase of 4.4%.

Investment Rationale/Risk ➤

➤

➤

We like D's continued focus on its core businesses. However, we are somewhat disappointed by the recently implemented rate case settlement that provides for no change in base rates through 2013. D's targeted dividend payout ratio of 60%-65%, up from 53.1% in 2009, by the end of 2012 means that dividends should grow slightly faster than earnings. We have a favorable view of the company's planned expansion of its wind generation operations, as well as its various other expansion and growth projects. Risks to our recommendation and target price include sharply lower electric prices, sharply higher interest rates, and a weaker economy. The stock recently traded at about 12X our 2011 EPS estimate, a slight discount to multi-utility peers. Our 12-month target price of $45 is 12.7X our 2011 EPS estimate, close to our peer target. Our valuation factors in our view of D's slightly above average dividend growth, average EPS growth, and slightly levered balance sheet relative to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,168 3,333 2009 4,778 3,450 2008 4,389 3,452 2007 4,661 3,730 2006 4,951 3,548 2005 4,736 3,646

3Q -3,648 4,231 3,589 4,016 4,564

4Q -3,255 4,173 3,694 3,967 5,095

Year -15,131 16,290 15,674 16,482 18,041

Earnings Per Share ($) 2010 0.54 2.98 2009 0.42 0.76 2008 1.18 0.52 2007 0.68 -0.56 2006 0.78 0.24 2005 0.63 0.49

E1.04 1.00 0.87 3.63 0.93 0.02

E0.64 -0.01 0.60 0.52 0.28 0.38

E3.40 2.17 3.16 4.13 2.23 1.50

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.458 0.458 0.458 0.458

12/17 05/18 07/21 10/22

02/24 05/26 08/25 11/24

02/26 05/28 08/27 11/29

03/20/10 06/20/10 09/20/10 12/20/10

Dividends have been paid since 1925. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: D

Dominion Resources Inc. Business Summary August 02, 2010 CORPORATE OVERVIEW. Dominion Resources is a fully integrated gas and electric holding company. The company operates in three primary segments: Virginia Power, Energy, and Generation. The Virginia Power segment (20.5% of 2009 operating segment revenue) operates regulated electric transmission and distribution business in Virginia and northeastern North Carolina. The Generation segment (55.4%) is involved in generation for the electric utility and merchant power along with energy marketing and risk management activities. The Energy segment (17.2%) operates a regulated natural gas distribution company in Ohio, regulated gas transmission pipeline and storage operations, and regulated LNG operations. The Energy segment includes a producer services business, which engages in natural gas supply aggregation, gas transportation, market-based storage services, and gas trading and marketing. CORPORATE STRATEGY. D focuses its efforts mainly on the Northeast, MidAtlantic and Midwest regions of the U.S. D believes that focusing on its core businesses will reduce earnings volatility and help to grow EPS at rates above 6% annually after 2010. It has a proactive risk management strategy, and has entered into commodity derivative agreements to hedge against commodity

price risks. MARKET PROFILE. As of December 31, 2009, D had total power generation capacity of 27,501 MW, with 16,442 MW of utility generation, 1,861 MW of utility power purchase agreements, and 9,204 MW of merchant generation. The generation unit's production was 76.6% baseload. The Virginia Power segment served a total of 2.41 million regulated electric customers. Additionally, it had 1.8 million unregulated customer accounts (25% electricity, 37% natural gas and 38% products and services). The Energy segment serves 320,535 gas sales and 988,071 gas transportation customers in Ohio and has about 12,000 miles of natural gas transmission, gathering and storage pipelines, 942 Bcf of storage capacity, and 1.3 trillion cubic feet equivalent of proved gas and oil reserves. This division also operates a liquefied natural gas (LNG) terminal at Cove Point, MD, which was recently expanded to a sendout capacity of 1.8 Bcfd with a storage capacity of 14.6 Bcf.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.92 2.17 2.12 1.75 81% 39.79 27.15 18 13

2008 10.05 3.16 2.97 1.58 50% 48.50 31.26 15 10

2007 9.21 4.13 0.50 2.25 54% 49.38 39.84 12 10

2006 11.45 2.22 2.21 0.35 16% 42.22 34.36 19 15

2005 8.79 1.50 1.47 1.34 89% 43.49 33.26 29 22

2004 16.37 1.91 1.90 1.30 68% 34.43 30.39 18 16

2003 9.60 1.49 1.58 1.29 87% 32.97 25.87 22 17

2002 9.09 2.41 1.92 1.29 54% 33.53 17.70 14 7

2001 7.85 1.08 0.66 1.29 120% 35.00 27.57 33 26

2000 7.10 0.88 NA 1.29 147% 33.97 17.41 39 20

15,131 1,319 NA 3.14 NA 31.9% 1,287 1,256

16,290 1,191 NA 4.23 NA 32.4% 1,836 1,729

15,674 1,368 NA 4.82 Nil 39.5% 2,705 324

16,482 1,606 NA 3.42 Nil 37.0% 1,563 1,555

18,041 1,412 NA 2.63 Nil 36.0% 1,034 1,010

13,972 1,305 NA 3.09 Nil 35.6% 1,264 1,254

12,078 1,216 NA 2.63 Nil 38.6% 949 1,004

10,218 1,258 NA 3.15 Nil 33.3% 1,362 1,088

10,558 1,245 NA 2.02 Nil 40.5% 544 331

9,260 1,176 NA 1.99 Nil 30.5% 415 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 39,036 Capital Expenditures 3,817 Net Property 25,592 Capitalization:Long Term Debt 15,738 Capitalization:% Long Term Debt 58.5 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 11,185 Capitalization:% Common 41.5 Total Capital 28,061 % Operating Ratio 86.7 % Earned on Net Property 10.8 % Return on Revenue 8.5 % Return on Invested Capital 8.2 % Return on Common Equity 12.1

35,448 3,519 23,274 15,213 60.2 Nil Nil 10,077 39.8 29,427 82.9 16.4 11.3 9.5 18.2

33,331 3,972 21,352 13,492 58.9 Nil Nil 9,406 41.1 27,179 75.9 21.9 17.3 12.7 24.2

43,575 4,052 29,382 15,048 53.8 Nil Nil 12,913 46.2 33,842 85.3 11.5 9.5 8.1 13.4

42,063 1,683 28,940 14,910 58.9 Nil Nil 10,397 41.1 30,291 89.7 8.8 5.7 6.4 9.5

38,663 1,451 26,716 15,764 58.0 Nil Nil 11,426 42.0 32,689 85.6 10.3 9.0 6.5 11.5

37,107 2,138 25,850 16,033 60.3 Nil Nil 10,538 39.7 31,134 83.7 10.6 7.9 6.5 9.1

32,631 2,828 20,257 13,714 57.3 Nil Nil 10,213 42.7 28,136 78.5 21.4 13.3 8.5 14.7

33,105 1,224 18,681 12,119 58.1 Nil Nil 8,368 40.1 24,811 85.6 10.6 5.2 7.2 7.1

31,011 1,385 14,849 10,486 58.3 509 2.83 6,992 38.9 20,955 80.5 11.9 4.5 10.7 7.1

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 120 Tredegar Street, Richmond, VA 23219. Telephone: 804-819-2000. Email: [email protected] Website: http://www.dom.com

Chrmn, Pres & CEO: T.F. Farrell, II EVP & CFO: M.F. McGettrick SVP & Chief Admin Officer: S.A. Rogers SVP & Treas: G.S. Hetzer

SVP & General Counsel: J.F. Stutts Founded: 1909 Investor Contact: J. O'Hare (804-819-2156) Domicile: Virginia Board Members: W. P. Barr, P. W. Brown, G. A. Employees: 17,900 Davidson, Jr., T. F. Farrell, II, J. W. Harris, R. S. Jepson, Jr., M. J. Kington, M. A. McKenna, F. S. Royal, R. H. Spilman, Jr., D. A. Wollard

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: RRD | RRD is in the S&P 500

R.R. Donnelley & Sons Co S&P Recommendation HOLD

★★★★★

Price $18.40 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Commercial Printing

12-Mo. Target Price $21.00

Investment Style Large-Cap Value

Summary R.R. Donnelley, the largest U.S. commercial printer, specializes in the production of catalogs, inserts, magazines, books, directories, and financial and computer documentation.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.20– 14.87 Trailing 12-Month EPS $0.36 Trailing 12-Month P/E 51.1 $10K Invested 5 Yrs Ago $6,641

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.70 2.00 10.8 206.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.796 5.65 $1.04 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.01 5 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects economies of scale that the company realizes as the largest U.S. commercial printer in a fragmented print industry, offset by industry pricing pressure and the increasingly electronic nature of communication.

40

20

10

Quantitative Evaluations 5

S&P Quality Ranking

Vol. Mil.

D

15 10 5 0 5

C

B-

BB

B+

A-

A

Relative Strength Rank

A+

MODERATE 70

4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Jim Corridore on August 10, 2010, when the stock traded at $ 17.88. Highlights ➤

➤

We forecast that revenues will rise 3%-5% this year (excluding revenues from Bowne & Co., which RRD recently agreed to acquire) reflecting some improvement in the economies in the U.S. and Europe, RRD's main end-markets, which account for about 77% and 12% of revenues, respectively. We think most of the growth in 2010 will come in the second half of the year, and we expect meaningful growth in Europe to lag that of the U.S. by about six months. RRD expects to generate $600-$650 million in free cash in 2010, after generating $1.4 billion in 2009.

Investment Rationale/Risk ➤

➤

We expect improving revenues along with the benefits of restructurings to modestly boost operating margins in 2010. We also expect productivity increases and cost synergies from recent acquisitions. Operating margins in 2009 were impacted by the effect of leveraging fixed costs over a smaller revenue base. ➤

➤

We see 2010 operating EPS of $1.70, versus 2009 operating EPS of $1.44. For 2011, we see EPS of $2.00.

Revenue/Earnings Data

2010

We expect RRD to gain market share by leveraging its geographic and product breadth, but we think its business model is undergoing a long-term secular shift as electronic media reduces the demand for financial and other printing. We see headwinds from what we view as a highly leveraged balance sheet and digestion of recent acquisitions. However, we think improving investor sentiment on the overall U.S. economy will likely lend support to the shares if the U.S. economy starts to show growth. Risks to our recommendation and target price include substantially higher raw material costs, negative forex translation charges, further sharp deterioration in the company's endmarkets, and a greater-than-expected increase in the amount of information disseminated electronically, which would lead to lower publishing demand. Our 12-month target price of $21 values the shares at 10.5X our 2011 EPS estimate of $2.00, toward the low end of RRD's five-year historical P/E range, reflecting our concerns about the maturation of RRD's business segments and high balance sheet risk.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,415 2,409 2009 2,456 2,356 2008 2,997 2,924 2007 2,793 2,796 2006 2,267 2,274 2005 1,927 1,932

3Q -2,463 2,865 2,910 2,309 2,184

4Q -2,583 2,796 3,088 2,467 2,388

Year -9,857 11,582 11,587 9,317 8,430

Earnings Per Share ($) 2010 0.25 0.42 2009 0.07 0.12 2008 0.85 0.68 2007 0.63 -0.32 2006 0.52 0.57 2005 0.50 0.44

E0.45 0.06 0.80 0.80 0.75 0.59

E0.53 -0.39 -3.35 -1.37 -0.01 -1.09

E1.70 -0.13 -0.91 -0.22 1.84 0.44

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.260 0.260 0.260 0.260

10/28 01/07 04/14 07/21

11/09 01/20 04/27 08/03

11/12 01/22 04/29 08/05

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1911. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: RRD

R.R. Donnelley & Sons Co Business Summary August 10, 2010 CORPORATE OVERVIEW. R.R. Donnelly & Sons (RRD) is the largest printing company in North America, serving customers in the publishing, health care, advertising, retail, telecommunications, technology, financial services and other industries. The company provides solutions in long- and short-run commercial printing, direct mail, financial printing, print fulfillment, forms and labels, logistics, digital printing, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management. The company has two reportable segments: U.S. Print and Related Services, and International. R.R. Donnelley management changed its reportable segments in the third quarter of 2007 to reflect changes in management reporting structure and the manner in which management assesses information for decision-making purposes.

which includes print services to consumer magazine and catalog publishers as well as retailers; book, which serves the consumer, religious, educational and specialty book and telecommunications sectors; directories, which serves the printing needs of yellow and white pages directory publishers; logistics, which delivers company and third-party printed products and distributes time-sensitive and secure material, and performs warehousing and fulfillment services; direct mail, which offers content creation, database management, printing, personalization finishing and distribution services to direct marketing companies; financial print; direct mail; and short-run commercial print, which provides print and print related services to a diversified customer base.

The U.S. Print and Related Services segment (75% of revenues in 2009 and 2008) consists of the following U.S. businesses: magazine, catalog and retail, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.60 -0.13 0.01 1.04 NM 22.78 5.54 NM NM

2008 NM 2.02 -0.91 0.61 1.04 NM 38.19 9.53 NM NM

2007 NM 2.52 -0.22 1.48 1.04 NM 45.25 32.59 NM NM

2006 0.54 3.96 1.84 1.97 1.04 57% 36.00 28.50 20 15

2005 NM 2.40 0.44 1.27 1.04 NM 38.27 29.54 87 67

2004 3.81 5.07 0.88 1.20 1.04 118% 35.37 27.62 40 31

2003 5.14 4.43 1.54 1.18 1.02 66% 30.15 16.94 20 11

2002 4.51 4.32 1.24 0.18 0.98 79% 32.10 18.50 26 15

2001 3.92 3.41 0.21 -0.65 0.94 NM 31.90 24.30 NM NM

2000 5.89 5.34 2.17 NA 0.90 41% 27.50 19.00 13 9

9,857 1,288 579 245 93.1 123.0% -27.3 1.17

11,582 1,761 617 241 -269 NM -192 129

11,587 1,752 598 231 91.4 NM -48.4 322

9,317 1,420 463 139 601 32.6% 403 430

8,430 1,295 425 111 332 71.5% 95.6 275

7,156 952 771 85.9 357 26.0% 265 243

4,787 617 329 50.4 208 15.3% 177 136

4,755 686 352 62.8 176 19.1% 142 21.3

5,298 722 379 71.2 74.9 66.6% 25.0 -78.3

5,764 891 390 89.6 434 38.5% 267 NA

Balance Sheet & Other Financial Data (Million $) Cash 499 Current Assets 2,961 Total Assets 8,748 Current Liabilities 2,040 Long Term Debt 2,983 Common Equity 2,134 Total Capital 5,144 Capital Expenditures 195 Cash Flow 534 Current Ratio 1.5 % Long Term Debt of Capitalization 58.0 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

324 3,281 9,494 2,487 3,203 2,319 5,783 323 425 1.3 55.4 NM NM NM

443 3,521 12,087 2,765 3,602 3,907 8,382 482 550 1.3 43.0 NM NM NM

211 2,517 9,636 1,612 2,359 4,125 7,087 374 866 1.6 33.3 4.3 4.2 10.3

367 2,622 9,374 1,814 2,365 3,724 6,686 471 521 1.4 35.4 1.1 1.1 2.5

642 2,601 8,554 1,487 1,581 3,987 6,144 265 1,036 1.7 25.7 3.7 4.5 10.7

60.8 1,000 3,189 884 752 983 1,970 203 506 1.1 38.2 3.7 5.5 18.6

60.5 866 3,152 955 753 915 1,882 242 495 0.9 40.0 3.0 4.4 15.8

48.6 940 3,400 984 881 888 1,982 273 404 1.0 44.5 0.5 0.7 2.4

60.9 1,206 3,914 1,191 739 1,233 2,205 237 657 1.0 33.5 4.6 6.9 22.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 111 S Wacker Dr, Chicago, IL 60606-4302. Telephone: 312-326-8000. Email: [email protected] Website: http://www.rrdonnelley.com

Chrmn: S.M. Wolf Pres & CEO: T.J. Quinlan, III COO: J.R. Paloian EVP & CFO: M.W. McHugh

EVP, Secy & General Counsel: S.S. Bettman Investor Contact: D. Leib (312-326-7710) Board Members: L. A. Chaden, J. Hamilton, S. M. Ivey, T. S. Johnson, J. C. Pope, T. J. Quinlan, III, M. T. Riordan, O. R. Sockwell, Jr., S. M. Wolf

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1864 Domicile: Delaware Employees: 56,800

Stock Report | October 23, 2010 | NYS Symbol: DOV | DOV is in the S&P 500

Dover Corp S&P Recommendation BUY

★★★★★

Price $53.18 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $55.50– 37.28 Trailing 12-Month EPS $2.57 Trailing 12-Month P/E 20.7 $10K Invested 5 Yrs Ago $15,519

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.37 3.79 15.8 186.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.927 2.07 $1.10 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.27 11 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's acquisition strategy, its model of operating numerous different businesses as stand-alone entities, its strategic shift to manage numerous aspects of the business using a more top-down approach, and exposure to several cyclical end markets.

60 50 40 30

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 4

3

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 65

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Highlights The 12-month target price for DOV has recently been changed to $60.00 from $59.00. The Highlights section of this Stock Report will be updated accordingly.

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, P, Ph

➤

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on DOV from MarketScope, see below.

➤

10/22/10 12:47 pm ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF DOVER CORP (DOV 52.9****): Excluding a $0.20 tax benefit, DOV reports Q3 EPS of $0.98, vs. $0.58, $0.16 ahead of our estimate on betterthan-expected margins and revenue growth of about 26%. We view favorably the strong quarterly operating margin of 15.8% and believe this is representative of management's ongoing procurement and other strategies, a trend we expect to continue. On higher forecasted sales and margins, we increase our '10 and '11 EPS estimates by $0.24 each to $3.37 and $3.79, respectively. We also raise our target price by $1 to $60 on our higher forecasts and revised valuation analyses. /M.Christy, CFA

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,583 1,787 2009 1,379 1,390 2008 1,865 2,011 2007 1,780 1,859 2006 1,500 1,650 2005 1,383 1,525

3Q -1,500 1,966 1,844 1,647 1,556

4Q -1,507 1,727 1,860 1,715 1,614

Year -5,776 7,569 7,226 6,512 6,078

Earnings Per Share ($) 2010 0.65 0.91 2009 0.33 0.54 2008 0.77 0.98 2007 0.67 0.85 2006 0.64 0.77 2005 0.47 0.59

E0.82 0.58 1.01 0.88 0.77 0.65

E0.83 0.55 0.91 0.86 0.76 0.61

E3.37 1.99 3.67 3.22 2.94 2.32

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.260 0.260 0.260 0.275

11/05 02/11 05/06 08/05

11/25 02/24 05/26 08/27

11/30 02/28 05/31 08/31

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1947. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DOV

Dover Corp Business Summary August 03, 2010 CORPORATE OVERVIEW. Dover Corporation (DOV) is a diversified manufacturer of a broad range of specialized industrial products and manufacturing equipment. The company has evolved largely through acquisitions, with 85 deals costing approximately $4.3 billion completed between January 2000 and December 2009. There are four operating segments: Industrial Products, Engineered Systems, Fluid Management and Electronic Technologies. Industrial Products (28% of 2009 sales, with 8.6% operating margin) manufactures a diverse mix of equipment and components for use in the waste handling, bulk transport and automotive service industries. Its two sub-units are Material Handling and Mobile Equipment. Major units include Paladin, PDQ Manufacturing, Heil Environmental, Rotary Lift, Heil Trailer International, Chief Automotive, and Marathon Equipment.

sell to the institutional and commercial foodservice markets. The packaging machinery businesses sell to the beverage and food processing industries. Fluid Management (22%, 20.4%) manufactures products primarily for the oil and gas, automotive fueling, fluid handling, engineered components, material handling and chemical equipment industries. This segment consists of two primary sub-units -- Energy and Fluid Solutions. Electronic Technologies (18%, 8.1%) manufactures an array of specialized electronic, electromechanical and plastic components for OEMs in multiple end markets, including hearing aids, telecom, defense and aerospace electronics, and life sciences. It also supplies ATM hardware and software for retail applications and financial institutions, and chemical proportioning and dispensing systems for janitorial/sanitation applications.

Engineered Systems (32%, 12.2%) manufactures food equipment (refrigeration systems, display cases, walk-in coolers, etc.) and packaging machinery. It is composed of two primary sub-groups -- Product Identification and Engineered Products. The food equipment businesses (Hill Phoenix and Unified Brands) Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.37 1.99 2.00 1.02 51% 43.10 21.79 22 11

2008 NM 5.05 3.67 3.55 0.90 25% 54.57 23.39 15 6

2007 NM 4.43 3.22 3.28 0.77 24% 54.59 44.34 17 14

2006 NM 3.92 2.94 2.98 0.71 24% 51.92 40.30 18 14

2005 NM 3.18 2.32 2.25 0.66 28% 42.11 34.11 18 15

2004 2.16 2.78 2.00 1.92 0.62 31% 44.13 35.12 22 18

2003 2.71 2.14 1.40 1.31 0.57 41% 40.45 22.85 29 16

2002 2.66 1.83 1.04 0.90 0.54 52% 43.55 23.54 42 23

2001 1.97 1.89 0.82 0.68 0.52 63% 43.55 26.40 53 32

2000 1.79 3.60 2.61 NA 0.48 18% 54.38 34.13 21 13

5,776 918 258 116 492 24.4% 372 373

7,569 1,311 261 96.0 946 26.6% 695 672

7,226 1,220 245 89.0 888 26.4% 653 667

6,512 1,113 202 77.0 823 26.7% 603 613

6,078 876 176 72.2 644 26.3% 474 460

5,488 773 161 61.3 552 25.9% 409 392

4,413 595 151 62.2 372 23.3% 285 267

4,184 503 161 70.0 270 21.7% 211 182

4,460 518 219 91.2 238 30.0% 167 138

5,401 1,047 203 97.5 772 31.0% 533 NA

Balance Sheet & Other Financial Data (Million $) Cash 938 Current Assets 2,523 Total Assets 7,808 Current Liabilities 969 Long Term Debt 1,825 Common Equity 4,084 Total Capital 5,944 Capital Expenditures 120 Cash Flow 630 Current Ratio 2.7 % Long Term Debt of Capitalization 30.7 % Net Income of Revenue 6.4 % Return on Assets 4.8 % Return on Equity 9.4

827 2,614 7,867 1,238 1,861 3,793 5,968 176 956 2.1 31.2 9.2 8.7 18.0

602 2,544 8,070 1,681 1,452 3,946 5,714 174 898 1.5 25.4 9.0 8.3 16.8

374 2,272 7,627 1,434 1,480 3,811 5,656 195 805 1.6 26.2 9.3 8.5 16.9

191 1,976 6,573 1,207 1,344 3,330 5,046 152 650 1.6 26.6 7.8 7.7 14.7

358 2,150 5,792 1,356 753 3,119 4,168 107 570 1.6 18.1 7.5 7.5 14.0

370 1,850 5,134 911 1,004 2,743 3,980 96.4 437 2.0 25.2 6.5 6.0 11.1

295 1,658 4,437 697 1,030 2,395 3,561 102 372 2.4 28.9 5.0 4.7 8.6

177 1,655 4,602 819 1,033 2,520 3,656 167 386 2.0 28.3 3.7 3.5 6.7

187 1,975 4,892 1,605 632 2,442 3,141 198 737 1.2 20.1 9.9 11.8 23.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3005 Highland Parkway, Suite 200, Downers Grove, IL 60515. Telephone: 630-541-1540. Website: http://www.dovercorporation.com Chrmn: R.W. Cremin

Pres & CEO: R.A. Livingston CFO: B.M. Cerepak Chief Acctg Officer & Cntlr: R.T. McKay, Jr. Investor Contact: P.E. Goldberg (212-922-1640)

Board Members: D. H. Benson, R. W. Cremin, J. P. Ergas, P. T. Francis, K. C. Graham, J. L. Koley, R. A. Livingston, R. K. Lochridge, B. G. Rethore, M. B. Stubbs, M. A. Winston

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1947 Domicile: Delaware Employees: 29,300

Stock Report | October 23, 2010 | NYS Symbol: DOW | DOW is in the S&P 500

Dow Chemical Co (The) S&P Recommendation HOLD

★★★★★

Price $30.20 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Diversified Chemicals

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary Dow Chemical, the largest U.S. chemical company, provides chemical, plastic and agricultural products and services to many consumer markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.05– 22.42 Trailing 12-Month EPS $1.62 Trailing 12-Month P/E 18.6 $10K Invested 5 Yrs Ago $8,485

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.75 2.25 17.3 1,159.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$35.028 1.99 $0.60 67

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.25 20 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the highly leveraged post-merger balance sheet and integration risks and the cyclical nature of the commodity chemical industry, partly offset by Dow's diverse business and geographic sales mix and manufacturing integration.

40 30 20

10

Quantitative Evaluations Vol. Mil.

S&P Quality Ranking

241

90 60 30 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

A+ STRONG

81

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Richard O'Reilly, CFA on September 22, 2010, when the stock traded at $ 27.36. Highlights ➤

We expect sales of about $53 billion in 2010 as global economic conditions have rebounded this year, led by growth in emerging markets and a recovery in the U.S., resulting in favorable volumes and price comparisons against weak 2009 levels. In mid-June 2010, Dow sold its Styron division (annual sales of about $3.7 billion, including styrenics).

Investment Rationale/Risk ➤

➤ ➤

➤

We see some slowing in volume growth in the second half of 2010 for most specialty products and coatings lines (up a combined 13% in the first half). Industry commodity plastic prices have declined since the first quarter, but caustic soda prices are continuing to recover. Following a 54% increase in the first half, feedstock costs are likely to remain above comparable 2009 levels. Recent equity profits were back to pre-recession levels and we see this continuing for the rest of 2010. We expect restructuring actions to reduce annual costs by over $1 billion in 2010, while synergies from Rohm & Haas have surpassed a $1.3 billion rate this year. Reported EPS in 2009 includes much greater interest expense and restructuring and merger-related charges.

➤

We view the April 2009 purchase of Rohm & Haas for $16.2 billion as positive for DOW for the long term, as less cyclical specialty products now account for about 60% of annual revenues, up from 51% in 2008. We also note that less cyclical products will now represent a larger percentage of profits. Risks to our recommendation and target price include slower-than-expected U.S. and global economies, increased global industry capacity, rising energy costs, unplanned production outages, and an inability to achieve integration savings. We note that while the purchase of Rohm & Haas greatly increased debt and leverage, Dow has been successful in repaying and refinancing much of the merger debt. To reflect higher balance sheet risk, we base our 12-month target price of $30 on a historical mid-cycle P/E of about 13X, applied to an annualized earnings rate of $2.25 that we believe the company, as currently constituted, will achieve in 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 13,417 13,618 2009 9,041 11,322 2008 14,824 16,380 2007 12,432 13,265 2006 12,020 12,509 2005 11,679 11,450

3Q -12,046 15,411 13,589 12,359 11,261

4Q -12,466 10,899 14,227 12,236 11,917

Year -44,875 57,514 53,513 49,124 46,307

Earnings Per Share ($) 2010 0.41 0.50 2009 0.03 -0.57 2008 0.99 0.81 2007 1.00 1.07 2006 1.24 1.05 2005 1.39 1.30

E0.35 -0.64 0.46 0.24 0.53 0.82

E0.42 0.08 -1.68 0.49 1.00 1.14

E1.75 0.22 0.62 2.99 3.82 4.64

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

12/10 02/11 05/13 09/09

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/29/10 04/30/10 07/30/10 10/29/10

Dividends have been paid since 1911. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DOW

Dow Chemical Co (The) Business Summary September 22, 2010 CORPORATE OVERVIEW. Dow Chemical is the largest U.S. chemical company. Foreign operations accounted for 68% of 2009 sales. Electronic and specialty materials (9% of sales and 17% of profits in 2009) consists of photoresists, coatings, CMP slurries and pads, and plating products for electronics; water and process solutions (ion exchange resins, membranes); biocides; cellulosics; and home and personal care ingredients. The segment also includes results of the Dow Corning joint venture. Coatings and infrastructure (9%, 6%) includes coatings materials (acrylics, opaque polymers, rheology modifiers, surfactants, and solvents), building and construction products (STYROFOAM insulation products, weather barrier products, foams, sealants, roofing adhesives, and solar shingle), and adhesives. Performance systems (13%, 11%) consists of automotive products (engineering plastics, adhesives, films, foams, and fluids); elastomers, resins, films, and plastic additives; polyolefins and flame retardants for wire and cable insulation; and polyurethanes foams and systems. Performance products (20%, 19%) consists of amines; epoxy resins and intermediates (phenol and acetone); glycols, surfactants, and fluids (lubricants, heat transfer, deicing, and coolants); polyurethanes (isocyanates, propylene oxide/glycol, polyols); solvents; acrylic acid and methyl methacrylate; and custom manufacturing.

Dow AgroSciences (10%, 10%) is a leading global maker of herbicides (Clincher, Starane), insecticides (Lorsban, Sentricon termite colony elimination system, Tracer) and fungicides for crop protection and industrial/commercial pest control. It also provides crop seeds (Mycogen), traits (Herculex) and value-added grains. The company, a major producer of basic plastics (23%, 28%), is the world's largest producer of polyethylene; it also makes polypropylene and offers technology licensing (UNIPOL for polyethylene and polypropylene). In June 2010, Dow sold its polystyrene and polycarbonate and compounds businesses. Basic Chemicals (6%, 2%) includes chlor-alkali (chlorine, caustic soda, ethylene dichloride and vinyl chloride), chlorinated solvents, and ethylene oxide/glycol, used primarily as raw materials in the manufacture of customer products, and technology licensing (Meteor for ethylene oxide/glycol). The hydrocarbons and energy business (10%, 7%) procures fuels and raw materials and produces ethylene, propylene, aromatics, styrene, and power and steam.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.90 0.22 -0.28 0.60 NM 29.50 5.89 NM NM

2008 10.05 2.86 0.62 0.05 1.68 271% 43.42 14.93 70 24

2007 17.00 5.09 2.99 2.82 1.64 55% 47.96 38.89 16 13

2006 14.50 5.83 3.82 3.73 1.50 39% 45.15 33.00 12 9

2005 12.14 6.83 4.64 4.04 1.34 29% 56.75 40.18 12 9

2004 9.01 5.12 2.93 2.34 1.34 46% 51.34 36.35 18 12

2003 5.79 3.93 1.88 1.58 1.34 71% 42.00 24.83 22 13

2002 4.19 4.57 -0.44 -1.41 1.34 NM 37.00 23.66 NM NM

2001 7.59 1.55 -0.46 -1.43 1.30 NM 39.67 25.06 NM NM

2000 10.78 4.14 2.22 NA 1.16 52% 47.17 23.00 21 10

44,875 4,443 2,827 1,571 469 NM 538 -312

57,514 4,482 2,108 745 1,321 50.5% 579 29.0

53,513 5,903 2,031 669 4,229 29.4% 2,887 2,734

49,124 6,675 1,954 689 4,972 23.2% 3,724 3,638

46,307 7,437 2,134 702 6,399 27.8% 4,535 3,956

40,161 5,466 2,088 747 3,796 23.1% 2,797 2,236

32,632 3,922 1,903 828 1,751 NM 1,739 1,462

27,609 2,925 1,825 774 -622 NM -405 -1,295

27,805 2,953 1,815 733 -613 NM -417 -1,303

23,008 3,462 1,315 460 2,401 34.3% 1,513 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,846 Current Assets 19,560 Total Assets 65,937 Current Liabilities 13,106 Long Term Debt 19,152 Common Equity 16,555 Total Capital 41,358 Capital Expenditures 2,396 Cash Flow 3,053 Current Ratio 1.5 % Long Term Debt of Capitalization 46.3 % Net Income of Revenue 1.2 % Return on Assets 1.0 % Return on Equity 3.6

2,800 16,060 45,474 13,108 8,042 13,511 22,868 2,339 2,687 1.2 35.2 1.0 1.2 3.5

1,737 18,654 48,801 12,445 7,581 19,389 29,238 2,075 4,918 1.5 25.9 5.4 6.1 15.8

2,910 17,209 45,581 10,601 8,036 17,065 27,465 1,775 5,678 1.6 30.4 7.6 8.1 23.0

3,838 17,404 45,934 10,663 10,186 15,324 27,241 1,597 6,669 1.6 37.4 9.8 9.9 32.9

3,192 15,890 45,885 10,506 12,629 12,270 26,649 1,333 4,885 1.5 47.4 7.0 6.4 26.1

2,434 13,002 41,891 9,534 12,763 9,175 23,438 1,100 3,642 1.4 54.5 5.3 4.3 20.7

1,573 11,681 39,562 8,856 12,659 7,626 21,645 1,623 1,420 1.3 58.5 NM NM NM

264 10,308 35,515 8,125 10,266 9,993 21,376 1,587 1,398 1.3 48.0 NM NM NM

304 9,260 27,645 7,873 5,365 9,186 15,848 1,349 2,828 1.2 33.9 6.6 5.7 17.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2030 Dow Center, Midland, MI 48674. Telephone: 989-636-1000. Website: http://www.dow.com Chrmn, Pres & CEO: A.N. Liveris

COO: N. Parakh EVP & CFO: W.H. Weideman EVP & CTO: W.F. Banholzer EVP, Secy & General Counsel: C.J. Kalil

Investor Contact: H. Ungerleider (989-636-1463) Board Members: A. A. Allemang, J. K. Barton, J. A. Bell, J. M. Fettig, B. H. Franklin, J. B. Hess, A. N. Liveris, P. Polman, D. H. Reilley, J. M. Ringler, R. G. Shaw, P. G. Stern

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1897 Domicile: Delaware Employees: 52,195

Stock Report | October 23, 2010 | NYS Symbol: DHI | DHI is in the S&P 500

D.R. Horton Inc. S&P Recommendation SELL

★★★★★

Price $10.61 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Homebuilding

12-Mo. Target Price $9.50

Investment Style Large-Cap Blend

Summary This company is one of the largest homebuilders in the U.S., based on number of homes sold and its nationwide presence.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$15.44– 9.41 $0.13 81.6 $3,797

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.80 0.65 13.3 318.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.377 1.41 $0.15 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.01 12 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects DHI's exposure to an extended downturn in the housing market, partly offset by its focus on reducing debt with free cash flow from operations. As the largest U.S. homebuilder, DHI has scale advantages to reduce labor and material costs, but a slow recovery in the housing market may impair earnings and cash flow growth.

20 12 8

4

Vol.

Quantitative Evaluations

Mil. 60 40 20 0

S&P Quality Ranking D 4

5

C

B-

B

B+

A-

A

2

1

Relative Strength Rank

WEAK

25

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

Following a 45% sales decline in FY 09 (Sep.), we forecast growth of 7% in FY 10 and 9% in FY 11 as the housing market slowly recovers. DHI realized a sequential decrease in contract backlog from $1.1 billion as of September 30, 2009, to $884 million at year end, which we attribute to seasonality. Backlog rose to $1.3 billion as of the end of the March quarter, but slipped to $954 million at the end of the June quarter due, we believe, to the now expired federal tax credit.

Investment Rationale/Risk ➤

➤ ➤

➤

We think net new orders and contract backlog will decline in the second half of 2010 as demand for new housing likely weakens ahead. However, we estimate that DHI's homebuilding gross margin will improve to 17.3% in FY 10 and to 17.6% in FY 11, from 13.1% in FY 09. DHI realized peak gross margins of 24% in FY 06. Along with wider gross margins, we believe DHI will also manage SG&A costs as a percentage of total revenues at the 11% to 12% level in FY 10 and FY 11, below FY 09's 14.5%. We forecast operating EPS of $0.80 for FY 10, including one-time tax benefits, and $0.65 for FY 11.

➤

HIGHEST = 99

2010

Analysis prepared by Kenneth M. Leon, CPA on August 20, 2010, when the stock traded at $ 10.43. Highlights

A+

4

3

2

B+

DHI is one of the largest U.S. homebuilders, and we see low mortgage rates raising affordability in its target market for first-time buyers. With a balance sheet we view as strong ($1.7 billion in cash), we believe the company can be opportunistic in making new land acquisitions to expand new home communities. However, DHI's growth may stall as we see weak demand driven by high unemployment and low buyer confidence in the housing market. Risks to our recommendation and target price include the possibility of an improving economy and better employment data. An increase in demand from first-time homebuyers would benefit the company more than many peers since it concentrates primarily on this category. Our 12-month target price of $9.50 reflects a narrower risk premium on a target priceto-book multiple slightly above 1.1X applied to our forward book value estimate of $8.25. Our target multiple is near the historical low range for DHI and near peers, despite its strong cash position and operating scale advantages.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,132 913.5 2009 918.0 778.0 2008 1,708 1,624 2007 3,172 2,598 2006 2,903 3,598 2005 2,520 2,877

3Q 1,401 932.9 1,464 2,658 3,668 3,370

4Q -1,029 1,782 2,868 4,883 5,097

Year -3,658 6,646 11,297 15,051 13,864

Earnings Per Share ($) 2010 0.56 0.04 2009 -0.20 -0.34 2008 -0.41 -4.14 2007 0.35 0.16 2006 0.98 1.11 2005 0.76 0.92

0.16 -0.45 -1.26 -2.62 0.93 1.17

E0.01 -0.73 -2.53 -0.16 0.88 1.77

E0.80 -1.72 -8.34 -2.27 3.90 4.62

Fiscal year ended Sep. 30. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.038 0.038 0.038 0.038

11/20 02/02 04/30 08/03

12/02 02/11 05/12 08/12

12/04 02/16 05/14 08/16

12/15/09 02/25/10 05/24/10 08/26/10

Dividends have been paid since 1997. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DHI

D.R. Horton Inc. Business Summary August 20, 2010 CORPORATE OVERVIEW. D.R. Horton was founded in 1978 by Donald Horton, now chairman. In 1992, it went public to gain broader access to capital markets, which has helped fuel its subsequent growth beyond its base in the Dallas/Fort Worth area. With operating divisions in 26 states and 72 markets, D.R. Horton is the largest domestic homebuilder by number of homes closed in FY 09 (Sep.), and the most geographically diversified. The company was the first U.S. builder to sell 50,000 homes in a single year (FY 05), and it aims to be the first to eclipse the 100,000 unit mark, although market conditions may have pushed back that target into 2011 or 2012. By emphasizing entry level and first-time move-up buyers, it targets the broadest segments of the population. In FY 09, DHI closed on 16,703 homes with an average closing sales price of approximately $213,400, compared to $233,500 in FY 08 and $253,000 in FY 07. DHI's homes are among the most affordable of all public builders.

tively close proximity to existing markets. We think the company has been successful at quickly ramping up volumes in these satellite operations -- often at the expense of smaller competitors -- aided by materials purchasing agreements struck at the regional level and relatively favorable access to capital markets. Complementing this organic growth has been an aggressive takeover program, with close to 20 acquisitions since DHI went public. Most of these deals have occurred in new markets in an effort to either create a platform for future growth in a locale or to expand an existing satellite operation there. The majority of these acquisitions have been focused on a single market and have been asset-based transactions, rather than purchases of companies. However, in 2002, DHI bought Schuler Homes for about $1.8 billion, in a deal that increased its revenue base about 25%.

CORPORATE STRATEGY. Most of D.R. Horton's growth in the past 15 to 20 years has been the result of organic initiatives, in our opinion. Generally, the company has established satellite operations in new markets located in relaCompany Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.07 -1.64 -1.72 -1.72 0.15 NM 13.90 5.72 NM NM

2008 8.90 -8.17 -8.34 -8.18 0.33 NM 17.95 3.79 NM NM

2007 17.64 -2.06 -2.27 -1.29 0.60 NM 31.13 10.15 NM NM

2006 18.75 4.10 3.90 3.90 0.44 11% 41.66 19.52 11 5

2005 15.28 4.87 4.62 4.61 0.31 7% 42.82 26.83 9 6

2004 10.87 3.24 3.08 3.07 0.22 7% 31.41 18.47 10 6

2003 7.93 2.16 2.05 2.04 0.14 7% 22.69 8.48 11 4

2002 5.77 1.54 1.44 1.44 0.10 7% 14.58 8.02 10 6

2001 4.83 1.24 1.10 1.16 0.06 5% 11.17 5.83 10 5

2000 3.81 0.94 0.84 NA 0.05 5% 7.81 3.00 9 4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,658 -457 25.7 198 -552 NM -545 -545

6,646 -2,474 53.2 240 -2,632 NM -2,634 -2,582

11,297 -420 64.4 328 -951 25.1% -712 -404

15,051 2,036 61.7 55.0 1,987 37.9% 1,233 1,233

13,864 2,402 52.8 21.2 2,379 38.2% 1,471 1,463

10,841 1,430 49.6 9.30 1,583 38.4% 975 969

8,728 1,049 41.8 12.6 1,008 37.9% 626 622

6,739 693 32.8 11.5 648 37.5% 405 406

4,456 480 31.2 14.1 408 37.5% 255 267

3,654 339 22.0 15.8 309 38.0% 192 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,923 Current Assets 6,517 Total Assets 6,757 Current Liabilities 823 Long Term Debt 2,969 Common Equity 2,260 Total Capital 5,477 Capital Expenditures 6.20 Cash Flow -520 Current Ratio 7.9 % Long Term Debt of Capitalization 54.2 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,356 7,101 7,710 1,510 2,968 2,834 6,410 6.60 -2,580 4.7 46.3 NM NM NM

275 10,137 11,556 2,127 3,746 5,587 9,644 39.8 -648 4.8 39.1 NM NM NM

588 13,202 14,821 3,591 4,861 6,453 11,419 83.3 1,295 3.7 42.6 8.2 9.0 20.9

1,150 10,995 12,515 3,288 3,660 5,360 9,224 68.2 1,523 3.3 39.7 10.6 13.7 31.5

518 7,709 8,985 1,627 3,032 3,961 7,159 55.2 1,025 4.7 42.4 8.9 12.0 27.9

583 6,151 7,279 1,297 2,665 3,031 5,832 48.7 668 4.7 45.7 7.2 9.4 23.6

104 4,912 6,018 1,091 2,636 2,270 4,927 39.8 437 4.5 53.5 6.0 8.4 23.0

239 3,266 3,652 691 1,884 1,250 3,143 33.4 286 4.7 59.9 5.7 8.0 23.0

72.5 2,383 2,695 474 1,344 970 2,319 19.6 214 5.0 58.0 5.2 7.6 21.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 301 Commerce St Ste 500, Fort Worth, TX 76102-4178. Telephone: 817-390-8200. Website: http://www.drhorton.com Chrmn: D.R. Horton

Pres, Vice Chrmn & CEO: D.J. Tomnitz EVP, CFO & Chief Acctg Officer: B.W. Wheat Investor Contact: S.H. Dwyer (817-390-8200) EVP & Treas: S.H. Dwyer

Board Members: B. S. Anderson, M. R. Buchanan, M. Founded: 1978 W. Hewatt, D. R. Horton, B. G. Scott, D. J. Tomnitz, B. Domicile: Delaware W. Wheat Employees: 2,926

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DPS | DPS is in the S&P 500

Dr Pepper Snapple Group Inc S&P Recommendation HOLD

★★★★★

Price $35.89 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Soft Drinks

12-Mo. Target Price $40.00

Investment Style Large-Cap Growth

Summary Spun off from Cadbury Schweppes in May 2008, DPS is the third largest marketer, bottler and distributor of non-alcoholic beverages in North America.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.24– 25.57 Trailing 12-Month EPS $2.12 Trailing 12-Month P/E 16.9 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.46 2.79 14.6 238.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.573 2.79 $1.00 92

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Dr Pepper Snapple Group reflects our view of the relatively stable nature of the company's end markets and its strong cash flow generation ability.

40 30

20

Quantitative Evaluations

15

S&P Quality Ranking Vol.

D

Mil.

C

B-

NR B

B+

A-

A

A+

68

15 10 5 0

Relative Strength Rank

MODERATE

34 LOWEST = 1

5

3

4

4

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on August 03, 2010, when the stock traded at $ 37.65. Highlights ➤

➤

➤

In 2010, we forecast revenue growth of approximately 3% from 2009's $5.5 billion, as we expect modest price increases and slight volume increases on flavored carbonated soft drink share gains. We think growth will continue to be driven by single serve wins in fountain and continued expansion of the cold drink program, with the placement of an additional 35,000 units on top of last year's nearly 36,000 units. We look for operating margin expansion in 2010, as the first year of inclusion of PepsiCo's $900 million payment over 25 years helps offset increased depreciation and start-up costs of the Victorville facility. While we expect an incremental $30 million in additional advertising and marketing expense in the back half of 2010, we see about $10 million in transportation cost savings from the new facility during that time. On fewer shares outstanding, we project 2010 EPS of $2.46, up from 2009 operating EPS of $1.97. In November 2009, directors authorized the repurchase of up to $200 million of stock over the next three years and a $0.15 per share quarterly dividend. In February 2010, they authorized an additional $800 million, and in May, boosted the quarterly payment to $0.25.

Investment Rationale/Risk ➤

➤

➤

We think DPS will have more difficulty expanding margins in the near term as favorable commodity cost benefits are lapped, manufacturing margins are hurt by initial rampup costs at its new Victorville, CA, production and distribution center, and higher oil prices likely squeeze bottling operation profits. In addition, while we still expect DPS's flavored carbonated brands to outperform the industry, we see tough comparisons on the annualization of the addition of Crush volumes. Risks to our recommendation and target price include more rapid commodity cost inflation than expected, consumer reluctance to accept new products, and unfavorable weather conditions in the company's markets. Our 12-month target price of $40 is derived from our peer multiple analysis. We apply a 14.4X multiple to our 2011 EPS estimate of $2.79, approximately a 10% discount to our blended peer average multiple of bottling and concentrate companies.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,248 1,519 2009 1,260 1,481 2008 1,295 1,545 2007 1,269 1,543 2006 990.0 990.0 2005 ---

3Q -1,434 1,494 1,535 1,378 --

4Q -1,356 1,376 1,401 1,378 --

Year -5,531 5,710 5,748 4,735 3,205

Earnings Per Share ($) 2010 0.35 0.74 2009 0.52 0.62 2008 0.38 0.42 2007 -0.54 2006 --2005 ---

E0.69 0.59 0.41 ----

E0.66 0.45 -2.44 0.54 ---

E2.46 2.18 -1.23 1.79 ---

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.250 0.250

11/20 02/03 05/19 08/11

12/17 03/18 06/17 09/16

12/21 03/22 06/21 09/20

01/08/10 04/09/10 07/09/10 10/08/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DPS

Dr Pepper Snapple Group Inc Business Summary August 03, 2010 CORPORATE OVERVIEW. Dr Pepper Snapple Group is the third largest marketer, bottler and distributor of non-alcoholic beverages in North America and the leading flavored carbonated soft drink (CSD) company in the United States. Its CSD brands include Dr Pepper, 7UP, Sunkist, A&W, Canada Dry, Crush, Schweppes, Squirt and Penafiel. Its non-CSD brands include Snapple, Mott's, Hawaiian Punch and Clamato. The company also distributes FIJI mineral water and AriZona tea. A small portion of bottling group sales comes from fees paid by private label owners and others for bottling beverages and other products, with 87% of manufactured volumes related to company brands and the remainder to third-party and private-label products. Some 72% of Dr Pepper volumes are distributed through PepsiCo and Coca-Cola bottlers affiliated with Pepsi Bottling Group and Coca-Cola Enterprises Inc., the two largest customers of the beverages concentrate segment, accounting for 25% and 23% of net sales in 2009. The company has three main operating segments: beverage concentrates (19.2% of 2009 sales, with an operating profit margin of 64.3%), finished goods (74.3% of sales, with a 13.9% operating margin), and Latin America beverages (6.5%, with a 15.1% operating margin).

brands through line extensions, such as launching Snapple super premium teas and antioxidant waters with functional benefits through its Snapple line. DPS is also targeting opportunities in high growth and high margin categories, including ready to drink teas, energy drinks and other functional beverages, and plans to increase its presence in higher margin channels and packages. These channels include convenience stores, vending machines and small independent retail outlets, most often offering higher margin single-serve packages. With the lackluster economy and continuing high unemployment, however, Standard & Poor's remains cautious on this segment, which is particularly sensitive to changes in discretionary income. The company may also selectively enter into distribution agreements for high growth, third-party brands that can use DPS's bottling and distribution network. In addition, DPS plans to continue to acquire regional bottling companies to broaden geographic coverage. Management believes the integrated model of brand ownership with bottling capabilities best aligns the economic interests of all parties involved. Finally, the company is targeting improvements in operating efficiencies as it integrates recent bottling acquisitions and reduces distribution costs.

In 2009, DPS generated 90% of its sales in the United States, 4% in Canada, and 6% in Mexico and the Caribbean. CORPORATE STRATEGY. DPS's growth strategies include leveraging key Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.92 2.18 2.15 0.15 7% 30.65 11.83 14 5

2008 NM -0.56 -1.23 1.51 Nil Nil 30.00 13.45 NM NM

2007 NM 2.19 1.79 1.76 NA NA NA NA NA NA

2006 NA NA NA 1.92 NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

5,531 1,235 207 243 870 36.2% 555 549

5,710 1,134 169 241 -373 NM -312 385

5,748 1,113 100 250 774 41.2% 455 446

4,735 1,152 139 257 808 36.9% 510 487

3,205 959 79.0 210 808 39.7% 487 NA

3,065 953 84.0 177 716 37.7% 446 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 280 Current Assets 1,279 Total Assets 8,776 Current Liabilities 854 Long Term Debt 2,960 Common Equity 3,187 Total Capital 6,147 Capital Expenditures 317 Cash Flow 744 Current Ratio 1.5 % Long Term Debt of Capitalization 48.2 % Net Income of Revenue 10.0 % Return on Assets 6.4 % Return on Equity 19.2

214 1,237 8,638 801 3,505 2,607 6,112 304 -143 1.5 57.3 NM NM NM

100 1,179 9,598 2,764 1,999 2,922 6,245 230 555 0.4 32.0 7.9 NA NA

35.0 1,632 9,346 1,691 3,084 3,250 7,042 158 649 1.0 43.8 10.8 6.1 18.0

28.0 1,331 7,433 1,136 2,858 2,426 5,688 44.0 566 1.2 50.3 15.2 NA NA

NA NA NA NA NA NA NA 71.0 530 NA Nil 14.6 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Pro forma data in 2007. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5301 Legacy Drive, Plano, TX 75024. Telephone: 972-673-7000. Website: http://www.drpeppersnapplegroup.com Chrmn: W.R. Sanders

Pres & CEO: L.D. Young EVP & CFO: M.M. Ellen EVP, Secy & General Counsel: J.L. Baldwin, Jr. SVP, Chief Acctg Officer & Cntlr: A.A. Stephens

Investor Contact: A. Noormohamed (972-673-6050) Founded: 2007 Board Members: J. L. Adams, T. D. Martin, P. H. Domicile: Delaware Patsley, R. G. Rogers, W. R. Sanders, J. L. Stahl, M. A. Employees: 19,000 Szostak, M. Weinstein, L. D. Young

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DTE | DTE is in the S&P 500

DTE Energy Co S&P Recommendation HOLD

★★★★★

Price $46.93 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $48.00

Summary This diversified energy company is involved in the development and management of energy-related businesses and services nationwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.06– 36.65 Trailing 12-Month EPS $3.53 Trailing 12-Month P/E 13.3 $10K Invested 5 Yrs Ago $14,489

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.58 3.78 13.1 168.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.921 4.77 $2.24 60

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

HIGH

Our risk assessment reflects a balance between the steady cash flow that we expect from the regulated utilities, which operate within a generally supportive regulatory environment, and most of the unregulated operations, which continue to contribute a significant portion of DTE's consolidated cash flow. While we expect DTE to benefit from the modification of Michigan's Electric Choice program, we remain concerned about the weak outlook for the state's economy.

30 25

Vol. Mil. 9 6 3 0

Quantitative Evaluations

5

3

2

2

3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

Analysis prepared by Justin McCann on July 22, 2010, when the stock traded at $ 47.61. Highlights We expect operating EPS in 2010 to increase about 12% from 2009's $3.30, which excluded $0.06 of net one-time charges. Operating EPS in 2009, which advanced more than 13% from 2008's $2.90, benefited from an electric rate increase, lower fuel and purchased power costs, tax credits, and strong results from the nonutility operations, partially offset by a decline in electric demand and higher pension costs. For 2010, we expect operating EPS to be aided by rate increases at MichCon Gas and Detroit Edison, and higher coke sales to a revitalized steel industry. EPS in the first quarter of 2010 was aided $0.04 by a lower tax rate. In January 2010, the Michigan Public Service Commission (MPSC) authorized Detroit Edison an electric rate increase of $217 million (4.8%). The MPSC order maintained the allowed return on equity at 11%. Longer term, we expect EPS growth to be largely driven by an expanded rate base resulting from DTE's capital investment program. Under the energy reform package that the governor of Michigan signed into law in October 2008, the state's electric choice program was modified and a 12-month deadline for the resolution of utility rate cases was established.

Investment Rationale/Risk ➤

The stock is up more than 7% year to date. This follows a 22% gain in 2009, and reflects, in our view, the company's improved earnings outlook. We see long-term benefits from the energy legislation that modified Michigan's electric choice program and assured a more efficient rate case process, but we expect the stock to stabilize around its current level over the near term. We think the stock was badly hurt in early 2009 by the weak economy in Detroit and turmoil in the financial markets.

➤

Risks to our recommendation and target price include a slower-than-expected recovery in the financial markets and the Michigan economy, as well as a sharp decrease in the average P/E of the peer group as a whole.

➤

The dividend recently yielded 4.5%, in line with the recent peer average. While the stock could remain volatile in the current market, we believe the dividend should provide some support for the shares. With a payout ratio at 57% of our operating EPS estimate for 2010, we expect DTE to keep the dividend at its current level. Our 12-month target price is $48, reflecting an approximate peer P/E of 12.9X our operating EPS estimate for 2010.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

35

Options: ASE, Ph

➤

MEDIUM

Below Avg.

35

➤

0.67 9 BBB

Qualitative Risk Assessment

50

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,453 1,792 2009 2,255 1,688 2008 2,570 2,251 2007 2,463 1,692 2006 2,635 1,895 2005 2,309 1,941

3Q -1,961 2,338 2,140 2,196 2,060

4Q -2,121 2,170 2,211 2,296 2,712

Year -8,014 9,329 8,506 9,022 9,022

Earnings Per Share ($) 2010 1.38 0.51 2009 1.09 0.51 2008 1.23 0.17 2007 0.54 1.99 2006 0.76 -0.18 2005 0.72 0.19

E0.93 0.92 1.03 0.92 1.07 0.17

E0.88 0.72 0.80 1.17 0.81 2.18

E3.58 3.24 3.23 4.62 2.45 3.27

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.530 0.530 0.530 0.560

12/03 02/04 05/07 07/29

12/17 03/18 06/17 09/16

12/21 03/22 06/21 09/20

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1909. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DTE

DTE Energy Co Business Summary July 22, 2010 CORPORATE OVERVIEW. DTE Energy, formed on January 1, 1996, is the holding company for The Detroit Edison Company and Michigan Consolidated Gas (MichCon), regulated electric and gas utilities serving customers within the state of Michigan, and three non-utility operations engaged in a variety of energy-related businesses in various portions of the United States. The electric utility business accounted for 58.8% of consolidated revenues in 2009; the gas utility business 22.0%; and the non-utility operations 19.2%. MARKET PROFILE. Detroit Edison is a regulated electric utility serving approximately 2.1 million customers in southeastern Michigan. In 2009, residential customers accounted for 40.0% of the utility's revenues; commercial customers 37.4%; industrial customers 16.0%; and other 6.6%; and wholesale 2.6%. With its high percentage of commercial and industrial customers, the utility had been hurt by the state's Customer Choice program, losing about 3% of retail sales in 2009 and 2008, 4% in 2007, 6% in 2006, 12% in 2005, and 18% in 2004. Recent energy legislation in Michigan and orders by the Michigan Public Service Commission (MPSC) placed a 10% cap on the total potential migration. When market conditions are favorable, Detroit Edison will sell excess power into the wholesale market. The utility's generating capability is heavily

dependent on the availability of coal, and the majority of its coal needs are obtained through long-term contracts, with the remainder purchased through short-term agreements or purchases in the spot market. MichCon is a regulated natural gas utility serving about 1.2 million residential, commercial and industrial customers in the state of Michigan. It also has subsidiaries involved in the gathering and transmission of natural gas in northern Michigan, and operates one of the largest natural gas distribution and transmission systems in the U.S., with connections to interstate pipelines providing access to most of the major natural gas producing regions in the Gulf Coast, Mid-Continent and Canadian regions. The company purchases its natural gas supplies on the open market through a diversified portfolio of supply contracts, and, given its storage capacity, should be able to meet its supply requirements.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.39 3.24 3.84 2.12 65% 44.96 23.32 14 7

2008 23.99 3.23 1.69 2.12 66% 45.34 27.82 14 9

2007 23.22 4.62 1.55 2.12 46% 54.74 43.96 12 10

2006 21.02 2.45 2.88 2.08 85% 49.24 38.77 20 16

2005 20.88 3.27 2.13 2.06 63% 48.31 41.39 15 13

2004 20.01 2.55 1.97 2.06 81% 45.49 37.88 18 15

2003 19.05 2.85 3.22 2.06 72% 49.50 34.00 17 12

2002 14.61 3.83 2.80 2.06 54% 47.70 33.05 12 9

2001 16.06 2.14 2.09 2.06 96% 47.13 33.13 22 15

2000 28.15 3.27 NA 2.06 63% 41.31 28.44 13 9

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

8,014 954 NA 2.40 NA 31.6% 532 631

9,329 899 NA 2.35 NA 35.2% 526 275

8,506 932 NA 1.55 NA 31.5% 787 266

9,022 1,014 NA 1.82 NA NM 437 512

9,022 869 NA 1.21 NA NM 576 374

7,114 744 NA 1.35 NA NM 443 344

7,041 687 NA 1.49 NA 24.0% 480 542

6,749 759 NA 2.00 NA NM 632 463

7,849 795 NA 2.04 NA NM 329 322

5,597 758 NA 2.42 NA 1.89% 468 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 20,588 Capital Expenditures 1,035 Net Property 12,431 Capitalization:Long Term Debt 7,370 Capitalization:% Long Term Debt 54.0 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 6,278 Capitalization:% Common 46.0 Total Capital 14,357 % Operating Ratio 87.7 % Earned on Net Property 10.0 % Return on Revenue 6.6 % Return on Invested Capital 7.4 % Return on Common Equity 8.7

20,065 1,373 12,231 7,741 56.4 Nil Nil 5,995 43.6 15,833 91.0 9.5 5.6 5.8 8.9

18,809 1,299 11,408 6,971 54.4 Nil Nil 5,853 45.6 14,804 95.2 6.8 9.3 3.1 13.5

19,224 1,403 11,451 7,474 56.1 Nil Nil 5,849 43.9 14,950 91.2 7.4 4.8 5.4 7.5

18,660 1,065 10,830 7,080 55.1 Nil Nil 5,769 44.9 14,468 96.1 8.9 6.4 6.0 10.2

18,011 904 10,491 7,606 57.8 Nil Nil 5,548 42.2 13,429 93.4 8.1 6.2 6.1 8.2

17,679 751 10,324 7,669 59.2 Nil Nil 5,287 40.8 14,256 91.1 7.2 6.8 7.5 9.7

17,862 984 9,813 7,785 63.0 Nil Nil 4,565 37.0 13,434 82.8 11.4 9.4 9.1 13.8

17,067 1,096 9,543 7,928 63.0 Nil Nil 4,657 37.0 14,063 86.3 8.2 4.2 8.9 7.6

13,162 749 7,387 4,062 50.3 Nil Nil 4,015 49.7 9,878 85.3 11.4 8.4 8.1 11.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Energy Plaza, Detroit, MI 48226-1279. Telephone: 313-235-4000. Email: [email protected] Website: http://www.dteenergy.com

Chrmn: A.F. Earley, Jr. Pres & CEO: G.M. Anderson EVP & CFO: D.E. Meador SVP & General Counsel: B.D. Peterson

SVP & CIO: L. Ellyn Investor Contact: L. Muschong (313-235-8505) Board Members: G. M. Anderson, L. Bauder, D. A. Brandon, A. F. Earley, Jr., W. F. Fountain, A. D. Gilmour, F. M. Hennessey, J. E. Lobbia, G. J. McGovern, E. A. Miller, M. A. Murray, C. W. Pryor, Jr., J. Robles, Jr., R. G. Shaw, J. H. Vandenberghe

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1995 Domicile: Michigan Employees: 10,244

Stock Report | October 23, 2010 | NYS Symbol: DUK | DUK is in the S&P 500

Duke Energy Corp S&P Recommendation HOLD

★★★★★

Price $17.78 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $18.00

Investment Style Large-Cap Value

Summary DUK provides service to 3.9 million electric customers in North Carolina, South Carolina, Indiana, Ohio and Kentucky, and 500,000 gas customers in Kentucky and Ohio.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $18.08– 15.47 Trailing 12-Month EPS $0.52 Trailing 12-Month P/E 34.2 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.35 1.40 13.2 1,318.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$23.447 5.51 $0.98 48

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.44 6 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects DUK's large market capitalization and a balanced portfolio of businesses that include lower-risk regulated electric and gas utility services, partly offset by higher-risk unregulated businesses, which contribute less than 25% of the company's earnings.

25

20

16

12

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

60 40 20 0 5

D 4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Christopher B. Muir on August 13, 2010, when the stock traded at $ 17.15. Highlights We expect revenues to rise 7.4% in 2010, as lower industrial volumes and the weak economy are more than offset by rate increases in multiple jurisdictions. At the unregulated power unit, we see lower prices, offset by increased availability. In 2011, we expect additional rate hikes at the utility and a slower decline in industrial sales to lead to a 3.0% revenue increase. We forecast operating margins of 23.3% for 2010, up from 21.9% in 2009, as we see lower per-revenue operations & maintenance expenses and operating taxes partly offset by higher per-revenue depreciation costs. We see operating margins rising to 23.5% in 2011. We project pretax margins of 20.7% for 2010 and 21.0% in 2011, versus 18.8% in 2009, with higher non-operating income being partly offset by higher interest expense in 2010. Assuming an effective tax rate of 36.2%, we estimate 2010 operating EPS, excluding net nonrecurring charges of $0.53, of $1.35, up 13% from 2009 operating EPS of $1.20, which excludes $0.37 of net nonrecurring charges. We see 2011 EPS rising 3.7%, to $1.40.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B B

45 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

We believe DUK's investments in its regulated business will allow its rate base to grow faster than depreciation, providing it with opportunities to raise rates. DUK's planned investments in its commercial renewable portfolio should complement its existing generating assets. We also like DUK's higher-growth Carolina service territories. While we view positively recent developments at the company, we would not add to positions. Risks to our recommendation and target price include lower electric margins, a greaterthan-expected rise in interest rates, and unfavorable commodity price trends. DUK recently traded at 12.2X our 2011 EPS estimate, about even with its electric utility peers. Our 12-month target price of $18 is 12.8X our 2011 EPS projection, a small discount to our peer target. In our view, this valuation is warranted by what we see as slower-than-peers earnings growth, but a stronger-than-peers balance sheet. We also believe that DUK's relatively high dividend payout ratio will limit its ability to grow dividends faster than peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,594 3,287 2009 3,312 2,913 2008 3,337 3,229 2007 3,035 2,966 2006 3,106 3,865 2005 5,328 5,274

3Q -3,396 3,508 3,688 4,143 3,028

4Q -3,110 3,133 3,031 4,070 3,116

Year -12,731 13,207 12,443 15,184 16,746

Earnings Per Share ($) 2010 0.34 -0.17 2009 0.27 0.22 2008 0.37 0.27 2007 0.27 0.24 2006 0.50 0.34 2005 0.88 0.32

E0.43 0.09 0.17 0.48 0.60 0.96

E0.28 0.26 0.21 0.21 0.31 0.43

E1.35 0.82 1.01 1.20 1.70 2.61

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.240 0.240 0.240 0.245

10/20 01/06 05/06 06/22

11/10 02/10 05/19 08/11

11/13 02/12 05/21 08/13

12/16/09 03/16/10 06/16/10 09/16/10

Dividends have been paid since 1926. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DUK

Duke Energy Corp Business Summary August 13, 2010 CORPORATE OVERVIEW. Duke provides electric and gas utility services, sells wholesale power, and has investments in various South American generation plants. Its Franchised Electric and Gas (E&G) segment generates, transmits, distributes and sells electricity in central and western North Carolina, western South Carolina, southwestern Ohio, central, north central and southern Indiana, and northern Kentucky. The Commercial Power segment owns, operates and manages power plants and engages in the wholesale marketing and procurement of electric power, fuel and emission allowances related to these plants as well as other contractual positions. The International Energy segment (IE) owns, operates and manages power generation facilities, and engages in sales and marketing of electric power and natural gas outside the U.S. The Other segment includes unallocated corporate costs and investments in other businesses. Franchised Electric and Gas serves about 4 million electric customers over 50,000 square miles in North Carolina, South Carolina, Indiana, Ohio and Kentucky, and about 500,000 gas customers in Kentucky and Ohio, and owns generating assets totaling 26,957 MW (49% coal; 20% natural gas, oil or other; 19% nuclear; and 12% hydro) as of December 2009. Electric sales in 2009 were 30% residential, 32% commercial, 26% industrial and 11% other.

The Power segment consists of 8,005 MW, mostly supporting regulated operations in Ohio. There are 5,813 MW located in Ohio, 690 MW in Pennsylvania, 640 MW in Illinois, 480 MW in Indiana, 212 MW in Texas, and 170 MW in Wyoming. Commercial Power's fuel mix includes 47% natural gas, 44% coal, 3% fuel oil, and 6% wind. The IE segment primarily consists of power generation (4,053 MW) in Central and South America. CORPORATE STRATEGY. In recent years, Duke has focused on utility spending in an effort to increase its rate base, which can lead to rate increases. The Power segment has focused on increasing renewable generation assets, and IE aims to take advantage of any opportunities that may arise. In June 2009, IE purchased the remaining 24% of its Aguaytia Integrated Energy Project subsidiary in Peru. We expect capital spending to be close to $5.0 billion annually through 2013, with almost all of the spending at the regulated businesses. We expect debt levels to rise during this period.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.84 0.82 1.11 0.94 115% 17.94 11.72 22 14

2008 12.25 1.01 0.82 0.90 89% 20.60 13.50 20 13

2007 12.55 1.20 1.22 0.86 70% 21.30 16.91 17 14

2006 13.54 1.70 1.80 0.95 56% 34.50 26.94 20 16

2005 13.65 2.61 1.29 1.17 45% 30.55 24.37 12 9

2004 12.54 1.27 1.24 1.10 87% 26.16 18.85 21 15

2003 10.74 -1.13 -1.10 1.10 NM 21.57 12.21 NM NM

2002 12.51 1.22 1.01 1.10 90% 40.00 16.42 33 13

2001 14.11 2.56 2.29 1.10 43% 47.74 32.22 19 13

2000 11.21 2.38 NA 1.10 46% 45.22 22.88 19 10

12,731 1,656 NA 3.88 NA 41.4% 1,063 1,423

13,207 1,670 NA 3.72 NA 32.6% 1,279 1,041

12,720 1,746 NA 4.03 NA 31.8% 1,522 1,551

15,184 2,049 NA 2.77 NA 28.8% 2,019 2,131

16,746 1,728 NA 2.91 NA 29.5% 2,533 1,249

22,503 1,851 NA 2.40 NA 27.5% 1,232 1,199

22,529 1,803 NA 1.96 NA NM -1,005 -994

15,663 1,571 NA 2.46 NA 35.1% 1,034 908

59,503 1,336 NA 5.33 53.0 33.1% 1,994 1,777

49,318 1,167 NA 4.25 63.0 32.9% 1,776 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 55,362 Capital Expenditures 4,557 Net Property 37,950 Capitalization:Long Term Debt 16,113 Capitalization:% Long Term Debt 42.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 21,750 Capitalization:% Common 57.4 Total Capital 38,905 % Operating Ratio 85.3 % Earned on Net Property 7.3 % Return on Revenue 8.4 % Return on Invested Capital 5.8 % Return on Common Equity 5.0

50,304 4,922 34,036 13,250 38.7 Nil Nil 20,988 61.3 39,666 85.5 7.8 9.7 5.7 6.1

46,056 3,125 31,110 9,498 30.9 Nil Nil 21,199 69.1 35,790 86.0 6.9 12.0 4.7 6.4

58,330 3,381 41,447 18,118 41.0 Nil Nil 26,102 59.0 52,203 87.6 9.0 13.3 7.5 9.5

40,574 2,309 29,200 14,547 46.9 Nil Nil 16,439 53.1 36,988 89.6 11.5 15.1 11.1 15.3

46,806 2,055 33,506 16,932 50.5 134 0.40 16,441 49.1 40,375 88.6 8.9 5.5 7.0 8.1

47,157 2,470 34,986 20,622 59.8 134 0.39 13,748 39.8 40,490 85.4 NM NM 8.7 NM

48,677 4,924 36,219 21,629 58.9 157 0.43 14,944 40.7 43,644 87.1 7.6 6.6 6.3 7.4

39,464 5,930 28,415 13,728 51.5 234 0.88 12,689 47.6 33,393 95.0 15.5 3.4 10.5 17.4

34,615 5,634 24,469 12,425 54.7 247 1.09 10,056 44.2 29,225 94.3 16.8 3.6 11.2 18.4

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 526 South Church Street, Charlotte, NC 28202-1904. Telephone: 704-594-6200. Website: http://www.duke-energy.com Chrmn, Pres & CEO: J.E. Rogers, Jr.

EVP & CIO: A.R. Mullinax SVP, Chief Acctg Officer & Cntlr: S.K. Young Investor Contact: S.G. De May () SVP & Treas: S.G. De May

Board Members: W. Barnet, III, G. A. Bernhardt, M. G. Founded: 1917 Browning, D. R. DiMicco, J. H. Forsgren, Jr., A. M. Domicile: Delaware Gray, J. H. Hance, Jr., E. J. Reinsch, J. T. Rhodes, J. E. Employees: 18,680 Rogers, Jr., P. R. Sharp

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DNB | DNB is in the S&P 500

Dun & Bradstreet Corp (The) S&P Recommendation HOLD

★★★★★

Price $75.22 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Research & Consulting Services

12-Mo. Target Price $78.00

Investment Style Large-Cap Growth

Summary This company is a worldwide provider of business information and related decision support services and commercial receivables management services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $84.95– 65.34 Trailing 12-Month EPS $4.65 Trailing 12-Month P/E 16.2 $10K Invested 5 Yrs Ago $11,975

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.55 5.94 13.6 50.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

80 70

MEDIUM

HIGH

Quantitative Evaluations

Vol. 13

Mil.

S&P Quality Ranking

3 2 1 0

D 5

4

3

C

B-

B+ B

B+

A-

A

Relative Strength Rank

3

A+

MODERATE 59

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Rafay Khalid, CFA on September 03, 2010, when the stock traded at $ 68.40. Highlights We forecast sales increases of 4% in 2010 and 8% in 2011. We believe International division sales will advance 24% in 2010, on our view of strength in emerging markets and our outlook for incremental revenues from the recently acquired D&B Australia Holdings. But we expect slightly negative revenues in the North America division this year, reflecting our outlook for cautious spending by corporations and small businesses in the key U.S. market. We expect higher expenses in 2010 and 2011, primarily stemming from the company's twoyear technology investment program. While this program will cost $110 million to $130 million over the two years, we forecast significant business productivity improvements that should help lower expenses in the long term. In addition, we forecast higher amortization and merger expenses related to the D&B Australia acquisition in 2010. As a result, we see operating margins declining to 26.8% in 2010, followed by 27.0% in 2011. Our operating EPS estimates are $5.55 for 2010 and $5.94 for 2011, excluding one-time items. This compares to operating EPS of $5.42 in 2009.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: Ph

➤

LOW

Our risk assessment reflects DNB's global business database and proprietary identification system, which we think provides a competitive advantage, and its notable record of long-term EPS growth, notwithstanding a slightly uncertain regulatory outlook for its ability to collect and use data.

90

➤

0.52 6 A-

Below Avg.

100

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

110

5

$3.765 1.86 $1.40 85

We believe DNB's North American business will remain weak in 2010, as we project a slow recovery in employment and corporate profits in the U.S. and therefore expect DNB's customers to maintain tight budgets. We also see continued weakness among small businesses. We see DNB continuing to increase its presence internationally through investments, joint ventures and partnerships. We also expect the company to continue deploying free cash flow toward acquisitions, stock repurchases and dividends.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 397.2 397.3 2009 407.4 416.9 2008 414.7 427.7 2007 379.0 380.8 2006 367.2 367.4 2005 341.3 351.7

3Q -399.0 409.2 374.7 359.2 341.6

4Q -463.7 474.7 464.7 437.5 409.0

Year -1,687 1,726 1,599 1,531 1,444

Earnings Per Share ($) 2010 0.92 1.11 2009 1.93 1.43 2008 1.05 1.51 2007 0.86 1.44 2006 0.75 0.79 2005 0.73 0.67

E1.12 1.02 1.18 0.93 0.72 0.46

E1.90 1.61 1.85 1.68 1.46 1.32

E5.55 5.99 5.58 4.90 3.70 3.19

Risks to our recommendation and target price include a stronger U.S. dollar depressing overseas profits, a deteriorating outlook for DNB's U.K. operations, and an inability by DNB to realize operating efficiencies from the company's business rationalization program.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $78 is based on a historical low P/E ratio of 13.2X our 2011 EPS forecast. We believe this multiple is warranted based on our outlook for a challenging economic recovery in the company's key U.S. market and investment in a two-year technology program.

0.350 0.350 0.350 0.350

02/04 05/04 08/04 10/19

03/01 05/26 08/27 11/24

03/03 05/28 08/31 11/29

03/18/10 06/16/10 09/15/10 12/13/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DNB

Dun & Bradstreet Corp (The) Business Summary September 03, 2010 CORPORATE OVERVIEW. Dun & Bradstreet (DNB) is a leading worldwide provider of business information and related decision support services. DNB believes it has the world's largest global business database, with over 150 million business records. DNB operates its business through four customer solution sets: Risk Management Solutions (64% of 2009) (Risk Management includes Supply Management as of January 1, 2008), Sales and Marketing Solutions (29%), and Internet Solutions (7%). Sales in North America accounted for 78% of 2009 revenues, while the remaining 22% came from DNB's overseas presence, including strategic partner relationships and minority equity investments. Risk Management Solutions helps clients extend commercial credit, set credit limits, and determine total credit risk exposure. It aims to help clients increase cash flow and profitability while minimizing operational, credit, and regulatory risk. Within this customer solution set, DNB offers traditional and what it considers value-added products. Traditional products consist of reports from DNB's database used primarily for making decisions about new credit applications. Value-added products generally support automated decision making and portfolio management through the use of scoring and integrated software solutions.

The Supply Management Solutions set helps customers understand their supplier base, rationalize their supplier rosters, leverage buying power, minimize supply-related risks, and identify and evaluate new sources of supply. Starting in January 2008, DNB started managing its Supply Management business as part of its Risk Management Solutions business. Sales and Marketing Solutions helps customers conduct market segmentation, maintain updated customer relationship management systems, and offers client profiling, prospect selection and marketing list development. Traditional products generally consist of marketing lists, labels and customized data files used by DNB's customers in their direct mail and marketing activities. Value-added products primarily include decision making and customer information management solutions. Internet Solutions represents the results of Hoover's, Inc., which DNB acquired in 2003, and AllBusiness.com. Hoover's provides information on public and private companies, primarily to senior executives and sales professionals, using a proprietary database.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 7.14 5.99 5.69 1.36 23% 84.95 68.97 14 12

2008 NM 5.93 5.58 4.28 1.20 22% 98.90 64.00 18 11

2007 NM 5.19 4.90 4.66 1.00 20% 108.45 81.50 22 17

2006 NM 4.21 3.70 3.69 Nil Nil 84.98 65.03 23 18

2005 NM 3.71 3.19 2.83 Nil Nil 68.00 54.90 21 17

2004 NM 3.54 2.90 2.14 Nil Nil 60.80 47.85 21 16

2003 NM 3.15 2.30 1.97 Nil Nil 50.81 32.31 22 14

2002 NM 2.96 1.87 0.63 Nil Nil 43.40 28.26 23 15

2001 NM 3.02 1.88 0.07 Nil Nil 36.90 20.99 20 11

2000 NM 2.25 0.90 NA Nil Nil 27.00 13.00 30 14

1,687 546 58.1 45.7 434 25.8% 319 302

1,726 521 19.6 47.4 440 29.1% 310 238

1,599 469 17.9 28.3 428 31.8% 293 278

1,531 461 33.3 20.3 389 37.7% 241 240

1,444 431 36.1 21.1 355 37.7% 221 197

1,414 398 47.3 18.9 341 37.9% 212 156

1,386 373 64.0 18.6 281 37.8% 175 151

1,276 371 84.2 19.5 238 39.6% 143 48.5

1,309 344 94.5 16.4 260 38.9% 153 6.51

1,418 355 111 8.60 174 44.9% 73.6 NA

Balance Sheet & Other Financial Data (Million $) Cash 223 Current Assets 760 Total Assets 1,749 Current Liabilities 859 Long Term Debt 962 Common Equity -746 Total Capital 230 Capital Expenditures 9.20 Cash Flow 378 Current Ratio 0.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 18.9 % Return on Assets NA % Return on Equity NA

164 696 1,586 908 904 -856 53.7 11.8 329 0.8 NM 17.9 19.1 NM

176 718 1,659 910 725 -440 288 13.7 311 0.8 251.4 18.3 19.4 NM

138 645 1,360 806 459 -399 62.4 11.6 274 0.8 NM 15.7 16.2 NM

305 759 1,613 1,029 0.10 77.6 77.7 5.70 257 0.7 0.1 15.3 13.6 335.7

336 762 1,636 714 300 54.2 354 12.1 259 1.1 84.7 15.0 13.0 412.9

239 731 1,625 736 300 48.4 348 11.0 239 1.0 86.1 12.6 11.1 1179.1

192 614 1,528 718 300 -18.8 281 15.8 228 0.9 106.7 11.2 9.6 NM

145 580 1,431 663 300 -20.9 280 16.2 248 0.9 107.0 11.7 10.7 NM

70.1 539 1,424 743 Nil -51.0 251 24.1 185 0.7 Nil 5.2 4.9 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 103 J F K Pkwy, Short Hills, NJ 07078-2708. Telephone: 973-921-5500. Website: http://www.dnb.com Chrmn, Pres & CEO: S. Mathew

SVP & CFO: A.G. Konidaris SVP, Secy & General Counsel: J.S. Hurwitz Chief Admin Officer: E.A. Conti CTO & CIO: W.S. Hauck, III

Investor Contact: R. Veldran (973-921-5863) Founded: 2000 Board Members: A. A. Adams, J. W. Alden, C. J. Domicile: Delaware Coughlin, J. N. Fernandez, J. J. Judge, S. Mathew, S. E. Employees: 5,000 Peterson, M. R. Quinlan, N. Seligman, M. J. Winkler

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DD | DD is in the S&P 500

E. I. du Pont de Nemours and Co S&P Recommendation SELL

★★★★★

Price $46.83 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Diversified Chemicals

12-Mo. Target Price $38.00

Investment Style Large-Cap Value

Summary This broadly diversified company is the second largest U.S. chemicals manufacturer.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.50– 31.02 Trailing 12-Month EPS $3.43 Trailing 12-Month P/E 13.7 $10K Invested 5 Yrs Ago $14,891

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.90 3.00 16.1 906.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$42.452 3.50 $1.64 64

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.40 8 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's diverse business and geographic sales mix and its leadership positions in key products, offset by the cyclical nature of the chemical industry and the volatility of raw material costs.

50 40 30

20

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

60 40 20 0 5

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

76 LOWEST = 1

3

2

HIGHEST = 99

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Richard O'Reilly, CFA on July 28, 2010, when the stock traded at $ 40.73. Highlights ➤

➤

➤

We expect sales to rise about 15% in 2010, including the 25% increase reported for the first half, reflecting recovering global demand in DD's chemicals and materials segments and higher average selling prices (including passthroughs of changes in metal and commodity prices). We expect raw material and energy costs for the rest of 2010 to increase modestly faster than the 3% pace of the second quarter. We think the agriculture segment's sales will grow about 10% in 2010, resulting in margin expansion despite increased expected seasonal losses in the second half. Pharmaceutical profits are projected to decline about 55% in 2010 as a result of the April expiration of U.S. patents for Cozaar/Hyzaar. We expect DD to achieve $400 million of productivity gains this year, following the $1.1 billion of cost savings in 2009. Pension expense will likely rise by $0.32 a share in 2010, and currency impacts should be unfavorable in the second half, in our view, following a $0.13 headwind in the first half. We expect the effective tax rate in the second half to be higher than in the comparable 2009 period.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our sell opinion on the shares is based on valuation. While DD reported better-than-expected EPS for the second quarter of 2010, aided by a recovery in demand and cost reductions, we expect it to continue to face headwinds from much lower pharmaceutical profits beginning in 2010. Risks to our opinion and target price include better than expected global industrial activity, lower raw material costs than we assume, a greater increase in market share for corn seeds, and an ability to more quickly and successfully develop and launch new products. The stock recently traded at a multiple of 14X our 2010 EPS estimate of $2.90, just below the P/E of a group of peer diversified chemical companies. Based on our 2010 EPS estimate and assuming a 13X P/E multiple, 12% below peers due to the challenging conditions we foresee, including lower pharmaceutical profits beginning in 2010, our 12-month target price is $38.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 8,844 9,080 2009 6,871 6,858 2008 8,575 8,837 2007 7,845 7,875 2006 7,394 7,442 2005 7,431 7,511

3Q -5,961 7,297 6,675 6,309 5,870

4Q -6,419 5,820 6,983 6,276 5,827

Year -27,328 31,836 29,378 27,421 26,639

Earnings Per Share ($) 2010 1.24 1.26 2009 0.54 0.46 2008 1.31 1.18 2007 1.01 1.04 2006 0.88 1.04 2005 0.96 1.01

E0.25 0.45 0.40 0.56 0.52 -0.09

E0.25 0.48 -0.70 0.60 0.94 0.16

E2.90 1.92 2.20 3.22 3.38 2.07

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.410 0.410 0.410 0.410

01/27 04/28 07/22 10/21

02/10 05/12 08/11 11/10

02/12 05/14 08/13 11/15

03/12/10 06/11/10 09/10/10 12/14/10

Dividends have been paid since 1904. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: DD

E. I. du Pont de Nemours and Co Business Summary July 28, 2010 E.I. du Pont de Nemours and Company, the second largest domestic chemicals producer, has made several major changes in recent years, including expanding its life sciences businesses (now crop pesticides and nutrition). Foreign sales accounted for 62% of the total in 2009. The Agricultural and Nutrition segment (32% of sales in 2009, and 37% of pretax operating income) consists of Pioneer Hi-Bred (56% of segment sales in 2009), the world's largest seed company, including corn (68% of sales) and soybeans; DuPont is also a major global supplier of crop protection chemicals (29%). The segment also includes nutrition and health (including the Solae soy business and food packaging products) and microbial diagnostic testing products. Segment sales rose 4% in 2009, including 17% in seeds, and profits climbed 13%. The Electronic and Communication Technologies segment (7%, 3%) includes electronic and advanced display materials and products (photoresins, slurries, films, laminants), and flexographic printing and proofing systems.

er of fluorochemicals (refrigerants, blowing agents, aerosols) and fluoropolymers (Teflon resins and coatings), and makes specialty and intermediate chemicals. The Performance Coatings unit (13%, 2%) is one of the largest global auto paint suppliers (including OEM and refinish markets) and also provides industrial and powder coatings, and inks for digital printing. Performance Materials (21%, 3%) includes engineering polymers and elastomers for auto, electrical, consumer and industrial uses; packaging and industrial polymers and films; and polyester films. Safety & Protection (11%, 8%) consists of Kevlar and Nomex aramid fibers and Tyvek and Sontara nonwovens for industrial, packaging, building, textile, military, and personal safety uses; solid surfaces (Corian products); and safety consulting services.

Performance Chemicals (18%, 16%) is the world's largest maker of titanium dioxide pigments (44% of sales) used in coatings and paper, a leading producCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.53 3.57 1.92 1.69 1.64 85% 35.62 16.05 19 8

2008 2.26 3.79 2.20 0.74 1.64 75% 52.49 21.32 24 10

2007 6.64 4.70 3.22 2.93 1.52 47% 53.90 42.25 17 13

2006 4.56 4.49 3.38 2.98 1.48 44% 49.68 38.52 15 11

2005 4.24 3.45 2.07 1.98 1.46 71% 54.90 37.60 27 18

2004 6.25 3.11 1.77 2.00 1.40 79% 49.39 39.88 28 23

2003 4.63 2.58 0.99 1.14 1.40 141% 46.00 38.60 46 39

2002 4.54 3.35 1.84 0.40 1.40 76% 49.80 35.02 27 19

2001 7.30 5.83 4.15 -1.04 1.40 34% 49.88 32.64 12 8

2000 4.50 3.96 2.19 NA 1.40 64% 74.00 38.19 34 17

27,328 4,246 1,503 408 2,184 19.0% 1,755 1,543

31,836 4,796 1,444 425 2,391 15.9% 2,007 677

29,378 4,269 1,371 430 3,743 20.0% 2,988 2,713

27,421 3,612 1,384 460 3,329 5.89% 3,148 2,768

26,639 3,507 1,358 518 3,558 41.3% 2,053 1,965

27,340 3,574 1,347 362 1,442 NM 1,780 2,008

26,996 3,176 1,584 347 143 NM 1,002 1,132

24,006 4,263 1,515 359 2,124 8.71% 1,841 398

24,726 4,130 1,754 590 6,844 36.0% 4,328 -1,087

28,268 5,244 1,860 810 3,447 31.1% 2,314 NA

Balance Sheet & Other Financial Data (Million $) Cash 6,137 Current Assets 17,288 Total Assets 38,185 Current Liabilities 9,390 Long Term Debt 9,528 Common Equity 6,978 Total Capital 17,179 Capital Expenditures 1,308 Cash Flow 3,248 Current Ratio 1.8 % Long Term Debt of Capitalization 55.5 % Net Income of Revenue 6.4 % Return on Assets 4.7 % Return on Equity 25.3

3,704 15,311 36,209 9,710 7,638 6,888 15,330 1,978 3,441 1.6 49.8 6.3 5.7 22.6

1,436 13,160 34,131 8,541 5,955 10,899 18,335 1,585 4,349 1.5 32.5 10.2 9.1 29.7

1,893 12,870 31,777 7,940 6,013 9,185 16,145 1,532 4,532 1.6 37.2 11.5 9.7 35.2

1,851 12,422 33,250 7,463 6,783 8,670 17,346 1,340 3,411 1.7 39.1 7.7 6.0 20.6

3,536 15,211 35,632 7,939 5,548 11,140 19,001 1,232 3,117 1.9 29.2 6.5 4.9 17.1

3,298 18,462 37,039 13,043 4,301 9,544 15,087 1,713 2,576 1.4 28.5 3.7 2.8 10.8

4,143 13,459 34,621 7,096 5,647 8,826 18,755 1,280 3,346 1.9 30.1 7.7 4.9 15.9

5,848 14,801 40,319 8,067 5,350 14,215 24,916 1,494 6,072 1.8 21.5 17.5 10.9 31.7

1,617 11,656 39,426 9,255 6,658 13,062 22,442 1,925 4,164 1.3 29.7 8.2 5.8 17.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Beginning in 2008, revenues include other income. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1007 Market Street, Wilmington, DE 19898. Telephone: 302-774-1000. Email: [email protected] Website: http://www.dupont.com

Chrmn & CEO: E.J. Kullman EVP, CFO & Chief Acctg Officer: N.C. Fanandakis SVP, CSO & CTO: D. Muzyka SVP & General Counsel: T.L. Sager

Treas: S.M. Stalnecker Founded: 1802 Investor Contact: K. Fletcher (800-441-7515) Domicile: Delaware Board Members: S. W. Bodman, III, R. H. Brown, R. A. Employees: 58,000 Brown, B. Collomb, C. J. Crawford, A. M. Cutler, J. T. Dillon, M. A. Hewson, L. D. Juliber, E. J. Kullman, W. K. Reilly, E. I. du Pont, II

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EMN | EMN is in the S&P 500

Eastman Chemical Co S&P Recommendation BUY

★★★★★

Price $78.60 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Diversified Chemicals

12-Mo. Target Price $84.00

Investment Style Large-Cap Value

Summary This global company manufactures and markets chemicals, fibers and polyester plastics used in consumer and industrial products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $80.22– 51.10 Trailing 12-Month EPS $4.32 Trailing 12-Month P/E 18.2 $10K Invested 5 Yrs Ago $19,575

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

7.00 7.25 11.2 72.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.678 2.24 $1.76 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.87 15 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the diverse business and geographic sales mix of the company, offset by the cyclical nature of the chemicals industry and the volatility of raw material costs.

80 60 40 30

Quantitative Evaluations

20

S&P Quality Ranking Vol.

D

C

B-

B B

B+

A-

A

A+

Mil. 9 6 3 0 5

4

Relative Strength Rank

STRONG 87

LOWEST = 1

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Richard O'Reilly, CFA on September 21, 2010, when the stock traded at $ 71.35. Highlights ➤

➤

➤

We expect sales to increase 30% and profits to improve greatly in 2010, reflecting increased overall demand for the first full year since 2007. We expect EMN to retain a majority of the $200 million in cost savings achieved in 2009, and raw material and energy costs to be lower in the second half. We project record annual profits for the fibers and coatings & adhesives segments in 2010 and much greater profits in specialty plastics. We expect a new copolyester resin to turn profitable in 2011. We expect the polyester resin business to have a much smaller loss in 2010, including breakeven second half results, aided by the improved operations at the U.S. plant that was expanded by 50% in late 2008. We expect increased interest expense in 2010, in part due to reduced capitalized interest, but we believe the effective tax rate will be about 33.5%, down from 37.6% in 2009. Our EPS estimate for 2010 includes a projected $0.20 insurance recovery in the third quarter related to an unplanned plant outage earlier in the year.

Investment Rationale/Risk ➤

➤

➤

Our buy opinion reflects our favorable outlook for EMN's business. The company recently boosted its EPS guidance for 2010 and the unprofitable polyester (PET) resin business is under review for possible divestiture. We expect the coatings, specialty plastics and fibers segments (over 80% of annual profits) to grow over the long term, aided by new capacity in specialty polyesters and acetate tow. Risks to our recommendation and target price include reduced demand for the company's production, unplanned production outages and interruptions, possible greater-than-estimated asbestos liabilities, and higher-than-expected raw material costs, and an inability to eliminate losses in the PET business. We expect EMN to again generate free cash flow in 2010, as much as the $320 million of 2009, and we believe the dividend, which recently provided an above-average yield of 2.4%, is secure. Applying a peer P/E multiple of 11.5X to our 2011 EPS estimate of $7.25 results in our 12-month target price of $84.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,564 1,724 2009 1,129 1,253 2008 1,727 1,834 2007 1,795 1,895 2006 1,803 1,929 2005 1,762 1,752

3Q -1,337 1,819 1,813 1,966 1,816

4Q -1,328 1,346 1,737 1,752 1,729

Year -5,047 6,726 6,830 7,450 7,059

Earnings Per Share ($) 2010 1.37 2.02 2009 0.03 0.89 2008 1.45 1.49 2007 0.91 1.22 2006 1.27 1.37 2005 2.00 2.51

E2.25 1.38 1.33 0.24 1.15 1.50

E1.33 -0.44 -0.03 1.25 1.12 0.81

E7.00 1.85 4.32 3.83 4.91 6.81

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.440 0.440 0.440 0.440

12/03 02/18 05/06 08/05

12/10 03/11 06/10 09/09

12/14 03/15 06/14 09/13

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EMN

Eastman Chemical Co Business Summary September 21, 2010 CORPORATE OVERVIEW. Eastman Chemical Co. is a large global maker of a broad range of chemicals, plastics and fibers. International operations accounted for 45% of sales in 2009. It reports results in five segments. The coatings, adhesive, specialty polymers and inks segment (24% of 2009 sales, operating profits of $227 million) is a leading supplier of alcohols and solvents used in coatings (50% of segment sales), resins and dispersions (35%), and specialty polymers (15%) used in adhesives. Performance chemicals and intermediates (26%, $63 million) includes oxo chemicals, acetyls, plasticizers and glycols used for polymers, photographic and home care products, agricultural chemicals and pharmaceutical intermediates; and additives for food and beverage ingredients. The segment also included contract ethylene sales of $28 million under a supply agreement related to a former polyethylene business. About 65% of annual segment sales is generated in North America. In the fibers business (20%, $296 million), EMN is one of the world's two largest suppliers of acetate cigarette filter tow (annual capacity of 402 million lbs. at end of 2009) and the leader in acetate yarn. The company projects global growth in demand for filter tow of 1%-2% annually through 2012, with Asia and Eastern Europe having the fastest growth rates. The business also includes acetyl chemicals (acetate flake, acetic anhydride).

The performance polymers segment (14%, loss of $66 million) consists of polyethylene terephthalate (PET) resins and various intermediates. EMN in 2006 was the world's largest producer of polyester plastics, consisting of polyethylene terephthalate (PET), used for packaging applications and beverage containers such as soft-drink bottles, with annual PET capacity of 3.3 billion lbs. at year-end 2006. In 2007, EMN decided to close or sell its unprofitable polyester production sites outside the U.S.; in December 2007, it sold its two facilities in Latin America (sales of $413 million in 2007 and a loss of $127 million, including a restructuring charge of $115 million). EMN in late March 2008 sold its remaining two European plants (sales of $542 million in 2007; reported as discontinued operations beginning in late 2007). Eastman's domestic operations had sales of $936 million in 2008 and a loss of $54 million. In early 2007, EMN completed the start-up of a new U.S. plant with annual capacity of 770 million lbs. using new Integer technology. EMN has closed 880 million lbs. of higher-cost domestic capacity and in late 2008 expanded the new plant by 50%. Integer now accounts for about 65% of EMN's U.S. PET capacity of 1.76 billion lbs.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.67 5.44 1.85 1.78 1.76 95% 61.95 17.76 33 10

2008 15.52 7.68 4.32 3.30 1.76 41% 78.29 25.87 18 6

2007 26.63 6.97 3.83 3.79 1.76 46% 72.44 57.54 19 15

2006 20.42 8.64 4.91 4.42 1.76 36% 61.29 47.30 12 10

2005 15.85 10.50 6.81 5.63 1.76 26% 61.80 44.10 9 6

2004 10.70 6.23 2.18 2.23 1.76 81% 58.17 38.00 27 17

2003 9.00 1.22 -3.54 -3.45 1.76 NM 39.57 27.56 NM NM

2002 9.06 6.18 1.02 0.26 1.76 173% 49.55 34.53 49 34

2001 9.92 3.33 -2.33 -3.06 1.76 NM 55.65 29.03 NM NM

2000 15.64 9.36 3.94 NA 1.76 45% 54.75 33.63 14 9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,047 800 274 85.0 226 39.8% 136 131

6,726 805 256 106 429 23.5% 328 252

6,830 929 264 113 470 31.7% 321 316

7,450 981 308 80.0 576 29.0% 409 368

7,059 1,092 304 100 783 28.9% 557 459

6,580 696 322 115 64.0 NM 170 173

5,800 590 367 124 -381 NM -273 -266

5,320 610 397 128 84.0 5.95% 79.0 20.4

5,384 755 435 140 -297 NM -179 -236

5,292 989 418 135 452 33.0% 303 NA

Balance Sheet & Other Financial Data (Million $) Cash 793 Current Assets 1,735 Total Assets 5,515 Current Liabilities 800 Long Term Debt 1,604 Common Equity 1,513 Total Capital 3,117 Capital Expenditures 310 Cash Flow 399 Current Ratio 2.2 % Long Term Debt of Capitalization 51.5 % Net Income of Revenue 2.7 % Return on Assets 2.5 % Return on Equity 8.9

387 1,423 5,281 832 1,442 1,553 3,008 634 584 1.7 47.9 4.9 5.8 18.1

888 2,293 6,009 1,122 1,613 2,082 3,917 518 585 2.0 42.4 4.7 5.3 15.6

939 2,422 6,173 1,059 1,589 2,029 3,618 389 717 2.3 43.9 5.5 6.8 22.5

524 1,924 5,773 1,051 1,621 1,612 3,550 343 861 1.8 45.7 7.9 9.6 39.8

325 1,768 5,872 1,099 2,061 1,184 3,455 248 492 1.6 59.7 2.6 2.8 15.3

558 2,010 6,230 1,477 2,089 1,913 4,318 230 94.0 1.4 48.4 NM NM NM

77.0 1,529 6,273 1,224 2,054 1,271 3,809 427 476 1.2 53.9 1.5 1.3 6.0

66.0 1,458 6,086 958 2,143 1,378 3,973 234 256 1.5 53.9 NM NM NM

101 1,523 6,550 1,258 1,914 1,812 4,333 226 721 1.2 44.2 5.7 4.7 17.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 S Wilcox Dr, Kingsport, TN, USA 37660-5147. Telephone: 423-229-2000. Website: http://www.eastman.com Chrmn: J.B. Ferguson

Pres & CEO: J.P. Rogers SVP & CFO: C.E. Espeland SVP & Chief Admin Officer: N.P. Sneed SVP & CTO: G.W. Nelson

Investor Contact: G. Riddle (212-835-1620) Founded: 1920 Board Members: G. E. Anderson, M. P. Connors, S. R. Domicile: Delaware Demeritt, J. B. Ferguson, R. M. Hernandez, R. Employees: 10,000 Hornbaker, L. M. Kling, H. L. Lance, T. H. McLain, D. W. Raisbeck, J. P. Rogers

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EK | EK is in the S&P 500

Eastman Kodak Co S&P Recommendation HOLD

★★★★★

Price $3.93 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Photographic Products

12-Mo. Target Price $6.00

Investment Style Large-Cap Value

Summary This multinational company provides imaging technology products and services to the photographic and graphic communications markets worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.08– 3.26 $1.06 3.7 $1,932

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.04 0.08 NM 268.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.056 Nil Nil 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.48 NM B-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on the company's ongoing shift toward digital photography. While we think EK has made progress in this endeavor, we are concerned about competitive threats and margin declines in this space.

20

8 4

Quantitative Evaluations

2

S&P Quality Ranking

Vol. Mil.

129

106

45 30 15 0 5

D

C

B-

BB

B+

A-

A

Relative Strength Rank 4

3

WEAK

16

5

2

A+

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Erik Kolb on July 29, 2010, when the stock traded at $ 4.01. Highlights ➤

➤

➤

After a 19% net sales decline in 2009, we estimate a 0.2% fall in 2010 to $7.59 billion, and we see a 0.4% increase in 2011 to $7.61 billion. We think EK's consumer digital imaging group has made modest progress, partly on sales of inkjet printers and kiosk products, but first half results indicate that the group may well be unprofitable in the near term. Elsewhere, we see a 16% decline at the film, photofinishing and entertainment segment, and a 0.3% increase in graphic communications. While we anticipate double-digit decreases for traditional film sales in coming quarters, we think the pace of declines will moderate compared to last year. In 2012, we see 3.1% growth. We see EK, after cutting 4,150 (17%) positions in 2009, along with other cost structure improvements, posting EBITDA margins in 2010 of 10.1%, up from 7.4% in 2009. We see further improvement to 11.6% in 2012. We project a $0.04 a share loss in 2010, compared to an $0.87 a share loss in 2009, on a 21% higher share count after a recent warrant placement with KKR. We forecast EPS of $0.08 in 2011 and $0.63 in 2012.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Although first quarter results benefited from intellectual property revenues, these are nonrecurring, and we are concerned that declining film sales will hurt core cash flow and stifle future investments, especially in the consumer products arena. EK has made notable progress in its shift toward a more digitally focused product line after completing a four-year, $3.4 billion restructuring program, but while sales are rebounding from their worst levels, we nonetheless expect the consumer inkjet segment to remain unprofitable through 2011. Risks to our recommendation and target price include a faster-than-anticipated decline in demand for traditional film product offerings, greater-than-forecast pricing pressure for digital products, successful new product launches, and decreases in market share. To arrive at our 12-month target price of $6.00, we apply a multiple of about 16X to a blend of our 2011 and 2012 EPS estimates, roughly in line with peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,933 1,569 2009 1,477 1,766 2008 2,093 2,485 2007 2,080 2,468 2006 2,889 3,360 2005 2,832 3,686

3Q -1,781 2,405 2,533 3,204 3,553

4Q -2,582 2,433 3,220 3,821 4,197

Year -7,606 9,416 10,301 13,274 14,268

Earnings Per Share ($) 2010 0.40 -0.62 2009 -1.34 -0.71 2008 -0.40 -0.67 2007 -0.61 -0.53 2006 -1.04 -0.98 2005 -0.49 -0.49

E-0.30 -0.41 0.35 0.11 -0.13 -3.62

E0.05 1.36 -0.49 0.28 0.06 -0.47

E-0.04 -0.87 0.19 -0.71 -2.09 -5.05

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Dividends were suspended following the October 2008 payment.

Stock Report | October 23, 2010 | NYS Symbol: EK

Eastman Kodak Co Business Summary July 29, 2010 CORPORATE OVERVIEW. Eastman Kodak provides imaging technology products and services to the photographic and graphic communications markets. In 2009, the consumer digital products group accounted for 37.9% of net sales from continuing operations, compared to 34.4% in 2008, while film, photofinishing and entertainment represented 27.4% (29.7%), graphic communications 34.7% (35.8%), and other activities 0.0% (0.1%). The consumer digital imaging group is a global provider of digital photography products and services for consumer markets. Offerings include digital products such as digital cameras and digital picture frames, retail printing, online imaging services, imaging sensors, and all-in-one printers. Kodak holds top three market shares in categories such as digital still cameras, retail printing, and digital picture frames. EK's strategy in this segment is to extend picture taking, picture search/organizing, creativity, sharing and printing to bring innovative new experiences to consumers.

eras. The graphic communications group serves a variety of customers in the creative, in-plant, data center, commercial printing, packaging, newspaper, and digital service bureau market segments with a range of software, media, and hardware products that provide customers with a variety of solutions for prepress equipment, workflow software, digital and traditional printing, document scanning, and multi-vendor IT services. Through the years, EK has engaged in extensive and productive efforts in research and development. R&D expenses totaled $356 million (4.7% of sales) in 2009, compared to $478 million (5.1% of sales) in 2008, $535 million (5.2% of sales) in 2007, $578 million (5.5%) in 2006, and $739 million (6.5%) in 2005. The company also holds a portfolio of patents in several areas important to its business.

The film, photofinishing and entertainment group is composed of traditional photographic products and services used to create motion pictures, and for consumer, professional and industrial imaging applications. The company manufactures and markets films and one-time-use and re-loadable film camCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 0.64 -0.87 -1.68 Nil Nil 7.66 2.01 NM NM

2008 NM -0.83 0.19 -2.30 0.50 263% 22.03 5.93 NM NM

2007 4.77 2.02 -0.71 -1.58 0.50 NM 30.20 21.42 NM NM

2006 NM 2.55 -2.09 -2.65 0.50 NM 30.91 18.93 NM NM

2005 NM -0.18 -5.05 -4.93 0.50 NM 35.19 20.77 NM NM

2004 6.57 3.88 0.28 -0.42 0.50 179% 34.74 24.25 NM NM

2003 5.53 3.72 0.83 0.53 1.15 139% 41.08 20.39 49 25

2002 6.27 5.52 2.72 0.44 1.80 68% 38.48 25.58 15 10

2001 6.71 3.42 0.26 -1.86 1.77 NM 49.95 24.40 19 9

2000 8.56 7.48 4.59 NA 1.76 38% 67.50 35.31 15 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,606 541 427 119 -117 NM -233 -451

9,416 537 494 108 -89.0 NM 54.0 -647

10,301 1,002 785 113 -256 NM -205 -453

13,274 1,600 1,331 262 -346 NM -600 -757

14,268 1,493 1,402 211 -762 NM -1,455 -1,419

13,517 1,638 1,030 168 -92.0 NM 81.0 -119

13,317 1,685 830 148 196 NM 238 149

12,835 2,898 818 173 946 16.1% 793 127

13,234 1,923 919 219 97.0 33.0% 76.0 -541

13,994 3,103 889 178 2,132 34.0% 1,407 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,024 Current Assets 4,303 Total Assets 7,714 Current Liabilities 2,896 Long Term Debt 1,129 Common Equity 18.0 Total Capital 1,149 Capital Expenditures 152 Cash Flow 172 Current Ratio 1.5 % Long Term Debt of Capitalization 98.3 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

2,145 5,004 9,960 3,462 1,252 1,742 2,263 254 -233 1.5 55.6 0.6 0.5 2.3

2,976 6,053 13,659 4,446 1,289 3,029 4,318 259 580 1.4 29.9 NM NM NM

1,469 5,557 14,320 4,971 2,714 1,388 4,102 379 731 1.1 66.2 NM NM NM

1,665 5,781 14,921 5,489 2,764 1,967 4,731 472 -53.0 1.1 58.4 NM NM NM

1,255 5,648 14,737 4,990 1,852 3,811 5,663 460 1,111 1.1 32.7 NM NM NM

1,250 5,455 14,818 5,307 2,302 3,264 5,566 506 1,068 1.0 41.4 1.8 1.7 7.9

569 4,534 13,369 5,377 1,164 2,777 3,941 577 1,611 0.8 29.5 6.2 5.9 27.9

448 4,683 13,362 5,354 1,666 2,894 4,560 743 995 0.9 36.5 0.6 0.6 2.4

251 5,491 14,212 6,215 1,166 3,428 4,655 945 2,296 0.9 25.0 10.1 9.8 38.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 343 State Street, Rochester, NY 14650. Telephone: 585-724-4000. Website: http://www.kodak.com Chrmn & CEO: A.M. Perez

Pres & COO: P.J. Faraci EVP & CFO: F.S. Sklarsky SVP & General Counsel: J.P. Haag CTO: T.R. Taber

Investor Contact: A.P. McCorvey Founded: 1880 Board Members: R. S. Braddock, H. Y. Chen, A. H. Domicile: New Jersey Clammer, T. M. Donahue, M. Hawley, W. H. Employees: 20,250 Hernandez, D. Lebda, D. L. Lee, K. P. Legg, D. Lewis, W. G. Parrett, A. M. Perez, J. Seligman, D. F. Strigl, L. D. Tyson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ETN | ETN is in the S&P 500

Eaton Corp S&P Recommendation BUY

★★★★★

Price $87.87 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $95.00

Investment Style Large-Cap Blend

Summary This diversified industrial manufacturer's products include electrical systems and components for power management, truck transmissions and fluid power systems, and services for industrial, mobile and aircraft equipment.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $88.50– 60.03 Trailing 12-Month EPS $4.62 Trailing 12-Month P/E 19.0 $10K Invested 5 Yrs Ago $17,486

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.54 6.41 15.9 167.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.745 2.64 $2.32 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.40 9 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that ETN has good geographic and product diversification, offset by the highly cyclical nature of the company's various end markets, and significant pension and other post-retirement benefit obligations.

100 80 60

40

Quantitative Evaluations Vol.

S&P Quality Ranking

28

Mil. 12 8 4 0 5

D

C

B-

AB

B+

A-

A

Relative Strength Rank 4

3

4

3

STRONG

4

3

83 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The STARS recommendation for ETN has recently been changed to 4 (buy) from 3 (hold) and the 12-month target price has recently been changed to $95.00 from $84.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on ETN from MarketScope, see below.

➤

10/20/10 01:24 pm ET ... S&P RAISES RECOMMENDATION ON SHARES OF EATON CORP TO BUY FROM HOLD (ETN 86.4****): Adjusted for acquisition-related costs, Q3 EPS of $1.60, vs. $1.14, is $0.26 ahead of our estimate, on greater-than-expect sales growth of 18% and margins. We are positively surprised not only with the robust bookings in the quarter, but also strong margin performance, especially in regard to sales that remain below peak levels. We think both portend improved results in future periods, and we raise our '10 EPS estimate by $0.59 to $5.54 and '11's by $0.84 to $6.41. We also raise our target price $11 to $95 on higher estimates and revised valuation analyses. / M.Christy-CFA

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,103 3,378 2009 2,813 2,901 2008 3,496 4,279 2007 3,153 3,248 2006 2,991 3,162 2005 2,654 2,834

3Q -3,028 4,114 3,298 3,115 2,789

4Q -3,131 3,487 3,374 3,102 2,838

Year -11,873 15,376 13,033 12,370 11,115

Earnings Per Share ($) 2010 0.91 1.33 2009 -0.30 0.17 2008 1.62 2.04 2007 1.53 1.60 2006 1.35 1.63 2005 1.19 1.37

E1.34 1.14 1.87 1.59 1.39 1.30

E1.62 1.25 0.98 1.67 1.59 1.38

E5.54 2.27 6.50 6.38 5.97 5.23

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.500 0.500 0.500 0.580

10/28 01/27 04/28 07/21

11/05 02/04 05/06 08/05

11/09 02/08 05/10 08/09

11/27/09 02/26/10 05/28/10 08/27/10

Dividends have been paid since 1923. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ETN

Eaton Corp Business Summary October 06, 2010 CORPORATE OVERVIEW. Eaton Corp., a diversified industrial equipment and parts manufacturer with $11.9 billion in revenues in 2009, conducts business through six business segments. ETN separates its electrical product results into two units -- Electrical Americas (29% of 2009 sales with 15.3% operating margins excluding one-time items) and Electrical Rest of World (21%, 6.7%). The two units make a wide range of power distribution and control equipment, such as switchboards, circuit boards, circuit breakers, starters, AC and DC Uninterruptible Power Systems (UPS) and power management software. They also produce electronic sensors that control industrial machinery, as well as electricity qualitymonitoring systems. Both units' primary competitors include GE, Germanybased Siemens and Schneider Electric. Demand for ETN's electrical equipment and components mainly reflects the health of the non-residential, power quality, industrial, residential construction and telecom industries.

automotive, machine tool, metals and entertainment industries. The Aerospace segment (13%; 16%) is a global provider of pumps, motors, hydraulic power units and other equipment, valves, cylinders, hoses and fittings, control and sensing products, fluid conveyance products, sensors, actuators and other products used in the aviation industry. The segment's products are sold to after-market customers as well as to manufacturers of commercial and military aviation products. ETN's Truck unit (12%; 2.7%) is the world's largest maker of medium- and heavy-duty truck transmissions. The unit's products include transmissions and transmission components such as drive trains, clutches, gearboxes and shafts along with brake clutch products. The segment's primary competitors are Germany-based ZF Friedrichshafen AG and Wabco. Demand for ETN's truck components is mainly driven by the health of the medium- and heavy-duty truck market.

The Hydraulics segment (14%; 3.2%) makes products including, but not limited to, pumps, motors, valves, cylinders, hydraulic power units, control and sensing products, fluid conveyance products, hoses and assemblies. The principal markets for the segment's products include various energy industries, and the marine, agriculture, construction, mining, forestry, utilities, material handling, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 5.69 2.27 2.90 2.00 88% 67.06 30.02 30 13

2008 NM 10.15 6.50 6.09 2.00 31% 98.14 37.69 15 6

2007 NM 9.50 6.38 6.86 1.72 27% 104.12 71.91 16 11

2006 2.30 8.80 5.97 6.45 1.48 24% 79.98 62.37 13 10

2005 0.09 8.08 5.23 5.40 1.24 24% 72.69 56.65 14 11

2004 3.46 6.67 4.13 4.15 1.08 26% 72.64 52.74 18 13

2003 3.14 5.18 2.56 2.43 0.92 36% 54.70 33.01 21 13

2002 NM 4.49 1.96 0.99 0.88 45% 44.34 29.55 23 15

2001 0.29 3.78 1.20 -0.18 0.88 74% 40.72 27.56 34 23

2000 NM 5.05 2.50 NA 0.88 35% 43.28 28.75 17 11

11,873 1,281 573 150 303 NM 383 488

15,376 1,847 592 157 1,128 6.47% 1,055 989

13,033 1,646 469 147 1,041 7.88% 959 1,031

12,370 1,487 434 104 989 7.79% 912 985

11,115 1,468 409 90.0 996 19.2% 805 832

9,817 1,287 400 78.0 781 17.0% 648 651

8,061 984 394 87.0 508 24.0% 386 367

7,209 870 353 104 399 29.6% 281 141

7,299 703 355 142 278 39.2% 169 -25.0

8,309 1,013 364 177 552 34.2% 363 NA

Balance Sheet & Other Financial Data (Million $) Cash 773 Current Assets 4,524 Total Assets 16,282 Current Liabilities 2,689 Long Term Debt 3,349 Common Equity 6,777 Total Capital 10,172 Capital Expenditures 195 Cash Flow 956 Current Ratio 1.7 % Long Term Debt of Capitalization 32.9 % Net Income of Revenue 3.2 % Return on Assets 2.3 % Return on Equity 5.9

530 4,795 16,655 3,745 3,190 6,317 9,776 448 1,647 1.3 31.7 6.9 7.0 18.4

646 4,767 13,430 3,659 3,417 5,172 7,604 354 1,428 1.3 32.0 7.4 7.7 20.7

114 4,408 11,417 3,407 1,774 4,106 5,880 360 1,346 1.3 30.2 7.4 8.4 23.1

110 3,578 10,218 2,968 1,830 3,778 5,608 363 1,214 1.2 32.6 7.2 8.3 21.8

85.0 3,182 9,075 2,262 Nil 3,606 3,606 330 1,048 1.4 Nil 6.6 7.5 19.3

61.0 3,093 8,223 2,126 1,651 3,117 4,768 2,733 780 1.5 34.6 4.8 5.0 14.2

75.0 2,457 7,138 1,734 1,887 2,302 4,752 228 634 1.4 39.7 3.9 3.8 11.8

112 2,387 7,646 1,669 2,252 2,475 5,307 295 524 1.4 42.4 2.3 2.1 6.9

82.0 2,571 8,180 2,107 2,447 2,410 4,857 386 727 1.2 50.4 4.4 4.4 14.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Eaton Center 1111 Superior Ave, Cleveland, OH 44114-2584. Telephone: 216-523-5000. Website: http://www.eaton.com Chrmn, Pres & CEO: A.M. Cutler

EVP & CTO: L. Jonsson EVP & General Counsel: M.M. McGuire SVP, Chief Acctg Officer & Cntlr: B.K. Rawot SVP & Secy: T.E. Moran

Investor Contact: B. Hartman (216-523-4501) Founded: 1916 Board Members: T. M. Bluedorn, C. M. Connor, M. J. Domicile: Ohio Critelli, A. M. Cutler, C. E. Golden, E. Green, A. E. Employees: 70,000 Johnson, N. C. Lautenbach, D. L. McCoy, G. R. Page, G. L. Tooker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: EBAY | EBAY is in the S&P 500

eBay Inc S&P Recommendation HOLD

★★★★★

Price $28.07 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Internet Software & Services

12-Mo. Target Price $30.00

Investment Style Large-Cap Growth

Summary EBAY owns one of the world's most popular e-commerce destinations, which bears its name, as well as PayPal, an online payments company, 30% of Skype, an Internet communications business, and other online business interests.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.44– 19.06 Trailing 12-Month EPS $1.90 Trailing 12-Month P/E 14.8 $10K Invested 5 Yrs Ago $7,144

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.32 1.60 21.3 1,312.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.61 18 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that the company operates in fast-changing areas and faces notable competition. Over the past few years, we have viewed EBAY's quarterly results, financial outlook, strategic decisions and management changes as disappointing at times. This is only partially offset by our view of EBAY as a well established leader in the Internet segment, with a business model that we see as attractive, and a strong balance sheet.

40 30 20

10

Vol. Mil. 120 80 40 0 5

$36.832 Nil Nil 77

Quantitative Evaluations 5

4

4

4

3

4

S&P Quality Ranking

5

B+

3

D

C

B-

B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The STARS recommendation for EBAY has recently been changed to 3 (hold) from 4 (buy) and the 12-month target price has recently been changed to $30.00 from $27.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

➤

Relative Strength Rank

STRONG 92

2010

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on EBAY from MarketScope, see below. 10/22/10 01:58 pm ET ... S&P DOWNGRADES SHARES OF EBAY TO HOLD FROM BUY, ON VALUATION (EBAY 27.9***): The stock is now relatively close to our 12-month target price of $30, and we do not necessarily foresee outperformance over the next 12 months. We were encouraged by the company's recently provided Q3 results and Q4 guidance, reflecting continuing strength from Payments. However, the Marketplaces unit, which accounts for more than 60% of revenues, continues to notably lag in multiple ways, as growth remains a significant challenge. We are encouraged by a new $2 billion buyback program and $1.5 billion bond offering, but see the company's valuation as largely full. /S.Kessler

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,196 2,215 2009 2,021 2,098 2008 2,192 2,196 2007 1,768 1,418 2006 1,390 1,411 2005 1,032 1,086

3Q -2,238 2,118 1,889 1,449 1,106

4Q -2,371 2,036 2,181 1,720 1,329

Year -8,727 8,541 7,672 5,970 4,552

Earnings Per Share ($) 2010 0.30 0.31 2009 0.28 0.25 2008 0.34 0.35 2007 0.27 0.27 2006 0.17 0.17 2005 0.19 0.21

E0.33 0.27 0.38 -0.69 0.20 0.18

E0.39 1.02 0.29 0.39 0.25 0.20

E1.32 1.83 1.36 0.25 0.79 0.78

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: EBAY

eBay Inc Business Summary September 15, 2010 CORPORATE OVERVIEW. eBay operates the world's largest online trading community. As of June 2010, the marketplaces segment had 91.8 million active users (compared with 88.4 million a year earlier) and in the second quarter of 2010 they accounted for total gross merchandise volume (including vehicles) of $14.7 billion ($13.4 billion). Following acquisitions in recent years, the company also owns Bill Me Later (online payments), PayPal (online payments), Rent.com (apartment and home rentals), Shopping.com (comparison shopping), 30% of Skype (Internet communications), StubHub (online ticket sales), and Gmarket (Asia-focused e-commerce). As of June 2010, PayPal had 87.2 million active registered accounts (75.4 million). In November 2009, EBAY sold 70% of Skype to a group of investors in a transaction valuing the business at $2.75 billion. In August 2010, Skype filed to proceed with an IPO. EBAY and its affiliates have websites directed toward the following geographies: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Ireland, Italy, Malaysia, Mexico, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the U.K. and Vietnam. In December 2006, EBAY announced it would contribute its China operations to a joint venture with Internet portal and wireless services company TOM Online.

EBAY owns a 49% stake in the venture, which was created in February 2007. In May 2010, EBAY and Gmarket's founder announced a joint venture to expand Gmarket's offerings in Japan and Singapore. CORPORATE STRATEGY. EBAY's stated goal is to become the world's most efficient and abundant marketplace by expanding its community of users, delivering value to buyers and sellers, creating a global marketplace, and providing a faster, easier and safer trading experience. EBAY has increasingly employed acquisitions to fulfill the aforementioned goal, with a focus on international expansion and offering more choices and services to its buyers and sellers. In our view, PayPal was an extremely successful acquisition because it dramatically enhanced the user experience. Moreover, the combination accelerated the benefits the companies already derived from the Network Effect (whereby a product/service becomes more valuable to its users as its number of users increases), in our opinion.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.30 2.45 1.83 1.01 Nil Nil 25.80 9.91 14 5

2008 2.59 1.90 1.36 1.36 Nil Nil 33.53 10.91 25 8

2007 3.90 0.69 0.25 1.26 Nil Nil 40.73 28.60 NM NM

2006 2.69 1.17 0.79 0.79 Nil Nil 47.86 22.83 61 29

2005 2.21 1.05 0.78 0.61 Nil Nil 58.89 30.78 75 39

2004 2.73 0.75 0.57 0.43 Nil Nil 59.21 31.30 NM NM

2003 2.23 0.46 0.34 0.21 Nil Nil 32.40 16.88 95 50

2002 1.46 0.28 0.21 0.04 Nil Nil 17.71 12.21 83 57

2001 1.11 0.16 0.08 -0.00 Nil Nil 18.19 7.11 NM NM

2000 0.93 0.08 0.04 NA Nil NM 31.88 6.69 NM NM

8,727 2,649 811 NA 2,879 17.0% 2,389 1,325

8,541 2,845 711 8.04 2,184 18.5% 1,779 1,779

7,672 2,606 602 16.6 751 53.6% 348 1,739

5,970 1,968 545 5.92 1,547 27.2% 1,126 1,126

4,552 1,820 378 3.48 1,549 30.2% 1,082 853

3,271 1,313 254 8.88 1,128 30.5% 778 589

2,165 828 159 4.31 662 31.3% 447 270

1,214 431 76.6 1.49 398 36.7% 250 52.2

749 227 86.6 2.85 163 49.1% 90.4 -4.04

431 74.6 38.1 3.37 78.0 42.0% 48.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 4,944 Current Assets 8,460 Total Assets 18,408 Current Liabilities 3,642 Long Term Debt NA Common Equity 13,788 Total Capital 13,788 Capital Expenditures 567 Cash Flow 3,200 Current Ratio 2.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 27.4 % Return on Assets 14.1 % Return on Equity 19.2

3,353 6,287 15,592 3,705 Nil 11,084 11,084 566 2,490 1.7 Nil 20.8 11.5 15.6

5,984 7,123 15,366 3,100 Nil 11,705 11,705 454 950 2.3 Nil 4.5 2.4 3.1

2,663 4,971 13,494 2,518 Nil 10,905 10,905 515 1,670 2.0 Nil 18.9 8.9 10.7

1,314 3,183 11,789 1,485 Nil 10,048 10,264 338 1,460 2.1 Nil 23.8 10.9 12.9

1,330 2,911 7,991 1,085 0.08 6,728 6,868 293 1,032 2.7 NM 23.8 11.3 13.4

1,382 2,146 5,820 647 124 4,896 5,139 365 606 3.3 2.4 20.7 9.1 10.6

1,109 1,468 4,124 386 13.8 3,556 3,715 139 326 3.8 0.4 20.6 8.6 10.0

524 884 1,679 180 12.0 1,429 1,479 57.4 177 4.9 0.8 12.1 6.3 7.4

202 675 1,182 137 11.4 1,014 1,038 49.8 86.3 4.9 1.1 11.2 4.5 5.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2145 Hamilton Ave, San Jose, CA 95125-5905. Telephone: 408-376-7400. Email: [email protected] Website: http://www.ebay.com

Chrmn: P.M. Omidyar Pres & CEO: J.J. Donahoe SVP & CFO: R.H. Swan SVP & CTO: M. Carges

SVP, Secy & General Counsel: M.R. Jacobson Founded: 1995 Investor Contact: T. Ford (408-376-7205) Domicile: Delaware Board Members: F. D. Anderson, M. L. Andreessen, E. Employees: 16,400 Barnholt, S. D. Cook, J. J. Donahoe, W. C. Ford, Jr., D. G. Lepore, D. M. Moffett, P. M. Omidyar, R. T. Schlosberg, III, T. J. Tierney

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ECL | ECL is in the S&P 500

Ecolab Inc. S&P Recommendation BUY

★★★★★

Price $51.56 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Specialty Chemicals

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company is the leading worldwide marketer of cleaning, sanitizing, and maintenance products and services for the hospitality, institutional, and industrial markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.46– 40.66 Trailing 12-Month EPS $2.03 Trailing 12-Month P/E 25.4 $10K Invested 5 Yrs Ago $16,779

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.25 2.50 22.9 233.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.029 1.20 $0.62 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.70 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's leading share positions in its core businesses, the relatively stable nature of its end markets and customers, and our view of its strong balance sheet and cash generation. The stock's S&P Quality Ranking of A+, the highest possible, indicates a superior 10-year historical record of earnings and dividend growth.

60 50

40

30

Vol. 53

Mil.

Quantitative Evaluations

29

12 8 4 0 5

S&P Quality Ranking D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 54

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: CBOE, P, Ph

Highlights

➤

➤

We expect sales to grow about 6% this year, followed by a 7% rise in 2011. We see organic sales resuming growth in 2010, as end markets stabilize, aided by benefits from new products and customers, continuing expansion of the sales force, and forecasted price increases of 1%-2%, while exchange rates should be a headwind in the second half. We look for the domestic Kay, food & beverage, and health care units to continue to expand in 2010 and institutional and pest elimination sales to rebound. We believe international sales will continue to grow, including a modest gain in Europe, which fell in 2009. We project that operating margins will widen slightly, helped by the expected sales gain, a full year benefit fom restructuring actions since early 2009, and modestly lower raw material and delivery costs, despite increasing sales force and market development spending and greater pension costs. We assume an effective tax rate of 30.4%, down from 31.7% in 2009. Our EPS estimate for 2010 excludes a $0.02 charge related to devaluation of the Venezuelan currency. EPS for 2009 includes restructuring charges of $0.24.

Investment Rationale/Risk ➤

We expect ECL to post renewed sales growth and achieve continued EPS gains in coming periods, as key global end markets such as food service and lodging are stabilizing.

➤

Risks to our recommendation and target price include unexpected slowdowns in the hospitality, travel, food, and foodservice industries, an inability to continue to successfully introduce new products and services, and higherthan-projected raw material and delivery costs.

➤

HIGHEST = 99

2010

Analysis prepared by Richard O'Reilly, CFA on October 19, 2010, when the stock traded at $ 50.89.

➤

A+

4

The stock has historically traded at a higher P/E multiple than the S&P 500, owing to investors' willingness to pay a premium for growth and stability, in our opinion. We believe a steady grower such as ECL will be sought by investors as the economy continues to improve, and we think the shares offer solid upside potential. Our 12-month target price of $60 is 24X our 2011 EPS forecast of $2.50, in line with its historical average premium, and a P/E-to-growth (PEG) multiple of 2.4X applied to the 10% EPS gains we see for the next few years. The dividend has been raised for 18 consecutive years, a record we expect to be extended.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,432 1,520 2009 1,348 1,442 2008 1,458 1,570 2007 1,254 1,362 2006 1,120 1,226 2005 1,070 1,159

3Q -1,546 1,626 1,413 1,279 1,165

4Q -1,565 1,483 1,440 1,271 1,142

Year -5,901 6,138 5,470 4,896 4,535

Earnings Per Share ($) 2010 0.40 0.55 2009 0.24 0.41 2008 0.41 0.55 2007 0.35 0.44 2006 0.30 0.36 2005 0.27 0.31

E0.65 0.60 0.50 0.46 0.43 0.38

E0.63 0.48 0.33 0.45 0.34 0.27

E2.25 1.74 1.80 1.70 1.43 1.23

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.155 0.155 0.155 0.155

12/03 02/26 05/06 08/06

12/11 03/05 06/11 09/17

12/15 03/09 06/15 09/21

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1936. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ECL

Ecolab Inc. Business Summary October 19, 2010 CORPORATE OVERVIEW. Ecolab is a global supplier of cleaning, sanitizing, and maintenance products and services for hospitality, institutional, and industrial markets. In the U.S. cleaning and sanitizing business (45% of 2009 sales, 63% of profits), the institutional division (25% of 2009 total sales) is the leading provider of cleaners and sanitizers for warewashing, on-premise laundry, kitchen cleaning, food safety and general housekeeping, product dispensing equipment and dishwashing racks and related kitchen sundries to the foodservice, lodging and health care industries. It also provides pool and spa treatment products. In addition, the division includes professional janitorial products (detergents, floor care, disinfectants, odor control) sold under the Airkem brand name.

ECL also sells health care products (skin care, disinfectants, sterilants, surgical drapes, and fluid control products; 4%) under the Ecolab and Microtek names; textile care products (1%) for large institutional and commercial laundries; and vehicle care products (soaps, polishes, wheel treatments) for rental, fleet and retail car washes (1%).

The Kay division (5%) is the largest supplier of cleaning and sanitizing products (surface cleaners, degreasers, sanitizers and hand care products) for the quick-service restaurant, convenience store and food retail markets. The Food and Beverage division (9%) offers cleaning and sanitizing products and services to farms, dairy plants, food and beverage processors, and pharmaceutical plants; and water treatment products to institutional, laundry and food and beverage, and processing markets for boilers, cooling and waste treatment systems.

The International business (47%, 29%) provides services similar to those offered in the U.S. to Canada (3%) and about 71 countries in Europe (31%), Latin America (4%), and the Asia/Pacific region (9%). The institutional and food & beverage businesses constitute a larger portion of the international business compared to the U.S.

Other U.S. services (8%, 8%) include institutional and commercial pest elimination and prevention services (6%) and GCS Services, a provider of commercial kitchen equipment repair and maintenance services (2%). ECL bought GCS Service in 1998, and has added to this business through small acquisitions; this business had operating losses for the seven years through 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.16 3.13 1.74 1.77 0.57 33% 47.88 29.27 28 17

2008 NM 3.14 1.80 1.52 0.53 29% 52.35 29.56 29 16

2007 1.33 2.85 1.70 1.69 0.48 28% 52.78 37.01 31 22

2006 1.67 2.48 1.43 1.46 0.42 29% 46.40 33.64 32 24

2005 2.00 2.22 1.23 1.24 0.36 29% 37.15 30.68 30 25

2004 1.33 2.13 1.19 1.10 0.33 28% 35.59 26.12 30 22

2003 1.14 1.93 1.06 0.98 0.30 28% 27.92 23.08 26 22

2002 0.83 1.67 0.81 0.64 0.28 34% 25.20 18.27 31 23

2001 0.41 1.35 0.73 0.61 0.26 36% 22.09 14.25 30 20

2000 1.77 1.35 0.79 NA 0.25 31% 22.84 14.00 29 18

5,901 1,095 334 67.5 620 32.5% 417 424

6,138 1,073 335 70.8 651 31.2% 448 378

5,470 978 291 58.9 616 30.7% 427 424

4,896 880 269 51.3 567 35.0% 369 376

4,535 799 257 49.8 498 35.9% 319 322

4,185 786 247 45.3 489 36.5% 310 283

3,762 713 230 45.3 448 38.1% 277 260

3,404 656 223 43.9 354 39.6% 214 167

2,355 482 163 28.4 306 38.4% 188 157

2,264 471 148 24.6 338 38.3% 209 NA

Balance Sheet & Other Financial Data (Million $) Cash 73.6 Current Assets 1,814 Total Assets 5,021 Current Liabilities 1,250 Long Term Debt 869 Common Equity 2,001 Total Capital 2,878 Capital Expenditures 253 Cash Flow 752 Current Ratio 1.5 % Long Term Debt of Capitalization 30.2 % Net Income of Revenue 7.1 % Return on Assets 8.5 % Return on Equity 23.4

66.7 1,691 4,757 1,442 799 1,572 2,376 327 783 1.2 33.7 7.3 9.5 25.6

137 1,717 4,723 1,518 600 1,936 2,536 362 718 1.1 23.7 7.8 9.3 23.6

484 1,854 4,419 1,503 557 1,680 2,237 288 637 1.2 24.9 7.5 9.0 22.1

104 1,422 3,797 1,119 519 1,649 2,169 269 576 1.3 23.9 7.0 8.5 19.7

71.2 1,279 3,716 940 Nil 1,563 1,563 276 558 1.4 Nil 7.4 8.9 21.7

85.6 1,150 3,229 851 604 1,295 1,900 212 507 1.4 31.8 7.4 9.1 23.2

49.2 1,016 2,878 866 540 1,100 1,639 213 437 1.2 32.9 6.3 7.9 21.6

41.8 930 2,525 828 512 880 1,393 158 351 1.1 36.8 8.0 8.9 23.0

44.0 601 1,714 532 234 757 991 150 357 1.1 23.6 9.2 12.6 27.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 370 North Wabasha Street, Saint Paul, MN 55102-1390. Telephone: 651-292-2233. Email: [email protected] Website: http://www.ecolab.com

Chrmn, Pres & CEO: D.M. Baker, Jr. SVP & CTO: L.L. Berger CFO: S.L. Fritze Chief Acctg Officer & Cntlr: J.J. Corkrean

Secy & General Counsel: J.J. Seifert Founded: 1924 Investor Contact: M.J. Monahan (651-293-2809) Domicile: Delaware Board Members: D. M. Baker, Jr., B. Beck, L. S. Employees: 25,931 Biller, J. A. Grundhofer, A. J. Higgins, J. W. Johnson, J. W. Levin, R. L. Lumpkins, C. S. O'Hara, V. J. Reich, J. J. Zillmer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EIX | EIX is in the S&P 500

Edison International S&P Recommendation BUY

★★★★★

Price $35.99 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $39.00

Investment Style Large-Cap Blend

Summary EIX is the holding company for Southern California Edison. Other businesses include electric power generation, financial investments, and real estate development.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.72– 30.37 Trailing 12-Month EPS $3.64 Trailing 12-Month P/E 9.9 $10K Invested 5 Yrs Ago $10,162

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.35 3.20 10.7 325.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.726 3.50 $1.26 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 -6 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that the strong and steady earnings and cash flow we expect from the regulated Southern California Edison utility, with its large and expanding service territory and generally supportive regulatory environment, is partially offset by the cyclical and volatile earnings of the unregulated independent power operations of Edison Mission Group.

60 50 40 30

Vol.

15 10 5 0 5

Quantitative Evaluations

31

Mil.

S&P Quality Ranking 5

4

D

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE 58

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P

➤

➤

➤

Excluding $0.33 of net one-time gains, we expect operating EPS in 2010 to increase about 3% from 2009's $3.25, which excluded net onetime charges of $0.66. In the first half of 2010, operating EPS was down $0.14 from the $1.58 in the first half of 2009. The decline primarily reflected sharply lower earnings at Edison Mission Energy (EME), as it completed substantially all of its planned 2010 maintenance for its coal fleet during the second quarter. For full-year 2010, we expect operating earnings to be relatively flat or down at EME, but for this to be more than offset by higher earnings at Southern California Edison (SCE), reflecting rate increases under a three-year program approved in 2009. Over the next few years, we see SCE's earnings growth being driven by its fiveyear $18 - $21.5 billion infrastructure development plan, which is expected to result in annual rate base growth of 8% to 11% through 2014. EIX has estimated that it would cost about $1.2 billion to retrofit all of its coal plants in Illinois so as to meet the state's future sulfur dioxide emission standards. It has not yet determined which individual coal plants it will decide to retrofit or which, if any, it would shut down.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on August 26, 2010, when the stock traded at $ 33.78. Highlights

A+

4

The shares are down about 3% year to date. The decline in 2010 reflects, we think, the continuing weakness in the power markets, while the rebound in 2009 (when the stock rose 8.3%) was likely driven by the approval of rate increases for SCE, a favorable settlement with the IRS, and the broader market recovery. We believe EIX is well positioned for a recovery in the economy and power markets, and that the stock is undervalued at a recent discountto-peers multiple of 10.1X our EPS estimate for 2010, and remains attractive for total return potential. Risks to our recommendation and target price include extended weakness in the economy and power markets, a sharp drop in the P/E of the electric utility sector, and the potential for unfavorable regulatory or legislative actions. The recent yield from the dividend was about 3.7%. While this is still below the level of peers (recently about 4.9%), we believe it provides a base for an attractive total return over the next 12 months. Our 12-month target price is $39, reflecting a discount-to-peers P/E of approximately 12.2X our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,810 2,741 2009 2,812 2,834 2008 3,113 3,477 2007 2,912 3,047 2006 2,751 3,001 2005 2,446 2,649

3Q -3,664 4,295 3,942 3,802 3,783

4Q -3,050 3,228 3,211 3,067 2,975

Year -12,361 14,112 13,113 12,622 11,852

Earnings Per Share ($) 2010 0.70 1.05 2009 0.75 -0.03 2008 0.92 0.79 2007 1.00 0.28 2006 0.56 0.53 2005 0.59 0.55

E1.23 1.22 1.31 1.40 1.39 1.31

E0.68 0.65 0.66 0.65 0.80 0.90

E3.35 2.60 3.68 3.32 3.28 3.34

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.315 0.315 0.315 0.315

12/10 02/25 04/22 09/02

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/31/10 04/30/10 07/31/10 10/31/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EIX

Edison International Business Summary August 26, 2010 CORPORATE OVERVIEW. Edison International (EIX) is the holding company for the regulated Southern California Edison (SCE) utility and several nonregulated subsidiaries. The principal non-utility companies, held by Edison Mission Group (EMG), are Edison Mission Energy (EME), an independent power producer that also conducts price risk management and energy trading activities, and Edison Capital, which holds equity investments in energy and infrastructure projects. In 2009, SCE accounted for 80.6% of EIX's consolidated revenues, the non-utility power generation business 19.2%, and financial services and other operations 0.2%. The utility's retail operations are regulated by the California Public Utilities Commission (CPUC), while its wholesale operations fall under the oversight of the Federal Energy Regulatory Commission (FERC).

to rebalance its capital structure and to further reduce its debt, and is working to reduce administration expenses in the non-utility companies and to establish a multi-year productivity effort at the utility. SCE is working on new projects that should expand its transmission and distribution systems, and has scheduled the installment of advanced electricity meters with more than 5 million customer accounts by the end of 2012. Given the weakness in the economy and power markets, it has also worked to manage the liquidity of its independent power business through disciplined cost cutting initiatives. However, to diversify EME's concentration in coal-fired generation, it is also making selective investments in renewable energy projects.

CORPORATE STRATEGY. The company seeks to establish a balanced approach for growth, dividends, and balance sheet strength. It has taken steps Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 30.06 2.60 2.73 1.24 48% 36.72 23.09 14 9

2008 28.99 3.68 2.93 1.23 33% 55.70 26.73 15 7

2007 25.92 3.32 3.26 1.17 35% 60.26 42.76 18 13

2006 23.65 3.28 3.28 1.10 34% 47.15 37.90 14 12

2005 20.30 3.34 3.35 1.02 31% 49.16 30.43 15 9

2004 18.56 0.68 0.60 1.05 154% 32.52 21.24 48 31

2003 13.86 2.37 2.45 Nil Nil 22.07 10.57 9 4

2002 11.59 3.46 2.81 Nil Nil 19.60 7.80 6 2

2001 8.10 7.36 6.78 Nil Nil 16.12 6.25 2 1

2000 7.43 -5.84 NA 1.11 NM 30.00 14.13 NM NM

12,361 1,538 NA 3.33 NA NM 856 894

14,112 1,419 NA 3.42 NA 31.5% 1,215 955

13,113 1,264 NA 3.38 NA 27.4% 1,100 1,065

12,622 1,181 NA 3.18 NA 32.3% 1,083 1,082

11,852 1,061 NA 3.28 NA 26.4% 1,108 1,111

10,199 1,022 NA 2.20 NA NM 226 199

12,135 1,184 NA 1.73 NA 21.5% 779 808

11,488 1,030 NA 1.91 NA 25.6% 1,135 921

11,436 973 NA 3.38 NA 40.7% 2,402 2,211

11,717 1,933 NA -0.98 NA NM -1,943 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 35,265 Capital Expenditures 3,282 Net Property 27,113 Capitalization:Long Term Debt 11,344 Capitalization:% Long Term Debt 53.5 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 9,841 Capitalization:% Common 46.5 Total Capital 21,820 % Operating Ratio 80.7 % Earned on Net Property 8.9 % Return on Revenue 6.9 % Return on Invested Capital 11.6 % Return on Common Equity 8.8

31,932 2,824 24,343 11,857 55.5 Nil Nil 9,517 44.5 27,485 86.4 10.8 8.6 7.7 13.5

29,248 2,826 22,309 9,931 54.0 Nil Nil 8,444 46.0 23,980 84.6 13.1 8.8 9.4 13.6

25,090 2,536 20,269 10,016 56.5 Nil Nil 7,709 43.5 23,415 84.7 12.8 8.6 10.2 15.1

24,775 1,868 18,588 9,552 59.1 Nil Nil 6,615 40.9 21,854 80.7 6.9 9.3 12.2 17.1

23,214 1,733 17,397 9,807 61.3 Nil Nil 6,049 37.8 21,688 80.6 6.6 2.2 10.4 3.8

24,674 1,288 20,288 12,221 69.4 9.00 0.05 5,383 30.6 24,246 75.2 9.1 6.4 14.9 15.9

23,264 1,590 15,170 12,915 74.4 Nil Nil 4,437 25.6 23,786 82.8 16.0 9.9 10.9 29.4

22,396 933 14,427 14,007 81.1 Nil Nil 3,272 18.9 24,163 93.2 36.9 21.0 4.8 84.4

25,737 1,488 17,903 13,660 85.0 Nil Nil 2,420 15.0 21,609 86.4 NM NM 7.8 NM

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2244 Walnut Grove Avenue, Rosemead, CA 91770-3714. Telephone: 877-379-9515. Website: http://www.edison.com Chrmn, Pres & CEO: T.F. Craver, Jr.

EVP, CFO & Treas: W.J. Scilacci, Jr. EVP & General Counsel: R.L. Adler Secy: B.E. Mathews Investor Contact: S. Cunningham (877-379-9515)

Board Members: J. S. Bindra, V. C. Chang, F. A. Founded: 1886 Cordova, T. F. Craver, Jr., C. B. Curtis, B. M. Freeman, L. Domicile: California G. Nogales, R. L. Olson, J. M. Rosser, R. T. Schlosberg, Employees: 19,244 III, T. C. Sutton, W. B. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ERTS | ERTS is in the S&P 500

Electronic Arts Inc S&P Recommendation STRONG SELL

★★★★★

Price $15.61 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Home Entertainment Software

12-Mo. Target Price $14.00

Investment Style Large-Cap Growth

Summary This company produces entertainment software for PCs, home video game consoles, and mobile gaming devices.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $20.24– 14.06 Trailing 12-Month EPS $-1.06 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $2,850

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

-0.69 -0.22 NM 330.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.156 Nil Nil 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.36 NM NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment takes into account weak consumer spending, the volatile nature of the home entertainment software industry, and our view of a decline in the sales of video game consoles.

60 40 30 20

Quantitative Evaluations S&P Quality Ranking

Vol. 94

Mil.

D

45 30 15 0

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

18

5 2

2

2

3

LOWEST = 1 2

HIGHEST = 99

1

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on October 19, 2010, when the stock traded at $ 15.54. Highlights ➤

We see revenues falling 7.4% in FY 11 (Mar.), following a 13% decline in FY 10. Although we expect the economy to recover in 2010, we believe several factors will depress sales. We think consumer spending will remain weak given weak job growth. Despite the introductions of new motion-detection controllers for Xbox 360 and PlayStation 3, sales of video game consoles continue to decline. We see a shift in consumer buying behavior, resulting in a greater focus on top-selling titles. We believe this trend will hurt ERTS's sales due to the maturity of some of its games.

Investment Rationale/Risk ➤

➤ ➤

➤

We forecast a gross margin of 56% in FY 11, up from 49% in FY 10, reflecting a larger percentage of sales being downloaded digitally. We see operating expenses declining as a percentage of revenues as a result of a staff reduction that occurred in the second half of FY 10. We project that FY 11 operating margins will improve to -11%, from -15% in FY 10. We estimate a loss per share of $0.69 in FY 11, compared to a $2.08 loss in FY 10. We believe losses will diminish in FY 11 as the company reduces its operating expenses and curbs development of non-profitable games.

➤

Revenue/Earnings Data

2010

Our strong sell recommendation reflects our view of weak consumer spending and deteriorating industry fundamentals. We think consumers, in addition to buying fewer titles, are focusing their purchases on top-rated games. As a result, development costs on these titles have increased significantly. We believe most of the revenue growth is in mobile games, which we think have lower barriers to entry than console games. We also believe some of ERTS's key franchises have been losing their appeal. Risks to our recommendation and target price include a stronger-than-expected economic recovery, stronger consumer spending, and further cost reductions. Our 12-month target price of $14 is based on a blend of our discounted cash flow (DCF) and enterprise value (EV) to sales analyses. Our DCF model assumes a 12.8% weighted average cost of capital and 3% terminal growth, yielding an intrinsic value of $14. We also derive a value of $14 based on an EV/sales multiple of 0.9X our FY 11 revenue estimate, a discount to the industry average of 1.1X due to ERTS's lack of profitability.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 815.0 -2010 644.0 788.0 2009 804.0 894.0 2008 395.0 640.0 2007 413.0 784.0 2006 365.0 675.0

3Q -1,243 1,654 1,503 1,281 1,270

4Q -979.0 860.0 1,127 613.0 641.0

Year -3,654 4,212 3,665 3,091 2,951

Earnings Per Share ($) 2011 0.29 E-0.70 2010 -0.72 -1.21 2009 -0.52 -0.97 2008 -0.42 -0.62 2007 -0.26 0.07 2006 -0.19 0.16

E-0.05 -0.25 -2.00 -0.10 0.50 0.83

E-0.22 0.09 -0.13 -0.29 -0.08 -0.05

E-0.69 -2.08 -3.40 -1.45 0.24 0.75

Fiscal year ended Mar. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: ERTS

Electronic Arts Inc Business Summary October 19, 2010 CORPORATE OVERVIEW. ERTS is one of the largest third-party developers of video games, which can be played on a variety of platforms including Sony PlayStation, Microsoft Xbox 360, Nintendo Wii, personal computers, and mobile devices. ERTS owns many of today's most popular video game franchises, including Madden NFL, The Sims, and Need for Speed. The company organizes its business into four labels: EA SPORTS, EA Games, EA Play, and EA Interactive. Each label operates with dedicated studio and marketing teams. ERTS publishes titles across all major platforms, including consoles, PCs, and handheld gaming devices. The company has a diversified video game portfolio. In FY 10 (Mar.), the company produced 48 titles for mobile devices, 22 titles for Xbox 360, 21 for PlayStation 3, 19 for Nintendo Wii, 16 for PCs, and 16 for Nintendo DS. No title accounted for more than 10% of its total revenue in FY 10.

MARKET PROFILE. Video game sales grew at a low-teens compound annual growth rate (CAGR) from 2004 to 2008. However, sales declined about 10% in 2009 due to the economic recession. Although the economy is recovering, we expect video game sales to remain weak given the lack of job growth. We also think that most of the growth will be in mobile games, which have much lower barriers to entry than console games because they have lower design requirements such as graphic display. Thus, we expect pricing pressure to be more intense in this market segment. International Development Group (IDG), an independent research firm, forecasts that the annual sales of video game software in North America, Europe, and Japan will decline from $27.7 billion in 2008 to an estimated $16.7 billion in 2013 due to the shift in the consumer buying behavior. Thus, we believe future growth opportunity will come mostly from casual gamers rather than "hardcore" gamers, who already devote a large portion of their leisure time to playing video games.

ERTS publishes and distributes games in over 35 countries throughout the world. Sales in North America were $2.0 billion in FY 10, or 55% of total revenue, while international revenue accounted for $1.6 billion, or 45%.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 4.34 -1.49 -2.08 -2.03 Nil Nil 2009 23.76 14.24 NM NM

2009 6.52 -2.81 -3.40 -2.51 Nil Nil 2008 58.35 14.79 NM NM

2008 9.19 -0.85 -1.45 -1.22 Nil Nil 2007 61.62 46.27 NM NM

2007 9.93 0.70 0.24 0.24 Nil Nil 2006 59.85 39.99 NM NM

2006 8.29 1.05 0.75 0.49 Nil Nil 2005 71.16 47.45 95 63

2005 10.66 1.82 1.59 1.35 Nil Nil 2004 63.71 43.38 40 27

2004 8.52 2.12 1.87 1.59 Nil Nil 2003 52.89 23.76 28 13

2003 11.62 2.79 1.09 0.82 Nil Nil 2002 36.22 24.74 33 23

2002 3.92 0.74 0.36 0.10 Nil Nil 2001 33.46 17.25 94 49

2001 3.33 0.22 -0.04 -0.25 Nil Nil 2000 28.97 12.25 NM NM

3,654 -352 192 NA -706 4.11% -677 -660

4,212 -128 189 Nil -855 NM -1,088 -805

3,665 -60.0 186 Nil -507 NM -454 -382

3,091 204 147 Nil 138 47.8% 76.0 76.0

2,951 454 95.0 Nil 389 37.8% 236 153

3,129 759 75.0 Nil 725 30.5% 504 425

2,957 863 77.5 Nil 797 27.5% 577 482

2,482 629 91.6 Nil 461 30.9% 317 239

1,725 267 111 Nil 148 31.0% 102 28.0

1,322 42.1 69.7 Nil -13.4 NM -11.1 -68.2

Balance Sheet & Other Financial Data (Million $) Cash 1,996 Current Assets 2,585 Total Assets 4,646 Current Liabilities 1,574 Long Term Debt NA Common Equity 2,729 Total Capital 2,729 Capital Expenditures 305 Cash Flow -485 Current Ratio 1.6 % Long Term Debt of Capitalization Nil % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

2,520 3,120 4,678 1,136 Nil 3,134 3,176 115 -899 2.8 Nil NM NM NM

3,016 3,925 6,059 1,299 Nil 4,339 4,339 84.0 -268 3.0 Nil NM NM NM

1,712 3,597 5,146 1,026 Nil 4,032 4,040 178 223 3.5 Nil 2.5 1.6 2.0

1,402 3,012 4,386 869 Nil 3,408 3,449 123 331 3.5 Nil 8.0 5.4 6.8

1,410 3,706 4,370 828 Nil 3,498 3,509 126 579 4.5 Nil 16.1 12.9 16.3

2,151 2,911 3,401 722 Nil 2,678 2,678 89.6 655 4.0 Nil 19.5 20.0 25.9

951 1,911 2,360 571 Nil 1,785 1,789 59.1 409 3.3 Nil 12.8 15.6 20.9

804 1,153 1,699 453 Nil 1,243 1,246 51.5 212 2.5 Nil 5.9 6.6 8.9

477 819 1,379 340 Nil 1,034 1,039 120 58.6 2.4 Nil NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 209 Redwood Shores Parkway, Redwood City, CA 94065-1175. Telephone: 650-628-1500. Email: [email protected] Website: http://www.ea.com

Chrmn: L.F. Probst, III CEO: J. Riccitiello COO: J. Schappert EVP & CFO: E.F. Brown

SVP & Chief Acctg Officer: K.A. Barker Founded: 1982 Investor Contact: J. Brown (650-628-7922) Domicile: Delaware Board Members: L. S. Coleman, Jr., J. T. Huber, G. M. Employees: 7,800 Kusin, G. B. Laybourne, G. Maffei, V. Paul, L. F. Probst, III, J. Riccitiello, R. Simonson, L. J. Srere

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EP | EP is in the S&P 500

El Paso Corp S&P Recommendation HOLD

★★★★★

Price $13.18 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Storage & Transportation

12-Mo. Target Price $14.00

Investment Style Large-Cap Value

Summary This provider of natural gas and related energy products owns North America's largest natural gas pipeline system and is a leading independent natural gas producer.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$13.45– 8.94 $1.19 11.1 $12,265

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.99 1.09 13.3 704.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.279 0.30 $0.04 77

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.08 -5 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects EP's increased focus on volatile exploration and production (E&P) activities and our view of its highly leveraged balance sheet, given the capital intensity of its operations. Partly offsetting these risks is EP's involvement in regulated pipelines.

20 15 10

5

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 60 40 20 0

D

C

B-

BB

B+

A-

A

Relative Strength Rank

5

3

2

4

3

MODERATE 69

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Michael Kay on August 26, 2010, when the stock traded at $ 11.48. Highlights ➤

➤

➤

EP's pipeline segment is benefiting from several recent expansion projects, including the Medicine Bow expansion, the High Plains Pipeline, the Carthage expansion and the Totem Gas Storage project. EP has earmarked $8 billion for pipeline growth projects, with $1 billion in projects expected to be in service by yearend 2010, on time and on budget. In E&P, we see spending at low-risk onshore plays in the Haynesville Shale, Cotton Valley, and the Eagle Ford Shale. EP is ramping up to five rigs at Haynesville, where production is expected to reach 130 MMcfe/d by year end. EP expects $300 million-$500 million of asset sales in 2010. E&P capex is budgeted near $1 billion in 2010, with 50% earmarked for Haynesville and Eagle Ford development. Production in 2010 is ahead of forecast. We see a 9% EBITDA decline and a 23% drop in operating EPS in 2010, to $0.99, on more shares and lower E&P hedges, and EPS of $1.09 in 2011 on a 4% production boost. We think liquidity fears have eased following asset sales, debt offerings, and a new revolver. EP received FERC approval for the Ruby project in April, and we expect asset dropdowns to El Paso Pipelines.

Investment Rationale/Risk ➤

➤

➤

We think EP's risk profile has risen but that growth prospects expanded with its sharpened E&P focus. It is focusing on the high-return Haynesville and Eagle Ford plays, and on exploration in Brazil and Egypt. We see a difficult E&P market in 2010, but forecast lower costs per unit and start-ups boosting pipeline results. We believe recent project financing for the Ruby project has removed funding worries that had been hanging over EP shares. In our view, the success of Ruby is based on EP's ability to build it on time and on budget, and to secure financing and contract capacity at favorable rates. EP has formed a new midstream business, focused on Haynesville. Risks to our recommendation and target price include lower natural gas prices and weakerthan-expected economic conditions. We are positive on EP's pipeline franchise, and we see improving E&P prospects given its entry into attractive plays, but we are cautious on natural gas prices. Our 12-month target price of $14 is based on our sum-of-the-parts valuation, using a 7X enterprise value-to-2011 EBITDA multiple for the pipeline segment and NAV of $11 for the E&P segment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,401 1,018 2009 1,484 973.0 2008 1,269 1,153 2007 1,022 1,198 2006 1,337 1,089 2005 1,108 1,184

3Q -981.0 1,598 1,166 942.0 768.0

4Q -1,193 1,343 1,262 913.0 957.0

Year -4,631 5,363 4,648 4,281 4,017

Earnings Per Share ($) 2010 0.51 0.21 2009 -1.41 0.11 2008 0.33 0.25 2007 -0.08 0.22 2006 0.42 0.19 2005 0.18 -0.34

E0.22 0.08 0.58 0.20 0.15 -0.51

E0.22 0.36 -2.43 0.20 -0.30 -0.45

E0.99 -0.83 -1.24 0.57 0.72 -1.13

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

02/24 04/01 07/21 10/14

03/03 06/02 09/01 12/01

03/05 06/04 09/03 12/03

04/01/10 07/01/10 10/01/10 01/03/11

Dividends have been paid since 1992. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EP

El Paso Corp Business Summary August 26, 2010 CORPORATE OVERVIEW. Founded in 1928, El Paso Corp. originally served as a regional natural gas pipeline company that ultimately expanded geographically and into complementary business lines. By 2001, its total assets exceeded $44 billion and included natural gas production, power generation, trading operations and its traditional natural gas pipeline businesses. In late 2001 through 2003, various industry and company-specific events led to a substantial decline in EP's fundamentals. In late 2003, EP announced a long-term business strategy principally focused on core pipeline and production businesses. During the past several years, EP has sold off non-core assets to reduce debt and improve liquidity. PRIMARY BUSINESS DYNAMICS. Operations are conducted through two primary segments: Pipelines; and Exploration and Production. EP also has smaller Marketing and Power segments. The Pipelines segment is the largest U.S. owner of interstate natural gas pipelines, and owns or has interests in 42,000 miles of pipeline, with seven separate, wholly or majority owned pipeline systems, and four partially owned systems. The division also has 230 Bcf of natural gas storage capacity, and a

liquefied natural gas terminal at Elba Island, GA, with 933 Mmcf of daily sendout capacity. Each pipeline system and storage facility operates under the Federal Energy Regulatory Commission (FERC). EP's strategy in this segment is to expand systems into new markets while leveraging existing assets; recontract or contract available or expiring capacity and resolve open rate cases; leverage its coast-to-coast scale economies; and invest in maintenance and pipeline integrity projects to maintain the value and ensure the safety of its pipeline systems and assets. During 2009, EP placed several pipeline expansion projects into service, obtained a 50% partner on its Ruby project and secured financing for a portion of its remaining pipeline backlog. EP sees 2010 pipeline capex of $2.9 billion; it has a backlog of growth projects and plans to place three more projects in service by the end of 2010. A majority of capex is slated for the anticipated construction of the Ruby pipeline project.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.50 3.47 -0.83 -0.79 0.16 NM 11.37 5.22 NM NM

2008 4.70 0.50 -1.24 -1.46 0.18 NM 22.47 5.32 NM NM

2007 6.47 2.25 0.57 0.54 0.16 28% 18.56 13.71 33 24

2006 6.00 2.09 0.72 0.69 0.16 22% 16.39 11.80 23 16

2005 3.38 0.61 -1.13 -1.07 0.16 NM 14.16 9.30 NM NM

2004 4.68 0.45 -1.25 -0.84 0.16 NM 11.85 6.57 NM NM

2003 5.36 0.99 -1.03 -0.68 0.16 NM 10.30 3.33 NM NM

2002 11.70 0.21 -2.30 -1.95 0.87 NM 46.89 4.39 NM NM

2001 17.65 2.76 0.13 -0.37 0.85 NM 75.30 36.00 NM NM

2000 15.25 4.82 2.44 NA 0.82 34% 74.25 30.31 30 12

4,631 NA 2,990 1,008 -873 45.7% -539 -543

5,363 3,579 1,205 914 -1,034 NM -823 -1,021

4,648 2,904 1,176 1,044 664 33.4% 436 375

4,281 1,427 1,047 1,228 523 NM 531 471

4,017 934 1,121 1,389 -991 NM -702 -696

5,874 2,386 1,088 1,632 -777 NM -802 -531

6,711 2,907 1,207 1,839 -1,200 NM -616 -401

12,194 2,872 1,405 1,400 -1,567 NM -1,289 -1,096

57,475 4,391 1,359 1,155 466 39.1% 67.0 -194

21,950 2,155 589 538 1,012 28.3% 582 NA

Balance Sheet & Other Financial Data (Million $) Cash 641 Current Assets 2,008 Total Assets 22,505 Current Liabilities 2,686 Long Term Debt 13,391 Common Equity 2,456 Total Capital 18,004 Capital Expenditures 2,810 Cash Flow 2,414 Current Ratio 0.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue NM % Return on Assets NM % Return on Equity NA

1,024 3,051 23,668 3,243 12,818 3,285 17,979 2,757 345 0.9 71.3 NM NM NM

285 1,712 24,579 2,413 12,483 4,530 19,485 2,495 1,575 0.7 64.1 9.4 1.7 10.0

537 7,167 27,261 6,151 13,260 3,436 18,396 2,164 1,541 1.2 72.1 12.4 1.8 16.3

2,132 6,185 31,838 5,712 17,054 2,639 21,850 1,718 392 1.1 78.1 NM NM NM

2,117 5,632 31,383 4,572 18,608 3,439 23,358 1,782 286 1.2 79.7 NM NM NM

1,429 8,922 37,084 7,074 20,722 4,474 25,196 2,452 591 1.3 82.2 NM NM NM

1,591 11,924 46,224 10,350 19,727 8,377 31,680 3,716 116 1.2 62.3 NM NM NM

1,139 12,659 48,171 13,565 14,109 9,356 31,012 4,079 1,426 0.9 45.5 0.1 0.1 0.8

688 10,076 27,445 10,467 6,574 3,569 14,623 1,336 1,171 1.0 45.0 2.7 2.6 17.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: El Paso Building, 1001 Louisiana Street, Houston, TX 77002. Telephone: 713-420-2600. Email: [email protected] Website: http://www.elpaso.com

Chrmn, Pres & CEO: D.L. Foshee COO: B. Neskora EVP & CFO: J.R. Sult EVP & Chief Admin Officer: S.B. Ortenstone

EVP & General Counsel: R.W. Baker Founded: 1928 Investor Contact: B. Connery (713-420-5855) Domicile: Delaware Board Members: J. Braniff, D. W. Crane, D. L. Employees: 5,344 Foshee, R. W. Goldman, A. W. Hall, Jr., T. R. Hix, F. P. McClean, T. J. Probert, S. J. Shapiro, J. M. Talbert, R. F. Vagt, J. L. Whitmire, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EMC | EMC is in the S&P 500

EMC Corp S&P Recommendation STRONG BUY

★★★★★

Price $21.44 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Storage & Peripherals

12-Mo. Target Price $25.00

Investment Style Large-Cap Blend

Summary This company is one of the world's largest suppliers of enterprise storage systems. It owns 80% of VMware, the largest provider of server virtualization software.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $21.83– 16.12 Trailing 12-Month EPS $0.70 Trailing 12-Month P/E 30.6 $10K Invested 5 Yrs Ago $15,615

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.90 1.05 23.8 2,053.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$44.027 Nil Nil 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.95 13 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that EMC is a market leader, generates consistent free cash flow, and has a strong balance sheet. However, we see the storage segment as somewhat cyclical, highly competitive, and often typified by pricing pressure.

25 20 15

10

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 240 160 80 0

D 5

5

5

3

2

B-

B

B+

A-

A

Relative Strength Rank

5

4

C

B A+ STRONG 71

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on August 19, 2010, when the stock traded at $ 18.61. Highlights ➤

➤

We expect revenues to increase 19% in 2010, following a 5.7% decline in 2009, reflecting an improving IT spending environment amid an economic recovery. We think the Information Infrastructure business will grow 15% in 2010 due to pent-up demand. We also think demand is being driven by content digitization as more documents are stored electronically. We believe revenues from its VMware Virtual Infrastructure business will rise 39% in 2010, reflecting companies' urgency to cut costs in their data center operations. We look for overall gross margins of 58% in 2010, up from 55% in 2009, due to faster growth in the virtual infrastructure business unit, which has higher gross margins. We believe expenses will decrease as a percentage of revenues in 2010 due to better economies of scale and cost savings from restructuring. We project that operating margins will widen to 14.8% in 2010, from 10.1% in 2009.

Investment Rationale/Risk ➤

➤

➤ ➤

We forecast EPS of $0.88 in 2010, up from $0.53 in 2009. These include $0.32 and $0.36 of stockbased compensation, amortization of intangibles and restructuring charges in 2010 and 2009, respectively.

Our strong buy recommendation reflects improving end-user demand. Besides a stronger economy, we think demand for data storage will be driven by increased usage of video and electronic record keeping. As a result of stronger demand, we think the pricing environment will remain favorable near term. We believe EMC will also benefit from the growth in the virtualization server market. We think this market segment will grow 20% per year for the next three years, as companies modernize their data center infrastructure. We are also positive on the company's cost reductions, and we see operating margins expanding in 2010. Risks to our recommendation and target price include a weaker-than-expected economic recovery, lower corporate IT spending, increased competition, unfavorable foreign currency exchange due to a rapid rise in the U.S. dollar, and a significant loss in market share. Our 12-month target price of $25 is based on our DCF analysis. Our DCF model assumes an 11% weighted average cost of capital, 16.5% operating margins, a 9.0% revenue growth rate for the next 10 years, and 3% terminal growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,891 4,024 2009 3,151 3,257 2008 3,470 3,674 2007 2,975 3,125 2006 2,551 2,575 2005 2,243 2,345

3Q -3,518 3,716 3,300 2,815 2,366

4Q -4,100 4,017 3,831 3,215 2,710

Year -14,026 14,876 13,230 11,155 9,664

Earnings Per Share ($) 2010 0.18 0.20 2009 0.10 0.10 2008 0.13 0.18 2007 0.15 0.16 2006 0.12 0.12 2005 0.11 0.12

E0.22 0.14 0.20 0.23 0.13 0.17

E0.30 0.19 0.14 0.24 0.18 0.06

E0.90 0.53 0.64 0.77 0.54 0.47

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: EMC

EMC Corp Business Summary August 19, 2010 CORPORATE OVERVIEW. EMC is a leading provider of data storage solutions for enterprises and government entities around the world. The company's products and services are used in conjunction with a variety of computing platforms that support key business processes, including transaction processing, data warehousing, electronic commerce and content management. Due to the growing complexity of its customers' infrastructure, EMC not only helps customers manage and secure their vast and ever-increasing quantities of information, but also automate their data centers and reduce their operational costs. The company divides its operations into two major businesses, Information Infrastructure and VMware Virtual Infrastructure. Information Infrastructure business is comprised of three reporting segments - Information Storage, Content Management and Archiving and RSA Information Security. The company offers a wide range of storage systems designed to fulfill customers' needs in terms of performance, functionality, scalability, data availability and cost. Its key product line, Symmetrix, can scale to hundreds of thousands of terabytes of storage and 10s of millions of IOPS (input/output per second) supporting hundreds of thousands of virtual machines in a single federated stor-

age infrastructure. EMC also has other product lines - CLARiiON, Celerra, and Centera - that target the mid-tier and the low end of the markets. Information Storage accounted for 76% of total revenues in 2009. Sales in this business unit fell 8.3% in 2009, reflecting lower IT spending, in particular for hardware. Content Management and Archiving helps companies manage, backup, and restore their data, while RSA Information Security helps to safeguard the integrity and confidentiality of information throughout its lifecycle. Revenues from these two business units accounted 9.6% of total revenues in 2009. VMware Virtual Infrastructure provides software solutions that help companies cut costs in their data center operations. Virtualization software can reduce the number of servers by consolidating many different types of workloads and operating systems onto virtual environments, thus enabling servers to run multiple applications. Revenues from its VMware Virtual Infrastructure business unit grew 7.7% in 2009, and accounted for 14% of total revenues.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.51 1.05 0.53 0.54 Nil Nil 18.44 9.61 35 18

2008 2.37 0.92 0.64 0.63 Nil Nil 18.60 8.25 29 13

2007 2.42 1.02 0.77 0.73 Nil Nil 25.47 12.74 33 17

2006 4.39 0.87 0.54 0.55 Nil Nil 14.75 9.44 27 17

2005 3.20 0.73 0.47 0.35 Nil Nil 15.09 11.10 32 24

2004 3.22 0.61 0.36 0.21 Nil Nil 15.80 9.24 44 26

2003 3.19 0.45 0.22 0.04 Nil Nil 14.66 5.98 67 27

2002 3.05 0.24 -0.05 -0.23 Nil Nil 17.97 3.67 NM NM

2001 3.31 0.07 -0.23 -0.33 Nil Nil 82.00 10.01 NM NM

2000 3.72 1.02 0.79 NA Nil Nil 104.94 47.50 NM NM

14,026 2,595 1,073 183 1,375 18.4% 1,088 1,124

14,876 2,459 561 73.8 1,703 18.4% 1,346 1,312

13,230 2,302 530 72.9 2,060 18.4% 1,666 1,569

11,155 2,170 764 34.1 1,390 11.7% 1,227 1,241

9,664 2,222 640 7.99 1,652 31.4% 1,133 839

8,229 1,716 616 7.52 1,185 26.5% 871 504

6,237 988 521 3.03 571 13.1% 496 84.2

5,438 310 654 11.4 -296 NM -119 -477

7,091 355 655 11.3 -577 NM -508 -720

8,873 2,774 517 14.6 2,441 27.0% 1,782 NA

Balance Sheet & Other Financial Data (Million $) Cash 6,695 Current Assets 10,538 Total Assets 26,812 Current Liabilities 5,148 Long Term Debt 3,100 Common Equity 15,550 Total Capital 18,650 Capital Expenditures 412 Cash Flow 2,161 Current Ratio 2.1 % Long Term Debt of Capitalization 16.6 % Net Income of Revenue 7.8 % Return on Assets 4.3 % Return on Equity 7.5

6,807 10,665 23,875 5,218 3,450 13,042 17,038 696 1,907 2.0 20.3 9.1 5.8 10.5

6,127 10,053 22,285 4,408 3,450 12,521 16,448 699 2,196 2.3 21.4 12.6 8.2 14.6

1,828 6,521 18,566 3,881 3,450 10,326 13,776 718 1,992 1.7 25.0 11.0 6.9 11.0

2,322 6,574 16,790 3,674 127 12,065 12,368 601 1,773 1.8 1.0 11.7 7.0 9.6

1,477 4,831 15,423 2,949 128 11,523 11,793 371 1,488 1.6 1.1 10.6 5.9 7.8

1,869 4,687 14,093 2,547 130 10,885 11,015 369 1,017 1.8 1.2 8.0 4.2 5.5

1,687 4,217 9,590 2,042 Nil 7,226 7,226 391 535 2.1 Nil NM NM NM

2,129 4,923 9,890 2,179 Nil 7,601 7,601 889 147 2.3 Nil NM NM NM

1,983 6,100 10,628 2,114 14.5 8,177 8,494 858 2,299 2.9 0.2 20.1 20.0 27.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 176 South Street, Hopkinton, MA 01748-2230. Telephone: 508-435-1000. Email: [email protected] Website: http://www.emc.com

Chrmn, Pres & CEO: J.M. Tucci EVP & CFO: D.I. Goulden EVP & General Counsel: P.T. Dacier SVP & CTO: J.M. Nick

SVP & Chief Acctg Officer: M.A. Link Board Members: M. W. Brown, R. L. Cowen, M. J. Cronin, G. Deegan, J. S. DiStasio, J. R. Egan, E. F. Kelly, W. B. Priem, P. L. Sagan, D. N. Strohm, J. M. Tucci

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Massachusetts Employees: 43,200

Stock Report | October 23, 2010 | NYS Symbol: EMR | EMR is in the S&P 500

Emerson Electric Co. S&P Recommendation HOLD

★★★★★

Price $54.51 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Electrical Components & Equipment

12-Mo. Target Price $52.00

Investment Style Large-Cap Blend

Summary This company designs and supplies product technology and delivers engineering services and solutions to a wide range of industrial, commercial and consumer markets around the world.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $55.00– 37.45 Trailing 12-Month EPS $2.54 Trailing 12-Month P/E 21.5 $10K Invested 5 Yrs Ago $18,196

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.67 3.26 20.4 752.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$41.014 2.46 $1.34 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.22 9 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of several of the company's major end markets, its acquisition strategy, and corporate governance practices that we view as unfavorable versus peers. This is offset by our view of its strong competitive position in major product categories.

60 50 40

30

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

30 20 10 0 5

D 4

3

4

3

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Mathew Christy, CFA on September 09, 2010, when the stock traded at $ 50.24. Highlights

➤

B

B+

A-

A

Relative Strength Rank

A+ STRONG

We expect EMR's sales to increase more than 4% in FY 10 (Sep.), as weakness in its Process Management and Industrial Automation segments mostly offsets acquisition-related growth and higher expected sales in other segments. Our forecast also assumes lower orders and declining backlogs in EMR's later-cycle businesses, weighing down the positive effects of greater demand and inventory restocking in its shorter-cycle businesses. For FY 11, we see revenues increasing about 11%, on better results across EMR's operations as well as acquisitions. We think operating margins will improve in FY 10, as lower operating leverage in some business units and raw material cost inflation are more than offset by the company's efforts to realign costs to address the decline in demand and lower production rates across its businesses. For FY 11, we project that operating margins will widen further as sales and production rates improve. With taxes at a projected effective rate of about 30% in FY 10 and 28% in FY 11, we estimate EPS of $2.67 for FY 10 and $3.26 for FY 11.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

71

1

➤

C

A

We continue to view positively the recent improvement in the trailing three-month order growth rate, with robust orders across EMR's business units, despite the negative effects of currency in the June quarter. We think the improvement stems partly from a general strengthening in the economy and increased end-market demand. However, we see limited upside potential for the shares from recent levels. Risks to our recommendation and target price include weaker-than-expected global economic growth, softer industrial, energy and electronics markets, and potential value-diminishing acquisitions. Our 12-month target price of $52 represents a blend of two valuation metrics. Our discounted cash flow model, which assumes a 3% perpetuity growth rate and a 10.1% discount rate, indicates an intrinsic value of $54. Our relative valuation applies a 16.1X multiple, ahead of the peer average, to our forward 12-month EPS estimate, indicating a $51 value.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,011 5,144 2009 5,415 5,087 2008 5,520 6,023 2007 5,051 5,513 2006 4,548 4,852 2005 3,970 4,227

3Q 5,641 5,091 6,568 5,874 5,217 4,465

4Q -5,322 6,696 6,134 5,516 4,643

Year -20,915 24,807 22,572 20,133 17,305

Earnings Per Share ($) 2010 0.56 0.55 2009 0.60 0.49 2008 0.65 0.75 2007 0.55 0.61 2006 0.48 0.52 2005 0.35 0.42

0.78 0.51 0.82 0.72 0.59 0.43

E0.79 0.67 0.88 0.78 0.65 0.51

E2.67 2.27 3.11 2.66 2.24 1.70

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.335 0.335 0.335 0.335

11/03 02/02 05/04 08/03

11/10 02/10 05/12 08/11

11/13 02/12 05/14 08/13

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1947. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EMR

Emerson Electric Co. Business Summary September 09, 2010 CORPORATE OVERVIEW. Emerson Electric is an industrial conglomerate operating more than 60 diverse businesses in five primary business segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools. The company's Process Management segment, which accounted for 29.8% of FY 09 (Sep.) total sales and 38.8% of operating profits, and had 17.1% operating margins, produces process management software and systems, analytical instrumentation, valves, control systems for measurement and control of fluid flow, and integrated solutions for process and industrial applications. In FY 09, 33% of segment sales were made within the U.S., 22% in Europe, 23% in Asia, and 22% elsewhere. Segment sales are mainly conducted via a direct sales force while segment brands include Emerson Process Management, AMS Suite, Baumann, Bettis, Bristol, PlantWeb, CSI, DeltaV, and Fisher, to name a few. The Industrial Automation segment (17.7%, 12.9%, 9.6%) primarily makes industrial motors and drives, transmissions, alternators and controls for automated equipment. Products in this segment are sold predominantly to manufacturing firms via a direct sales force or independent resellers. Geographic distribution of segment sales: 39% U.S., 39% Europe, 13% Asia, and 9% other regions. Segment brands include Emerson Industrial Automation, Appleton,

Trident, McGill, and ASCO. The Network Power segment (25.6%, 20.6%, 10.6%) mainly makes power systems and precision cooling products used in computer, telecommunications and Internet infrastructure sold mainly to utility companies. In FY 09, 39% of segment sales were generated in the U.S., 17% in Europe, 33% in Asia, and 11% elsewhere. Product distribution is mainly through Emerson's direct sales force in Europe and Asia and independent resellers domestically. Segment brands include Emerson Network Power, Aperture, ASCO Power Technologies, Astec, Liebert, Netsure and Stratos. The Climate Technologies segment (15.3%, 14.4%, 12.4%) makes home and building thermostats and compressors (cooling components used in air conditioning units and refrigerators). Geographic distribution of FY 09 segment sales: 56% U.S., 15% Europe, 18% Asia, and 11% other regions. Segment brands: Emerson Climate Technologies, Computer Process Controls, Dixell, and Emerson Retail Services.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.44 3.13 2.27 2.08 1.32 58% 43.71 24.39 19 11

2008 2.25 3.92 3.11 2.94 1.20 39% 58.72 29.26 19 9

2007 2.99 3.47 2.66 2.67 1.05 39% 59.05 41.26 22 16

2006 2.67 3.04 2.24 2.24 0.89 40% 45.21 36.78 20 16

2005 2.34 2.41 1.70 1.70 0.83 49% 38.92 30.35 23 18

2004 2.36 4.37 1.49 1.49 0.80 54% 35.44 28.11 24 19

2003 1.81 1.84 1.21 1.13 0.79 65% 32.50 21.89 27 18

2002 0.99 1.90 1.26 0.94 0.78 62% 33.04 20.87 26 17

2001 1.11 2.07 1.20 0.88 0.77 64% 39.63 22.02 33 18

2000 1.27 2.44 1.65 NA 0.72 44% 39.88 20.25 24 12

20,915 3,710 651 244 2,417 28.7% 1,724 1,580

24,807 4,639 638 244 3,591 31.7% 2,454 2,321

22,572 4,174 656 261 3,107 31.3% 2,136 2,145

20,133 3,676 607 225 2,684 31.3% 1,845 1,846

17,305 3,150 562 243 2,149 33.8% 1,422 1,424

15,615 2,842 557 234 3,704 16.1% 3,109 1,250

13,958 2,497 534 246 1,414 28.4% 1,013 951

13,824 2,443 541 250 1,565 32.3% 1,060 784

15,480 2,988 708 304 1,589 35.0% 1,032 753

15,545 3,219 678 288 2,178 34.7% 1,422 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,560 Current Assets 7,653 Total Assets 19,763 Current Liabilities 4,956 Long Term Debt 3,998 Common Equity 8,555 Total Capital 12,553 Capital Expenditures 531 Cash Flow 2,375 Current Ratio 1.5 % Long Term Debt of Capitalization 31.9 % Net Income of Revenue 8.2 % Return on Assets 8.5 % Return on Equity 19.5

1,777 9,331 21,040 6,573 3,297 9,113 13,131 714 3,092 1.4 25.1 9.9 12.1 27.4

1,008 8,065 19,680 5,546 3,372 8,772 12,144 681 2,792 1.5 27.8 9.5 11.1 25.7

810 7,330 18,672 5,374 3,128 7,848 10,976 601 2,452 1.4 28.5 9.2 10.3 24.1

1,233 6,837 17,227 4,931 3,128 7,400 10,528 518 1,984 1.4 29.7 8.2 8.5 19.4

1,346 6,416 16,361 4,339 3,136 12,266 15,402 400 3,666 1.5 20.4 19.9 19.7 26.1

696 5,500 15,194 3,417 3,733 6,460 10,193 337 1,547 1.6 36.6 7.3 6.8 16.6

381 4,961 14,545 4,400 2,990 5,741 8,731 384 1,601 1.1 34.2 7.7 7.2 17.9

356 5,320 15,046 5,379 2,256 6,114 8,370 554 1,740 1.0 26.9 6.7 6.8 16.5

281 5,483 15,164 5,219 2,248 10,248 12,496 692 2,101 1.1 18.0 9.2 9.9 14.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 8000 West Florissant Avenue, St Louis, MO 63136. Telephone: 314-553-2000. Website: http://www.emersonelectric.com Chrmn & CEO: D.N. Farr

Pres & COO: E.L. Monser Vice Chrmn: W.J. Galvin SVP & CFO: F.J. Dellaquila SVP, Secy & General Counsel: F.L. Steeves

Investor Contact: C. Tucker (314-553-2197) Founded: 1890 Board Members: C. A. Boersig, A. A. Busch, III, D. N. Domicile: Missouri Farr, C. G. Fernandez, W. J. Galvin, A. F. Golden, H. Employees: 129,000 Green, R. Horton, W. R. Johnson, V. R. Loucks, Jr., J. B. Menzer, C. A. Peters, J. W. Prueher, R. L. Ridgway, R. L. Stephenson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: ETR | ETR is in the S&P 500

Entergy Corp. S&P Recommendation BUY

★★★★★

Price $73.73 (as of Oct 25, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $88.00

Investment Style Large-Cap Blend

Summary This electric utility holding company serves 2.6 million customers in Arkansas, Louisiana, Mississippi, and Texas and has non-utility, nuclear operations in several states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $84.44– 70.35 Trailing 12-Month EPS $7.04 Trailing 12-Month P/E 10.5 $10K Invested 5 Yrs Ago $12,813

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

7.10 6.95 10.4 186.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.71 2 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the steady cash flow we expect from most of the regulated utilities and the nuclear operations, offset by uncertainties related to the recovery of the economy and the wholesale power markets.

120 100 80

Quantitative Evaluations

60

S&P Quality Ranking

Vol. Mil.

D

12 8 4 0 5

$13.774 4.50 $3.32 83

C

B-

A B

B+

A-

A

Relative Strength Rank 4

3

5

A+ WEAK

18 4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Justin McCann on October 25, 2010, when the stock traded at $ 73.99. Highlights ➤

➤

➤

Excluding potential one-time charges of $0.45, we expect operating EPS in 2010 to increase about 6% from 2009's $6.67. Operating EPS in the first nine months of 2010 was aided by the abnormally warm weather and fewer shares, partially offset by planned and unplanned plant outages, and increased fuel and operating costs. We expect EPS in 2011 to decline due to ongoing weakness in the power markets and an assumed return to normal weather. After the cancellation of its planned spin-off of non-utility nuclear assets, and the equally owned joint venture that would have been formed with the spun-off company, ETR plans to deploy its capital in a disciplined manner as it balances the needs of its utility and non-utility businesses. ETR has estimated a total potential charge of $0.40 to $0.45 a share connected to the write-off of the costs incurred in 2010 related to the spin-off and its cancellation. Although the Vermont legislature voted against the approval of a 20-year license extension for the Vermont Yankee nuclear plant beyond its 2012 expiration, the possible extension approval for the plant, which supplies about 30% of Vermont's power, could still be obtained in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

The stock is down about 9% year to date. This follows an essentially flat performance in 2009 and reflects, we believe, the ongoing weakness in the economy and power markets, as well as the volatility in the utility sector. Since it had been anticipated, we do not think the stock was hurt by the cancellation of the planned spin-off of ETR's non-utility nuclear operations. Also, the announcement coincided with Entergy's declaration of a 10% increase in its dividend and its recommitment to its previously announced $750 million share buyback program. Risks to our recommendation and target price include a sharp drop in the margins of ETR's non-regulated operations, unanticipated problems with its nuclear facilities, and a decline in the average P/E of the group as a whole. With the decline in the shares, along with the 10% increase in the dividend (effective with the June payment), the recent yield was 4.5%. While slightly below the electric utility average of about 4.7%, it was roughly in line with utility holding companies with large wholesale power operations. Our 12-month target price is $88, an approximate peers' P/E multiple of about 12.7X our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,759 2,863 2009 2,789 2,521 2008 2,865 3,264 2007 2,600 2,769 2006 2,568 2,629 2005 2,323 2,710

3Q 3,332 2,937 3,964 3,289 3,255 3,130

4Q -2,499 3,001 2,825 2,481 2,652

Year -10,746 13,094 11,484 10,932 10,106

Earnings Per Share ($) 2010 1.12 1.65 2009 1.19 1.14 2008 1.56 1.37 2007 1.03 1.32 2006 0.93 1.27 2005 0.79 1.33

2.63 2.32 2.41 2.30 1.83 1.65

E1.31 1.64 0.89 0.96 1.32 0.59

E7.10 6.30 6.23 5.60 5.36 4.40

Fiscal year ended Dec. 31. Next earnings report expected: Early February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.750 0.750 0.830 0.830

10/30 01/29 04/05 07/30

11/09 02/09 05/10 08/10

11/12 02/11 05/12 08/12

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1988. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: ETR

Entergy Corp. Business Summary October 25, 2010 CORPORATE OVERVIEW. Entergy is an integrated energy company primarily engaged in electric power production and retail electric distribution operations. It owns and operates power plants with about 30,000 megawatts (MW) of electric generating capacity, and is the second largest nuclear power generator in the U.S. As the holding company for Entergy Arkansas, Entergy Gulf States Louisiana, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and Entergy Texas. Entergy Corp. provides electricity to 2.7 million U.S. retail customers. ETR also owns System Energy Resources, which has a 90% interest in the Grand Gulf 1 nuclear plant. The non-utility nuclear business owns and operates five nuclear plants (located in New York, Massachusetts and Vermont), which sell power mainly to wholesale customers. IMPACT OF MAJOR DEVELOPMENTS. On April 5, 2009, Entergy announced that it was canceling its plan (initially announced on November 5, 2007) to spin off to shareholders the company's non-utility nuclear business into a company that would have been named Enexus Energy Corp. It was also canceling its plan to form an equally owned joint venture with the spun-off company that would have been involved in the operation of the new company's nuclear assets and which would have offered ancillary nuclear services to third parties. These services will continue to be provided by Entergy's nuclear business. The cancellation followed the rejection (announced on March 25, 2009) of the spinoff by the New York Public Service Commission, which made its decision

based on the strong concerns of the commission's staff related to potential problems that could arise due to the financial condition of the company to be spun off. Hurricanes Katrina and Rita in 2005 caused catastrophic damage to large portions of ETR's service territories in Louisiana, Mississippi and Texas, including the effect of extensive flooding in and around greater New Orleans. As of December 31, 2009, Entergy had received $317 million on its Katrina and Rita insurance claims, and had substantially completed its insurance recoveries related to Hurricanes Katrina and Rita. On May 8, 2007, Entergy New Orleans emerged from Chapter 11 bankruptcy. This followed the approval of the company's plan of reorganization by the U.S. Bankruptcy Court for the Eastern District of Louisiana. The utility had filed for Chapter 11 reorganization in September 2005, soon after the devastation caused by Hurricane Katrina. Under the reorganization plan, all creditors would be fully compensated.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 43.55 6.30 6.72 3.00 48% 86.61 59.87 14 10

2008 40.08 6.23 5.64 3.00 48% 127.48 61.93 20 10

2007 38.76 5.60 5.74 2.58 46% 125.00 89.60 22 16

2006 38.59 5.36 5.54 2.16 40% 94.03 66.78 18 12

2005 35.49 4.40 4.49 2.16 49% 79.22 64.48 18 15

2004 36.43 3.93 3.99 1.89 48% 68.67 50.64 17 13

2003 36.38 3.42 3.70 1.60 47% 57.24 42.26 17 12

2002 33.61 2.64 2.14 1.34 51% 46.85 32.12 18 12

2001 33.74 3.13 2.21 1.28 41% 44.67 32.56 14 10

2000 31.83 2.97 NA 1.22 41% 43.88 15.94 15 5

10,746 1,083 NA 4.17 92.8 34.0% 1,231 1,311

13,094 1,031 NA 3.92 69.8 33.1% 1,221 1,108

11,484 1,132 NA 3.49 67.8 30.7% 1,135 1,162

10,932 888 NA 3.36 63.8 28.1% 1,133 1,171

10,106 856 NA 3.69 75.1 36.6% 969 961

10,124 896 NA 3.54 65.3 28.2% 933 922

9,195 851 NA 2.66 75.9 37.6% 813 856

8,305 839 NA 2.23 57.0 32.1% 623 487

9,621 721 NA 2.25 48.0 38.5% 727 495

10,016 785 NA 2.83 56.0 40.3% 711 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 40,503 Capital Expenditures 1,872 Net Property 23,637 Capitalization:Long Term Debt 10,706 Capitalization:% Long Term Debt 54.5 Capitalization:Preferred 311 Capitalization:% Preferred 1.60 Capitalization:Common 8,613 Capitalization:% Common 43.9 Total Capital 20,342 % Operating Ratio 84.6 % Earned on Net Property 9.9 % Return on Revenue 11.5 % Return on Invested Capital 9.1 % Return on Common Equity 14.9

38,591 2,435 22,660 11,174 57.4 311 1.60 7,967 41.0 26,343 87.2 10.4 9.3 7.3 15.4

36,302 1,578 21,194 9,728 54.3 311 1.70 7,863 44.0 24,625 87.1 10.3 9.9 7.7 14.1

33,366 1,586 19,651 8,809 50.8 345 1.99 8,198 47.2 23,531 88.7 9.2 10.4 7.0 14.2

32,437 1,458 19,426 8,838 53.2 Nil Nil 7,761 46.8 22,399 63.3 9.3 9.6 6.6 11.7

32,055 1,411 18,915 7,034 44.5 365 2.31 8,400 53.2 21,266 87.6 8.8 9.2 6.5 10.6

31,181 1,569 18,561 7,498 45.2 334 2.01 8,773 52.8 21,805 89.4 8.1 8.8 2.4 9.5

32,964 1,580 20,657 7,458 47.6 359 2.29 7,839 50.1 20,355 85.8 5.8 7.5 7.7 7.8

32,403 1,380 20,597 7,536 49.1 361 2.35 7,456 48.6 19,399 88.6 8.1 7.6 7.6 9.7

29,865 1,494 18,501 8,014 52.2 335 2.18 7,003 45.6 19,095 89.0 8.6 7.1 7.1 9.6

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 639 Loyola Ave, New Orleans, LA 70113-3125. Telephone: 504-576-4000. Website: http://www.entergy.com Chrmn & CEO: J.W. Leonard

COO & EVP: M.T. Savoff EVP & CFO: L.P. Denault EVP & Chief Admin Officer: R.K. West EVP, Secy & General Counsel: R.D. Sloan

Investor Contact: N. Morovich (504-576-5506) Founded: 1989 Board Members: M. S. Bateman, W. Blount, G. W. Domicile: Delaware Edwards, A. Herman, D. C. Hintz, J. W. Leonard, S. L. Employees: 15,181 Levenick, S. C. Myers, J. R. Nichols, W. A. Percy, II, W. J. Tauzin, S. V. Wilkinson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EOG | EOG is in the S&P 500

EOG Resources Inc. S&P Recommendation BUY

★★★★★

Price $97.31 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $121.00

Investment Style Large-Cap Growth

Summary One of the largest independent exploration and production companies in the world, this U.S. company focuses on onshore natural gas production in North America.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $114.95– 80.37 Trailing 12-Month EPS $2.30 Trailing 12-Month P/E 42.3 $10K Invested 5 Yrs Ago $16,322

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.98 4.24 49.1 253.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$24.665 0.64 $0.62 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.93 -17 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on EOG's participation in a very competitive, capital-intensive and cyclical industry, partly offset by our view of its significant net acreage position, active drilling program, and history of relatively low operating costs.

140 120 100 80 60

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

4

3

4

C

B-

B+ B

B+

A-

A

Relative Strength Rank

5

4

4

3

MODERATE

40 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on September 07, 2010, when the stock traded at $ 89.16. Highlights ➤

➤

In 2010, EOG plans to sharpen its focus on unconventional crude oil, shifting its portfolio mix to a heavier liquids weighting to limit exposure to natural gas volatility. It sees stronger returns in Bakken and Barnett Shale Combo horizontal oil prospects versus those at deepwater plays or Canadian oil sands. EOG recently announced a discovery in the Eagle Ford Shale, where it sees a resource potential of 900 MMBOE and operates five rigs, with plans for an average of 14 rigs in 2011. In the Bakken, EOG operates 12 drilling rigs on its 580,000 net acres. We see a possible JV at Marcellus acreage. We see production growth of 13% in 2010 and 18% in 2011. EOG recently stated a goal of raising the liquids weighting of its production portfolio, targeting 47% liquids growth in 2010. On lower costs, EOG estimates its Bakken, Barnett, Haynesville and Marcellus plays offer stronger returns relative to others.

Investment Rationale/Risk ➤

➤

➤ ➤

After 2009 EPS of $1.80 (with a non-cash derivative loss of $1.20), we see EPS of $1.98 in 2010 on higher production and prices, and $4.24 in 2011. EOG plans 2010 capex of $5.6 billion, higher than we expected, and plans to divest $1 billion to $1.5 billion of non-core gas assets.

EOG has focused capex on organic production growth at plays such as the Haynesville, Marcellus and Barnett Shales and the Bakken Oil Shale. We think expertise in horizontal drilling and technology will aid onshore production growth at promising new oil plays in the Barnett Shale, Niobrara in the Rockies and Eagle Ford, and we expect a competitive advantage when searching for new potential resources. Over the next three years, EOG plans to emphasize oil growth, moderate gas drilling, limit activity in Trinidad, and enter a possible horizontal project in China. Unlike others, EOG can shift its focus from liquids to natural gas should fundamentals require. Risks to our recommendation and target price include adverse changes in economic conditions, lower oil and gas prices, increased costs, and difficulty replacing reserves. We blend our NAV estimate of $120 with DCF ($125; WACC 10%, terminal growth 3%) and above-peer relative metrics, warranted, in our view, by EOG's strong production growth potential, positive earnings and cash flow momentum, and financial flexibility, to arrive at our 12-month target price of $121.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,363 1,321 2009 1,158 861.0 2008 1,101 1,875 2007 875.2 1,055 2006 1,085 919.1 2005 688.2 783.9

3Q -1,007 3,220 990.5 968.3 934.5

4Q -1,761 1,105 1,251 932.5 1,214

Year -4,787 6,529 4,191 3,904 3,620

Earnings Per Share ($) 2010 0.47 0.24 2009 0.63 -0.07 2008 0.96 0.71 2007 0.88 1.24 2006 1.73 1.34 2005 0.83 1.02

E0.49 0.02 6.20 0.82 1.21 1.40

E0.83 1.58 1.85 1.44 0.96 1.88

E1.98 2.17 9.72 4.37 5.24 5.13

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.145 0.155 0.155 0.155

12/15 02/09 04/29 09/09

01/13 04/14 07/14 10/13

01/15 04/16 07/16 10/15

01/29/10 04/30/10 07/30/10 10/29/10

Dividends have been paid since 1990. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EOG

EOG Resources Inc. Business Summary September 07, 2010 CORPORATE OVERVIEW. EOG Resources, Inc. (EOG), a Delaware corporation organized in 1985, together with its subsidiaries, explores for, develops, produces and markets natural gas and crude oil primarily in major producing basins in the U.S., Canada, offshore Trinidad, the U.K. North Sea, and other select regions. Proved oil and gas reserves rose 24%, to 10.8 trillion cubic feet equivalent (Tcfe; 83% natural gas, 54% developed), in 2009. EOG had 76% of reserves classified as proved developed at year-end 2008, exhibiting the addition of significant undeveloped acreage for future drilling inventory. Also, we estimate EOG has exhibited a three-year reserve CAGR (compound annual growth rate) of 17%. About 75% of EOG's 2009 proved reserves were in the U.S., 16% in Canada, and 9% in Trinidad. We estimate EOG's 2009 organic reserve replacement at 313%, and reserve replacement cost at $1.18 per Mcf. This compares to a three-year reserve replacement of 270% and three-year reserve replacement cost of $2.15 per Mcf. Oil and gas production rose 7%, to 2.118 billion cubic feet equivalent (Bcfe) per day (78% natural gas), in 2009. Production growth came from a 21% boost in oil volumes due to the development of EOG's Bakken properties, compared to a 2% rise in natural gas production.

duction companies in the world, EOG has focused on onshore natural gas operations, primarily in the U.S. and Canada. Substantial portions of its reserves are in long-lived fields with well established production characteristics. In the U.S., EOG has interests in the Barnett Shale play of the Fort Worth Basin; the Upper Gulf Coast area covering East Texas, Louisiana and Mississippi; the Permian Basin; the Rocky Mountain area, including the Uinta Basin, Williston Basin and Bakken play in North Dakota; the Mid-Continent area; South Texas and the Gulf of Mexico; and the Marcellus Shale in Pennsylvania. In Canada, EOG operates through its subsidiary, EOG Resources Canada, Inc. (EOGRC), with operations focused in the Southeast Alberta/Southwest Saskatchewan shallow natural gas trends; the Pembina/Highvale area of Central Alberta; the Grand Prairie/Wapiti area of Northwest Alberta; the Waskada area in Southwest Manitoba; and the Horn River Basin in northeastern British Columbia.

CORPORATE STRATEGY. One of the largest independent exploration and proCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 39.59 9.53 2.17 0.79 0.57 26% 101.76 45.03 47 21

2008 36.11 15.79 9.72 9.39 0.47 5% 144.99 54.42 15 6

2007 28.68 9.27 4.37 4.37 0.33 8% 91.63 59.21 21 14

2006 22.76 8.56 5.24 5.21 0.22 4% 86.91 56.31 17 11

2005 17.21 7.81 5.13 5.08 0.15 3% 82.00 32.05 16 6

2004 11.97 4.69 2.58 2.54 0.12 5% 38.25 21.23 15 8

2003 8.95 3.73 1.83 1.77 0.09 5% 23.76 17.85 13 10

2002 6.64 2.02 0.33 0.26 0.08 25% 22.08 15.01 68 46

2001 6.47 3.32 1.65 1.60 0.08 5% 27.75 12.90 17 8

2000 5.27 3.17 1.12 NA 0.07 6% 28.34 6.84 25 6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,820 NA 1,855 101 872 37.3% 547 199

6,529 5,144 1,520 51.7 3,747 35.0% 2,437 2,353

4,191 2,802 1,213 76.1 1,631 33.2% 1,090 1,083

3,904 1,895 817 43.2 1,913 32.0% 1,300 1,281

3,620 1,992 654 62.5 1,965 35.9% 1,260 1,238

2,271 979 504 63.1 926 32.5% 625 605

1,745 697 442 58.7 654 33.1% 437 412

1,095 648 398 59.7 120 27.2% 87.2 62.4

1,655 1,181 392 45.1 631 36.9% 399 376

1,490 697 370 61.0 634 37.3% 397 NA

Balance Sheet & Other Financial Data (Million $) Cash 686 Current Assets 1,840 Total Assets 18,119 Current Liabilities 1,346 Long Term Debt 2,760 Common Equity 9,998 Total Capital 12,795 Capital Expenditures 3,503 Cash Flow 2,402 Current Ratio 1.4 % Long Term Debt of Capitalization 21.6 % Return on Assets 3.2 % Return on Equity 5.8

331 2,108 15,951 1,765 1,860 9,015 13,688 5,195 3,956 1.2 13.6 17.4 30.5

54.2 1,292 12,089 1,474 1,185 6,985 10,246 3,679 2,296 0.9 14.5 10.1 17.3

218 1,350 9,402 1,255 733 5,547 7,846 2,819 2,106 1.1 9.3 15.2 26.4

644 1,563 7,753 1,172 859 4,217 6,298 1,725 1,906 1.3 13.6 18.6 35.5

21.0 587 5,799 632 1,078 2,847 4,925 1,417 1,118 0.9 21.9 11.8 24.9

4.44 396 4,749 477 1,109 2,098 4,125 1,204 868 0.8 26.9 10.2 23.4

9.85 395 3,814 276 1,145 1,524 3,478 714 474 1.4 32.9 2.4 5.0

2.51 272 3,414 311 856 1,495 3,050 974 780 0.9 28.1 12.4 28.4

20.2 394 3,001 370 859 1,234 2,580 603 756 1.1 33.3 14.1 34.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1111 Bagby, Sky Lobby 2, Houston, TX 77002. Telephone: 713-651-7000. Email: [email protected] Website: http://www.eogresources.com

Chrmn & CEO: M.G. Papa COO: G.L. Thomas SVP & General Counsel: F.J. Plaeger, II CFO: T.K. Driggers

Chief Admin Officer: P.L. Edwards Founded: 1985 Investor Contact: M.A. Baldwin (713-651-6364) Domicile: Delaware Board Members: G. A. Alcorn, C. R. Crisp, J. C. Day, M. Employees: 2,100 G. Papa, H. L. Steward, D. F. Textor, F. G. Wisner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ETFC | ETFC is in the S&P 500

E TRADE Financial Corporation S&P Recommendation HOLD

★★★★★

Price $14.04 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Investment Banking & Brokerage

12-Mo. Target Price $16.00

Investment Style Large-Cap Growth

Summary This company provides online discount brokerage, mortgage and banking services, primarily to retail customers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.90– 11.15 Trailing 12-Month EPS $-5.20 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $785

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.08 0.97 NM 220.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.099 Nil Nil 65

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.10 NM CCC+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

200

1-for-10 80 40

Our risk assessment reflects our concerns about significant industry volatility and ETFC's exposure to residential mortgage and home equity loans, partially offset by our view of its strong client relationships.

20 10

Quantitative Evaluations

5

S&P Quality Ranking

Vol. Mil. 24 16 8 0

110

80

D

58

C

B-

C B

B+

A-

A

Relative Strength Rank

A+ WEAK

24

5

5

3

2

2

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Royal F. Shepard, CFA on October 22, 2010, when the stock traded at $ 14.14. Highlights ➤

➤

➤

We believe ETFC has done well to recapitalize its balance sheet following what we think was a disastrous foray into the mortgage business. It is now in the process of winding down its loan book and deposit base, which should allow it to refocus on its core retail investor segment. Problems at ETFC's bank have not driven away brokerage clients, which continue to increase as banking client accounts decline. In the nearterm, an industry slowdown in trading volume may reduce commission fees. Also, low interest rates will likely keep pressure on net interest income until short-term rates rise, which we do not expect until at least mid-2011. Non-performing loans remain elevated relative to gross loans outstanding, and charge-offs, while declining, remain high. Loan loss provisions should continue to decline through 2011 as ETFC's loan portfolio declines, providing an earnings catalyst. ETFC currently maintains a 7.41% Tier-1 ratio, above its stated goal of 6%. We project EPS of $0.08 in 2010 and $0.97 in 2011, assuming a return to more normal market conditions and lower loan losses.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We see relative strength in ETFC's brokerage business beginning to offset the overhang from its remaining mortgage assets. While we believe new account growth has lagged that of its online brokerage competitors, we think its balance sheet restructuring will raise confidence. We are encouraged that the growth of home equity loans in the special mention category has slowed. It appears to us that ETFC's home equity loan deterioration has reached a plateau. In the meantime, ETFC expanded the amount of customer assets, as of September 30, by 9% over a year ago. We expect any excess cash balances to be invested in new trading platforms for retail and institutional clients. Risks to our opinion and target price include greater-than-expected declines in retail trading volume and client assets, and larger writedowns in the remaining mortgage portfolio. Our 12-month target price of $16 is based on a 0.8X multiple applied to our projection for the company's book value, a discount to peer valuations.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 536.5 534.0 2009 497.3 620.9 2008 529.1 532.3 2007 645.0 663.5 2006 598.4 611.4 2005 417.4 387.7

3Q -575.3 377.7 321.2 581.8 419.8

4Q -529.1 486.4 -2,008 628.9 478.9

Year -2,217 1,926 -378.0 2,420 1,704

Earnings Per Share ($) 2010 -0.20 0.12 2009 -4.10 -2.20 2008 -2.00 -2.40 2007 3.90 3.70 2006 3.30 3.60 2005 2.70 2.90

E0.03 -6.70 -6.00 -1.40 3.40 2.90

E0.13 -0.40 -5.00 -39.80 4.00 3.10

E0.08 -11.80 -15.90 -34.00 14.40 11.60

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

1-for-10 REV.

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

--

06/02

--

06/02/10

Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: ETFC

E TRADE Financial Corporation Business Summary October 22, 2010 CORPORATE OVERVIEW. E Trade Financial Corporation is one of the industry's leading online financial services concerns. The company provides online discount brokerage and banking services, primarily to retail customers. Although most of the company's business is done over the Internet, ETFC also serves customers through branches, automated and live telephone service, and Internet-enabled wireless devices. Retail customers can move money electronically between brokerage, banking and lending accounts. As of December 31, 2009, ETFC had about 4.5 million total retail accounts. Brokerage customers can buy and sell stocks, bonds, options, futures, and over 7,000 non-proprietary mutual funds. Customers can also obtain streaming quotes and charts, access real-time market commentary and research reports, and perform personalized portfolio tracking. Brokerage customers can obtain margin loans collateralized by their securities. The company uses sophisticated proprietary transaction-enabling technology to automate traditionally labor-intensive transactions. The brokerage business continues to be the primary point of introduction for the majority of ETFC's customers, which are typically self-directed investors.

Through its Banking segment, the company has historically offered residential mortgage products, home equity loans and home equity lines of credit (HELOCs). However, in view of the housing-led recession, ETFC made the decision to exit all loan origination channels in 2008. In late 2003, the Banking segment began sweeping Brokerage customer money market balances into an FDIC-insured Sweep Deposit Account (SDA) product, which lowered its cost of funds. At the end of 2009, ETFC had $12.5 billion in the SDA product, up from $4.3 billion at the end of 2003. ETFC's loan portfolio consists of first mortgages, the majority of which are adjustable-rate, home equity lines of credit, second mortgage loan products, and consumer loans for RVs, marine, automobile, and credit card loans. Going forward, we expect the asset composition of this segment to change significantly as ETFC completes its restructuring plan announced in September 2007 and realigns its focus on its core retail business.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.70 -10.80 -11.80 -11.80 Nil Nil 29.00 5.90 NM NM

2008 4.70 -14.30 -15.90 -14.50 Nil Nil 54.80 7.90 NM NM

2007 10.10 -31.00 -34.00 -32.60 Nil Nil 260.80 31.50 NM NM

2006 38.70 16.06 14.40 13.30 Nil Nil 277.60 188.10 19 13

2005 20.70 13.55 11.60 8.80 Nil Nil 217.10 105.30 19 9

2004 45.80 10.70 9.20 6.60 Nil Nil 154.00 95.10 17 10

2003 37.30 5.53 5.50 2.70 Nil Nil 129.10 36.50 23 7

2002 26.80 12.00 3.00 2.70 Nil Nil 126.40 28.10 42 9

2001 25.40 -2.76 -8.10 -8.60 Nil Nil 153.75 40.70 NM NM

2000 44.30 3.66 -0.60 NA Nil Nil 342.50 66.56 NM NM

548 1,833 1,291 855 -1,835 548.0% -1,298 -1,297

516 2,470 3,128 1,202 -1,279 36.7% -809 -742

694 3,570 2,978 2,133 -2,178 33.8% -1,442 -1,378

625 2,775 3,840 1,527 929 32.5% 627 580

459 1,650 2,537 853 676 34.0% 446 339

350 1,146 2,077 558 514 31.6% 351 247

337 893 2,009 532 310 36.2% 203 101

302 946 1,903 609 194 43.9% 107 96.1

407 1,160 2,062 832 -310 NM -271 -291

739 960 1,973 630 104 81.8% 19.2 NA

Balance Sheet & Other Financial Data (Million $) Total Assets 47,366 Cash Items 5,067 Receivables 3,827 Securities Owned 13,358 Securities Borrowed Nil Due Brokers & Customers 5,234 Other Liabilities 33,177 Capitalization:Debt 5,206 Capitalization:Equity 3,750 Capitalization:Total 8,956 % Return on Revenue NM % Return on Assets NM % Return on Equity NM

48,538 5,051 2,791 10,862 Nil 3,753 35,090 7,104 2,592 9,696 NM NM NM

56,846 1,778 7,179 11,385 Nil 5,515 38,033 10,469 2,829 13,298 NM NM NM

53,739 1,212 7,636 13,922 Nil 7,825 NA 7,166 4,196 11,363 20.7 1.3 16.5

44,568 844 7,174 12,565 Nil 7,316 NA 6,189 3,400 9,589 68.4 1.2 15.9

31,033 940 3,035 12,589 Nil 3,619 NA 586 2,228 2,814 18.0 1.2 16.9

26,049 921 2,298 9,876 Nil 3,696 NA 695 1,918 2,614 11.8 0.9 11.9

21,534 2,223 1,500 8,702 Nil 2,792 NA 907 1,506 2,412 5.4 0.5 7.0

18,172 1,601 2,139 4,726 Nil 2,700 NA 605 1,571 2,175 NM NM NM

17,317 301 6,543 985 NA 6,056 NA 3,336 1,857 5,192 1.6 0.2 1.2

Income Statement Analysis (Million $) Commissions Interest Income Total Revenue Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Total net revenues reported in quarterly table. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 135 East 57th Street, New York, NY 10022. Telephone: 646-521-4300. Email: [email protected] Website: http://www.etrade.com

Chrmn: R. Druskin Vice Chrmn: S.H. Willard CEO: S.J. Freiberg COO, EVP & CIO: G. Framke

EVP, CFO & Chief Acctg Officer: B.P. Nolop Board Members: R. Druskin, R. D. Fisher, S. J. Freiberg, K. C. Griffin, F. W. Kanner, M. K. Parks, C. C. Raffaeli, L. E. Randall, J. L. Sclafani, J. M. Velli, D. L. Weaver, S. H. Willard

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1982 Domicile: Delaware Employees: 3,084

Stock Report | October 23, 2010 | NYS Symbol: EQT | EQT is in the S&P 500

EQT Corp S&P Recommendation BUY

★★★★★

Price $37.42 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $46.00

Investment Style Large-Cap Growth

Summary This energy company focuses on natural gas production, transmission and distribution, and energy management services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.43– 32.23 Trailing 12-Month EPS $1.29 Trailing 12-Month P/E 29.0 $10K Invested 5 Yrs Ago $11,393

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.55 2.08 24.1 149.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.580 2.35 $0.88 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.77 19 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on our view that the company's riskier exploration and production and energy marketing operations are balanced by its regulated gas businesses.

80

50 40 30

Quantitative Evaluations

20

S&P Quality Ranking

Vol.

D 32

Mil.

C

B-

B+ B

B+

A-

A

A+

20

9 6 3 0

Relative Strength Rank

MODERATE

51 LOWEST = 1

5 2

2

3

4

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Christopher B. Muir on August 03, 2010, when the stock traded at $ 38.20. Highlights ➤

➤

➤

We expect 2010 revenues to rise 2.9%, driven by higher average realized commodity prices during the year at EQT's exploration and production business. We see revenues from these unregulated businesses rising 14%, helped by higher volumes. In 2011, we forecast revenues will rise 13% as we anticipate slightly rising commodity prices and increasing volumes. We see unregulated revenues rising 11% next year. We anticipate that 2010 operating margins will rise to 35.5%, from 30.2%, on wider gross margins, lower production costs, and lower perrevenue operations and maintenance expenses, partly offset by higher depreciation & depltion and administrative costs. We see pretax margins rising to 26.2%, from 22.1%, as we expect higher interest expense and higher nonoperating income. We expect operating and pretax margins in 2011 of 38.8% and 32.5%, respectively. Assuming an effective income tax rate of 34.4%, we project 2010 operating EPS of $1.55, up 14% from $1.36, excluding $0.17 of net nonrecurring charges, in 2009. Our 2011 EPS estimate is $2.08, up 34%.

Investment Rationale/Risk ➤

➤

➤

We like EQT's horizontal drilling program, which includes re-entry wells into existing fields. We believe results have been positive in the program so far. We expect EQT to use cash generated by recent non-core asset sales for additional investment in E&P operations. Much of the company's expansion has been in the Huron shale, but we think it also has opportunities and has shown good early results in the Berea Sandstone wells, in the Devonian shale re-entry wells, and in the Marcellus shale. Risks to our opinion and target price include lower-than-expected E&P production growth, energy prices and utility income, as well as higher-than-expected interest rates. EQT's shares recently traded at 18.5X our 2011 EPS estimate, a 30% premium to gas distribution peers. Our 12-month target price of $46 is 22.1X our 2011 EPS estimate, an even larger premium. We believe the premium is warranted by our expectation for superior EPS growth driven by EQT's unregulated businesses, partly offset by the riskier nature of its unregulated businesses.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 436.6 257.5 2009 469.4 238.0 2008 535.8 334.0 2007 456.6 293.2 2006 430.1 251.2 2005 401.3 230.2

3Q -218.4 297.8 226.8 232.8 229.4

4Q -344.0 408.9 384.8 353.8 392.9

Year -1,270 1,576 1,361 1,268 1,254

Earnings Per Share ($) 2010 0.65 0.20 2009 0.55 0.20 2008 0.57 0.42 2007 0.46 0.87 2006 0.59 0.36 2005 0.60 0.47

E0.25 0.02 0.73 0.27 0.26 0.37

E0.47 0.42 0.26 0.49 0.56 0.65

E1.55 1.19 2.00 2.10 1.77 2.09

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.220 0.220 0.220 0.220

01/20 04/21 07/14 10/20

02/10 05/05 08/04 11/03

02/12 05/07 08/06 11/05

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1950. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EQT

EQT Corp Business Summary August 03, 2010 CORPORATE OVERVIEW. EQT Corp. (formerly Equitable Resources Inc.; name changed in February 2009) is a vertically integrated energy company operating through three business segments: EQT Production (EP), EQT Midstream (EM) and EQT Distribution (ED). The EP unit (36% of 2009 operating income before unallocated expenses) is engaged in exploration and production of natural gas and oil, chiefly in the Appalachian Basin. The EM unit (45%) provides gathering, processing, transmission and storage services to EP and independent third parties. Its transmission system is located throughout north central West Virginia and southwestern Pennsylvania, and its gas gathering assets are located in Kentucky, West Virginia, Virginia and Pennsylvania. The ED unit (19%) operates a regulated natural gas utility in southwestern Pennsylvania and a small gathering system in Pennsylvania, and provides off-system sales activities. CORPORATE STRATEGY. The ED unit is focused on earning a competitive return on its asset base through regulatory mechanisms and operational efficiency. ED believes it can achieve earnings growth by establishing a reputation for excellent customer service, effectively managing its capital spending, improving the efficiency of its work force through superior work management, and continuing to leverage technology throughout its operations. In 2008, ED

filed a base rate case and agreed to a settlement of the rate case that requested a $38 million increase in revenues. In January 2009, the settlement was approved by an administrative law judge. The EP unit's business strategy is to focus on increased drilling and development in the Appalachian basin. EP also plans to create additional reserve potential through emerging development investments. To achieve maximum value from its existing assets, EP drills multilateral and stacked multilateral horizontal wells, refracs existing wells and drills re-entry wells where low pressured vertical shale wells were previously drilled. The EM unit's strategy focuses on building a long-term growth platform to facilitate the development of EP's growing reserve base in the Huron play, and provides opportunities to sell capacity to third parties by connecting wells to existing midstream infrastructure in an effort to fill existing capacity.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 16.43 2.68 1.19 1.20 0.88 74% 46.80 27.39 39 23

2008 15.67 3.06 2.00 2.08 0.88 44% 76.14 20.71 38 10

2007 11.52 2.99 2.10 1.45 0.88 42% 56.75 39.26 27 19

2006 7.78 2.59 1.77 1.79 0.87 49% 44.48 31.59 25 18

2005 2.96 2.94 2.09 1.59 0.82 39% 41.18 27.89 20 13

2004 6.75 2.88 2.22 1.33 0.72 32% 30.59 21.05 14 9

2003 7.33 3.40 1.37 1.35 0.49 35% 21.71 17.22 16 13

2002 5.83 1.72 1.18 1.11 0.34 28% 18.78 14.34 16 12

2001 6.18 1.70 1.15 1.09 0.31 27% 20.25 13.00 18 11

2000 4.86 1.54 0.80 NA 0.29 37% 16.69 8.06 21 10

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,270 NA 196 112 254 38.1% 157 158

1,576 602 137 58.4 411 37.7% 256 266

1,361 432 110 54.4 402 35.9% 257 177

1,268 470 100 47.1 326 33.7% 216 219

1,254 445 93.5 44.4 412 37.2% 259 197

1,192 388 83.1 49.2 424 33.7% 280 168

1,047 380 78.1 45.8 257 31.9% 174 170

1,069 352 69.4 38.8 235 33.0% 151 141

1,764 328 73.2 41.1 240 36.6% 152 143

1,652 312 97.8 75.7 163 35.0% 106 NA

Balance Sheet & Other Financial Data (Million $) Cash NA Current Assets 695 Total Assets 5,957 Current Liabilities 613 Long Term Debt 1,949 Common Equity 2,151 Total Capital 4,100 Capital Expenditures 952 Cash Flow 353 Current Ratio 1.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 12.4 % Return on Assets 2.8 % Return on Equity NA

Nil 927 5,330 1,043 1,249 2,050 3,304 1,344 392 0.9 37.8 16.2 5.5 16.2

81.7 742 3,937 1,519 754 1,097 2,252 777 367 0.5 33.5 18.9 7.2 25.2

Nil 701 3,257 1,080 754 946 2,038 405 316 0.6 37.0 17.0 6.5 33.2

75.0 1,097 3,342 2,092 763 354 1,142 276 352 0.5 66.9 20.6 7.9 42.1

Nil 653 3,197 1,015 618 875 1,990 202 363 0.6 31.0 23.5 9.1 30.4

37.3 550 2,940 703 681 965 2,118 222 430 0.8 32.2 16.6 6.5 19.9

17.7 430 2,437 552 586 779 1,728 218 220 0.8 33.9 14.1 6.1 18.5

92.6 613 2,519 612 396 846 1,621 133 225 1.0 24.4 8.6 6.1 19.7

52.0 615 2,456 877 413 694 1,370 124 204 0.7 30.1 6.4 5.0 15.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: EQT Plaza 625 Liberty Avenue, Suite 1700, Pittsburgh, PA 15222. Telephone: 412-553-5700. Website: http://www.eqt.com Chrmn: M.S. Gerber

Pres, CEO & COO: D.L. Porges SVP & CFO: P.P. Conti Chief Acctg Officer & Cntlr: T.Z. Bone Secy: K.L. Sachse

Investor Contact: P.J. Kane (412-553-7833) Board Members: V. A. Bailey, P. G. Behrman, A. B. Cary, Jr., M. S. Gerber, B. S. Jeremiah, G. L. Miles, Jr., D. L. Porges, J. E. Rohr, D. S. Shapira, S. A. Thorington, L. T. Todd, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1926 Domicile: Pennsylvania Employees: 1,800

Stock Report | October 23, 2010 | NYS Symbol: EFX | EFX is in the S&P 500

Equifax Inc. S&P Recommendation HOLD

★★★★★

Price $32.72 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Research & Consulting Services

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary This company is a leading worldwide source of consumer and commercial credit information.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.63– 27.21 Trailing 12-Month EPS $1.94 Trailing 12-Month P/E 16.9 $10K Invested 5 Yrs Ago $9,148

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.32 2.50 14.1 125.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.091 0.49 $0.16 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.15 10 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that a majority of the company's domestic operations have exposure to consumer financial services. We are also concerned global economic conditions, particularly in Europe, offset by our positive outlook for the company's Latin American operations, which we see expanding faster than its domestic operations.

35 30 25 20

Vol.

Quantitative Evaluations

Mil. 9 6 3 0 5

S&P Quality Ranking D

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 66

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, P, Ph

Highlights

➤

➤

We expect organic growth for many of EFX's domestic credit- and mortgage-related offerings to remain challenged by prevailing economic conditions, but see TALX and Latin America as drivers in 2010. We project operating revenues of $1.84 billion, aided by the acquisitions of IXI and Rapid Reporting Verification (both completed in the fourth quarter 2009), partly offset by the divestiture of Direct Marketing Services. We forecast sales growth of approximately 6% for 2011. EFX flattened and realigned its organizational structure, yielding cost savings, and we expect the company to continue to focus on fine-tuning existing operations, cut costs, and pay down debt as it seeks to preserve and grow operating margins. We see modestly wider operating margins in 2010 and 2011 as sales growth likely resumes, helped by contributions from acquired and organic product initiatives. We expect interest expenses to track debt levels after recent acquisition activity, but see some decline as EFX pays down debt. We estimate operating EPS of $2.32 in 2010 (before acquisition-related intangibles), rising to $2.50 in 2011.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Zaineb Bokhari on August 16, 2010, when the stock traded at $ 30.05.

➤

A+

3

International markets have offered attractive avenues for growth, in our view, particularly in Latin America. We see this being negatively impacted, however, by currency fluctuations and weakness in Europe. EFX's largest and most profitable segment, U.S. Consumer Information Solutions, has been in decline since late 2007, but we expect this to slow in 2010, helped by acquisition and stabilization in the broader economy. We look for a rising contribution from TALX, but expect this to limit near-term operating margin expansion from expense reductions. We are optimistic about settlement and analytical tools and services, which we consider to be counter-cyclical. Risks to our recommendation and target price include increasing competition from the other major credit bureaus and data providers. We are also concerned about sharp deterioration in EFX's U.S. Consumer information solutions segments as well as in international markets. Our 12-month target price of $35 is derived by applying a 14.0X P/E multiple, within the threeyear average range for EFX shares of 10.5X-16.0X, to our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 461.3 460.7 2009 452.9 455.4 2008 503.1 501.9 2007 405.1 454.5 2006 374.0 387.7 2005 343.4 363.4

3Q -451.9 484.1 492.5 394.6 375.3

4Q -464.3 446.6 490.9 390.0 361.3

Year -1,825 1,936 1,843 1,546 1,443

Earnings Per Share ($) 2010 0.44 0.45 2009 0.43 0.47 2008 0.50 0.54 2007 0.54 0.51 2006 0.48 0.53 2005 0.44 0.47

E0.59 0.47 0.56 0.48 0.61 0.47

E0.59 0.47 0.50 0.49 0.50 0.48

E2.32 1.83 2.09 2.02 2.12 1.86

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040 0.040 0.040

11/06 02/05 05/07 08/17

11/20 02/18 05/21 08/23

11/24 02/22 05/25 08/25

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1914. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EFX

Equifax Inc. Business Summary August 16, 2010 CORPORATE OVERVIEW. Equifax is one of three global providers of consumer and commercial credit information. Equifax collects, organizes and manages credit, financial, demographic and marketing information regarding individuals and businesses, which the company collects from various sources. These sources include financial or credit granting institutions (which provide accounts receivable information), government organizations and consumers. The company maintains information in proprietary databases regarding consumers and businesses worldwide. EFX amasses and processes this data using proprietary systems, and makes the data available to customers in various formats. Products and services include consumer credit information, information database management, marketing information, business credit information, decisioning and analytical tools, and identity verification services that enable businesses to make informed decisions about extending credit or providing services, managing portfolio risk, and developing marketing strategies. According to the company, EFX allows consumers to manage and protect their financial affairs through products that the company sells directly to individuals using the Internet.

Equifax derived 82% of operating revenue from North America in 2009, up from 80% in 2008. The U.S. accounted for 75% of operating revenues in 2009, up from 73% in 2008, while EFX's Canadian Consumer business accounted for 7% of total revenues in 2009 (unchanged from 2008). The company's largest segment, U.S. Consumer Information Solutions (45% of revenues in 2009, down from 46% in 2008), includes Consumer Information Solutions (credit information regarding individuals; 29% of 2009 revenues, down from 31% in 2008), Mortgage Reporting Solutions (credit loan origination information; 5%, 4%), Credit Marketing Services (6%, 7%) and Direct Marketing Services (5%, 5%). The company sold its Direct Marketing business in mid 2010. Other North American operating segments include Personal Solutions (credit information sales to consumers; 8%, 8%) and Commercial Solutions (credit information concerning businesses; 4%, 4%). TALX, acquired in May 2007 (employment, income verification and human resources outsourcing services) accounted for just under 19% of revenues in 2009 (16%).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.07 1.83 1.83 0.16 9% 31.64 19.63 17 11

2008 NM 2.60 2.09 1.90 0.16 8% 39.95 19.38 19 9

2007 NM 2.48 2.02 2.02 0.16 8% 46.30 35.22 23 17

2006 NM 2.76 2.12 2.07 0.16 8% 41.64 30.15 20 14

2005 NM 2.49 1.86 1.88 0.15 8% 39.00 26.97 21 14

2004 NM 2.39 1.78 1.59 0.11 6% 28.46 22.60 16 13

2003 NM 2.00 1.31 1.18 0.08 6% 27.59 17.84 21 14

2002 NM 1.96 1.39 1.04 0.08 6% 31.30 18.95 23 14

2001 NM 1.61 0.84 0.52 0.25 29% 38.76 18.60 46 22

2000 NM 2.77 1.68 NA 0.37 22% 36.50 19.88 22 12

1,825 591 159 57.0 357 32.6% 234 234

1,936 560 66.3 71.3 412 32.3% 273 247

1,843 548 62.0 58.5 431 35.3% 273 273

1,546 519 82.8 31.9 420 33.6% 275 268

1,443 504 82.2 35.6 396 36.5% 247 248

1,273 459 81.1 34.9 388 38.1% 237 211

1,225 438 95.3 39.6 286 36.5% 179 162

1,109 432 80.5 41.2 317 39.0% 191 146

1,139 420 106 47.8 205 41.7% 117 73.6

1,966 604 149 76.0 385 40.8% 228 NA

Balance Sheet & Other Financial Data (Million $) Cash 103 Current Assets 417 Total Assets 3,551 Current Liabilities 492 Long Term Debt 991 Common Equity 1,601 Total Capital 2,606 Capital Expenditures 70.7 Cash Flow 393 Current Ratio 0.9 % Long Term Debt of Capitalization 38.0 % Net Income of Revenue 12.8 % Return on Assets 6.9 % Return on Equity 16.1

58.2 354 3,260 318 1,187 1,312 2,715 111 339 1.1 43.7 14.1 8.0 20.1

81.6 425 3,524 547 1,165 1,399 2,842 119 335 0.8 41.0 14.8 10.3 24.4

67.8 345 1,791 582 174 838 1,083 52.0 357 0.6 16.1 17.8 15.2 33.1

37.5 280 1,832 295 464 820 1,410 17.2 329 1.0 32.9 17.1 14.5 36.7

52.1 300 1,557 457 399 524 961 16.5 318 0.7 41.5 18.6 15.3 53.0

39.3 286 1,553 355 663 372 1,079 14.6 274 0.8 61.5 14.6 11.7 60.3

30.5 286 1,507 428 691 221 938 12.8 272 0.7 73.7 17.2 13.1 82.4

33.2 358 1,423 276 694 244 1,026 13.0 224 1.3 67.6 10.3 7.1 37.4

89.4 605 2,070 426 994 384 1,467 37.1 377 1.4 67.7 11.6 11.7 76.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1550 Peachtree St NW, Atlanta, GA 30309. Telephone: 404-885-8000. Email: [email protected] Website: http://www.equifax.com

Chrmn & CEO: R.F. Smith COO: A.S. Bodea SVP, Chief Acctg Officer & Cntlr: N.M. King CFO: L. Adrean

Secy: D.C. Arvidson Founded: 1913 Board Members: J. E. Copeland, Jr., R. D. Daleo, W. W. Domicile: Georgia Driver, Jr., M. L. Feidler, L. P. Humann, S. S. Marshall, J. Employees: 6,600 A. McKinley, Jr., R. F. Smith, M. B. Templeton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EQR | EQR is in the S&P 500

Equity Residential S&P Recommendation HOLD

★★★★★

Price $50.83 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Residential REITS

12-Mo. Target Price $48.00

Investment Style Large-Cap Value

Summary This equity real estate investment trust owns and operates a nationally diversified portfolio of apartment properties.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.20– 27.54 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $16,847

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

2.20 2.30 23.1 283.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.408 2.66 $1.35 92

Beta 1.29 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -5 S&P Credit Rating BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that EQR is one of the largest, most diversified residential REITs and has below-average financial leverage and strong coverage of fixed charges.

50 40 30

Quantitative Evaluations

20

S&P Quality Ranking Vol.

D

C

B-

B+ B

B+

A-

A

A+

Mil. 30 20 10 0

Relative Strength Rank

MODERATE 70

LOWEST = 1

5

HIGHEST = 99

3

2

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Royal F. Shepard, CFA on August 04, 2010, when the stock traded at $ 46.82. Highlights ➤

➤

➤

We think higher occupancy levels will lead to improved pricing power in the second half of 2010. During the second quarter, EQR increased average occupancy 150 basis points, to 95.1%. In our estimation, rents on new leases will begin to exceed expiring contracts during the third quarter. On a same-property basis, we estimate rental revenues will remain about flat for all of 2010, before rebounding 2%-3% in 2011. We expect EQR to take advantage of depressed markets conditions to increase its 2010 investment in property acquisitions. In the first half, the trust acquired eight properties at an aggregate purchase price of $849.4 million. For the full year, the trust has budgeted $1.25 billion for new purchases. Due to a decline in construction costs, EQR could also accelerate its investment in new development projects. As of June 30, 2010, it had five communities under way at a total budgeted cost of $615 million. We forecast 2010 FFO of $2.20 per share, excluding gains from debt buybacks or asset sales. Our outlook reflects improving rental rates as leases roll over and an increased contribution from acquisitions, partially offset by higher operating costs and real estate taxes.

Investment Rationale/Risk ➤

➤

➤

We like EQR's long-term focus on coastal markets, which we believe have favorable demographic trends. We think a gradually improving economic environment will begin to increase operating results by the second half of 2010, including higher effective rents on lease renewals. We expect that an active acquisition program will also begin to contribute to earnings by 2011. Recently at about 21X our 2010 FFO per share outlook, EQR is trading close to apartment REIT peers. Risks to our recommendation and target price include slower-than-anticipated job growth, increased competition from excess inventories of unsold single-family homes and condominiums, and a decline in property values due to investor demand. Our 12-month target price of $48 is based on a multiple of 21.8X our 2010 FFO per share estimate of $2.10, a modest premium to peers. We arrive at intrinsic value of $47 based on our estimate of net asset value using recent market transactions and a 5.5% one-year cash return.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 488.7 510.9 2009 515.1 505.2 2008 507.4 525.6 2007 483.2 507.2 2006 470.5 490.6 2005 461.6 478.9

3Q -492.8 536.9 522.6 511.5 495.5

4Q -483.0 533.3 528.1 517.9 518.9

Year -1,944 2,103 2,038 1,990 1,955

FFO Per Share ($) 2010 0.52 2009 0.57 2008 0.59 2007 0.55 2006 0.56 2005 0.74

E0.56 0.56 0.65 0.58 0.62 0.56

E0.57 0.46 0.29 0.67 0.49 0.66

E2.20 2.12 2.18 2.39 2.27 2.52

0.58 0.63 0.64 0.60 0.61 0.56

Fiscal year ended Dec. 31. Next earnings report expected: Late October. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.338 0.338 0.338 0.338

11/30 03/02 06/08 09/10

12/17 03/11 06/16 09/16

12/21 03/15 06/18 09/20

01/08/10 04/09/10 07/09/10 10/08/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EQR

Equity Residential Business Summary August 04, 2010 CORPORATE OVERVIEW. Equity Residential is one of the largest publicly held owners of multi-family properties. Structured as a real estate investment trust (REIT), it owns, manages and operates properties through its 93.4% interest in its operating limited partnership. At December 31, 2009, EQR owned or had interests in 495 multi-family properties with 137,007 units in 23 states. The trust adopted its current name in May 2002. During 2006, EQR sold a majority of its ranch style properties, leaving a focus on garden and mid-rise/high-rise assets. Garden-style properties have two or three floors, while mid-rise/high-rise properties have more than three floors. At the end of December 2009, the trust's largest geographic markets as measured by net operating income were the Washington DC/N. Virginia (10.1%) market, New York Metro Area (9.5%), South Florida (9.2%), Boston (8.4%), and Los Angeles (7.9%). Average occupancy during the fourth quarter of 2009 was 94.0%, just behind 94.2% for the same period in 2008. MARKET PROFILE. The U.S. housing market is highly fragmented and is broadly characterized by two types of housing units, multifamily and single-family. At the end of 2009, the U.S. Census Bureau estimated that there were 130.6 million housing units in the country, an increase of 0.9% from 2008. Partially due to the high fragmentation, and the fact that residents have the option of

either being owners or tenants (renters), the housing market can be highly competitive. Main demand drivers for apartments are household formation and employment growth. We estimate 0.5 million new households were formed in 2009. Supply is created by new housing unit construction, which could consist of single-family homes, or multifamily apartment buildings or condominiums. We estimate that 0.55 million housing units were started in 2009, down about 39% from 2008. Multifamily housing starts, for structures with more than 5 units, dropped significantly more, declining about 63%. With apartment tenants on relatively short leases compared to those of commercial and industrial properties, we believe apartment REITs are generally more sensitive to changes in market conditions than REITs in other property categories. Results could be hurt by new construction that adds new space in excess of actual demand. Trends in home price affordability also affect both rent levels and the level of new construction, since the relative price attractiveness of owning versus renting is an important factor in consumer decision making.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.28 -0.02 0.05 1.64 NM 36.38 15.68 NM NM

2008 17.55 0.09 0.10 1.93 NM 49.00 21.27 NM NM

2007 17.79 0.23 0.21 1.87 NM 56.46 33.79 NM NM

2006 18.58 0.20 0.20 1.79 NM 61.50 38.84 NM NM

2005 16.65 0.51 0.51 1.74 NM 42.17 30.70 83 60

2004 15.28 0.37 0.34 1.73 NM 36.75 26.65 99 72

2003 15.43 0.43 0.41 1.73 NM 30.30 23.12 70 54

2002 15.57 0.78 0.72 1.73 222% 30.96 21.55 40 28

2001 16.20 1.36 1.38 1.68 124% 30.45 24.80 22 18

2000 20.82 1.67 NA 1.58 94% 28.63 19.34 17 12

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

1,933 Nil 1,944 821 504 Nil 582 8.27 13.3

2,092 Nil 2,103 890 489 Nil 591 40.9 26.4

2,029 Nil 2,038 883 495 Nil 588 93.0 58.3

1,981 Nil 1,990 881 436 Nil 563 101 59.5

1,944 Nil 1,955 925 391 Nil 508 152 98.5

1,878 Nil 1,890 870 349 Nil 484 135 74.5

1,809 Nil 1,823 802 333 Nil 444 212 86.4

1,970 Nil 1,994 841 343 Nil 462 302 194

2,075 8.79 2,171 924 361 Nil 457 474 374

1,960 11.2 2,030 812 388 Nil 450 555 NA

Balance Sheet & Other Financial Data (Million $) Cash 193 Total Assets 15,418 Real Estate Investment 18,465 Loss Reserve Nil Net Investment 14,588 Short Term Debt 602 Capitalization:Debt 8,790 Capitalization:Equity 4,839 Capitalization:Total 14,223 % Earnings & Depreciation/Assets 3.7 Price Times Book Value:High 2.1 Price Times Book Value:Low 0.9

891 16,535 18,690 Nil 15,129 863 9,638 4,789 14,954 3.9 2.8 1.2

71.0 15,690 18,333 Nil 15,163 680 8,829 4,853 14,929 4.4 3.2 1.9

260 15,062 17,235 Nil 14,217 921 7,136 5,498 13,432 4.5 3.3 2.1

88.8 14,099 16,597 Nil 13,709 NA 7,032 4,891 12,850 4.9 2.5 1.8

83.5 12,645 14,864 Nil 12,264 NA 5,642 4,436 10,714 5.1 2.4 1.7

49.6 11,467 12,874 Nil 10,578 NA 4,836 4,345 10,452 5.6 2.0 1.5

540 11,811 13,046 Nil 10,934 334 5,050 4,251 10,858 6.4 2.0 1.4

449 12,236 13,016 Nil 11,297 699 5,044 4,447 11,094 7.6 1.9 1.5

417 12,264 12,591 Nil 11,239 Nil 5,706 4,436 11,938 8.3 1.4 0.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Two North Riverside Plaza, Chicago, IL 60606. Telephone: 312-474-1300. Email: [email protected] Website: http://www.equityresidential.com

Chrmn: S.F. Zell Pres & CEO: D.J. Neithercut Vice Chrmn: G.A. Spector COO: D.S. Santee

EVP & CFO: M.J. Parrell Founded: 1993 Investor Contact: M. McKenna Domicile: Maryland Trustees: J. W. Alexander, C. L. Atwood, L. W. Bynoe, J. Employees: 4,100 E. Neal, D. J. Neithercut, M. Shapiro, G. A. Spector, B. J. White, S. F. Zell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: EXC | EXC is in the S&P 500

Exelon Corp S&P Recommendation BUY

★★★★★

Price $42.00 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $49.00

Investment Style Large-Cap Blend

Summary Exelon, the holding company for Philadelphia-based PECO Energy and Chicago-based ComEd, is the largest nuclear operator in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $51.98– 16.78 Trailing 12-Month EPS $3.82 Trailing 12-Month P/E 11.0 $10K Invested 5 Yrs Ago $9,752

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.98 4.14 10.6 661.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$27.762 5.00 $2.10 63

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.64 -1 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of Exelon's strong and steady cash flow from the regulated PECO Energy and ComEd utilities, as well as the healthy earnings and cash flow from very profitable but higher-risk power generating and energy marketing operations.

80 60 40

20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 30 20 10 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

4

A+ WEAK

28 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Justin McCann on July 23, 2010, when the stock traded at $ 41.80. Highlights ➤

➤

Excluding net one-time charges of $0.19, we expect operating EPS in 2010 to decline about 3% from 2009's $4.12. Operating EPS of $1.99 in the first half of 2010 was down $0.25 from the yearearlier period, largely due to lower generating margins. However, this was partially offset by the benefit of the abnormally hot weather and 95% capacity at the nuclear facilities. For full year 2010, we believe the projected decline in EPS will reflect the extended weakness in the economy and power markets, partially offset by an estimated $350 million decline in O&M expenses. While EPS in 2011 should be aided by higher margin power contracts with PECO Energy, we expect a slower than previously expected recovery in the power markets.

Investment Rationale/Risk ➤

➤

➤ ➤

After the termination of its acquisition offer to the shareholders of NRG Energy (NRG 22, Buy), we do not expect EXC to initiate another merger attempt in the current environment. It intends to seek internally generated growth and is working to develop a plan for an independent transmission company, and is also planning to add 1,300 to 1,500 megawatts of new nuclear capacity through upgrades at its existing plants.

Although the stock is down about 14% year to date, we think EXC is well positioned for an eventual recovery in the power markets, and that the shares are undervalued at 10.5X our EPS estimate for 2010. In addition to the ongoing weakness in the economy and the power markets, the decline has reflected, in our view, the change in the political environment that has made the passage of a Climate Bill with Cap and Trade provisions (which would be of decided benefit to Exelon) much less likely.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,461 4,398 2009 4,722 4,141 2008 4,517 4,622 2007 4,829 4,501 2006 3,861 3,697 2005 3,561 3,484

3Q -4,339 5,228 5,032 4,401 4,473

4Q -4,116 4,493 4,554 3,696 3,838

Year -17,318 18,859 18,916 15,655 15,357

Earnings Per Share ($) 2010 1.13 0.67 2009 1.08 0.99 2008 0.88 1.13 2007 1.01 1.03 2006 0.59 0.95 2005 0.77 0.76

E1.11 1.14 1.06 1.15 -0.07 1.07

E0.88 0.88 1.04 0.84 0.87 -1.19

E3.98 4.09 4.10 4.03 2.35 1.40

Risks to our opinion and target price include an extended recession, sharply reduced wholesale power margins, and a drop in the average peer P/E of the sub-industry.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

The recent dividend yield was about 5.0%, which is slightly above the average yield of electric utility peers primarily involved in power distribution, and well above that of other utility holding companies with major operations in the wholesale power markets. Our 12-month target price is $49, a discount-to-peers P/E of 12.3X our EPS estimate for 2010. Given Exelon's leading position in the nuclear power industry, we believe the stock is attractive for total return potential.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.525 0.525 0.525 0.525

10/28 01/26 04/27 07/27

11/10 02/11 05/12 08/12

11/13 02/16 05/14 08/16

12/10/09 03/10/10 06/10/10 09/10/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1902. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EXC

Exelon Corp Business Summary July 23, 2010 CORPORATE OVERVIEW. Exelon Corp. was formed in October 2000 through the acquisition by Philadelphia-based PECO Energy of Chicago-based Unicom Corp. The company, along with its subsidiaries, is engaged in the energy delivery, generation and other businesses. Exelon operates in three business segments: Generation, PECO, and ComEd (Commonwealth Edison). Segment contributions to consolidated net income in 2009 were: Generation, $2,122 million ($2,278 million in 2008); ComEd, $374 million ($201 million); PECO, $353 million ($325 million), and other, a loss of $142 million (a loss of $67 million). IMPACT OF MAJOR DEVELOPMENTS. On July 21, 2009, Exelon terminated its unsolicited offer to acquire all of the outstanding common shares of NRG Energy (NRG 22, Buy), one of the leading competitive wholesale power generators in the United States, with net generating capacity of 24,315 megawatts as

of December 31, 2008. The termination immediately followed NRG shareholder rejection of directors proposed by Exelon to the NRG board, as well as the expansion of that board. The original proposal, made on October 19, 2008, had offered a fixed exchange ratio of 0.485 of an EXC share for each NRG share. However, on July 2, 2009, Exelon increased its offer by 12.4% to a fixed exchange ratio of 0.545 of an EXC share for each NRG share. If the attempted merger had been completed, the combined company would have been the largest power company in the U.S. in terms of assets, market capitalization, enterprise value and generating capacity.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.06 4.09 4.33 2.10 51% 58.98 38.41 14 9

2008 12.58 4.10 3.32 2.02 49% 92.13 41.23 22 10

2007 11.86 4.03 3.92 1.76 44% 86.83 58.74 22 15

2006 11.08 2.35 3.49 2.00 85% 63.62 51.13 27 22

2005 8.48 1.40 3.01 1.60 114% 57.46 41.77 41 30

2004 7.10 2.75 2.79 1.53 56% 44.90 30.92 16 11

2003 5.77 1.20 1.74 0.96 80% 33.31 23.04 28 19

2002 4.26 2.58 1.64 0.88 34% 28.50 18.92 11 7

2001 4.51 2.20 1.49 0.91 41% 35.13 19.38 16 9

2000 3.18 1.44 NA 0.46 32% 35.50 16.50 25 11

17,318 2,601 NA 7.08 NA 38.8% 2,706 2,865

18,859 2,308 NA 5.88 NA 32.7% 2,717 2,197

18,916 1,520 NA 6.03 NA 34.7% 2,726 2,656

15,655 1,487 NA 5.19 NA 43.1% 1,590 2,358

15,357 1,334 NA 4.88 NA 49.8% 951 2,035

14,515 1,305 NA 3.94 NA 27.5% 1,841 1,865

15,812 1,126 NA 2.19 NA 29.4% 793 1,142

14,955 1,340 NA 3.56 NA 37.4% 1,670 1,062

15,140 1,449 NA 2.98 NA 39.7% 1,416 962

7,499 458 NA 2.94 Nil 27.3% 907 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 36,364 Capital Expenditures 3,273 Net Property 27,341 Capitalization:Long Term Debt 11,472 Capitalization:% Long Term Debt 47.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 12,640 Capitalization:% Common 52.4 Total Capital 25,166 % Operating Ratio 82.5 % Earned on Net Property 17.9 % Return on Revenue 15.6 % Return on Invested Capital 14.1 % Return on Common Equity 22.9

34,055 3,117 25,813 12,679 53.5 Nil Nil 11,047 46.6 24,074 78.9 21.2 14.4 15.1 25.7

31,964 2,674 24,153 12,052 54.3 Nil Nil 10,137 45.7 27,270 83.0 19.9 14.4 13.5 27.1

30,025 2,418 22,775 11,998 54.6 Nil Nil 9,973 45.4 27,395 80.3 15.7 10.2 12.1 16.7

29,853 2,165 21,981 11,760 56.3 Nil Nil 9,125 43.7 25,964 80.5 12.5 6.2 11.4 10.2

28,711 1,921 21,482 12,235 56.5 Nil Nil 9,423 43.5 26,463 81.1 16.3 12.7 10.3 20.5

27,578 1,954 20,630 13,576 61.5 Nil Nil 8,503 38.5 26,724 82.2 11.4 5.0 10.2 9.8

25,904 2,150 17,134 14,580 65.3 Nil Nil 7,742 34.7 26,325 73.1 21.3 11.2 10.2 21.1

21,526 2,041 13,742 13,492 62.1 Nil Nil 8,230 37.9 26,341 83.9 25.2 9.4 9.8 18.3

19,886 752 12,936 14,398 66.6 Nil Nil 7,215 33.4 26,352 80.5 17.0 12.1 9.8 20.2

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 10 S Dearborn St, Chicago, IL 60603-2300. Telephone: 312-394-7398. Website: http://www.exeloncorp.com Chrmn & CEO: J.W. Rowe

Pres & COO: C.M. Crane EVP & Chief Admin Officer: R.A. Gillis SVP & CFO: M.F. Hilzinger SVP & Secy: B.G. Wilson

Investor Contact: C.M. Patterson (312-394-7234) Founded: 1887 Board Members: J. A. Canning, Jr., M. W. D'Alessio, N. Domicile: Pennsylvania DeBenedictis, B. DeMars, N. A. Diaz, S. L. Gin, R. B. Employees: 19,329 Greco, P. L. Joskow, R. W. Mies, J. M. Palms, W. C. Richardson, T. J. Ridge, J. W. Rogers, Jr., J. W. Rowe, S. D. Steinour, D. Thompson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: EXPE | EXPE is in the S&P 500

Expedia Inc S&P Recommendation SELL

★★★★★

Price $28.28 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Internet Retail

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary Expedia is one of the world's largest online travel-services companies. Businesses include Expedia, Hotels.com, Hotwire and TripAdvisor.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.85– 18.30 Trailing 12-Month EPS $1.34 Trailing 12-Month P/E 21.1 $10K Invested 5 Yrs Ago $14,579

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.45 1.70 19.5 284.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.322 0.99 $0.28 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.24 24 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we believe is a maturing online travel market in the U.S., an intensely competitive landscape, and relatively low barriers to entry.

25 20 15 10

Quantitative Evaluations S&P Quality Ranking

Vol.

D

C

B-

NR B

B+

A-

A

A+

Mil. 30 20 10 0 5

Relative Strength Rank

STRONG 78

LOWEST = 1

HIGHEST = 99

4

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Scott H. Kessler on September 27, 2010, when the stock traded at $ 29.13. Highlights ➤

➤

➤

We believe EXPE is among the worldwide leaders in the Internet travel segment and will benefit from the continuing migration of associated purchases online. While we have concerns related to global economic uncertainty and substantial exposure to Europe (where currency uncertainties are notable), we think revenues will increase 9% in 2010 and 8% in 2011, given what we see as intact secular growth trends and likely market share gains. We estimate that annual operating income before amortization (OIBA) and net margins bottomed in 2006, partly due to considerable sales and marketing expenses and technology investments, which yielded benefits into 2008. We expect cost-cutting and expense-containment efforts to aid 2010 margins, offset somewhat by spending on sales and marketing. EXPE had $1.1 billion in cash and short-term investments as of June 2010, and $895 million of long-term debt. In February 2010, the company announced its first dividend. In the first quarter of 2009, EXPE repaid a tapped $650 million credit facility.

Investment Rationale/Risk ➤

➤

➤

We recently lowered our recommendation on the shares to sell, from hold, based on valuation. We believe EXPE has some of the Internet's best-known travel franchises (including Expedia, Hotels.com and TripAdvisor), some well-positioned and strong international operations, and a healthy domestic business. We also think it has done a good job over the past few quarters of seizing upon opportunities and executing relatively well. We believe EXPE is well positioned to benefit from favorable secular trends, but that it faces challenges including weakened consumer and business spending, a maturing online travel market in the U.S., and significant competition worldwide. We view the shares as overvalued at recent levels. Risks to our opinion and target price include notable strengthening of global or domestic consumer sentiment or spending, and decreasing competitive and/or pricing pressures. Our discounted cash flow model assumes a weighted average cost of capital of 11.3%, annual free cash flow growth averaging 13% over the next five years, and a perpetuity growth rate of 3%. These inputs yield an intrinsic value of $26, which is our 12-month target price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 717.9 834.0 2009 635.7 769.8 2008 687.8 795.1 2007 550.5 689.9 2006 493.9 598.5 2005 485.1 555.0

3Q -852.4 833.3 759.6 613.9 584.1

4Q -697.5 620.8 665.3 531.3 494.8

Year -2,955 2,937 2,665 2,238 2,119

Earnings Per Share ($) 2010 0.20 0.40 2009 0.14 0.14 2008 0.17 0.33 2007 0.11 0.30 2006 0.06 0.27 2005 0.12 --

E0.52 0.40 0.33 0.32 0.17 0.23

E0.34 0.35 -9.60 0.22 0.20 0.07

E1.45 1.03 -8.63 0.94 0.70 0.65

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.070 0.070 0.070

02/11 04/29 07/26

03/09 05/25 08/24

03/11 05/27 08/26

03/31/10 06/17/10 09/16/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: EXPE

Expedia Inc Business Summary September 27, 2010 CORPORATE OVERVIEW. Expedia, Inc. leverages its portfolio of brands to target a broad range of travelers interested in different travel options. EXPE provides a wide selection of travel products and services, from simple discounted travel to more complex luxury trips. The company's offerings primarily include airline tickets, hotel reservations, car rentals, cruise arrangements, and destination services. The company's localized Expedia-branded websites (focused on the U.S., as well as Australia, Austria, Canada, Denmark, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, and the U.K.) offer a large variety of travel products and services. Expedia websites also serve as the travel channel on MSN.com. Expedia Corporate Travel is a fullservice travel management firm available to corporate travelers in the U.S., Canada, China, and Europe. Hotels.com provides a multitude of lodging options to travelers, from traditional hotels, to vacation rentals. Part of Hotels.com's strategy is to position itself as a hotel expert offering premium content about lodging properties. These businesses are planning to provide other travel products and services. Hotwire.com is a discount travel website that offers deals to travelers willing to make purchases without knowing certain itinerary details such as brand, time of departure, and hotel address. eLong (LONG 20, NR) is a majority-owned online travel services company based in

and focused on China (see below for more details). TripAdvisor is an online travel content destination, with search and directory features, guidebook reviews, and user opinions. We believe TripAdvisor is an extremely valuable asset, not only because we believe it constitutes the Internet's largest and most active travel-related social networking property, but also because it diversifies EXPE operations away from transactions and into media and advertising. Expansion in China has been a major focus of TripAdvisor, with entry into the market in April 2009 with the launch of DaoDao.com (a localized reviews and community website for Chinese travelers), and acquisition of Kuxun.cn (the second-largest online travel-related website in China) in late 2009. In December 2004, IAC/InterActiveCorp (IACI 27, Hold) announced a plan to spin off what became EXPE. In August 2005, EXPE was spun off as a separate publicly traded company.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.29 1.03 1.08 Nil Nil 27.51 6.31 27 6

2008 NM -8.13 -8.63 -2.48 Nil Nil 31.88 6.00 NM NM

2007 NM 1.38 0.94 0.94 Nil Nil 35.28 19.97 38 21

2006 NM 1.40 0.70 0.79 Nil Nil 27.55 12.87 39 18

2005 NM 1.82 0.65 0.69 Nil Nil 27.50 18.49 42 28

2004 NA NA 0.37 0.48 NA NA NA NA NA NA

2003 NA NA NA 0.27 NA NA NA NA NA NA

2002 NA NA NA 0.26 NA NA NA NA NA NA

2001 NA NA NA -1.04 NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

2,955 751 140 84.2 458 33.7% 300 315

2,937 713 146 72.0 -2,515 NM -2,518 -722

2,665 666 137 52.9 497 40.9% 296 296

2,238 648 249 17.3 385 36.2% 245 275

2,119 678 407 Nil 414 44.9% 229 244

1,843 397 157 7.45 219 40.0% 131 163

2,340 364 104 2.90 256 38.0% 111 92.3

1,499 257 61.4 NA 209 39.4% 76.7 34.2

NA NA NA NA NA NA NA -98.1

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 688 Current Assets 1,225 Total Assets 5,937 Current Liabilities 1,835 Long Term Debt 895 Common Equity 2,683 Total Capital 3,645 Capital Expenditures 92.0 Cash Flow 377 Current Ratio 0.7 % Long Term Debt of Capitalization 24.6 % Net Income of Revenue 10.1 % Return on Assets 5.1 % Return on Equity 12.0

758 1,199 5,894 1,566 1,545 2,328 4,115 160 -2,372 0.8 37.5 NM NM NM

634 1,046 8,295 1,774 1,085 4,818 6,316 86.7 433 0.6 17.2 11.1 3.6 5.5

853 1,183 8,269 1,400 500 5,904 6,835 92.6 494 0.8 7.3 10.9 3.1 4.2

297 590 7,757 1,438 Nil 5,734 6,174 52.3 636 0.4 Nil 10.8 2.6 3.3

232 569 7,803 1,515 NA 5,820 8,171 53.4 320 0.4 Nil 7.1 1.8 2.1

882 1,680 8,755 825 NA 7,554 7,554 46.2 215 2.0 Nil 4.8 NA NA

NA NA NA NA NA NA NA 46.5 138 NA Nil 5.1 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 333 108th Ave NE, Bellevue, WA 98004-5703. Telephone: 425-679-7200. Website: http://www.expedia.com Chrmn: B. Diller

Pres & CEO: D. Khosrowshahi Vice Chrmn: V.A. Kaufman COO: W. Crawford EVP & CFO: M.B. Adler

Investor Contact: S. Haas (425-679-7852) Founded: 1996 Board Members: A. G. Battle, B. Diller, J. L. Dolgen, W. Domicile: Delaware R. Fitzgerald, C. A. Jacobson, V. A. Kaufman, P. Kern, D. Employees: 7,960 Khosrowshahi, J. C. Malone, D. C. Marriott, J. Miller, J. A. Tazon

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: EXPD | EXPD is in the S&P 500

Expeditors International of Washington Inc S&P Recommendation BUY

★★★★★

Price $49.57 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Air Freight & Logistics

12-Mo. Target Price $54.00

Investment Style Large-Cap Growth

Summary This company is a global air and ocean freight forwarder and customs broker.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.79– 31.27 Trailing 12-Month EPS $1.29 Trailing 12-Month P/E 38.4 $10K Invested 5 Yrs Ago $18,155

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.53 2.05 32.4 212.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.518 0.81 $0.40 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.76 16 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that EXPD operates in a highly cyclical industry and is exposed to currency and global economic risk. We see its communication style as an additional risk. However, we think EXPD has a diversified stream of air, ocean, and customs businesses, and we also believe the balance sheet is strong, with no debt and a relatively large amount of cash.

60 50 40

30

Vol. Mil.

Quantitative Evaluations

49

15 10 5 0 5

S&P Quality Ranking D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

1

STRONG 85

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights

➤

➤

We expect 2010 net revenues to rise about 35%, after falling 27% in 2009. Net revenue growth in 2010 should benefit from overall improving volumes in the early stages of a global economic recovery. In addition, EXPD should see better pricing in air and ocean freight. We look for Europe and Asia to lag the recovery in the U.S. by about six months. Volumes and pricing in the U.S. showed strong improvement in the first half and should continue to strengthen in the second half of 2010, in our view. We project margins in 2010 to be helped by improving volumes and continued reductions in ocean and air transportation rates, reflecting new ocean freight capacity that has recently come on line, as well as excess ocean and air shipping capacity. We think continued legal costs related to a Department of Justice investigation into potential anti-competitive practices, as well as some pressure on SG&A expenses, will partially offset the benefits. We forecast 2010 EPS of $1.53, which would represent 38% growth over 2009 EPS of $1.11. For 2011, we see EPS rising 34%, to $2.05.

Investment Rationale/Risk ➤

➤

HIGHEST = 99

2010

Analysis prepared by Jim Corridore on August 04, 2010, when the stock traded at $ 44.26.

➤

A+

4

While the overall logistics sector is likely to see a recovery in volumes related to some strengthening in the U.S. and global economies, we believe EXPD's diversified revenue base, geographical reach and shipping mode will allow it to outperform peers. A debt-free balance sheet and what we view as strong long-term earnings and cash flow growth potential are additional positives. We also expect improved investor sentiment for EXPD and other logistics stocks on good economic news that points to improvement in the U.S. economy. Risks to our recommendation and target price include any worsening of the global economy. We also see management's communication style, in which it mainly answers questions through 8-K filings, as a risk, in that it may not allow investors to react quickly enough to potentially important news. The company could be hit with a large judgment related to the current Department of Justice investigation into anticompetitive practices.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,201 1,517 2009 912.7 895.4 2008 1,307 1,454 2007 1,119 1,259 2006 1,025 1,129 2005 825.2 928.0

3Q -1,037 1,565 1,411 1,230 1,046

4Q -1,247 1,307 1,447 1,242 1,102

Year -4,092 5,634 5,235 4,626 3,902

Earnings Per Share ($) 2010 0.28 0.42 2009 0.27 0.25 2008 0.30 0.32 2007 0.27 0.30 2006 0.24 0.25 2005 0.17 0.20

E0.37 0.27 0.39 0.34 0.29 0.25

E0.46 0.32 0.36 0.32 0.28 0.36

E1.53 1.11 1.37 1.21 1.06 0.98

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.190 0.200

11/03 05/06

11/27 05/27

12/01 06/01

12/15/09 06/15/10

Dividends have been paid since 1993. Source: Company reports. ➤

Our 12-month target price of $54 values the stock at about 26X our 2011 EPS estimate of $2.05, compared to a five-year historical P/E range of 21.5X-55.0X EPS.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: EXPD

Expeditors International of Washington Inc Business Summary August 04, 2010 CORPORATE OVERVIEW. With an international network supporting the movement and strategic positioning of goods, Expeditors International of Washington is engaged in the business of providing global logistics services to customers diversified in terms of industry specialization and geographic location. In each of its U.S. offices, and in many international offices, the company acts as a customs broker, and also provides additional services, including distribution management, vendor consolidation, cargo insurance, purchase order management, and customized logistics information. EXPD does not compete for domestic freight, overnight courier, or small parcel business, and does not own aircraft or steamships. The company has historically pursued a strategy emphasizing organic growth supplemented by strategic acquisitions. As of February 2010, EXPD had a network of 182 full-service offices, 64 satellite locations, and four international service centers located on six continents. Shipments of computer components, other electronic equipment, housewares, sporting goods, machine parts and toys comprise a significant percentage of the company's business. Import customers include computer retailers and distributors of consumer electronics, department store chains, clothing and shoe wholesalers. Historically, no single customer has accounted for over 5% of revenues.

Air freight services accounted for 45% of total revenues in 2009. EXPD typically acts either as a freight consolidator (purchasing cargo space on airlines and reselling it to customers at lower rates than the airline would charge customers directly), or as an agent for the airlines (receiving shipments from suppliers, and consolidating and forwarding them to the airlines). Shipments are usually characterized by a high value-to-weight ratio, a need for rapid delivery, or both. The company estimates that its average air freight consolidation weighs 3,500 lbs. to 4,500 lbs. Because shipping by air is relatively expensive compared with ocean transportation, air shipments are generally categorized by a high value-to-weight ratio, the need for rapid delivery, or both. The company's strategy to not own aircraft is based on its view that the ownership of aircraft would subject EXPD to undue business risks, including large capital outlays, increased fixed operating costs, problems of fully utilizing aircraft and competition with airlines. EXPD relies on commercial aircraft to transport its shipments.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.26 1.30 1.11 1.11 0.38 34% 38.10 23.86 34 21

2008 6.38 1.56 1.37 1.37 0.32 23% 49.92 24.05 36 18

2007 5.69 1.39 1.21 1.21 0.28 23% 54.46 38.31 45 32

2006 4.95 1.27 1.06 1.06 0.22 21% 58.32 32.83 55 31

2005 4.21 1.12 0.98 0.85 0.15 15% 36.37 23.59 37 24

2004 3.70 0.82 0.71 0.59 0.11 16% 29.20 17.85 41 25

2003 2.98 0.67 0.56 0.46 0.08 14% 20.42 14.81 36 26

2002 2.49 0.62 0.52 0.44 0.06 12% 17.22 12.47 33 24

2001 2.01 0.55 0.45 0.39 0.04 10% 16.48 10.49 37 24

2000 1.76 0.48 0.38 NA 0.04 9% 15.03 8.16 40 21

4,092 427 40.0 0.50 403 40.3% 240 240

5,634 515 41.6 0.18 500 39.4% 301 301

5,235 463 40.0 Nil 450 40.0% 269 269

4,626 411 35.4 0.20 396 40.6% 235 235

3,902 337 32.3 0.31 320 29.6% 219 187

3,318 268 26.7 0.04 250 35.4% 156 130

2,625 211 24.4 0.19 196 36.4% 122 98.4

2,297 194 22.7 0.18 178 36.8% 113 92.7

1,653 170 23.5 0.52 154 37.0% 97.2 83.8

1,695 150 22.5 0.43 133 37.7% 83.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 927 Current Assets 1,788 Total Assets 2,324 Current Liabilities 708 Long Term Debt NA Common Equity 1,553 Total Capital 1,561 Capital Expenditures 34.7 Cash Flow 282 Current Ratio 2.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 5.9 % Return on Assets 10.9 % Return on Equity 16.5

742 1,573 2,101 670 Nil 1,366 1,430 59.7 343 2.4 Nil 5.3 14.4 23.2

575 1,535 2,069 770 Nil 1,227 1,299 82.8 309 2.0 Nil 5.1 13.8 23.4

511 1,342 1,822 709 Nil 1,070 1,113 141 271 1.9 Nil 5.1 13.9 23.6

464 1,202 1,566 613 Nil 914 954 90.8 251 2.0 Nil 5.6 14.9 25.4

409 1,046 1,364 524 Nil 807 840 66.2 183 2.0 Nil 4.7 13.0 21.5

296 762 1,041 392 Nil 646 649 20.7 146 1.9 Nil 4.6 12.7 20.9

212 605 880 356 Nil 524 524 81.4 135 1.7 Nil 4.9 14.3 24.0

219 511 688 274 Nil 415 415 37.4 121 1.9 Nil 5.9 14.4 25.0

169 523 662 230 Nil 362 362 25.6 106 2.3 Nil 4.9 13.9 25.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1015 Third Avenue, Seattle, WA 98104-1190. Telephone: 206-674-3400. Website: http://www.expeditors.com Chrmn & CEO: P.J. Rose

Pres & COO: R. Gates SVP & Cntlr: C.J. Lynch SVP & CIO: J.S. Musser CFO & Chief Acctg Officer: B.S. Powell

Investor Contact: R.J. Gates (206-674-3400) Board Members: M. A. Emmert, R. Gates, D. P. Kourkoumelis, M. J. Malone, J. W. Meisenbach, P. J. Rose, L. Wang, R. R. Wright

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Washington Employees: 12,010

Stock Report | October 23, 2010 | NNM Symbol: ESRX | ESRX is in the S&P 500

Express Scripts Inc S&P Recommendation STRONG BUY

★★★★★

Price $49.00 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Services

12-Mo. Target Price $63.00

Investment Style Large-Cap Growth

Summary This company offers prescription benefits and disease state management services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $54.00– 37.75 Trailing 12-Month EPS $1.75 Trailing 12-Month P/E 28.0 $10K Invested 5 Yrs Ago $30,750

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.50 3.13 19.6 542.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$26.578 Nil Nil 92

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.87 25 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

60

2-for-1 40 30

LOW

MEDIUM

HIGH

Below Avg.

2-for-1

20

Our risk assessment reflects our view of rising drug demand, and the company's improving financial performance and healthy operating cash flow. However, we believe intense competition and increased government regulation of pharmacy benefits managers (PBMs), which we view as likely, could result in changes to industry conditions.

Vol.

Quantitative Evaluations

Mil. 45 30 15 0 5

S&P Quality Ranking D

5

4

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 54

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P

➤

➤

➤

We forecast that revenues will surge by more than 82% to over $45.1 billion, on gains from new accounts and the December 1, 2009, acquisition of WellPoint's (WLP 51, Buy) NextRx PBM unit, which had $17.2 billion in revenues in 2008. In addition, new accounting under the renewed U.S. Department of Defense contract, which took effect in November 2009, will add $8 billion annually to revenues and $8 billion to cost of goods, thereby affecting gross margins but not gross profit dollars. We expect EBITDA per adjusted script to grow only modestly in 2010, reflecting the low mailorder penetration rate of the NextRx accounts. We forecast that ratio will continue to expand afterward, as synergies are realized and ESRX transitions more NextRx members to mail-order. We also expect interest costs to decline, assuming it reduces debt, given $2 billion in operating cash flow it expects to realize in 2010. Our 2010 non-GAAP EPS estimate, before $0.15 in amortization and one-time costs, is $2.50, versus 2009's $1.74 (adjusted for the 2-for-1 split effective June 8, 2010), before $0.24 in amortization and one-time costs. We look for EPS of $3.13 for 2011.

Investment Rationale/Risk ➤

➤

HIGHEST = 99

2010

Analysis prepared by Herman B. Saftlas on August 19, 2010, when the stock traded at $ 45.56. Highlights

We are encouraged by ESRX's acquisition of NextRx, which we see boosting claims volumes by almost 50%. We believe NextRx will improve ESRX's economies of scale and clout with drugmakers. Before transaction costs and intangibles amortization, the deal was accretive from the start, and upon 12-18 months integration, ESRX sees it adding over $1 billion to EBITDA. Moreover, we think a strong generic drug launch cycle that we see through 2015, and opportunities presented by health care reform, will provide healthy long-term earnings growth for ESRX and its PBM peers. We believe the strengths NextRx brings to ESRX and ESRX's history of saving clients' money should enable it to easily hold its own in the competitive PBM space. Risks to our recommendation and target price include increased government oversight of the PBM industry, loss of key clients, and problems integrating NextRx.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 11,144 1,289 2009 5,423 5,503 2008 5,491 5,530 2007 4,540 4,600 2006 4,380 4,421 2005 3,839 3,944

3Q -5,619 5,451 4,519 4,330 3,848

4Q -8,203 5,506 4,694 4,529 4,635

Year -24,749 21,978 18,274 17,660 16,266

Earnings Per Share ($) 2010 0.47 0.56 2009 0.43 0.37 2008 0.35 0.38 2007 0.24 0.29 2006 0.18 0.19 2005 0.14 0.17

E0.65 0.36 0.41 0.28 0.21 0.17

E0.71 0.40 0.42 0.33 0.27 0.19

E2.50 1.56 1.55 1.14 0.84 0.67

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

2-for-1

05/05

06/08

05/21

06/07/10

Source: Company reports. ➤

A+

We derive our 12-month target price of $63 by applying a multiple of 25X to our 2010 EPS estimate, above the company's historical average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ESRX

Express Scripts Inc Business Summary August 19, 2010 CORPORATE OVERVIEW. Express Scripts is one of the largest U.S. pharmacy benefits managers (PBMs). Its PBM services (94.8% of 2009 revenue, versus 93.6% in 2008) include retail network pharmacy management, home delivery services, specialty pharmacy services patient care contact centers, benefit plan design and consultation, drug formulary management, compliance and therapy management programs, and various other programs. Clients include health insurers, third-party administrators, employers, unionsponsored benefit plans, government health programs, office-based oncologists, renal dialysis clinics, ambulatory surgery centers, primary care physicians and others. In November 2009, it implemented a new contract with the U.S. Dept. of Defense (DoD). While it has provided services to the DoD since 2003, this new contract combines the pharmacy network services, home delivery, and specialty pharmacy, as well as additional services. Through its Emerging Markets Services (EM) segment, it provides services including distribution of pharmaceuticals and medical supplies to providers and clinics, distribution of fertility pharmaceuticals requiring special handling or packaging, distribution of sample units to physicians, verification of practitioner licensure, healthcare account administration, and implementation of consumer-directed healthcare solutions. During 2009, 5.2% of its revenue was de-

rived from EM services, compared to 6.4% during 2008. Revenues are generated primarily from the delivery of prescription drugs through 60,000 contracted retail pharmacies, three home delivery fulfillment pharmacies, and eight specialty drug pharmacies, as of December 31, 2009. Revenues from the delivery of prescription drugs to members represented 98.8% of revenues in 2009, versus 98.7% in 2008. Revenues from services, such as the administration of some clients' retail pharmacy networks, medication counseling services, specialty distribution services, and sample fulfillment and sample accountability services comprised the remainder. The five largest clients accounted for 23.7% of revenues in 2009, compared to 18.2% in 2008. In 2009, ESRX processed 404.3 million network pharmacy claims, 41.8 million home delivery and specialty pharmacy claims and 3.2 million other (patient assistance program, limited distribution network and EM) claims, versus 379.6 million, 41.9 million and 3.2 million, respectively, in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.72 1.56 1.57 Nil Nil 44.94 21.38 29 14

2008 NM 1.74 1.55 1.56 Nil Nil 39.55 24.19 26 16

2007 NM 1.32 1.14 1.12 Nil Nil 37.20 16.16 33 14

2006 NM 1.01 0.84 0.84 Nil Nil 23.75 14.70 28 18

2005 NM 0.81 0.67 0.65 Nil Nil 22.70 9.13 34 14

2004 NM 0.56 0.45 0.43 Nil Nil 10.15 7.29 23 16

2003 NM 0.48 0.40 0.38 Nil Nil 9.43 5.79 24 15

2002 NM 0.45 0.32 0.30 Nil Nil 8.24 4.83 26 15

2001 NM 0.32 0.20 0.18 Nil Nil 7.68 4.36 39 22

2000 NM 0.12 -0.02 NA Nil Nil 6.69 1.78 NM NM

24,749 1,668 110 194 1,309 36.9% 826 837

21,978 1,390 97.7 77.6 1,214 35.8% 780 784

18,274 1,177 97.5 108 945 36.5% 600 592

17,660 925 101 95.7 740 35.9% 474 474

16,266 727 84.0 37.0 615 35.0% 400 389

15,115 563 70.0 41.7 451 38.3% 278 270

13,295 503 54.0 41.4 405 38.2% 251 239

12,261 454 82.0 42.2 330 38.2% 204 192

9,329 317 80.1 34.2 208 39.9% 125 115

6,787 279 78.6 47.9 -4.47 NM -8.02 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,070 Current Assets 4,144 Total Assets 11,931 Current Liabilities 5,457 Long Term Debt 2,493 Common Equity 3,552 Total Capital 7,384 Capital Expenditures 149 Cash Flow 914 Current Ratio 0.8 % Long Term Debt of Capitalization 33.8 % Net Income of Revenue 3.3 % Return on Assets 9.5 % Return on Equity 35.7

539 2,044 5,509 2,722 1,340 1,078 2,732 85.8 877 0.8 49.1 3.6 14.5 87.9

437 1,968 5,256 2,475 1,760 696 2,735 75.0 698 0.8 64.4 3.3 11.6 65.9

131 1,772 5,108 2,429 1,270 1,125 2,395 66.8 575 0.7 53.0 2.7 8.9 36.6

478 2,257 5,493 2,394 1,401 1,465 2,866 60.0 484 0.9 48.9 2.5 8.8 30.1

166 1,443 3,600 1,813 412 1,196 1,608 51.5 348 0.8 25.6 1.8 7.9 23.3

396 1,560 3,409 1,626 455 1,194 1,649 53.1 305 1.0 27.6 1.9 7.6 22.8

191 1,394 3,207 1,544 563 1,003 1,565 61.3 286 0.9 35.9 1.7 7.1 22.2

178 1,213 2,500 1,246 346 832 1,178 57.3 205 1.0 29.4 1.3 5.2 16.3

53.2 998 2,277 1,116 396 705 1,102 80.2 70.6 0.9 36.0 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Express Way, Saint Louis, MO 63121-1824. Telephone: 314-996-0900. Email: [email protected] Website: http://www.express-scripts.com

Chrmn, Pres & CEO: G. Paz COO & EVP: P. McNamee EVP & CFO: J.L. Hall EVP & General Counsel: K.J. Ebling

SVP & CIO: G. Wimberly Founded: 1986 Investor Contact: D. Myers (314-810-3115) Domicile: Delaware Board Members: G. Benanav, F. J. Borelli, M. Breen, N. Employees: 14,270 J. LaHowchic, T. P. MacMahon, F. Mergenthaler, W. Myers, Jr., J. O. Parker, Jr., G. Paz, S. K. Skinner, S. Sternberg, B. Toan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: XOM | XOM is in the S&P 500

Exxon Mobil Corp

★★★★★

S&P Recommendation STRONG BUY

Price $66.34 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $79.00

Investment Style Large-Cap Blend

Summary XOM, formed through the merger of Exxon and Mobil in late 1999, is the world's largest publicly owned integrated oil company.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $76.54– 55.94 Trailing 12-Month EPS $5.18 Trailing 12-Month P/E 12.8 $10K Invested 5 Yrs Ago $13,292

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.97 6.72 11.1 5,091.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$337.790 2.65 $1.76 48

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.49 21 AAA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's diversified and strong business profile in volatile, cyclical, and capital-intensive segments of the energy industry. We consider ExxonMobil's earnings stability and corporate governance practices to be above average.

90 80 70 60

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 240 160 80 0 5

D

4

4

5 3

4

C

B-

A+ B

B+

A-

A

Relative Strength Rank

5

A+

MODERATE 69

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tina J. Vital on September 03, 2010, when the stock traded at $ 61.23. Highlights ➤

➤

➤

XOM is slated to start up 12 major projects during 2010-12 in Qatar, the U.S., the U.K., Canada, Australia, Russia, Angola, and Nigeria, and 42 thereafter. We look for oil and gas production to rise about 8% in 2010, to about 4.25 million boe per day, on contributions from XTO, and over 3% per annum between 2009 and 2013. We see minimal near-term impact to XOM's production from the Gulf oil spill (about 6% of XOM's output is from the Gulf of Mexico), but drilling on new Gulf of Mexico projects will see delays (such as Hoover Diana and Hadrian). While we expect global refining industry conditions to remain pressured through 2016, we see signs that U.S. refining margins are widening on improved fuel demand and reduced operating costs. As of July 2010, S&P Equity projected U.S. Gulf Coast 3-2-1 crack spreads to widen about 9% in 2010 and 3% in 2011. Further, XOM has a history of continuously rationalizing its refinery units, and we view the company as the low-cost leader among peers. We estimate that after-tax operating earnings will rise 51% in 2010 and 17% in 2011, on increased production and an improved economic outlook.

Investment Rationale/Risk ➤

➤

➤

XOM has enjoyed a superior degree of earnings and dividend growth and stability (as evidenced by its S&P Quality Ranking of A+). We believe the company will benefit from "big-pocket" upstream growth opportunities in the deepwater, liquefied natural gas (LNG), onshore unconventional, and ventures with state-owned oil companies. We think XOM's advanced technology permits project development in a timely and cost-efficient manner. In addition, we see its upstream E&P business benefiting from a strong pipeline of long-lived resources, and the downstream unit should benefit over the long term from its complex refineries, which offer feedstock and product flexibility. Risks to our recommendation and target price include deterioration in economic, industry, and operating conditions, such as difficulty replacing reserves and increased production costs. Blending our discounted cash flow ($83 per share, assuming a WACC of 6.7% and terminal growth of 3%) and relative market valuations, our 12-month target price is $79, representing an expected enterprise value of 6.1X our 2011 EBITDA estimate, a premium to U.S. supermajor oil peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 3Q 4Q Year 2010 90,251 92,486 ---2009 64,028 74,457 82,260 89,841 310,586 2008 116,854 138,072 137,737 84,696 477,359 2007 87,223 98,350 102,337 116,642 404,552 2006 86,317 96,024 96,268 86,858 377,635 2005 82,051 88,568 100,717 99,662 370,680 Earnings Per Share ($) 2010 1.33 1.60 2009 0.92 0.81 2008 2.03 2.22 2007 1.62 1.83 2006 1.37 1.72 2005 1.22 1.20

E1.45 0.98 2.86 1.70 1.77 1.58

E1.55 1.27 1.55 2.14 1.76 1.71

E5.97 3.98 8.69 7.28 6.62 5.71

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.420 0.440 0.440

10/28 01/27 04/28 07/28

11/09 02/08 05/11 08/11

11/12 02/10 05/13 08/13

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1882. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: XOM

Exxon Mobil Corp Business Summary September 03, 2010 CORPORATE OVERVIEW. In late 1999, the FTC allowed Exxon and Mobil to reunite, creating Exxon Mobil Corp. ExxonMobil's businesses include oil and natural gas exploration and production (8% of 2009 sales; 81% of 2009 segment earnings); refining and marketing (83%; 8%); chemicals (9%; 11%); and other operations, such as electric power generation, coal and minerals. Including non-consolidated equity interest, proved oil and gas reserves remained steady at 23.0 billion barrels of oil equivalent (boe; 51% petroleum liquids which included oil sands, 67% developed) in 2009. Oil and gas production rose 0.3%, to 3.93 million boe per day (61% petroleum liquids), in 2009. Using data from John S. Herold, we estimate XOM's three-year (2006-2008) reserve replacement at 128%, above the peer average; three-year finding and development cost at $8.68 per boe, below the peer average; proved acquisition costs at $0.44 per boe, below the peer average; and its reserve replacement costs at $7.63 per boe, below the peer average.

At year-end 2009, the company had an ownership interest in 37 refineries with 6.23 million barrels per day (b/d) of atmospheric distillation capacity (U.S. 32%, Europe 28%, Asia Pacific 27%, Canada 8%, and Middle East/Latin America/Other 5%). MANAGEMENT. We believe XOM is one of the best managed companies in the energy sector. In January 2006, Lee R. Raymond retired, and Rex W. Tillerson became chairman and CEO. We expect Mr. Tillerson to benefit from the strategic plans made by Mr. Raymond, and we see Mr. Tillerson's diplomatic skills as playing an important role in enhancing those plans.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 23.39 6.44 3.98 4.36 1.66 42% 82.73 61.86 21 16

2008 22.70 11.08 8.69 8.64 1.55 18% 96.12 56.51 11 7

2007 22.62 9.48 7.28 7.40 1.37 19% 95.27 69.02 13 9

2006 19.87 8.89 6.62 6.75 1.28 19% 79.00 56.42 12 9

2005 18.13 7.34 5.71 5.72 1.14 20% 65.96 49.25 12 9

2004 15.90 5.38 3.89 4.01 1.06 27% 52.05 39.91 13 10

2003 13.69 4.50 3.15 3.03 0.98 31% 41.13 31.58 13 10

2002 11.13 2.84 1.61 1.52 0.92 57% 44.58 29.75 28 18

2001 10.74 3.32 2.18 2.03 0.91 42% 45.84 35.01 21 16

2000 10.21 3.43 2.27 NA 0.88 39% 47.72 34.94 21 15

310,586 NA 11,917 548 34,777 43.5% 19,280 21,109

477,359 78,669 12,379 673 81,750 44.7% 45,220 44,959

404,552 156,810 12,250 957 71,479 41.8% 40,610 41,250

377,635 150,107 11,416 654 68,453 40.8% 39,500 40,263

370,680 59,255 10,253 496 60,231 38.7% 36,130 36,164

298,035 45,639 9,767 638 42,017 37.9% 25,330 26,089

246,738 32,230 9,047 207 32,660 33.7% 20,960 20,214

204,506 23,280 8,310 398 17,719 36.7% 11,011 10,418

213,488 29,602 7,944 293 24,688 36.5% 15,105 14,042

232,748 33,309 8,130 589 27,493 40.3% 15,990 NA

Balance Sheet & Other Financial Data (Million $) Cash 10,862 Current Assets 55,235 Total Assets 233,323 Current Liabilities 52,061 Long Term Debt 6,761 Common Equity 110,569 Total Capital 123,037 Capital Expenditures 22,491 Cash Flow 31,197 Current Ratio 1.1 % Long Term Debt of Capitalization Nil % Return on Assets 8.4 % Return on Equity NA

32,007 72,266 228,052 49,100 7,025 112,965 144,274 19,318 57,599 1.5 4.9 19.2 38.5

34,500 85,963 242,082 58,312 7,183 121,762 156,126 15,387 52,860 1.5 4.6 17.6 34.5

32,848 75,777 219,015 48,817 6,645 113,844 141,340 15,462 50,916 1.6 4.7 18.5 35.1

28,671 73,342 208,335 46,307 6,220 111,186 138,284 13,839 46,383 1.6 4.4 17.9 33.9

18,531 60,377 195,256 42,981 5,013 101,756 131,813 11,986 35,097 1.4 3.8 13.7 26.4

10,626 45,960 174,278 38,386 4,756 89,915 118,171 12,859 30,007 1.2 4.0 12.8 25.5

7,229 38,291 152,644 33,175 6,655 74,597 100,504 11,437 19,321 1.2 6.6 7.4 14.9

6,547 35,681 143,174 30,114 7,099 73,161 99,444 9,989 23,049 1.2 7.1 10.3 21.0

7,081 40,399 149,000 38,191 7,280 70,757 97,709 8,446 24,120 1.1 7.5 10.9 23.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5959 Las Colinas Blvd, Irving, TX 75039-2298. Telephone: 972-444-1000. Website: http://www.exxonmobil.com Chrmn, Pres & CEO: R.W. Tillerson

SVP, CFO & Treas: D. Humphreys Chief Acctg Officer & Cntlr: P.T. Mulva Secy: D.S. Rosenthal General Counsel: S.J. Balagia

Board Members: M. J. Boskin, P. Brabeck-Letmathe, L. Founded: 1870 R. Faulkner, J. S. Fishman, K. C. Frazier, W. W. Domicile: New Jersey George, M. C. Nelson, S. J. Palmisano, S. S. Employees: 80,700 Reinemund, R. W. Tillerson, E. E. Whitacre, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FDO | FDO is in the S&P 500

Family Dollar Stores Inc. S&P Recommendation STRONG BUY

★★★★★

Price $45.42 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry General Merchandise Stores

12-Mo. Target Price $58.00

Investment Style Large-Cap Blend

Summary This company operates a chain of over 6,700 retail discount stores in 44 states across the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $46.43– 27.15 Trailing 12-Month EPS $2.62 Trailing 12-Month P/E 17.3 $10K Invested 5 Yrs Ago $22,638

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.20 3.65 14.2 132.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.024 1.37 $0.62 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.20 16 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects FDO's S&P Quality Ranking of A+ for growth and stability of earnings and dividends; and our view of a healthy balance sheet and strong cash flow generation. We also believe demand for the company's merchandise is generally stable and not affected by changes in the economy, except for more discretionary categories.

60

40 30

20

Vol.

Quantitative Evaluations

Mil. 24 16 8 0 5

S&P Quality Ranking 5 3

5

3

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 61

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights

➤

➤

We expect net sales to reach $8.6 billion in FY 11 (Aug.). We look for growth to be driven by a same-store sales increase of about 6%, as well as an accelerated pace of expansion and an aggressive store remodel program. We see FDO attracting cost-conscious consumers with its value-priced assortment of everyday necessities, and planned improvements in the quality and packaging of private-label consumables. The company also plans to open 300 new stores in FY 11, up from 150 in FY 10, and to renovate 600 to 800 existing stores. We expect sales to be weighted toward lowermargin consumables and foresee higher freight costs and incremental expenses in support of new stores, store renovations, and longer store operating hours. However, we see opportunity for operating margins to widen modestly on lower markdowns and shrinkage, reflecting effective inventory management, increased penetration of private-label goods, higher initial mark-ups through global sourcing, and expense leverage off of projected same-store sales growth. Factoring in likely share buybacks, we see EPS of $3.20 in FY 11 ($2.75 in calendar 2010).

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Jason N. Asaeda on October 11, 2010, when the stock traded at $ 46.23.

➤

A+

3

We recently raised our recommendation on the shares to strong buy, from buy, based on valuation. With FDO reporting that its core lowerincome customers are shopping close to need, we expect average customer transaction value to remain relatively flat over the near term. However, we believe the company is positioned well to drive higher customer traffic and to increase customers' shopping frequency with its growing food assortment and new easierto-shop store layout. Longer term, we look for FDO to focus on tailoring product assortments by store to drive higher sales productivity. We also view the company's finances and balance sheet as healthy, and expect FDO to generate free cash that it can use, in part, for new store openings and share buybacks. Risks to our recommendation and target price include sales shortfalls due to changes in consumer confidence, spending habits and buying preferences; merchandise availability; and increased promotional activity by competitors. Our 12-month target price of $58 reflects a forward P/E multiple of 18.2X, FDO's 10-year historical average, applied to our FY 11 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,823 2,090 2009 1,754 1,992 2008 1,683 1,833 2007 1,600 1,947 2006 1,511 1,736 2005 1,380 1,587

3Q 1,997 1,843 1,702 1,655 1,570 1,428

4Q 1,957 1,811 1,766 1,632 1,578 1,430

Year 7,867 7,401 6,984 6,834 6,395 5,825

Earnings Per Share ($) 2010 0.49 0.81 2009 0.42 0.60 2008 0.37 0.45 2007 0.36 0.60 2006 0.32 0.35 2005 0.32 0.48

0.77 0.62 0.46 0.40 0.37 0.32

0.56 0.43 0.38 0.26 0.21 0.18

2.62 2.07 1.66 1.62 1.26 1.30

Fiscal year ended Aug. 31. Next earnings report expected: Early January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.135 0.155 0.155 0.155

11/18 01/21 04/16 08/26

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FDO

Family Dollar Stores Inc. Business Summary October 11, 2010 CORPORATE OVERVIEW. Family Dollar Stores Inc. (FDO) operates a chain of over 6,700 retail discount stores in 44 states. The company describes its typical customer as a woman in her mid-40s who is the head of her household and has an annual income of under $30,000. Family Dollar stores carry an assortment of hardlines and softlines priced from under $1 to $10 and are operated on a self-service basis, with limited advertising support and promotional activity. The once cash-only stores now accept PIN-based debit card payments in most locations. Food stamp and credit card acceptance is also being rolled out. In our view, broader tender options offer the company an opportunity to improve its share of customer wallet as shopping is more convenient and available cash does not limit basket size. Store inventory is comprised of both regularly available merchandise, which provides consistency in product offerings, and a frequently changing selection of brands and products that FDO acquires through closeouts and manufacturer overruns at discounted wholesale prices. Low product costs and store overhead enable the company to sell its value-priced merchandise profitably.

PRIMARY BUSINESS DYNAMICS. FDO's primary growth drivers are samestore sales and chain expansion. In FY 10 (Aug.), same-store sales rose 4.8%, reflecting flat average customer transaction value and higher customer traffic, as measured by the company in number of register transactions. In our opinion, FDO is attracting customers with an expanded assortment of consumables and "treasure hunt" items that add an element of excitement and interest to the shopping experience. The company has also increased its marketing efforts to emphasize the value and shopping convenience it offers. While core customers are spending more per store visit, they are also shopping less often due to macroeconomic concerns. However, we think FDO is gaining incremental business from middle-income customers trading down from higher-priced retailers for everyday basics. In the company's view, the economic downturn hurt low income consumers first and the hardest, and is now impacting higher-income consumers.

Company Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA 3.88 2.62 NA 0.58 22% 46.43 27.15 18 10

2009 10.38 3.21 2.07 2.07 0.52 25% 35.00 24.02 17 12

2008 8.98 2.72 1.66 1.66 0.48 29% 32.50 14.62 20 9

2007 8.19 2.59 1.62 1.71 0.44 27% 35.42 17.95 22 11

2006 8.04 2.13 1.26 1.44 0.40 31% 30.91 21.57 24 17

2005 8.64 1.99 1.30 1.21 0.36 28% 35.25 19.40 27 15

2004 8.13 2.10 1.53 1.45 0.32 21% 39.66 25.09 26 16

2003 7.61 1.94 1.43 1.39 0.28 20% 44.13 25.46 31 18

2002 6.66 1.69 1.25 1.22 0.25 20% 37.25 23.75 30 19

2001 5.57 1.49 1.10 1.08 0.23 21% 31.35 18.38 29 17

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,867 748 172 13.3 564 NA 358 NA

7,401 617 160 14.1 451 35.4% 291 291

6,984 515 150 15.4 362 35.6% 233 233

6,834 532 144 17.0 382 36.4% 243 257

6,395 452 135 13.1 311 37.3% 195 223

5,825 458 115 Nil 343 36.5% 218 202

5,282 512 97.9 Nil 414 36.6% 263 250

4,750 478 88.3 Nil 390 36.5% 247 241

4,163 419 77.0 Nil 342 36.5% 217 213

3,665 366 67.7 Nil 298 36.5% 190 186

Balance Sheet & Other Financial Data (Million $) Cash 503 Current Assets 1,660 Total Assets 2,982 Current Liabilities 1,054 Long Term Debt 250 Common Equity 1,422 Total Capital 1,672 Capital Expenditures 212 Cash Flow 530 Current Ratio 1.6 % Long Term Debt of Capitalization 15.0 % Net Income of Revenue 4.6 % Return on Assets 12.3 % Return on Equity 25.0

445 1,599 2,843 1,060 250 1,440 1,690 155 451 1.5 14.8 3.9 10.6 21.6

159 1,344 2,662 1,069 250 1,254 1,555 168 383 1.3 16.1 3.3 8.8 19.2

87.0 1,537 2,624 1,130 250 1,175 1,494 132 387 1.4 16.7 3.5 9.4 20.3

79.7 1,419 2,523 986 250 1,208 1,537 192 330 1.4 16.2 3.1 7.9 8.9

105 1,355 2,410 895 Nil 2,187 2,274 229 332 1.5 Nil 3.7 9.4 10.6

150 1,225 2,167 714 Nil 1,360 1,454 218 361 1.7 Nil 5.0 12.7 19.7

207 1,156 1,986 595 Nil 1,533 1,612 220 336 1.9 Nil 5.2 13.2 17.8

220 1,056 1,755 531 Nil 1,245 1,314 187 294 2.0 Nil 5.2 13.8 18.9

21.8 807 1,400 390 Nil 959 1,009 163 257 2.1 Nil 5.2 14.3 21.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 10401 Monroe Rd, Matthews, NC 28105. Telephone: 704-847-6961. Website: http://www.familydollar.com Chrmn & CEO: H.R. Levine

Pres & COO: R.J. Kelly SVP & CFO: K.T. Smith SVP & Chief Acctg Officer: C.M. Sowers SVP, Secy & General Counsel: J.C. Snyder, Jr.

Investor Contact: K.F. Rawlins (704-849-7496) Founded: 1959 Board Members: M. R. Bernstein, P. L. Davies, S. A. Domicile: Delaware Decker, E. C. Dolby, G. A. Eisenberg, H. R. Levine, G. R. Employees: 47,000 Mahoney, Jr., J. G. Martin, H. Morgan, D. Pond

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: FAST | FAST is in the S&P 500

Fastenal Company S&P Recommendation STRONG BUY

★★★★★

Price $52.90 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Trading Companies & Distributors

12-Mo. Target Price $74.00

Investment Style Large-Cap Growth

Summary This company distributes fasteners and other industrial and construction supplies through about 2,450 stores throughout the U.S. and in a few foreign countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.65– 34.41 Trailing 12-Month EPS $1.66 Trailing 12-Month P/E 31.9 $10K Invested 5 Yrs Ago $16,672

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.84 2.30 28.8 147.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.799 1.55 $0.82 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.95 30 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for FAST reflects our view of its consistent generation of solid levels of free cash flow, a healthy balance sheet with no long-term debt, and a very well run business model, with a strong focus on growth and cost controls. This is offset by the cyclical nature of FAST's business and uncertainties in its mid-2007 change in business model, to one with less store unit growth and larger sales staffs.

60 50 40 30

Vol. 31

Mil.

Quantitative Evaluations

12 8 4 0

S&P Quality Ranking 5

D

5 1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

51 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P

Analysis prepared by Michael W. Jaffe on October 14, 2010, when the stock traded at $ 52.38. Highlights ➤

➤

➤

We forecast sales to increase 19% in 2011. Sales were very soft in 2009, limited by the very weak U.S. economy. However, we believe that early signs of economic growth allowed FAST's sales to start a recovery in the first nine months of 2010, and we expect this trend to continue. We see most of the expected near-term growth coming from its manufacturing client base. We also look for FAST's top line to be assisted by the planned resumption of a more normalized pace of store openings in 2010's second half, market share gains, and expanded product offerings. We expect FAST's sales details to shift in coming periods, under its current strategy (announced in July 2007) of slowing its rate of store growth while increasing the size of the sales staff at its stores. We look for wider net margins in 2011, on the improvement that we expect in sales trends. We also see margins benefiting from FAST's likely ongoing focus on controlling operating expenses, assisted in part by a higher proportion of variable costs under its revised business model.

Investment Rationale/Risk ➤

➤

➤

We expect FAST's business to continue its recent revival over the coming year. Sales to manufacturing customers have rebounded very solidly in recent quarters, while non-residential construction sales are taking longer to bounce back, but have shown what we see as early signs of revival. We are also very positive about FAST's longer-term outlook under its new business strategy of larger sales staffs and fewer store openings. Combined with valuation considerations, we view FAST as undervalued. Risks to our recommendation and target price include a resumption of a downturn in the U.S. economy, and unsuccessful results from the company's change in business strategy. The shares recently traded about 23X our 2011 EPS estimate, a large premium to the S&P 500, but at the low end of FAST's typical valuation as it moves further into economic recoveries. Given our outlook for an ongoing rebound in the company's business, and our very positive views of its mid-2007 strategy change and its management effort, we think a higher P/E multiple is merited. Our 12-month target price is $74, or just over 32X our 2011 EPS forecast.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 520.8 571.2 2009 489.3 474.9 2008 566.2 604.2 2007 489.2 519.7 2006 431.7 458.8 2005 353.8 383.3

3Q 603.8 489.3 625.0 533.8 470.1 402.2

4Q -476.8 545.0 519.2 448.7 384.0

Year -1,930 2,340 2,062 1,809 1,523

Earnings Per Share ($) 2010 0.38 0.47 2009 0.33 0.29 2008 0.46 0.51 2007 0.36 0.40 2006 0.32 0.34 2005 0.25 0.29

0.51 0.32 0.49 0.41 0.36 0.31

E0.48 0.30 0.42 0.38 0.30 0.26

E1.84 1.24 1.88 1.55 1.32 1.10

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.400 0.420

01/18 07/12

02/10 08/18

02/15 08/20

02/26/10 09/03/10

Dividends have been paid since 1991. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: FAST

Fastenal Company Business Summary October 14, 2010 CORPORATE OVERVIEW. Fastenal, which sells industrial and construction supplies, began operations in 1967, with a plan to supply threaded fasteners in small- to medium-size cities. It later changed its business plan to include some sites in large cities. At the end of 2009, FAST had 2,369 stores in all 50 states, Puerto Rico, Canada, Mexico, Singapore, China, Malaysia, Hungary and the Netherlands (2,153 in the U.S.), up 2.5% from 2,311 sites a year earlier. The company's store count had grown to 2,453 at September 30, 2010. FAST distributes products to its store sites from 14 distribution centers, with 11 located throughout the U.S., two in Canada and one in Mexico. Threaded fasteners accounted for 45% of 2009 sales (46% in 2008). The company offered 10 product lines at the end of 2009. Its original product line now consists of about 410,000 different types of threaded fasteners and supplies. Other product lines offered include 136,000 different types of tools and equipment; 251,000 different cutting tool blades and abrasives; 64,000 types of fluid transfer components and accessories for hydraulic and pneumatic power, plumbing, and heating, ventilating and air-conditioning; 18,000 types of material handling, storage and packaging products; 16,000 kinds of janitorial supplies, chemicals and paint; 25,000 types of electrical supplies;

34,000 welding supply items; 30,000 different safety supplies; and 12,000 types of metals, alloys and materials. FAST sells mostly to customers in the manufacturing market for both OEMs and maintenance and repair operations, and to construction markets. Its construction customers serve general construction, electrical, plumbing, sheet metal, and road contractor markets. Most products sold are made by other companies. No supplier accounted for over 5% of FAST's 2009 purchases. No customer accounts for a significant portion of total sales. COMPETITIVE LANDSCAPE. Fastenal's business is highly competitive. Competition includes both large distributors located primarily in large cities and smaller distributors located in many of the cities in which the company has stores. FAST believes that the principal competitive factors affecting the markets for its products are customer service, price and convenience.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.07 1.51 1.24 1.24 0.72 58% 42.28 25.87 34 21

2008 7.68 2.14 1.88 1.91 0.79 42% 56.48 30.08 30 16

2007 6.76 1.79 1.55 1.55 0.44 28% 52.94 33.05 30 21

2006 6.10 1.54 1.32 1.32 0.40 30% 49.32 33.18 37 25

2005 5.19 1.29 1.10 1.10 0.31 28% 41.96 25.54 38 23

2004 4.51 1.02 0.86 0.86 0.20 23% 32.25 21.94 37 26

2003 3.80 0.69 0.56 0.55 0.11 19% 25.50 13.76 46 25

2002 3.30 0.60 0.50 0.45 0.03 5% 21.68 13.31 44 27

2001 2.80 0.56 0.46 0.47 0.02 5% 18.25 11.73 40 26

2000 2.37 0.61 0.53 NA 0.02 4% 18.33 8.92 34 17

1,930 337 40.1 NA 297 38.0% 184 185

2,340 498 39.3 Nil 451 38.0% 280 284

2,062 414 37.4 Nil 378 38.4% 233 233

1,809 354 33.5 Nil 321 38.0% 199 199

1,523 297 29.0 Nil 269 38.0% 167 167

1,238 231 23.6 Nil 208 37.1% 131 131

995 156 20.4 Nil 136 38.3% 84.1 82.6

905 131 16.9 Nil 121 38.3% 74.8 68.5

818 127 15.0 Nil 114 38.3% 70.7 70.3

746 141 11.8 Nil 131 38.6% 80.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 189 Current Assets 982 Total Assets 1,330 Current Liabilities 120 Long Term Debt NA Common Equity 1,191 Total Capital 1,191 Capital Expenditures 52.5 Cash Flow 224 Current Ratio 8.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 9.6 % Return on Assets 14.0 % Return on Equity 15.8

86.7 975 1,304 148 Nil 1,142 1,156 95.3 319 6.6 Nil 12.0 22.7 26.0

57.4 881 1,163 138 Nil 1,010 1,025 55.8 270 6.4 Nil 11.3 21.1 24.1

33.9 768 1,039 104 Nil 922 935 77.6 233 7.4 Nil 11.0 20.6 23.3

70.1 649 890 91.5 Nil 784 798 65.9 196 7.1 Nil 11.0 20.0 22.7

74.5 538 1,308 71.2 Nil 684 699 52.7 155 7.6 Nil 10.6 10.9 20.8

95.6 454 652 60.9 Nil 577 591 50.2 105 7.5 Nil 8.5 13.9 15.6

51.4 396 559 47.1 Nil 504 516 42.7 91.8 8.4 Nil 8.3 14.5 16.1

68.5 341 475 40.6 Nil 425 435 45.3 85.1 8.4 Nil 8.6 16.0 17.9

32.7 293 402 36.6 Nil 359 366 36.7 92.5 8.0 Nil 10.8 22.4 25.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2001 Theurer Boulevard, Winona, MN 55987-0978. Telephone: 507-454-5374. Email: [email protected] Website: http://www.fastenal.com

Chrmn: R.A. Kierlin Pres & CEO: W.D. Oberton COO: J.C. Jansen EVP, CFO, Chief Acctg Officer & Treas: D.L. Florness

Board Members: M. J. Ancius, M. J. Dolan, M. M. Gostomski, R. A. Kierlin, H. L. Miller, W. D. Oberton, S. A. Satterlee, S. M. Slaggie, R. K. Wisecup

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1968 Domicile: Minnesota Employees: 12,045

Stock Report | October 23, 2010 | NYS Symbol: FII | FII is in the S&P 500

Federated Investors Inc. S&P Recommendation HOLD

★★★★★

Price $24.11 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $25.00

Investment Style Large-Cap Growth

Summary This leading U.S. investment management company has a strong market share in money market products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.31– 20.01 Trailing 12-Month EPS $1.91 Trailing 12-Month P/E 12.6 $10K Invested 5 Yrs Ago $9,261

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.57 1.72 15.4 103.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.74 -4 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's relatively narrow product offering and significant competition from larger, more diversified fund management companies.

40 30

Quantitative Evaluations

20 15

S&P Quality Ranking

Vol.

D

C

B-

AB

B+

A-

A

A+

28

Mil. 9 6 3 0 5

$2.485 3.98 $0.96 74

Relative Strength Rank

MODERATE 70

LOWEST = 1 4

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE

Analysis prepared by Matthew Albrecht on July 26, 2010, when the stock traded at $ 20.95. Highlights ➤

After having benefited from volatility in the markets during the financial crisis as money market and ultra-short-term bond products saw strong flows from investors, ultra-low rates have investors looking elsewhere for yield. After peaking in early 2009, money market assets have steadily declined. Equity strategies have also seen redemptions this year as market volatility and economic uncertainty has investors spooked, by our estimation. Fixed income funds have continued to attract investor dollars, but remain a small part of FII's overall asset mix. We think the firm's greatest challenge remains its ability to retain client assets in its equity and bond products as risk appetites grow. The company has pursued small acquisitions to broaden its lineup. We expect continued pressure on management fee rates due to an unfavorable asset mix and fee waivers.

Investment Rationale/Risk ➤

➤

➤ ➤

➤

We think marketing and distribution costs associated with growth in the managed asset base that pressured margins over the past two years will begin to abate in 2010. Despite an increase in compensation accruals on a relative basis, the pretax margin should expand.

We view a discounted valuation on the shares relative to peers as appropriate, given the firm's focus on lower-margined money market funds. We view favorably the company's direct sales force and strong relationships with wholesalers and intermediaries in our valuation. We also like moves to increase FII's exposure to fixed income and equity funds, which should help margins. We have a positive view of the company's common share repurchase program, which should help EPS results. Risks to our recommendation and target price include increased competition, lower shortterm interest rates, and weaker equity fund performance. From a corporate governance perspective, we would like to see a greater percentage of independent directors on the board. Low interest rates have investors withdrawing money market assets, and while the asset mix has improved, results are likely to sag this year. The stock recently traded at about 13.4X our 2010 EPS estimate. Our 12-month target price of $25 is equal to 16.1X our forward 12-month earnings estimate of $1.55, a discount to peers.

We see earnings $1.57 in 2010 and $1.72 in 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 233.0 231.5 2009 310.6 306.9 2008 305.7 310.3 2007 264.4 276.5 2006 238.8 236.4 2005 205.4 220.7

3Q -293.6 305.9 286.0 243.9 241.4

4Q -264.8 301.8 300.3 259.7 241.8

Year -1,176 1,224 1,128 978.9 909.2

Earnings Per Share ($) 2010 0.38 0.46 2009 0.34 0.52 2008 0.55 0.55 2007 0.50 0.54 2006 0.43 0.44 2005 0.07 0.35

E0.35 0.56 0.56 0.57 0.43 0.61

E0.38 0.51 0.54 0.52 0.51 0.48

E1.57 1.92 2.20 2.12 1.80 1.51

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

1.26 Spl. 0.240 0.240 0.240

01/28 01/28 04/22 07/22

02/03 02/03 05/05 08/04

02/05 02/05 05/07 08/06

02/12/10 02/12/10 05/14/10 08/13/10

Dividends have been paid since 1998. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FII

Federated Investors Inc. Business Summary July 26, 2010 CORPORATE OVERVIEW. A leading provider of investment management products and related financial services, Federated Investors (FII) has been in the mutual fund business for more than 40 years. The company is one of the largest mutual fund managers in the United States, based on assets under management. Assets under management totaled $389.3 billion at the end of 2009, down from $407 billion at the end of 2008. Federated manages assets across a wide range of asset categories, including increasing participation in fast-growing areas such as equity and international investments. It is among the industry leaders in money market funds, based on assets under management, and offers one of the industry's most comprehensive product lines. Assets under management by class at the end of 2009 included money market (80% of total), equity (8%), fixed income (9%) and liquidation portfolios (3%). By product type, mutual funds represented about 85% of total assets under management, with the balance held in separately managed accounts and liquidation portfolios.

several investment professionals and strengthened its equity and fixed-income product portfolio, in our opinion. The company has more than 170 investment professionals, which includes portfolio managers, analysts and traders. The company ended 2007 with 148 mutual funds and various separately managed accounts. FII has managed institutional separate accounts since 1973, and is focused on growing its managed account business for highnet-worth individuals with investable equity assets of $100,000 or more. Federated believes that it benefits from a developing industry trend toward intermediary-assisted sales (sales of mutual fund products through a financial intermediary), driven by the wide array of options now available to investors, and by a need for financial planning advice that has resulted from a recent increase in the average household's financial assets.

CORPORATE STRATEGY. Over the past several years, Federated has added Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.21 1.92 1.91 0.96 50% 28.31 16.10 15 8

2008 NM 2.44 2.20 2.23 0.93 42% 45.01 15.80 20 7

2007 0.53 2.37 2.12 2.16 0.81 38% 43.35 30.31 20 14

2006 0.39 2.07 1.80 1.80 0.69 38% 40.17 29.56 22 16

2005 1.59 1.75 1.51 1.67 0.58 38% 38.11 26.99 25 18

2004 1.36 1.79 1.62 1.70 0.41 26% 33.79 26.72 21 16

2003 2.05 1.95 1.71 1.67 0.30 17% 31.90 23.85 19 14

2002 1.46 1.90 1.74 1.69 0.22 12% 36.18 23.43 21 13

2001 0.79 1.65 1.44 1.46 0.22 15% 32.80 23.31 23 16

2000 0.86 1.40 1.27 NA 0.14 11% 31.69 12.46 25 10

Income Statement Analysis (Million $) Income Interest Income Other Total Income General Expenses Interest Expense Depreciation Net Income S&P Core Earnings

NA 1,176 1,176 847 5.71 23.8 197 191

NA 1,224 1,224 863 5.20 24.5 222 225

NA 1,128 1,128 770 5.40 25.6 217 222

NA 979 979 694 8.19 24.1 191 191

NA 909 909 634 17.9 24.0 163 181

NA 847 847 530 21.0 19.0 179 188

NA 823 823 531 4.71 20.6 191 187

NA 711 711 399 4.79 19.2 204 199

9.74 706 716 388 29.7 26.0 173 175

19.0 662 681 394 34.2 15.8 155 NA

Balance Sheet & Other Financial Data (Million $) Cash 90.5 Receivables 10.7 Cost of Investments 31.5 Total Assets 912 Loss Reserve Nil Short Term Debt 21.0 Capitalization:Debt 119 Capitalization:Equity 528 Capitalization:Total 662 Price Times Book Value:High NM Price Times Book Value:Low NM Cash Flow 221 % Expense/Operating Revenue 72.0 % Earnings & Depreciation/Assets 25.1

45.4 24.0 13.2 847 Nil 51.1 157 423 613 NM NM 246 70.5 29.1

146 37.3 25.9 841 Nil Nil 63.0 574 667 81.8 57.2 243 68.3 29.4

119 23.3 16.2 810 Nil Nil 113 529 671 103 76.0 215 71.7 25.2

246 45.8 38.4 897 Nil Nil 160 540 723 24.0 17.0 187 71.7 20.2

258 33.8 2.10 955 Nil Nil 285 458 767 24.8 19.6 198 65.1 19.5

234 38.3 1.53 879 Nil Nil 328 396 744 15.6 11.6 212 65.1 25.3

151 31.2 1.00 530 Nil Nil 59.2 341 416 24.8 16.0 223 56.7 46.4

73.5 32.6 4.60 432 0.32 Nil 55.0 237 299 41.5 29.5 199 58.4 35.0

150 36.9 85.3 705 0.09 14.3 394 148 583 36.7 14.5 171 62.9 24.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. Telephone: 412-288-1900. Email: [email protected] Website: http://www.federatedinvestors.com

Chrmn: J.F. Donahue Pres & CEO: J.C. Donahue Vice Chrmn: G.J. Ceresino Vice Chrmn, EVP, Secy & General Counsel: J.W. McGonigle

CFO & Treas: T.R. Donahue Founded: 1955 Investor Contact: R. Hanley (412-288-1920) Domicile: Pennsylvania Board Members: L. E. Auriana, G. J. Ceresino, J. C. Employees: 1,368 Donahue, J. F. Donahue, M. J. Farrell, D. M. Kelly, J. W. McGonigle, J. L. Murdy, E. G. O'Connor

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FDX | FDX is in the S&P 500

FedEx Corp. S&P Recommendation STRONG BUY

★★★★★

Price $88.86 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Air Freight & Logistics

12-Mo. Target Price $113.00

Investment Style Large-Cap Growth

Summary This company provides guaranteed domestic and international air express, residential and business ground package delivery, heavy freight and logistics services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $97.75– 69.78 Trailing 12-Month EPS $4.39 Trailing 12-Month P/E 20.2 $10K Invested 5 Yrs Ago $10,296

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

5.35 6.86 16.6 314.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.20 15 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong and stable balance sheet, healthy cash flow generation, and strong earnings growth potential amid the inherent cyclicality of its business.

120 80 60 40

Quantitative Evaluations S&P Quality Ranking

Vol. Mil. 24 16 8 0

$27.959 0.54 $0.48 78

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 5

MODERATE 62

5

4

5

A+

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, PH

Analysis prepared by Jim Corridore on September 21, 2010, when the stock traded at $ 83.61. Highlights ➤

➤

➤

We see FY 11 (May) revenues rising 12%, aided by global GDP improvement. We think FedEx Ground is likely to benefit from the exit of DHL from the U.S. business. We see Express revenues in FY 11 up 14%, Ground up 9%, and Freight up 11%. FDX announced a 5.9% rate increase for calendar 2010, and while we think it will have trouble fully passing it through, we think the company will be aggressive in pushing though rate increases as contracts expire. FDX recently announced a plan to combine and restructure its two freight operations, which should drive improving profitability in this segment. We believe improving volumes are likely to aid capacity utilization and productivity. Partly offsetting this should be rising personnel costs at Ground due to changes related to disputes over the independent contractor model. In addition, FDX faces pension cost headwinds and rising maintenance costs to bring idled planes back into service. Reinstatement of bonuses and 401k matching should lead to higher compensation expense. We forecast FY 11 EPS of $5.35, up 42% from operating EPS of $3.76 in FY 10. For FY 12, we see a 28% increase, to $6.86.

Investment Rationale/Risk ➤

➤

Revenue/Earnings Data

2010

We think that an improving U.S. and global economy is likely to lead to increased volumes across FDX's entire network, and improved capacity utilization should drive margin expansion in FY 11. We think the stock will benefit from increased investor interest in logistics stocks on concrete signs of economic improvement. We are encouraged by volume improvement, which we think signals that the economic recovery is starting to gain traction. As we expect that over the next three to five years EPS is likely to increase faster than the overall market, we think the shares deserve to trade at a premium valuation to the S&P 500. Risks to our recommendation and target price include a possible price war on excess industry capacity. If recent challenges to the company's independent contractor model are successful, or attempts to overturn the U.S. Railway Labor Act come to fruition, the company would likely incur higher labor costs.

Revenue (Million $) 1Q 2Q 2011 9,457 -2010 8,009 8,596 2009 9,970 9,538 2008 9,199 9,451 2007 8,545 8,926 2006 7,707 8,090

3Q -8,701 8,137 9,437 8,592 8,003

4Q -9,428 7,852 9,866 9,151 8,494

Year -34,734 35,497 37,953 35,214 32,294

Earnings Per Share ($) 2011 1.20 E1.34 2010 0.58 1.10 2009 1.23 1.58 2008 1.23 1.54 2007 1.53 1.64 2006 1.10 1.53

E1.23 0.76 0.31 1.26 1.35 1.38

E1.58 1.33 -2.82 -0.78 1.96 1.82

E5.35 3.76 0.31 3.60 6.48 5.83

Fiscal year ended May 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.110 0.110 0.120 0.120

11/20 02/15 06/07 08/23

12/10 03/09 06/15 09/08

12/14 03/11 06/17 09/10

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 2002. Source: Company reports. ➤

Our 12-month target price of $113 values the shares at 21X our FY 11 EPS estimate of $5.35, in the middle of the company's five-year historical P/E range of 13.7X-27.6X.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FDX

FedEx Corp. Business Summary September 21, 2010 CORPORATE OVERVIEW. FedEx Corp. provides global time-definite air express services for packages, documents and freight in more than 220 countries, and ground-based delivery of small packages in North America. In addition, the company offers expedited critical shipment delivery, customs brokerage solutions, less-than-truckload (LTL) freight transportation, and customized logistics. In February 2004, FDX paid $2.4 billion in cash for Kinko's, which operates about 1,200 copy centers that also provide business services. This business was subsequently renamed FedEx Office.

are coordinated among operating companies. Advanced information technology makes it convenient for customers to use the full range of FedEx services and provides a single point of contact for customers to access shipment tracking, customer service and invoicing information. The company intends to continue to operate independent express, ground and freight networks, but has increased its emphasis on having the individual business units work together to compete more effectively.

CORPORATE STRATEGY. The company intends to leverage and extend the FedEx brand and to provide customers with seamless access to its entire portfolio of integrated transportation services. Sales and marketing activities Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 36.98 10.01 3.76 3.55 0.44 12% 2009 92.59 34.02 25 9

2009 36.15 6.64 0.31 -0.16 0.40 129% 2008 99.46 53.90 NM NM

2008 35.92 9.84 3.60 2.77 0.36 10% 2007 121.42 89.01 34 25

2007 29.73 12.20 6.48 6.32 0.36 6% 2006 120.01 96.50 19 15

2006 28.39 10.83 5.83 5.60 0.32 5% 2005 105.82 76.81 18 13

2005 22.36 9.48 4.72 4.48 0.28 6% 2004 100.92 64.84 21 14

2004 17.45 7.28 2.76 2.61 0.22 8% 2003 78.05 47.70 28 17

2003 21.03 7.20 2.74 1.38 0.20 7% 2002 61.35 42.75 22 16

2002 18.38 6.89 2.39 0.95 Nil Nil 2001 53.48 33.15 22 14

2001 16.20 6.35 1.99 0.44 Nil Nil 2000 49.85 30.56 25 15

34,734 3,974 1,958 71.0 1,894 NA 1,184 1,117

35,497 3,926 1,975 156 677 85.5% 98.0 -49.6

37,953 4,903 1,946 182 2,016 44.2% 1,125 868

35,214 5,018 1,742 136 3,215 37.3% 2,016 1,966

32,294 4,564 1,550 142 2,899 37.7% 1,806 1,733

29,363 3,933 1,462 160 2,313 37.4% 1,449 1,376

24,710 3,250 1,375 136 1,319 36.5% 838 790

22,487 2,822 1,351 118 1,338 38.0% 830 415

20,607 2,804 1,364 139 1,160 37.5% 725 286

19,629 2,347 1,276 144 928 37.0% 584 130

Balance Sheet & Other Financial Data (Million $) Cash 1,952 Current Assets 7,284 Total Assets 24,902 Current Liabilities 4,645 Long Term Debt 1,668 Common Equity 13,811 Total Capital 15,741 Capital Expenditures 2,816 Cash Flow 3,142 Current Ratio 1.6 % Long Term Debt of Capitalization 10.6 % Net Income of Revenue 3.4 % Return on Assets 4.8 % Return on Equity 8.6

2,292 7,116 24,244 4,524 1,930 13,626 16,209 2,459 2,073 1.6 11.9 0.3 0.4 0.7

1,539 7,244 25,633 5,368 1,506 14,526 16,534 2,947 3,071 1.4 8.7 3.0 4.5 8.3

1,569 6,629 24,000 5,428 2,662 12,656 16,215 2,882 3,758 1.2 16.4 5.7 8.6 16.7

1,937 6,464 22,690 5,473 1,592 11,511 14,470 2,518 3,356 1.2 11.0 5.6 8.4 17.1

1,039 5,269 20,404 4,734 2,427 9,588 13,221 2,236 2,911 1.1 18.3 4.9 7.3 16.4

1,046 4,970 19,134 4,732 2,837 8,036 12,054 1,271 2,213 1.1 23.5 3.4 4.9 10.9

538 3,941 15,385 3,335 1,709 7,288 9,879 1,511 2,181 1.2 17.2 3.7 5.7 11.8

331 3,665 13,812 2,942 1,800 6,545 8,944 1,615 2,089 1.2 20.1 3.5 5.3 11.7

121 3,449 13,340 3,250 1,900 5,900 8,256 1,893 1,860 1.1 23.0 3.0 4.7 10.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 942 South Shady Grove Road, Memphis, TN 38120-4117. Telephone: 901-818-7500. Website: http://www.fedex.com Chrmn, Pres & CEO: F.W. Smith

COO & EVP: K. Dixon Investor Contact: A.B. Graf, Jr. (901-818-7388) EVP & CFO: A.B. Graf, Jr. EVP, Secy & General Counsel: C.P. Richards

Board Members: J. L. Barksdale, J. A. Edwardson, J. R. Founded: 1971 Hyde, III, S. A. Jackson, S. R. Loranger, G. W. Domicile: Delaware Loveman, S. C. Schwab, F. W. Smith, J. I. Smith, D. P. Employees: 141,000 Steiner, P. S. Walsh

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FIS | FIS is in the S&P 500

Fidelity National Information Services Inc S&P Recommendation BUY

★★★★★

Price $28.60 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $34.00

Investment Style Large-Cap Growth

Summary This company is a leading provider of core processing services and products to financial institutions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.78– 21.62 Trailing 12-Month EPS $0.59 Trailing 12-Month P/E 48.5 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.98 2.35 14.4 379.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

MEDIUM

HIGH

Quantitative Evaluations

Vol. 85

Mil.

S&P Quality Ranking

24 16 8 0

D 4

3

4

3

4

3

4

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+

MODERATE 60

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Zaineb Bokhari on July 22, 2010, when the stock traded at $ 27.80. Highlights We expect revenues to rise 38% in 2010, to about $5.2 billion, aided by the October 2009 acquisition of Metavante; we see modest organic growth. We are optimistic about the scale and heft the purchase added to FIS, and we expect ample opportunity to cross-sell add-on services to the large combined base of core processing customers. While we look for near-term organic growth to be fairly modest, we think the company is gaining share and stands to benefit as the global economy eventually recovers. We project sales growth of 4% in 2011. We look for wider operating margins 2010 and 2011, reflecting internal cost containment, postacquisition scale benefits and the anticipated achievement of targeted annual cost synergies, the majority of which are expected to be realized in 2010. We project higher interest expense after the issuance of new debt and refinancing of existing term loans. Much of the proceeds will be used to fund a $2.5 billion share buyback. Our 2010 adjusted EPS estimate is $1.98, and we see a rise to $2.35 in 2011. Our estimates exclude projected M&A and restructuring charges and purchase price amortization.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects the company's exposure to the financial services industry and ongoing acquisition integration risks, offset by the high base of recurring revenue from the company's transaction processing business. We see higher debt levels ahead after a recent debt issuance.

30

➤

0.62 12 BB

Below Avg.

40

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

50

5

$10.850 0.70 $0.20 73

We expect FIS to continue its cost-cutting efforts as it targets efficiencies after its purchase of Metavante. The purchase has sharply boosted revenue growth comparisons, but we see pro forma growth remaining modest. Existing contracts should allow FIS to generate the vast majority of revenues on a recurring basis and new core deals should drive a ramp-up in revenues as clients "go live." We are concerned about higher debt levels after FIS executes a leveraged recapitalization to buy back shares through a Dutch auction tender offer. Despite this, we see the shares as attractively valued at recent levels, and note the company's strong year-to-date adjusted cash flow, and projected earnings accretion after the share repurchase. Risks to our recommendation and target price include ongoing consolidation among financial services clients, which could lead to business loss or disruption. We are also concerned about higher interest expense after a recent debt issuance to fund a large share buyback. We apply a 15X multiple to our forward 12-month EPS estimate of $2.26 to derive our 12-month target price of $34, comparable to the recent peer mean.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,250 1,286 2009 797.8 834.8 2008 1,291 1,339 2007 1,124 1,176 2006 900.9 1,022 2005 262.5 276.0

3Q -850.7 893.8 1,168 1,081 282.8

4Q -1,301 862.0 1,330 1,129 295.9

Year -3,770 3,446 4,758 4,133 1,117

Earnings Per Share ($) 2010 0.25 0.24 2009 0.18 0.31 2008 0.35 0.38 2007 0.30 0.75 2006 0.23 0.34 2005 0.34 0.40

E0.51 0.35 0.24 1.02 0.41 0.36

E0.65 -0.15 0.26 0.55 0.39 0.57

E1.98 0.42 0.61 2.60 1.37 1.66

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

02/04 04/20 07/20 10/20

03/12 06/14 09/14 12/15

03/16 06/16 09/16 12/17

03/30/10 06/30/10 09/30/10 12/31/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FIS

Fidelity National Information Services Inc Business Summary July 22, 2010 CORPORATE OVERVIEW. Fidelity National Information Services, Inc. (FIS) was formed via the combination, on February 1, 2006, of the information processing subsidiary of Fidelity National Financial (FNF), a leading provider of title and specialty insurance, and Certegy, a provider of card and check processing services. As a result of the combination, the company became a leading provider of technology solutions, processing services, and information-based services to the financial industry. Until 2008, FIS operated in two main business segments: Transaction Processing Services (TPS) and Lender Processing Services (LPS). On July 2, 2008, FIS completed the spin-off of Lender Processing Services to shareholders. In October 2009, FIS acquired Metavante Technologies in a stock transaction valued at $4.2 billion. After these transactions, FIS served more than 14,000 financial institution customers in more than 100 countries. The company's segments were recast in late 2008 as Financial Solutions, Payment Solutions and International. The Financial Solutions segment includes products and services that address the core processing needs of clients such as banks, credit unions, commercial and automotive lenders, and independent community banks. Core processing solutions include applications used to process deposits, loans, and other central services provided to customers of a financial institution. Channel solutions, which include applications that improve customer interaction are also included in this segment. These include

customer-facing channels through which customers access an institution's products and services, such as ATMs, and the Internet, as well as call centers. Other solutions offered include decision management solutions, which aid in the management of accounts throughout their lifecycle, applications that support wholesale and commercial banking, and assist in the evaluation and management of auto loans. Other solutions offered through this segment support risk management and fraud detection, branch automation and compliance. In 2009, the Financial Solutions segment accounted for almost 33% of total revenues, comparable to 2008. Through its Payment Solutions segment, FIS offers payment and electronic funds services to banks, credit unions and other financial institutions. Segment offerings include: debit and electronic funds transfer processing, Internet banking and bill payment, merchant processing, item processing, credit card production and activation, fraud management, check authorization and pre-paid card management and administration services. Revenues from this segment comprised 46% of 2009 revenues, up from 45% in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.03 0.42 0.42 0.20 48% 26.00 15.20 62 36

2008 NM 2.03 0.61 0.70 0.20 33% 43.83 11.15 72 18

2007 NM 4.04 2.60 1.72 0.20 8% 57.80 39.99 22 15

2006 NM 3.66 1.37 1.37 0.20 15% 42.62 33.50 31 24

2005 3.53 2.48 1.66 0.98 Nil Nil NA NA NA NA

2004 0.55 2.40 0.92 0.94 Nil Nil NA NA NA NA

2003 NA NA NA 1.00 NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

3,770 833 434 134 156 33.4% 101 101

3,446 710 276 148 179 32.2% 117 135

4,758 1,030 284 201 813 37.0% 510 338

4,133 1,025 434 193 409 36.7% 259 259

1,117 248 51.9 12.8 174 39.5% 106 196

1,040 227 47.4 12.9 168 37.0% 106 189

1,945 518 144 2.83 362 38.8% 207 200

654 116 18.6 2.32 106 37.3% 58.2 NA

418 64.4 9.45 1.33 53.8 40.9% 31.0 NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 431 Current Assets 1,666 Total Assets 13,998 Current Liabilities 1,235 Long Term Debt 3,017 Common Equity 8,309 Total Capital 11,772 Capital Expenditures 52.5 Cash Flow 486 Current Ratio 1.4 % Long Term Debt of Capitalization 25.6 % Net Income of Revenue 2.7 % Return on Assets 0.9 % Return on Equity 1.7

221 1,180 7,490 852 2,409 3,538 6,212 76.7 393 1.4 37.3 3.4 1.4 3.2

355 1,830 9,795 1,254 4,275 3,781 8,194 114 795 1.5 51.3 10.7 5.9 14.8

212 1,301 7,631 881 2,948 3,548 6,892 122 693 1.5 42.8 6.3 4.4 12.2

138 445 972 234 228 459 716 63.6 157 1.9 31.8 9.4 11.1 27.5

86.7 409 922 290 274 300 614 40.9 153 1.4 44.6 10.2 12.4 37.7

100 503 2,371 370 10.5 1,904 1,958 57.3 351 1.4 0.5 10.6 14.1 18.8

56.5 260 556 168 18.9 295 392 3.35 76.8 1.6 4.8 8.9 NA NA

NA NA NA NA NA NA NA 0.50 40.5 NA Nil 7.4 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 601 Riverside Avenue, Jacksonville, FL 32204. Telephone: 904-854-5000. Website: http://www.fisglobal.com Chrmn: W.P. Foley, II

Pres & CEO: F.R. Martire COO & EVP: G. Norcross EVP & CFO: M.D. Hayford EVP, Secy & General Counsel: M.L. Gravelle

Board Members: W. P. Foley, II, T. M. Hagerty, K. W. Hughes, D. K. Hunt, S. A. James, F. R. Martire, R. N. Massey, J. Neary

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2001 Domicile: Georgia Employees: 31,000

Stock Report | October 23, 2010 | NNM Symbol: FITB | FITB is in the S&P 500

Fifth Third Bancorp S&P Recommendation STRONG BUY

★★★★★

Price $12.86 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $16.00

Investment Style Large-Cap Blend

Summary This diversified financial services company based in Cincinnati operates about 1,300 branches in Ohio, Michigan, and several other states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$15.95– 8.76 $-0.35 NM $3,957

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.53 1.27 24.3 796.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.241 0.31 $0.04 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.20 29 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

We have a positive view of the many steps that FITB has taken over the past year to rebuild capital levels and credit quality, which offset numerous credit challenges in the company's Florida and Michigan loan portfolios.

40 20 8 4 2

Quantitative Evaluations

1

S&P Quality Ranking

Vol. Mil.

499

282

D

120 80 40 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

MODERATE 59

5 3

3

2

LOWEST = 1

3

A+

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Erik Oja on August 09, 2010, when the stock traded at $ 12.91. Highlights ➤

➤

➤

For 2010, we expect fee income, excluding gains and losses, of $2.1 billion, down from $2.5 billion in 2009, a year that included two quarters of payment processing revenues. Excluding this from 2009, we see fee income in 2010 down 6.1%, largely a reflection of a projected decline in mortgage banking and deposit service charges. However, we forecast a 6.0% increase in net interest income to $3.55 billion in 2010, on falling deposit costs, which should outweigh declining loan balances. We expect loan demand to pick up in late 2010, but we project 2011 net interest income growth of 0.5%, on some margin compression. We expect net chargeoffs and loan loss provisions to decline each quarter in 2010 and 2011. Our 2010 net chargeoff forecast is $1.85 billion, and our 2011 forecast is $1.00 billion, both down from $2.58 billion in 2009. We look for loan loss provisions to fall much faster than net chargeoffs, given FITB's higher-than-peers allowance level, and also from the improving U.S. economy. Our provisions forecasts are $1.31 billion for 2010, and $600 million for 2011. We see EPS of $0.60 in 2010, $1.27 in 2011, and $1.43 for 2012.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Second-quarter results showed continuing improvements in loan credit quality, and stability in FITB's higher-than-peers capital levels, by our analysis. We think FITB should be able to generate enough internal capital in the rest of 2010 to continue to raise capital levels by yearend. We believe this, combined with FITB's relatively high cash levels, should strictly limit the size of any further equity offering that may be needed to pay off FITB's TARP obligation. However, our recommendation is based on our view that FITB has a balance sheet that is stronger than many of its large regional banking peers in terms of a large allowance for loan losses, relatively high capital and a large and stable base of core deposits. We also think financial reform will affect FITB much less than larger banking peers. Finally, we view the shares, on a price to tangible book basis, as undervalued. Risks to our recommendation and target price include worsening unemployment and declining loan growth. Our 12-month target price of $16 represents 1.6X our $10 forecast of year-end 2010 tangible book value, and 12.6X our 2011 EPS estimate, both in line with peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,770 1,736 2009 1,875 3,762 2008 2,311 1,929 2007 2,108 2,202 2006 2,015 2,132 2005 1,752 1,850

3Q -2,020 2,265 2,251 2,196 1,905

4Q -1,794 2,048 2,126 1,765 1,988

Year -9,450 8,554 8,479 8,108 7,495

Earnings Per Share ($) 2010 -0.09 0.16 2009 -0.04 1.15 2008 0.54 -0.37 2007 0.65 0.69 2006 0.65 0.69 2005 0.72 0.75

E0.22 -0.20 -0.14 0.61 0.68 0.71

E0.24 -0.20 -3.82 0.07 0.12 0.60

E0.53 0.67 -3.94 1.99 2.12 2.77

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

12/15 03/16 06/15 09/21

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/21/10 04/22/10 07/22/10 10/21/10

Dividends have been paid since 1952. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: FITB

Fifth Third Bancorp Business Summary August 09, 2010 CORPORATE OVERVIEW. Fifth Third Bancorp (FITB) is now divided into four segments: commercial banking, branch banking, consumer lending, and investment advisors. Processing solutions, which was sold on June 30, 2009, had been a fifth segment until that date. Commercial banking provides a comprehensive range of financial services and products to large and middle-market businesses, governments and professional customers. In addition to traditional lending and depository offerings, commercial banking products and services include cash management, foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing, and syndicated finance. Branch banking offers depository and loan products, such as checking and savings accounts, home equity lines of credit, credit cards, and loans for automobiles and other personal financing needs, plus products designed to meet the specific needs of small businesses, including cash management services.

other indirect lending activities. Mortgage and home equity lending activities include the origination, retention and servicing of mortgage and home equity loans or lines of credit, sales and securitizations of those loans or pools of loans or lines of credit and all associated hedging activities. Other indirect lending activities include loans to consumers through dealers and federal and private student education loans. Investment advisers provides a full range of investment alternatives for individuals, companies and not-for-profit organizations. Primary services include trust, asset management, retirement plans and custody. Fifth Third Securities, Inc., an indirect wholly owned subsidiary, offers full-service retail brokerage services to individual clients and broker dealer services to the institutional marketplace. Fifth Third Asset Management, Inc., an indirect wholly owned subsidiary, provides asset management services and also advises a proprietary family of mutual funds, Fifth Third Funds.

Consumer lending includes mortgage and home equity lending activities and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.26 0.67 -0.87 0.04 6% 11.20 1.01 17 2

2008 7.87 -3.94 -2.36 0.04 NM 28.58 6.32 NM NM

2007 11.11 1.99 2.19 1.70 85% 43.32 24.82 22 12

2006 13.78 2.12 2.14 1.58 75% 41.57 35.86 20 17

2005 12.72 2.77 2.78 1.46 53% 48.12 35.04 17 13

2004 13.33 2.68 2.69 1.31 49% 60.00 45.32 22 17

2003 13.46 2.97 2.84 1.13 38% 62.15 47.05 21 16

2002 13.12 2.76 2.56 0.98 36% 69.70 55.26 25 20

2001 13.09 1.86 1.63 0.83 45% 64.77 45.69 35 25

2000 10.50 1.83 NA 0.70 38% 60.88 29.33 33 16

3,354 19.0 4,782 3,543 47.0% 767 3.91% 737 3.32 -617

3,514 22.0 2,870 4,560 55.5% -2,664 NM -2,113 3.54 -1,301

3,009 24.0 2,494 628 55.3% 1,537 30.0% 1,076 3.36 1,183

2,873 26.0 1,657 343 67.1% 1,627 27.2% 1,184 3.06 1,191

2,965 31.0 2,461 330 53.6% 2,208 29.8% 1,549 3.23 1,555

3,012 36.0 2,502 268 53.5% 2,237 31.8% 1,525 3.48 1,529

2,905 39.0 2,399 399 46.0% 2,547 31.6% 1,722 3.62 1,650

2,700 39.5 2,047 247 51.9% 2,432 31.2% 1,635 3.96 1,513

2,433 45.5 1,626 236 57.7% 1,653 33.3% 1,101 3.82 965

1,470 93.0 1,013 89.0 45.1% 1,275 32.3% 863 3.77 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 355 Investment Securities 18,568 Commercial Loans 44,805 Other Loans 28,225 Total Assets 113,380 Demand Deposits 39,346 Time Deposits 44,959 Long Term Debt 10,507 Common Equity 9,888 % Return on Assets 0.6 % Return on Equity 8.3 % Loan Loss Reserve 4.9 % Loans/Deposits 91.1 % Equity to Assets 7.6

1,191 13,088 50,479 30,877 119,764 29,113 49,500 13,585 7,836 NM NM 3.3 107.0 7.4

171 11,032 40,412 39,841 110,962 36,179 39,266 12,857 9,152 1.0 11.2 1.1 106.8 9.1

187 12,218 36,114 39,485 100,669 36,908 32,472 12,558 10,013 1.2 12.2 1.0 108.8 9.4

117 22,471 33,214 38,024 105,225 39,020 13,656 15,227 9,437 1.6 16.9 1.0 105.6 9.2

77.0 25,474 30,601 29,207 94,456 37,288 20,938 13,983 8,915 1.6 17.3 1.2 103.7 9.5

55.0 29,402 28,242 25,493 91,143 31,899 25,196 9,063 8,516 2.0 20.3 1.4 94.9 9.9

312 25,828 22,614 23,314 80,894 11,139 41,069 8,179 8,466 2.2 20.3 1.4 94.4 10.6

225 20,748 10,839 30,709 71,026 10,595 35,259 7,030 7,630 1.6 15.4 1.4 95.4 10.2

198 15,827 12,382 13,570 45,857 5,604 25,344 4,034 4,891 2.0 19.2 1.4 85.6 10.3

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Fifth Third Center, 38 Fountain Square Plaza, Cincinnati, OH 45263. Telephone: 800-972-3030. Website: http://www.53.com Pres & CEO: K.T. Kabat

COO & EVP: G.D. Carmichael Investor Contact: C.G. Marshall Founded: 1862 EVP & CFO: D.T. Poston Board Members: D. F. Allen, U. L. Bridgeman, Jr., E. L. Domicile: Ohio EVP, Chief Admin Officer, Secy & General Counsel: P.L. Brumback, J. P. Hackett, G. R. Heminger, J. D. Employees: 20,998 Reynolds Hoover, W. M. Isaac, K. T. Kabat, M. D. Livingston, H. G. EVP & CIO: R. Dury Meijer, J. J. Schiff, Jr., D. S. Taft, M. C. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FE | FE is in the S&P 500

FirstEnergy Corp. S&P Recommendation BUY

★★★★★

Price $37.52 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $45.00

Investment Style Large-Cap Blend

Summary This electric utility holding company, which serves about 4.5 million customers in portions of Ohio, Pennsylvania and New Jersey, has agreed to acquire Allegheny Energy.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.77– 33.57 Trailing 12-Month EPS $2.92 Trailing 12-Month P/E 12.9 $10K Invested 5 Yrs Ago $9,918

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.60 3.98 10.4 304.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

40

Vol. Mil. 24 16 8 0

HIGH

Quantitative Evaluations 4

3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

Analysis prepared by Justin McCann on August 04, 2010, when the stock traded at $ 37.76. Highlights Pending required approvals, the proposed acquisition of Allegheny Energy (AYE 23, Buy) would result in a 35% increase in FE's customer base and a 70% increase in its generating capacity. We believe it would be accretive to earnings 12 months after its completion. We see potential synergies of about $180 million by the end of the first year and $350 million by the second, with about half occurring in the competitive generation business. Excluding $0.25 of one-time charges, we expect 2010 operating EPS to decline about 4% from 2009's $3.77 (excluding $0.46 of net one-time charges). Operating results in the first half of 2010 were hurt by lower revenues at the utilities due to the weak economy, and by higher fuel and purchased power costs. For full-year 2010, we expect results to benefit from a full year of the Ohio rate increases, and the late June return of the Davis-Besse nuclear plant. However, we believe this will be more than offset by the reduced level of regulatory transition charges for FE's CEI subsidiary. For 2011, we expect EPS to benefit from a gradual improvement in the economy and power markets, and lower purchased power costs.

Investment Rationale/Risk ➤

➤

➤

Although the stock has declined about 17% year to date, we believe that with an abovepeers yield from the dividend (recently 5.7%), the shares are attractive for above-average total return potential. The shares have been hurt, in our view, by the weakness in the economy and power markets, and concerns that the planned merger could encounter difficulties during the regulatory approval process. While there is a risk, we think it has been overblown and believe that the merger would strengthen FE's position in an eventual recovery in the economy and power markets. Risks to our recommendation and target price include the possibility of the planned Allegheny merger being delayed or terminated, and/or extended weakness in the power markets. While we do not expect dividend increases during the economic slowdown, we believe the company will still target future annual increases of 4% to 5%. The targeted growth rate is above both the industry's expected dividend growth rate and FE's own expected long-term EPS growth rate of 3% to 4%. Our 12-month target price of $45 reflects a discount-to-peers multiple of 11.3X our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ WEAK

28

Options: ASE, CBOE, P, Ph

➤

MEDIUM

Our risk assessment reflects the strong and steady cash flow we expect from the company's regulated electric utility subsidiaries; its low-cost baseload power generation in Ohio and Pennsylvania; its low-risk transmission distribution operations in New Jersey and Pennsylvania; and its rate certainty in Ohio. This is partially offset by the company's below-average production performance from nuclear operations and our view of its high level of debt and environmental spending.

50

➤

0.54 -4 BBB-

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

70

5

$11.437 5.86 $2.20 73

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,299 3,128 2009 3,334 3,271 2008 3,277 3,245 2007 2,973 3,109 2006 2,705 2,751 2005 2,813 2,900

3Q -3,408 3,904 3,641 3,365 3,588

4Q -2,954 3,201 3,079 2,680 2,892

Year -12,967 13,627 12,802 11,501 11,989

Earnings Per Share ($) 2010 0.51 0.87 2009 0.39 1.36 2008 0.90 0.85 2007 0.92 1.10 2006 0.67 0.93 2005 0.42 0.54

E1.16 0.77 1.54 1.34 1.40 1.01

E0.81 0.78 1.09 0.87 0.84 0.67

E3.60 3.29 4.38 4.22 3.82 2.65

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.550 0.550 0.550 0.550

12/15 03/16 07/20 09/21

02/03 05/05 08/04 11/03

02/05 05/07 08/06 11/05

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1930. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FE

FirstEnergy Corp. Business Summary August 04, 2010 CORPORATE OVERVIEW. FirstEnergy (FE) is a diversified energy company involved in the generation, transmission and distribution of electricity as well as energy management and related services. The company operates primarily through two core business segments: Regulated Services, which is comprised of seven electric utility operating companies and provides transmission and distribution services, and Power Supply Management Services, which owns and operates the generation assets and wholesale purchase of electricity, energy management and other energy-related services. In 2009, the electric utilities accounted for 92.9% of consolidated revenues, and the unregulated businesses 7.1%. IMPACT OF MAJOR DEVELOPMENTS. On February 11, 2010, FirstEnergy announced a definitive merger agreement with Allegheny Energy, Inc. (AYE 21, Buy) a Pennsylvania-headquartered electric utility holding company serving 1.6 million customers in portions of Pennsylvania, Maryland, Virginia and West Virginia. Under the terms of the transaction (which would include the assumption of approximately $3.8 billion of Allegheny net debt), Allegheny sharehold-

ers would receive 0.667 of a share of FirstEnergy for each AYE share. The companies expect that they will obtain all of the required shareholder and regulatory approvals by April 2011. Assuming the transaction is completed, FE shareholders would have an approximate 73% interest in the combined company and AYE shareholders 27%. MARKET PROFILE. FirstEnergy's utility subsidiaries serve approximately 4.5 million customers within an area of 36,100 square miles in Ohio, Pennsylvania and New Jersey. As of December 31, 2009, the company's power generating facilities had demonstrated net capacity of 13,970 megawatts (MW) of electricity, with coal plants accounting for approximately 54.2% of the total; nuclear 29.0%; oil and natural gas peaking units 11.6%; hydroelectric 3.3%; and other 1.9%.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.79 3.29 3.00 2.20 67% 53.63 35.26 16 11

2008 8.88 4.38 3.28 2.20 50% 84.00 41.20 19 9

2007 11.06 4.22 3.80 2.00 47% 74.98 57.77 18 14

2006 9.83 3.82 3.71 1.80 47% 61.70 47.75 16 13

2005 9.63 2.65 2.56 1.67 63% 53.36 37.70 20 14

2004 7.70 2.66 2.77 1.50 56% 43.41 35.24 16 13

2003 6.55 1.39 1.61 1.50 108% 38.90 25.82 28 19

2002 4.11 2.33 1.69 1.50 64% 39.12 24.85 17 11

2001 6.04 2.84 2.36 1.13 40% 36.98 25.10 13 9

2000 11.42 2.69 NA 1.50 56% 32.13 18.00 12 7

12,967 736 NA 2.46 NA 19.8% 1,006 920

13,627 789 NA 4.02 NA 36.7% 1,342 1,005

12,802 1,657 NA 3.95 NA 40.3% 1,309 1,177

11,501 1,457 NA 3.78 NA 38.7% 1,258 1,211

11,989 1,870 NA 3.39 NA 46.3% 873 841

12,453 1,756 NA 3.25 NA 43.4% 874 911

12,307 1,282 NA 1.88 NA 49.0% 422 492

12,152 1,106 NA 2.25 24.5 44.5% 686 496

7,999 890 NA 2.85 35.5 42.0% 655 546

7,029 934 NA 2.71 27.1 38.6% 599 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 30,561 Capital Expenditures 2,203 Net Property 19,164 Capitalization:Long Term Debt 11,908 Capitalization:% Long Term Debt 58.2 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 8,559 Capitalization:% Common 41.8 Total Capital 22,299 % Operating Ratio 87.4 % Earned on Net Property 10.2 % Return on Revenue 7.8 % Return on Invested Capital 8.7 % Return on Common Equity 12.0

28,544 2,888 17,723 9,100 52.3 Nil Nil 8,283 47.7 19,546 85.4 16.7 9.8 10.2 15.6

25,731 1,633 15,383 8,869 49.7 Nil Nil 8,977 50.3 20,517 84.9 18.7 10.2 10.1 14.5

24,722 1,315 14,667 8,535 48.6 Nil Nil 9,035 51.4 20,310 84.3 18.2 10.9 9.6 13.8

23,790 1,208 13,998 8,339 47.1 184 1.04 9,188 51.9 20,437 89.0 15.0 7.3 7.3 9.8

22,892 846 13,478 10,348 53.7 335 1.74 8,589 44.6 21,597 87.3 16.5 7.0 7.4 10.4

22,374 856 13,269 9,789 53.1 352 1.91 8,289 45.0 20,608 90.4 11.2 3.4 6.5 5.5

21,231 998 12,680 11,636 62.0 Nil Nil 7,120 38.0 21,360 86.6 17.4 5.6 7.4 9.5

20,589 852 12,428 12,508 62.8 Nil Nil 7,399 37.2 22,852 50.8 16.8 8.2 21.8 10.9

12,839 588 7,575 6,552 58.5 Nil Nil 4,653 41.5 13,540 37.8 18.1 8.5 32.0 13.0

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 76 South Main Street, Akron, OH 44308-1890. Telephone: 800-736-3402. Website: http://www.firstenergycorp.com Chrmn: G.M. Smart

Pres & CEO: A.J. Alexander EVP & CFO: M.T. Clark EVP & General Counsel: L.L. Vespoli Chief Acctg Officer & Cntlr: H.L. Wagner

Investor Contact: R.E. Seeholzer (800-736-3402) Board Members: P. T. Addison, A. J. Alexander, M. Anderson, C. Cartwright, W. T. Cottle, R. B. Heisler, Jr., E. J. Novak, Jr., C. A. Rein, G. M. Smart, W. M. Taylor, J. T. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1996 Domicile: Ohio Employees: 13,379

Stock Report | October 23, 2010 | NYS Symbol: FHN | FHN is in the S&P 500

First Horizon National Corp S&P Recommendation BUY

★★★★★

Price $9.93 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary Memphis, Tennessee-based First Horizon National Corp. owns First Tennessee Bank and First Horizon Home Loan Corporation, and has assets of $26.3 billion.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$15.40– 9.64 $-0.34 NM $3,722

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.11 0.44 90.3 232.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.310 Nil Nil 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.56 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

3.06%

30

Down

Volume Above Avg.

No Change

STARS

MEDIUM

HIGH

Our risk assessment reflects FHN's ongoing recovery from credit losses, offset by its relatively high capital levels and good prospects for fee income growth.

1.04561% s

1.5901% di

LOW

Below Avg.

1.8% 2.6673%

12 8

Quantitative Evaluations 1.4971% st

4

1.5782% st

1.6567% st 1.2896% di

Vol.

S&P Quality Ranking D

Mil.

C

B-

B+ B

B+

A-

A

A+

102

30 20 10 0

Relative Strength Rank

WEAK

11 LOWEST = 1

5

3

2

1

HIGHEST = 99

4

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: P, Ph

Highlights ➤

The 12-month target price for FHN has recently been changed to $14.00 from $14.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on FHN from MarketScope, see below.

➤

10/15/10 11:08 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF FIRST HORIZON NATIONAL CORP (FHN 10.49****): Q3 EPS of $0.07, vs. a loss per share of $0.19, misses our EPS estimate of $0.09 on higher than expected tax rate, which offset a lower than expected loan loss provision and higher than expected net interest income. On these results, and our lower provision estimate for Q4, we raise our '10 EPS estimate to $0.11 from $0.10. We see FHN's progress on balance sheet and credit quality improvements as on track, but recognize that national foreclosure issue raise risks. We keep our $14 target price, based on a premium to peers 2.1X our year-end tangible book value estimate. /E. Oja

Revenue (Million $) 1Q 2Q 2010 467.8 468.4 2009 669.4 547.8 2008 925.5 814.5 2007 866.4 875.2 2006 731.0 913.6 2005 728.3 781.8

3Q 471.4 540.2 688.4 786.1 930.4 867.0

4Q -246.2 669.6 638.5 921.0 862.9

Year -2,226 3,098 3,166 3,496 3,240

Earnings Per Share ($) 2010 -0.09 Nil 2009 -0.36 -0.54 2008 -0.05 -0.10 2007 0.47 0.14 2006 0.03 0.70 2005 0.72 0.68

0.07 -0.19 -0.54 -0.09 0.45 0.76

E0.11 -0.30 -0.28 -1.70 0.51 0.74

E0.11 -1.40 -0.99 -1.18 3.06 2.90

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Stk. Stk. Stk. Stk.

01/20 04/20 07/20 10/20

03/10 06/09 09/08 12/08

03/12 06/11 09/10 12/10

04/01/10 07/01/10 10/01/10 01/01/11

Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FHN

First Horizon National Corp Business Summary July 19, 2010 CORPORATE OVERVIEW. First Horizon National (formerly First Tennessee National) is a Memphis, TN-based regional bank. FHN is one of the 40 largest bank holding companies in the U.S. in terms of asset size, with $26.1 billion in assets at December 31, 2009. FHN provides diversified financial services through five business segments. Three of the segments reflect the common activities and operations of aggregated business segments across the various delivery channels: regional banking, capital markets, and mortgage banking. National specialty lending consists of traditional consumer and construction lending activities in national markets outside of FHN's Tennessee-based market footprint. These operations were mostly discontinued in 2008, but the wind-down process could take years. During 2009, 61.7% of revenues came from fee income, versus 62.5% in 2008. FHN has 202 financial center bank branch locations in three states: 191 branches in 17 Tennessee counties, including all of the major metropolitan areas of the state; two branches in Georgia; and nine branches in Mississippi. FHN was in the top 20 nationally in mortgage loan originations and the top 15 in mortgage loan servicing, at December 31, 2007 (latest available data), as reported by Inside Mortgage Finance.

overall profitability and productivity. In order to redeploy capital to higher-return businesses, origination through national construction lending operations was discontinued. FHN sold the national mortgage origination and servicing platforms, including servicing on $19.1 billion of unpaid principal balance; and the sale of most of the First Horizon Bank branches outside of the bank's Tennessee-based market footprint was completed. In the first quarter of 2008, FHN revised its business segments to better align with its strategic direction, representing a focus on its regional banking franchise and capital markets business. To implement this change, the prior retail/ commercial banking segment was split into its major components with the national portions of consumer lending and construction lending assigned to a new national specialty lending segment that better reflects the ongoing winding down of these businesses. Additionally, correspondent banking was shifted from retail/commercial banking to the capital markets segment to better represent the complementary nature of these businesses. To reflect its geographic focus, the remaining portions of the retail/commercial banking segment now represent the new regional banking segment.

CORPORATE STRATEGY. Beginning in 2007, and continuing throughout 2008, FHN conducted a review of business practices with the goal of improving Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.64 -1.40 -1.38 Nil Nil 13.98 6.19 NM NM

2008 8.23 -0.99 -1.15 0.34 NM 19.04 3.84 NM NM

2007 12.67 -1.18 -0.83 1.53 NM 38.56 14.98 NM NM

2006 14.42 3.06 1.66 1.53 50% 36.54 31.48 12 10

2005 12.89 2.90 2.66 1.48 51% 38.01 29.51 13 10

2004 12.50 3.00 2.78 1.38 46% 41.28 34.61 14 12

2003 11.40 3.07 2.70 1.10 36% 41.15 30.19 13 10

2002 10.11 2.45 2.11 0.89 36% 34.79 25.25 14 10

2001 8.71 2.13 1.53 0.77 36% 31.81 23.02 15 11

2000 8.32 1.50 NA 0.75 50% 24.87 13.52 17 9

776 1.60 1,234 880 77.2% -421 NM -257 3.06 -316

895 1.35 1,491 1,080 69.4% -350 NM -193 2.95 -244

941 0.69 861 273 102.3% -316 NM -175 2.82 -128

997 NA 1,233 83.1 78.2% 338 25.8% 251 2.93 261

984 1.17 1,400 67.7 70.1% 645 31.6% 441 3.08 423

856 1.10 1,342 48.3 68.4% 667 31.9% 454 3.62 438

806 1.26 1,638 86.7 67.1% 719 34.2% 473 3.78 434

753 1.50 1,550 92.2 71.3% 558 32.5% 376 4.33 337

686 2.10 1,321 93.5 67.7% 494 33.2% 330 4.27 248

598 2.60 1,068 67.4 75.5% 337 31.0% 233 3.73 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 1,692 Investment Securities 2,694 Commercial Loans 7,159 Other Loans 10,965 Total Assets 26,069 Demand Deposits 4,394 Time Deposits 10,473 Long Term Debt 2,891 Common Equity 2,209 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 5.0 % Loans/Deposits 121.9 % Equity to Assets 8.2

1,926 3,125 7,864 13,414 31,022 3,957 10,285 4,768 2,497 NM NM 4.0 149.4 6.8

2,898 3,033 8,435 13,669 37,015 5,055 11,977 6,825 2,136 NM NM 1.5 118.7 6.1

3,415 3,890 8,338 13,767 37,918 5,448 14,766 6,132 2,462 0.7 10.4 0.9 123.6 6.5

3,629 2,912 9,899 10,702 36,579 10,027 13,411 3,733 2,312 1.3 20.3 0.8 106.8 6.6

NA 2,681 7,730 8,698 29,772 4,995 14,788 2,617 2,041 1.7 23.1 0.7 109.2 7.2

NA 2,470 6,904 7,087 24,507 4,540 11,140 1,117 1,850 2.0 26.7 0.9 108.2 7.3

NA 2,700 5,723 5,622 23,823 5,149 10,564 1,074 1,691 1.7 23.8 0.9 102.7 7.1

NA 2,526 5,598 4,685 20,617 4,010 9,596 3,066 1,478 1.7 23.0 1.1 100.6 7.3

NA 2,839 5,327 4,912 18,555 2,847 9,342 3,119 1,384 1.3 17.7 1.2 98.2 7.1

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 165 Madison Avenue, Memphis, TN 38103. Telephone: 901-523-4444. Website: http://www.fhnc.com Chrmn: M.D. Rose

Pres & CEO: D.B. Jordan EVP & CFO: W.C. Losch, III EVP & Chief Acctg Officer: J.F. Keen EVP & Treas: T.C. Adams, Jr.

Investor Contact: D. Miller (901-523-4162) Founded: 1968 Board Members: R. B. Carter, M. A. Emkes, J. Haslam, Domicile: Tennessee III, D. B. Jordan, R. Martin, V. R. Palmer, C. V. Reed, M. Employees: 5,731 D. Rose, W. B. Sansom, L. Yancy, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: FSLR | FSLR is in the S&P 500

First Solar Inc S&P Recommendation HOLD

★★★★★

Price $145.55 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $153.00

Investment Style Large-Cap Blend

Summary This company produces solar modules using a proprietary thin film semiconductor technology.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $158.14– 98.71 Trailing 12-Month EPS $7.28 Trailing 12-Month P/E 20.0 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

7.24 8.05 20.1 85.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

Our risk assessment reflects our view of the highly competitive nature of First Solar's business, the relatively early stages of the business cycle for alternative energy sources, and a high degree of execution risk in the company's aggressive capacity expansion plans. We also have concerns that a substantial amount of the company's common stock is held by the estate of John T. Walton and affiliates, which have considerable control over operation of the company's business.

150 80

40 Vol. 52

24 16 8 0

Quantitative Evaluations

5

3

4

3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

NR B

Analysis prepared by Angelo Zino on August 03, 2010, when the stock traded at $ 126.14. Highlights

➤

We expect sales to increase 23% in 2010 and 40% in 2011, following a 66% rise in 2009, on higher solar module volume and greater revenue from the systems business. For the long term, we see higher volume from capacity expansion offset somewhat by lower prices, partly due to lower government subsidies and aggressive competition from China-based silicon module makers. We think FSLR continues to generate new orders, and we believe utility pipelines will develop into substantial volume. We forecast gross margins of 45% in 2010 and 37% in 2011, versus 51% in 2009, as lower selling prices are only partly offset by higher volume and reduced manufacturing costs. In addition, we see a greater percentage of sales coming from FSLR's lower-margin systems business. We think FSLR can lower its cost per watt from $0.76 currently to $0.65 by 2012, through greater scale and efficiencies. FSLR's modules had a conversion efficiency ratio of 11.2% as of June 30. We believe FSLR has plans to grow capacity to 1.34 gigawatts (GW) by year end and to 2.12 GW by the end of 2011, from 1.23 GW in 2009, as it expands production primarily in Malaysia.

Investment Rationale/Risk ➤

➤

➤

We believe FSLR continues to see broadening demand from utility companies for ownership of large solar systems, especially as project financing continues to improve. However, we expect FSLR's margins to trend downward, given competitive forces as well as a further shift to the lower-margin systems business, which we estimate will reach $1 billion in sales for 2011. Despite FSLR's high exposure to the German market, we think the company is diversifying its geographic exposure, and we view positively its rising presence in the U.S. Although we expect it to gain share, we think FSLR's goal of 30% market share by 2014 is overly optimistic. Risks to our recommendation and target price include potential inefficient execution of FSLR's aggressive capacity expansion plan, and falling prices. Our 12-month target price of $153 is based on a multiple of 19.0X our 2011 EPS projection, above peers. We believe FSLR merits a premium valuation, based on our view of the company as a leader in bringing out a solar energy product with low production costs. Also, we view FSLR's balance sheet and margins as considerably stronger than peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

B+

A-

Relative Strength Rank

A

A+

MODERATE 68

Options: ASE, CBOE

➤

HIGH

Below Avg.

300

➤

1.60 5 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

Mil.

$12.453 Nil Nil 65

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 568.0 587.9 2009 418.2 525.9 2008 196.9 267.0 2007 66.95 77.22 2006 13.62 27.86 2005 8.53 9.37

3Q -480.9 348.7 159.0 40.79 16.59

4Q -641.3 433.7 200.8 52.70 13.58

Year -2,066 1,246 504.0 135.0 48.06

Earnings Per Share ($) 2010 2.00 1.84 2009 1.99 2.11 2008 0.57 0.85 2007 0.07 0.58 2006 -0.12 -0.05 2005 -0.02 -0.01

E1.66 1.79 1.20 0.58 0.07 0.03

E1.74 1.65 1.61 0.77 0.12 -0.14

E7.24 7.53 4.24 2.03 0.07 -0.13

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: FSLR

First Solar Inc Business Summary August 03, 2010 CORPORATE OVERVIEW. First Solar designs and manufactures solar modules using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. In less than three hours, FSLR is able to transform a two foot by four foot sheet of glass into a complete solar module, using about 1% of the semiconductor material needed to produce crystalline silicon solar modules. Its production process eliminates the multiple supply chain operators, and expensive and time-consuming batch processing steps that are used to make a crystalline silicon solar module. In 2009, the company derived 86% of its revenues from customers headquartered in the European Union (primarily Germany, which accounted for 65% of FSLR's revenues). As of year-end 2009, FSLR manufactured its solar modules and conducted its research and development activities at production lines in locations including Perrysburg, OH , Frankfurt/Oder, Germany, and Kulim, Malaysia. During 2009, FSLR produced 1.1 gigawatts of solar modules, including 311 megawatts in the fourth quarter. We believe FSLR currently has plans to grow capacity from 1,228 megawatts in 2009 to 1,337 megawatts in 2010, 2,005 megawatts in 2011,

and 2,117 megawatts in 2012. FSLR intends to add eight new lines in Malaysia during 2010, with production to begin in the first half of 2011. CORPORATE STRATEGY. FSLR aims to reduce PV system costs in three primary areas: module manufacturing, Balance of System (BoS) costs (costs unrelated to the module, including inverters, mounting hardware, grid interconnection equipment, wiring and other devices, and installation labor costs), and cost of capital. FSLR's manufacturing costs totaled $0.84 per watt in 2009's fourth quarter, down 14% from the year-earlier level. The company's average manufacturing cost for the full year was $0.87 per watt, versus $1.08 in 2008, a 19% reduction. We believe FSLR's cost lead advantage will allow it to be the first solar-module manufacturer to offer a product that competes on a nonsubsidized basis with the price of retail electricity in key markets in North America, Europe and Asia.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 28.14 9.05 7.53 7.53 Nil Nil 207.51 100.90 28 13

2008 18.12 4.99 4.24 4.24 Nil Nil 317.00 85.28 75 20

2007 13.54 2.35 2.03 2.03 Nil Nil 283.00 27.54 NM NM

2006 5.69 0.21 0.07 0.06 Nil Nil 30.00 20.00 NM NM

2005 NM -0.07 -0.13 -0.09 Nil Nil NA NA NA NA

2004 NA -0.34 -0.39 NA NA NA NA NA NA NA

2003 NA -0.74 -0.78 NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,066 832 130 5.26 686 6.73% 640 640

1,246 501 61.5 7.39 464 24.9% 348 348

504 162 24.8 6.07 156 NM 158 158

135 13.0 10.2 4.36 9.18 56.7% 3.97 3.97

48.1 -1.41 3.38 0.42 -6.55 NM -6.55 -6.55

13.5 -14.8 1.94 0.10 -16.8 NA -16.8 NA

3.21 -22.6 1.50 3.97 -28.0 NA -28.0 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 785 Current Assets 1,351 Total Assets 3,350 Current Liabilities 395 Long Term Debt 146 Common Equity 2,653 Total Capital 2,828 Capital Expenditures 280 Cash Flow 770 Current Ratio 3.4 % Long Term Debt of Capitalization 5.2 % Net Income of Revenue 31.0 % Return on Assets 23.4 % Return on Equity 30.7

792 1,077 2,115 382 164 1,513 1,712 459 410 2.8 9.6 28.0 20.0 26.7

637 803 1,371 186 68.9 1,097 1,166 242 183 4.3 5.9 31.4 16.2 21.0

308 389 579 52.1 61.1 411 523 153 14.2 7.5 11.7 2.9 1.2 1.9

17.0 26.6 102 33.9 28.6 13.1 41.7 42.5 -3.18 0.8 68.5 NM NM NM

3.77 12.3 41.8 5.35 13.7 22.6 36.3 7.73 -14.8 2.3 37.7 NM NA NA

NA NA NA NA NA NA NA 14.9 -26.5 NA NA NM NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 350 West Washington Street, Suite 600, Tempe, AZ 85281. Telephone: 602-414-9300. Email: [email protected] Website: http://www.firstsolar.com

Chrmn: M.J. Ahearn Pres: B. Sohn CEO: R.J. Gillette EVP, Secy & General Counsel: M.E. Gustafsson

CFO: J. Meyerhoff Founded: 1999 Investor Contact: L. Polizzotto (602-414-9315) Domicile: Delaware Board Members: M. J. Ahearn, R. J. Gillette, C. Employees: 4,700 Kennedy, J. F. Nolan, J. T. Presby, P. H. Stebbins, M. T. Sweeney, J. H. Villarreal

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: FISV | FISV is in the S&P 500

Fiserv Inc S&P Recommendation HOLD

★★★★★

Price $55.65 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $54.00

Investment Style Large-Cap Growth

Summary This company provides account processing and integrated information management systems for financial institutions. In December 2007, it acquired CheckFree Corp. for $4.4 billion.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $55.88– 44.80 Trailing 12-Month EPS $3.12 Trailing 12-Month P/E 17.8 $10K Invested 5 Yrs Ago $13,113

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.05 4.35 13.7 150.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.08 9 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of FISV's notable size, market position and flexible balance sheet, offset by what we consider its relatively modest internal growth rate and active acquisition strategy.

60 50

40

30

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

12 8 4 0 5

$8.353 Nil Nil 82

C

B-

B+ B

B+

A-

Relative Strength Rank 3

2

A+

MODERATE 67

5

4

A

4

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Scott H. Kessler on August 04, 2010, when the stock traded at $ 50.36. Highlights ➤

➤

Investment Rationale/Risk

Adjusted net revenues declined 13% in 2009, reflecting an unfavorable spending backdrop, offset somewhat by market share gains and cross-selling efforts. We see uncertainties related to continuing challenges and consolidation in the financial services segment, but are encouraged by notable recurring revenues. We expect a 1% gain in 2010 adjusted net revenues and a 2% increase for 2011.

➤

Historically, FISV has used free cash flow to make acquisitions intended to broaden its offerings and customer base. Acquisitions once accounted for about 50% of FISV's revenue growth. However, in recent years FISV has deemphasized acquisitions and focused on crossselling and margin-improvement efforts.

➤

In December 2007, FISV acquired CheckFree Corp. for $4.4 billion. We believe CheckFree notably expanded FISV's offerings, technology, and customer base, and will contribute to material market share gains. In January 2008, FISV sold Fiserv Health for $721 million. In July 2008, FISV sold 51% of its insurance unit for $510 million of after-tax proceeds.

Notwithstanding FISV's substantial exposure to financial services, which has increased on a percentage basis in recent years, we believe its size and footprint, diversified customer base, and considerable recurring revenues are appealing. We also think the recent financial crisis could prove beneficial for new opportunities, especially as FISV pursues international business. Risks to our recommendation and target price include weaker demand than we expect for financial services technology offerings, segment consolidation negatively affecting existing contracts or new business prospects, and sustained weakness in internal growth rates.

Revenue (Million $) 1Q 2Q 2010 1,008 1,022 2009 1,044 1,032 2008 1,310 1,295 2007 1,219 1,180 2006 1,097 1,093 2005 973.1 996.4

3Q -992.0 1,080 1,174 1,157 1,012

4Q -1,062 1,061 1,110 1,198 1,078

Year -4,077 4,739 3,922 4,544 4,059

Earnings Per Share ($) 2010 0.80 0.85 2009 0.65 0.73 2008 0.59 0.60 2007 0.66 0.62 2006 0.64 0.63 2005 0.71 0.59

E0.99 0.80 0.45 0.72 0.63 0.58

E1.11 0.83 0.45 0.54 0.61 0.80

E4.05 3.04 2.12 2.42 2.49 2.68

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤ ➤

Revenue/Earnings Data

2010

Comparisons to the P/E and P/E-to-growth rate multiples of data processing companies in the S&P 1500 yield a price of $50. Our DCF model (including assumptions of a discount rate of 9.7%, average growth of 10% over the next five years, and a terminal growth rate of 3%) leads to an intrinsic value calculation of $62. Weighting these considerations results in our 12-month target price of $54.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: FISV

Fiserv Inc Business Summary August 04, 2010 CORPORATE OVERVIEW. At the end of 2006, Fiserv made some adjustments to its operating segments. Most notably, it created a new insurance services unit, which included the old health plan management services segment, and insurance operations that were previously classified in the financial institutions segment.

functionality for banks, thrifts and credit unions), lending and item processing (providing for the clearing of paper and imaged checks), payments processing (enabling FISV clients to provide their customers with services such as homebanking and bill payment offerings), and a variety of industry-specific products and services.

In December 2007, the company bought CheckFree Corp., entering the electronic payments area. In January 2008, FISV sold Fiserv Health, and most of its health-related businesses. In July 2008, FISV sold a majority stake of its insurance segment. In 2009, FISV sold its loan fulfillment services business and the balance of its investment support services business.

In December 2007, FISV acquired CheckFree for $4.4 billion, and thus created the Payments unit (53%, 46%). The segment's financial e-commerce products enable consumers to review bank accounts and receive and pay bills electronically. In 2009, the business processed 1.3 billion transactions and delivered 320 million electronic bills. We believe the CheckFree acquisition has bolstered FISV's base of offerings, technology and customers, and we see notable cross-selling potential.

The financial segment (accounting for 47% of revenues in 2009 and 43% in 2008) provides solutions to thousands of financial institutions, including banks, credit unions, leasing and finance companies, and savings institutions. Many offerings are sold as an integrated suite to clients, and could include core processing (allowing for account servicing and management information Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 4.90 3.04 3.04 Nil Nil 50.91 29.46 17 10

2008 NM 2.85 2.12 2.47 Nil Nil 56.80 27.75 27 13

2007 NM 2.88 2.42 2.42 Nil Nil 59.85 44.16 25 18

2006 NM 3.62 2.49 2.50 Nil Nil 53.60 40.29 21 16

2005 NM 3.62 2.68 2.28 Nil Nil 46.89 36.33 17 14

2004 0.96 2.94 2.00 1.91 Nil Nil 41.01 32.20 21 16

2003 NM 2.48 1.61 1.47 Nil Nil 40.77 27.23 25 17

2002 2.60 2.09 1.37 1.26 Nil Nil 47.24 22.50 34 16

2001 2.60 1.86 1.09 1.00 Nil Nil 44.61 29.08 41 27

2000 2.18 1.33 0.93 NA Nil Nil 42.75 16.21 46 17

4,077 1,234 333 220 746 36.6% 473 473

4,739 1,046 119 260 625 44.6% 346 403

3,922 836 78.0 76.0 661 38.3% 408 408

4,544 943 199 41.0 710 37.6% 443 443

4,059 925 179 27.8 818 37.5% 511 435

3,730 845 185 24.9 641 38.4% 395 377

3,034 704 172 22.9 516 39.0% 315 288

2,569 734 141 17.8 436 39.0% 266 246

1,890 501 148 12.1 347 40.0% 208 191

1,654 429 70.1 22.1 300 41.0% 177 NA

Balance Sheet & Other Financial Data (Million $) Cash 363 Current Assets 1,277 Total Assets 8,378 Current Liabilities 1,161 Long Term Debt 3,382 Common Equity 3,026 Total Capital 6,667 Capital Expenditures 198 Cash Flow 761 Current Ratio 1.1 % Long Term Debt of Capitalization 50.7 % Net Income of Revenue 11.6 % Return on Assets 5.3 % Return on Equity 16.8

232 2,145 9,331 2,047 3,850 2,594 6,974 199 465 1.1 55.2 7.3 3.3 13.7

309 4,204 11,846 3,754 5,405 2,467 7,933 160 486 1.1 66.5 10.4 4.5 16.7

185 963 6,208 619 747 2,426 3,173 187 642 1.6 23.6 9.8 7.2 18.1

184 844 6,040 626 595 2,466 3,227 165 691 1.4 18.4 12.6 7.1 20.3

516 3,806 8,383 759 505 2,564 3,204 161 580 5.0 15.8 10.6 5.1 16.6

203 2,681 7,214 2,866 699 2,200 2,990 143 487 0.9 23.4 10.4 4.6 15.6

227 2,427 6,439 2,398 483 1,828 2,357 142 407 1.0 20.5 10.4 4.5 15.5

136 1,982 5,322 1,791 343 1,605 1,948 68.0 356 1.1 17.6 11.0 3.8 14.6

98.9 2,649 5,586 2,320 335 1,252 1,622 73.0 247 1.1 20.7 10.7 3.2 15.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 255 Fiserv Drive, Brookfield, WI 53045-5815. Telephone: 262-879-5000. Email: [email protected] Website: http://www.fiserv.com

Chrmn: D.F. Dillon Pres & CEO: J. Yabuki EVP, CFO, Chief Acctg Officer & Treas: T.J. Hirsch EVP, Secy & General Counsel: C.W. Sprague

EVP & CIO: M. Goebel Investor Contact: D. Banks (262-879-5055) Board Members: D. F. Dillon, D. P. Kearney, P. J. Kight, G. J. Levy, D. J. O'Leary, G. M. Renwick, K. M. Robak, D. R. Simons, T. Wertheimer, J. Yabuki

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1984 Domicile: Wisconsin Employees: 20,000

Stock Report | October 25, 2010 | NNM Symbol: FLIR | FLIR is in the S&P 500

FLIR Systems Inc S&P Recommendation HOLD

★★★★★

Price $26.85 (as of Oct 25, 2010)

GICS Sector Information Technology Sub-Industry Electronic Equipment Manufacturers

12-Mo. Target Price $29.00

Investment Style Large-Cap Growth

Summary This company designs, manufactures, and markets thermal imaging and broadcast camera systems for use in commercial and government markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.35– 24.00 Trailing 12-Month EPS $1.47 Trailing 12-Month P/E 18.3 $10K Invested 5 Yrs Ago $24,138

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.56 1.80 17.2 158.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.245 Nil Nil 92

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 11 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the uncertainty of government spending on infrared-related technologies balanced by the long nature of government contracts, helping to reduce business risk. The company carries long-term debt, but has also exhibited healthy profitability and cash flows that we think balances the financial risk.

40

30 25 20

2-for-1 Vol. 27

Mil.

Quantitative Evaluations

26

12 8 4 0

S&P Quality Ranking D 4

5

3

4

C

B-

B+ B

B+

A-

Relative Strength Rank

1

MODERATE

LOWEST = 1

2008

2009

Options: ASE, CBOE, P, Ph

➤

We are lifting our revenue growth estimates to account for the acquisitions of Raymarine and ICx Technologies. We now look for growth of 21% and 18.5% in 2010 and 2011, respectively, compared with our prior 13.5% and 12.5% forecasts. We have concerns about demand from the government segment over the near term, given the spending constraints the various agencies are under and what we believe are extended procurement cycles. Still, overseas governments will likely remain solid sources of demand. Within Commercial Systems, some important verticals are likely to be soft, but we are generally positive on areas such as security and surveillance.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect operating margins to decline in 2010 and 2011, partially reflecting the addition of the lower-margin acquisitions. Also adversely affecting margins should be an unfavorable mix shift within government systems, but we note this business provides FLIR with its highest margins. Additionally, we think cost controls and improving leverage will be offset by a shift towards lower- and mid-priced cameras. We estimate EPS of $1.56 for 2010 and $1.80 for 2011.

➤

HIGHEST = 99

2010

Analysis prepared by Dylan Cathers on October 25, 2010, when the stock traded at $ 26.88. Highlights

A+

37

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

3

Our hold recommendation is based on valuation. We believe FLIR has a profitable business model, good growth opportunities, and a solid balance sheet. However, we think that sales may be erratic during the next few quarters. Our forecasts reflect risks we see related to government spending, contract wins, and the traction of growth for commercial applications. We believe that extracting value from the recent Raymarine Holdings acquisition will be challenging in the near term, but we are more positive on the recent ICx Technologies acquisition, which should expand their portfolio of offerings to the important government market. Risks to our recommendation and target price include a sharper-than-anticipated decrease in military spending on infrared related technology, formidable competition, economic headwinds, and financial and integration risks. Our 12-month target price of $29 is based on our relative valuation analysis. We arrive at our target price using a roughly peer-average P/E ratio of 16.1X our 2011 EPS estimate, which is towards the low end of FLIR's range of 14X-44X over the past four years.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 287.3 331.1 2009 272.0 278.0 2008 236.9 261.0 2007 161.4 184.3 2006 117.3 138.6 2005 108.3 131.0

3Q -285.6 276.7 191.1 133.2 113.0

4Q -311.6 302.4 242.6 185.9 156.3

Year -1,147 1,077 779.4 575.0 508.6

Earnings Per Share ($) 2010 0.35 0.37 2009 0.33 0.35 2008 0.24 0.29 2007 0.18 0.19 2006 0.09 0.14 2005 0.10 0.16

E0.37 0.38 0.35 0.23 0.18 0.11

E0.45 0.37 0.41 0.30 0.26 0.22

E1.56 1.45 1.28 0.89 0.66 0.58

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 25, 2010 | NNM Symbol: FLIR

FLIR Systems Inc Business Summary October 25, 2010 CORPORATE OVERVIEW. A leading infrared technology company, FLIR Systems, Inc. (FLIR) uses its expertise in product design, infrared imagers, optics, lasers, image processing, systems integration and other technologies, to develop and produce sophisticated thermal and multi-sensor imaging systems used in various applications in commercial, industrial, and government markets. In addition to offering a variety of systems configurations to suit customer's requirements, the company also sells more general, commercial applications.

held and fixed security systems to over $1 million for advanced stabilized laser designation systems.

FLIR's business is organized by three divisions (from largest to smallest based on percentage of 2009 sales): Government Systems (57%), Thermography (25%), Commercial Vision Systems (18%).

The Commercial Vision Systems division is focused on emerging commercial markets for infrared imaging technology where the primary need is to see at night or in adverse conditions. The company notes that demand from markets, such as commercial security and automotive, has grown rapidly as the cost of infrared technology has declined. CVS products range in price from under $2,000 for an OEM imaging core to more than $450,000 for a high definition airborne electronic news gathering broadcast system.

The Government Systems division is focused on government contracts and markets where high performance is required. Products are often customized for specific applications, and frequently incorporate additional sensors, including visible light cameras, low light cameras, laser rangefinders, laser illuminators and laser designators. These products are used in applications such as surveillance, force protection, drug interdiction, search and rescue, special operations and target designation. Prices range from $30,000 for hand-

The Thermography division sells products for commercial and industrial applications where imaging and temperature together are required, and include specialized cameras with analytical and image processing capabilities to less expensive cameras for less demanding applications. Prices for these cameras range from $3,000 to $150,000.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.65 1.69 1.45 1.45 Nil Nil 33.35 18.81 23 13

2008 3.95 1.50 1.28 1.28 Nil Nil 45.49 23.68 36 19

2007 2.88 1.02 0.89 0.89 Nil Nil 36.43 14.81 41 17

2006 1.51 0.92 0.66 0.66 Nil Nil 17.02 10.73 26 16

2005 1.18 0.77 0.58 0.51 Nil Nil 18.18 10.23 31 18

2004 0.85 0.53 0.47 0.38 Nil Nil 16.67 8.74 35 19

2003 1.13 0.39 0.32 0.27 Nil Nil 9.25 5.13 29 16

2002 1.13 0.33 0.29 0.19 Nil Nil 7.44 3.42 26 12

2001 0.67 0.26 0.20 0.16 Nil Nil 6.19 0.52 31 3

2000 0.11 -0.14 -0.23 NA Nil Nil 2.41 0.38 NM NM

1,147 390 42.4 6.88 340 32.4% 230 231

1,077 324 40.0 8.99 295 30.9% 204 204

779 218 25.9 10.2 191 28.5% 137 137

575 158 20.6 8.96 133 23.9% 101 101

509 142 15.6 7.92 122 25.7% 90.8 78.4

483 124 14.8 8.09 99.9 28.4% 71.5 57.6

312 69.8 6.26 4.86 63.8 30.0% 44.7 38.4

261 56.4 6.20 1.68 48.9 15.0% 41.6 27.6

214 44.8 7.50 9.42 28.7 9.77% 25.9 20.5

186 -1.11 9.72 12.0 -22.3 NM -26.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 422 Current Assets 971 Total Assets 1,485 Current Liabilities 178 Long Term Debt 58.0 Common Equity 1,204 Total Capital 1,262 Capital Expenditures 41.9 Cash Flow 273 Current Ratio 5.5 % Long Term Debt of Capitalization 4.6 % Net Income of Revenue 20.1 % Return on Assets 16.9 % Return on Equity 22.5

289 812 1,244 172 190 840 1,036 27.6 244 4.7 18.4 18.9 18.0 27.8

204 656 1,024 166 227 623 833 44.1 163 4.0 25.0 17.5 15.0 26.8

139 486 798 170 207 399 608 43.0 121 2.9 34.0 17.5 13.6 26.7

107 406 694 90.1 206 369 586 34.0 106 4.5 35.2 17.8 13.7 26.6

121 367 619 88.7 205 313 519 13.9 86.3 4.1 39.6 14.8 13.4 29.9

198 382 450 70.3 204 165 369 14.6 51.0 5.4 55.4 14.3 13.1 26.5

46.6 174 234 52.6 Nil 172 172 6.60 47.8 3.3 Nil 15.9 19.8 30.0

15.5 140 185 71.0 Nil 105 105 4.24 33.4 2.0 Nil 12.1 14.7 38.7

11.9 122 167 56.5 75.5 29.0 105 7.28 -16.3 2.2 72.2 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 27700 SW Parkway Ave Ste A, Wilsonville, OR 97070-8238. Telephone: 503-498-3547. Email: [email protected] Website: http://www.flir.com

Chrmn, Pres & CEO: E. Lewis SVP, Secy & General Counsel: W.W. Davis Investor Contact: A.L. Trunzo (503-498-3547)

Board Members: J. D. Carter, W. W. Crouch, E. Founded: 1978 Lewis, A. L. MacDonald, M. T. Smith, J. W. Wood, Jr., S. Domicile: Oregon E. Wynne Employees: 2,079

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FLS | FLS is in the S&P 500

Flowserve Corp. S&P Recommendation STRONG BUY

★★★★★

Price $114.18 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $135.00

Investment Style Large-Cap Growth

Summary This company is a global manufacturer of industrial pumps and related equipment for the chemical, oil & gas, and power industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $119.83– 81.35 Trailing 12-Month EPS $7.08 Trailing 12-Month P/E 16.1 $10K Invested 5 Yrs Ago $35,200

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

8.00 9.75 14.3 55.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.387 1.02 $1.16 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.60 8 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to cyclical end markets and its foreign exchange swings based on its significant proportion of foreign sales. We think these factors are offset by its leading position in many markets, significant aftermarket business, strong cash flows, and favorable leverage ratio.

120

80 60

40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

9 6 3 0

D 5

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Stewart Scharf on August 06, 2010, when the stock traded at $ 101.69. Highlights We expect sales to fall in the high single-digits in 2010, but see a sequential rebound into 2011, driven by growth in developing regions. Although customers remain cautious, we see postponed projects gradually resuming as global markets recover, with further strength in the aftermarket business. Bookings should rise as demand picks up in the oil & gas, chemical, and power sectors. We forecast gross margins in 2010 will expand from 36.5% in 2009, based on cost savings from realignments and a greater mix of aftermarket products, which should offset competitive pricing. We see slightly wider adjusted EBITDA margins (18% in 2009), with FLS continuing to focus on cost-cutting initiatives as it optimizes certain non-strategic facilities. A stronger U.S. dollar mainly against the euro should continue to negatively impact earnings. We project a higher effective tax rate for 2010 of about 28%, and we see operating EPS of $8.00 (before about $0.26 of realignment costs and a $0.15 charge due to the devaluation of the Venezuelan Bolivar), then we forecast $9.75 for 2011.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

➤

B B

79

1

➤

B-

Relative Strength Rank

5

➤

C

Revenue/Earnings Data

➤

Our strong buy recommendation is based on our valuation metrics, our favorable perception of FLS's strong balance sheet and diversified business model, and signs of increased bidding activity for certain large projects.

Revenue (Million $) 1Q 2Q 2010 958.9 961.1 2009 1,025 1,090 2008 993.3 1,158 2007 803.4 930.7 2006 653.9 752.9 2005 616.1 691.2

➤

Risks to our recommendation and target price include significant delays and/or project cancellations, especially in the oil & gas sector; a shortage of skilled labor; geopolitical issues in developing regions; a weak euro and other currencies; and, problems with internal controls over financial reporting.

Earnings Per Share ($) 2010 1.42 1.62 2009 1.64 1.92 2008 1.53 2.13 2007 0.59 1.11 2006 0.32 0.58 2005 0.05 0.33

Investment Rationale/Risk

➤

The shares trade at about 13X our 2010 EPS estimate, a near 25% discount to our projected P/ E for S&P's Industrial Machinery group, which we attribute to FLS's cyclical project business and exposure to volatile markets. Our DCF model, which assumes a terminal growth rate of 4.0% and a weighted average cost of capital of 12.5%, indicates intrinsic value of about $125. Our relative metrics, including enterprise value to EBITDA and P/E-to-EPS growth, suggest a value of $145. Blending these methods, we arrive at our 12-month target price of $135.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

3Q -1,051 1,154 919.2 770.8 649.5

4Q -1,199 1,169 1,109 883.5 738.5

Year -4,365 4,473 3,763 3,061 2,695

E2.15 2.07 2.04 1.10 0.49 0.08

E2.35 1.96 2.03 1.67 0.58 0.36

E8.00 7.59 7.74 4.47 2.00 0.82

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.270 0.290 0.290 0.290

11/23 02/24 05/18 08/12

12/21 03/22 06/28 09/28

12/23 03/24 06/30 09/30

01/06/10 04/07/10 07/14/10 10/14/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FLS

Flowserve Corp. Business Summary August 06, 2010 CORPORATE OVERVIEW. Flowserve Corp., which was formed through the 1997 merger of Durco International Inc. and BW/IP, Inc., is one of the world's leading providers of fluid motion and control products and services. Customers use fluid motion and control products to regulate the movement of liquids or gases through processing systems in their facilities. As of January 1, 2010, in an effort to drive business growth and further leverage its operations, FLS combined its pump and flow solutions divisions into a new Flow Solutions Group (FSG), which will be reported in two segments: FSG Engineered Product division (highly engineered pump product operations of former pump division and all the mechanical seal operations of former flow solutions division) and FSG Industrial Product division (general purpose pump operations of former pump division). Pump systems and components are produced at 30 plants worldwide. FLS manufactures over 150 different pump models, ranging from simple fractional horsepower industrial pumps to high horsepower engineered pumps (over 30,000 horsepower). Aftermarket services through the company's global network are provided in 78 service centers in 30 countries.

The FSG Engineered Product division (55% of sales in the first half of 2010; includes inter-segment sales) manufactures engineered pumps, vertical circulation and other pumps, seals, repair and service, and integrated solutions primarily used by companies in the oil & gas, power and water treatment (desalination) markets. Seals are used on a variety of rotating equipment, including pumps, mixers, compressors, steam turbines and other specialty equipment. The FSG Industrial Product division (21% of sales) manufactures industrial, water and vertical turbine pumps for the oil & gas, water and general industrial sectors. The Flow Control division (27%) provides manual valves, control valves, nuclear valves, actuators, and other aftermarket parts and services for the power generation, oil & gas, chemical and general industrial markets. These products are typically utilized within a flow control system to control the flow of liquids or gases. The company hedges its cash flows but not its profit and loss statement, creating a headwind as the U.S. dollar strengthens against the euro.

Principal markets for the company's products are oil & gas (36% of bookings in 2009), general industrial (19%), chemical (18%), power generation (20%) and water treatment (7%). On a geographic basis, 2009 revenue broke down as follows: North America 32%; Europe 25%, Middle East and Africa 15%; Asia Pacific 19%; and Latin America 9%. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 14.68 9.29 7.59 7.72 1.08 14% 108.85 43.23 14 6

2008 7.56 9.12 7.74 7.44 1.00 13% 145.45 37.18 19 5

2007 5.42 5.82 4.47 4.39 0.60 13% 102.74 48.73 23 11

2006 0.47 3.30 2.00 2.14 Nil Nil 61.06 39.63 31 20

2005 NM 2.07 0.82 0.87 Nil Nil 39.75 23.69 48 29

2004 NM 1.68 0.36 0.41 Nil Nil 28.18 18.64 78 52

2003 NM 2.36 0.96 0.95 Nil Nil 22.93 10.40 24 11

2002 NM 2.29 1.16 0.82 Nil Nil 35.09 7.58 30 7

2001 NM 2.29 0.42 -0.08 Nil Nil 33.30 18.70 79 45

2000 NM 1.91 0.40 NA Nil Nil 23.50 10.56 59 26

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,365 785 95.4 40.0 585 26.8% 428 435

4,473 675 79.1 51.3 590 25.0% 442 425

3,763 488 77.7 60.1 360 29.0% 256 252

3,061 296 71.0 65.7 187 39.1% 114 122

2,695 260 69.9 74.1 83.3 44.5% 46.2 48.9

2,638 229 73.2 81.0 59.6 66.2% 20.2 22.5

2,404 260 77.6 84.2 73.8 28.4% 52.9 52.4

2,251 274 65.3 92.9 92.1 34.4% 60.4 42.7

1,918 204 73.9 118 25.6 36.2% 16.4 -3.30

1,538 204 57.0 70.3 23.2 34.0% 15.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 654 Current Assets 2,499 Total Assets 4,249 Current Liabilities 1,458 Long Term Debt 539 Common Equity 1,796 Total Capital 2,368 Capital Expenditures 108 Cash Flow 523 Current Ratio 1.7 % Long Term Debt of Capitalization 22.8 % Net Income of Revenue 9.8 % Return on Assets 10.3 % Return on Equity 27.1

472 2,332 4,024 1,608 546 1,368 1,924 127 522 1.5 28.3 9.9 11.7 33.3

371 1,897 3,520 1,250 550 1,293 1,856 89.0 333 1.5 29.6 6.8 8.0 22.1

67.0 1,303 2,869 884 557 1,021 1,577 73.5 185 1.5 35.3 3.7 4.2 12.2

92.9 1,071 2,576 695 653 832 1,485 49.3 116 1.5 44.0 1.7 1.8 5.4

63.8 1,050 2,634 708 658 870 1,528 45.2 93.3 1.5 43.0 0.8 0.8 2.4

53.5 1,091 2,801 633 880 821 1,701 28.8 130 1.7 51.7 2.2 2.0 6.9

49.3 1,031 2,608 492 1,056 756 1,811 30.9 126 2.1 58.3 2.7 2.6 10.4

21.5 898 2,052 417 996 411 1,407 35.2 90.2 2.2 70.8 0.9 0.8 4.6

42.3 898 2,110 434 1,111 305 1,416 27.7 72.3 2.1 78.5 1.0 1.0 5.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5215 N O Connor Blvd Ste 2300, Irving, TX, USA 75039-3726. Telephone: 972-443-6500. Website: http://www.flowserve.com Chrmn: J.O. Rollans

Pres & CEO: M.A. Blinn Investor Contact: P. Fehlman (972-443-6517) Founded: 1912 SVP, CFO, Chief Acctg Officer & Cntlr: R.J. Guiltinan, Jr. Board Members: M. A. Blinn, G. J. Delly, R. Fix, J. R. Domicile: New York SVP & Chief Admin Officer: M.D. Dailey Friedery, J. E. Harlan, M. F. Johnston, R. J. Mills, C. M. Employees: 15,000 SVP & Treas: D.P. Freeman Rampacek, J. O. Rollans, W. C. Rusnack, K. E. Sheehan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FLR | FLR is in the S&P 500

Fluor Corp. S&P Recommendation BUY

★★★★★

Price $49.47 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Engineering

12-Mo. Target Price $57.00

Investment Style Large-Cap Blend

Summary Fluor is one of the world's largest engineering, procurement, and construction companies, with 72% of its backlog derived from outside the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $55.47– 39.77 Trailing 12-Month EPS $3.33 Trailing 12-Month P/E 14.9 $10K Invested 5 Yrs Ago $16,935

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.30 3.60 15.0 178.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.843 1.01 $0.50 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.30 4 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects tight credit markets, and project delays and cancellations, along with geopolitical issues as more projects are in unstable regions of the world. This is offset by our view of FLR's strong balance sheet, modest debt levels, and diverse project mix and customer base.

100 80 60

40

2-for-1

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

24 16 8 0 5

D 4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Stewart Scharf on October 19, 2010, when the stock traded at $ 48.85. Highlights We expect revenues to decline at least 5% in 2010, based on delays in the full release of major projects as customers reduce spending levels. However, we believe double-digit revenue growth will return in 2011, as industrial markets gradually recover. We still believe quarterly results will be lumpy, due to timing issues and customer cautiousness, but see favorable longterm trends as FLR ramps up its mining business, while bookings should strengthen for oil & gas, infrastructure, and government projects. In our view, gross margins will narrow in 2010, as more lower-margin mining projects replace oil & gas projects in the backlog, and competitive pressures persist. We expect operating margins to narrow somewhat to about 5.5%, as higher compensation and severance costs offset cost controls. Operating margins should expand in 2011 on well-controlled operating expenses. We forecast a slightly lower effective tax rate of about 34% for 2010, and estimate operating EPS of $3.30 (before $0.90 charge). We project a 9% rise to $3.60 for 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B+ B

40 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

Our buy recommendation is based on our valuation models, along with our view of FLR's favorable long-term prospects, especially in the Americas and Asia Pacific, and its strong balance sheet. Despite customer uncertainty, we see stronger bookings as customers gradually resuming long-term capital investment plans. Risks to our recommendation and target price include additional project delays and cancellations based on challenging market conditions, labor shortages, negative foreign currency effect, credit market issues, sharply lower oil prices, and timing issues for new awards. Our 12-month target price of $57 is derived from a blend of our relative and discounted cash flow (DCF) metrics. Based on various relative metrics, we use a premium-to-peers P/E of 15X our 2011 EPS estimate, reflecting FLR's strong global prospect list and diversified business model, resulting in a value of $54. Our DCF model, which assumes a 3.5% terminal growth rate and an 8.3% weighted average cost of capital, suggests the stock's intrinsic value is $60.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,919 5,152 2009 5,798 5,293 2008 4,807 5,574 2007 3,642 4,222 2006 3,625 3,456 2005 2,860 2,920

3Q -5,420 5,674 4,155 3,364 3,419

4Q -5,479 6,072 4,712 3,633 3,963

Year -21,990 22,326 16,691 14,079 13,161

Earnings Per Share ($) 2010 0.76 0.87 2009 1.12 0.93 2008 0.75 1.13 2007 0.47 0.52 2006 0.50 0.37 2005 0.28 -0.10

E0.95 0.89 1.01 0.51 0.16 0.76

E0.72 0.82 1.04 1.42 0.45 0.37

E3.30 3.75 3.93 2.93 1.48 1.31

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.125 0.125 0.125 0.125

10/30 02/04 05/06 08/05

12/02 03/03 06/02 09/01

12/04 03/05 06/04 09/03

01/05/10 04/02/10 07/02/10 10/04/10

Dividends have been paid since 1974. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FLR

Fluor Corp. Business Summary October 19, 2010 CORPORATE OVERVIEW. Fluor Corp. is one of the world's largest engineering, procurement, construction and maintenance companies. It has five principal operating segments. The Oil and Gas segment provides services to oil, gas, refining, chemical, polymer and petrochemical customers. Industrial and Infrastructure provides EPC services to businesses, including industrial, commercial, telecommunications, mining and technology. Global Services provides operations and maintenance support, and equipment and outsourcing, through TRS Staffing Solutions. Government Services provides support services to the federal government and other government entities. In the Power segment, Fluor provides a full range of services to the gas fueled, solid fueled, renewables, nuclear and plant betterment markets. Contributions to revenues and operating profits in 2009 were as follows: Oil and Gas, 54% of revenues and operating profits of $730 million; Industrial and Infrastructure, 22% and $140 million; Global Services, 9.4% and $140 million; Government, 9.0% and $117 million; and Power, 5.9% and $124 million.

Total backlog of $30.2 billion at June 30, 2010, slipped 2% from a year earlier but rose nearly 18% sequentially. During 2009, FLR removed $5.3 billion from its backlog, including $2.1 billion in the first quarter from a canceled Kuwait refinery project. The backlog at June 30, 2010, was divided by segment as follows: Oil and Gas $10.2 billion (34% of total backlog), down 35% from a year earlier; Industrial and Infrastructure $16.1 billion (53%), up 65%; Global Services $2.1 billion (7%), up 16%; Government $635 million (2%), down 35%, and Power $1.1 billion (4%), down 58%. Backlog by geographic region was: U.S. 28%; the Americas 26%; Europe, Africa and the Middle East 32%; and AsiaPacific (including Australia) 14%. Backlog includes a long cycle of larger projects that tend to take three to five years to complete, versus earlier smaller projects, which had an 18-to-36 month cycle. Historically, the backlog burn rate has been 60% to 65%, with FLR projecting about 60% for 2010. As of June 30, 2010, FLR's percentage of fixed price work in its backlog had increased to 29%, from 21% at 2009 year end (near 30% at 2008 year end), with most in infrastructure and power, while oil and gas is primarily cost reimbursable.

FLR received new awards of $18.5 billion in 2009, down 26% from a year earlier. In the second quarter of 2010, new awards climbed 38% to nearly $9.4 billion, year to year.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.99 4.79 3.75 3.86 0.50 13% 58.62 30.21 16 8

2008 14.23 4.82 3.93 3.49 0.50 13% 101.37 28.60 26 7

2007 12.39 3.74 2.93 2.93 0.40 14% 86.08 37.61 29 13

2006 9.39 2.18 1.48 1.50 0.22 15% 51.93 36.76 35 25

2005 8.92 1.91 1.31 1.31 0.32 24% 39.55 25.06 30 19

2004 7.45 1.68 1.13 1.04 0.32 28% 27.60 18.05 25 16

2003 6.26 1.61 1.12 1.17 0.32 29% 20.41 13.33 18 12

2002 5.38 1.55 1.07 0.90 0.32 30% 22.48 10.03 21 9

2001 4.79 1.26 0.81 0.57 0.32 40% 31.60 15.60 39 19

2000 9.98 2.69 0.66 NA 0.50 76% 24.25 11.97 37 18

21,990 1,305 182 10.1 1,137 35.5% 685 700

22,326 1,160 163 11.9 1,114 35.4% 720 640

16,691 755 147 24.0 649 17.8% 533 533

14,079 504 126 23.0 382 31.0% 263 267

13,161 396 104 16.3 300 24.1% 227 226

9,380 370 91.9 15.4 281 33.6% 187 171

8,806 344 79.7 10.1 268 33.0% 180 188

9,959 332 78.0 8.93 261 34.8% 170 143

8,972 258 71.9 25.0 185 31.1% 128 90.2

9,970 451 312 26.3 142 29.8% 99.8 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,291 Current Assets 5,122 Total Assets 7,178 Current Liabilities 3,301 Long Term Debt 17.7 Common Equity 3,306 Total Capital 3,461 Capital Expenditures 233 Cash Flow 867 Current Ratio 1.6 % Long Term Debt of Capitalization 0.5 % Net Income of Revenue 3.1 % Return on Assets 10.1 % Return on Equity 22.9

2,108 4,669 6,424 3,163 17.7 2,671 2,689 300 884 1.5 0.7 3.2 11.8 29.1

1,714 4,060 5,796 2,860 325 2,274 2,292 284 680 1.4 0.8 3.2 10.0 26.6

976 3,324 4,875 2,406 187 1,730 1,918 274 390 1.4 9.8 1.9 5.6 15.7

789 3,108 4,574 2,339 92.0 1,631 1,723 213 331 1.3 5.3 1.7 5.3 15.3

605 2,723 3,970 1,764 348 1,336 1,683 104 279 1.5 20.7 2.0 5.0 15.4

497 2,214 3,449 1,829 44.7 1,082 1,126 79.2 259 1.2 4.0 2.0 5.4 18.3

753 1,941 3,142 1,756 17.6 884 901 63.0 248 1.1 2.0 1.7 5.4 20.3

573 1,851 3,091 1,811 17.6 789 807 148 200 1.0 2.2 1.4 4.4 18.0

69.4 1,448 3,653 1,620 17.6 1,609 1,627 284 412 0.9 1.1 1.0 2.3 6.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6700 Las Colinas Blvd, Irving, TX 75039-2902. Telephone: 469-398-7000. Email: [email protected] Website: http://www.fluor.com

Chrmn & CEO: A.L. Boeckmann COO: D.T. Seaton SVP, CFO & Chief Acctg Officer: D.M. Steuert SVP, Secy & General Counsel: C.M. Hernandez

Chief Admin Officer: G.C. Gilkey Founded: 1924 Investor Contact: K. Lockwood (469-398-7220) Domicile: Delaware Board Members: I. Adesida, P. K. Barker, R. T. Employees: 36,152 Berkery, A. L. Boeckmann, H. P. Eberhart, P. J. Fluor, J. T. Hackett, K. Kresa, D. R. O'Hare, J. W. Prueher, N. H. Sultan, S. H. Woolsey

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FMC | FMC is in the S&P 500

FMC Corp. S&P Recommendation HOLD

★★★★★

Price $70.18 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Diversified Chemicals

12-Mo. Target Price $65.00

Investment Style Large-Cap Value

Summary This company is a diversified producer of industrial, specialty and agricultural chemicals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $71.47– 49.53 Trailing 12-Month EPS $3.16 Trailing 12-Month P/E 22.2 $10K Invested 5 Yrs Ago $28,437

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.70 5.10 14.9 72.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.087 0.71 $0.50 97

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.04 10 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's diversified product mix and leading domestic market positions in many product lines, offset by the cyclical nature of the industrial chemicals business and geographic exposure to the Brazilian farm economy.

80 60

40 30

Quantitative Evaluations

2-for-1 Vol. Mil. 6 4 2 0

23

14

S&P Quality Ranking

B-

14

D

C

B-

B

B+

A-

A

Relative Strength Rank

5

4

5

A+

MODERATE 68

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Richard O'Reilly, CFA on August 11, 2010, when the stock traded at $ 61.11. Highlights ➤

➤

We expect operating EPS of $4.70 in 2010, versus the depressed $4.15 of 2009. We believe industrial chemicals profits, which fell 55% in 2009 largely on lower volumes, will rise almost 30% in 2010, as some recovery in demand, especially for soda ash and peroxygens due to stronger glass, paper and pulp markets, and much lower raw material costs, outweigh lower prices for soda ash exports and peroxygens. Profits in the third quarter will be limited by costs arising from an unplanned outage at the soda ash facility.

Investment Rationale/Risk ➤

➤

Specialty chemicals profits should increase 20% in 2010, on expected sales growth in biopolymers and a recovery in lithium volumes. We look for profits for the pesticide unit to grow in the mid-single digits, reflecting sales increases in most regions on new product introductions, limited by increased development spending. ➤

➤

We see interest expense in 2010 increasing to about $42 million, from $27 million in 2009. Pension expense should also be greater, but we expect the effective tax rate to be about 30%, down from 30.8% in 2009.

Our hold opinion is based on our belief the shares are about fairly valued. We project a rebound in EPS in 2010 on further profit gains in pesticides and specialty chemicals. Industrial chemicals should show some recovery in profitability, reflecting a recovery in demand and lower raw material costs. We believe FMC's balance sheet and cash flow will allow it to make bolt-on acquisitions in the specialty businesses while continuing stock buybacks. Risks to our recommendation and target price include higher-than-expected raw material and energy costs, unplanned production outages and interruptions, adverse weather conditions, adverse economic conditions in Brazil (17% of annual sales), and the company's inability to maintain or increase industrial chemicals selling prices and receive approvals for new specialty chemical and pesticide products. Based on our 2010 estimates, the stock trades at P/E and cash flow multiples at discounts to those of comparable-sized chemical companies. Our 12-month target price of $65 is based on a multiple of 12.7X our 2011 EPS estimate, a typical historical discount to the company's peer group.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 756.5 776.8 2009 690.5 700.3 2008 750.2 806.6 2007 674.1 657.9 2006 594.1 592.3 2005 552.4 565.5

3Q -713.3 820.8 626.6 572.2 510.0

4Q -722.1 737.7 674.3 588.4 522.2

Year -2,826 3,115 2,633 2,347 2,150

Earnings Per Share ($) 2010 1.13 1.16 2009 1.00 1.01 2008 1.31 1.20 2007 0.71 0.19 2006 0.48 0.44 2005 0.46 0.43

E1.05 0.46 1.13 0.54 0.49 -0.04

E1.03 0.88 0.69 0.60 0.43 0.57

E4.70 3.37 4.35 2.02 1.84 1.42

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.125 0.125 0.125 0.125

12/18 02/19 04/27 07/23

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/21/10 04/15/10 07/15/10 10/21/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FMC

FMC Corp. Business Summary August 11, 2010 CORPORATE OVERVIEW. FMC Corp. concentrates solely on its chemicals businesses, consisting of pesticides, and industrial and specialty chemicals. International operations provided 65% of 2009 sales; Brazil alone accounted for 17% of sales. Industrial chemicals accounted for 36% of sales and 17% of profits in 2009. FMC is North America's largest producer of natural soda ash (about 55% of annual sales) and a large producer of peroxygens (15%, consisting of hydrogen peroxide and specialties), and is a major European producer of phosphates, peroxygens, zeolites, silicates, and sulfur derivatives through Foret, S.A. (30%). The segment had posted three years of substantial earnings growth after its cyclical low in 2003, before easing in 2007 as higher raw material costs more than offset increased sales. Profits more than doubled in 2008 on higher selling prices and improved power markets in Europe, but fell 55% in 2009 on lower volumes due to the recession. The company in early May 2010 said it was exploring strategic alternatives for its phosphorus business.

fungicides for crop protection and pest control. The segment achieved its seventh consecutive year of record profits in 2009, growing 18%, although sales eased 1%. Insecticides (including Founce, Furadan and Capture) account for about 48% of annual sales; almost 80% of segment sales are derived outside the U.S. Herbicide sales (45%) have grown significantly over the past several years. FMC's herbicides primarily target niche uses and include two product lines (sulfentrazone and carfentrazone) introduced in the late 1990s. In the specialty chemicals segment (27%, 29%), FMC BioPolymer (about 77% of segment sales) is the world's leading producer of carrageenan, alginate, and microcrystalline cellulose (over 50% share), used for pharmaceutical ingredients, food stabilizers and thickeners, and personal care and household products. FMC believes that carrageenan and microcrystalline cellulose are growing faster than the overall food ingredients market.

Agricultural products (37%, 54%) consist of insecticides, herbicides, and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.00 5.10 3.37 3.58 0.50 15% 58.13 34.90 17 10

2008 9.19 5.75 4.35 3.42 0.48 11% 80.23 28.53 18 7

2007 15.24 3.49 2.02 1.79 0.41 20% 59.00 35.63 29 18

2006 11.17 3.50 1.84 1.99 0.36 20% 38.99 25.87 21 14

2005 10.53 3.21 1.42 0.97 Nil Nil 31.94 21.63 23 15

2004 9.55 4.19 2.35 2.22 Nil Nil 25.25 16.48 11 7

2003 6.12 2.33 0.56 0.30 Nil Nil 17.43 7.11 31 13

2002 3.94 2.68 1.01 0.40 Nil Nil 21.15 11.45 21 11

2001 1.64 -2.79 -4.93 -4.94 Nil Nil 42.00 22.83 NM NM

2000 4.99 5.79 2.81 NA Nil Nil 38.59 23.03 14 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,826 577 127 27.2 310 17.1% 247 261

3,115 656 106 38.6 472 26.6% 330 259

2,633 507 114 41.4 195 14.9% 157 139

2,347 461 132 42.0 153 NM 145 157

2,150 416 136 62.3 201 41.0% 111 75.9

2,051 363 134 80.9 135 NM 176 166

1,921 321 125 96.1 40.9 NM 39.8 21.4

1,853 306 119 73.0 89.9 19.4% 69.1 27.4

1,943 323 132 63.0 -471 NM -306 -307

3,926 565 189 99.7 227 19.9% 177 NA

Balance Sheet & Other Financial Data (Million $) Cash 76.6 Current Assets 1,488 Total Assets 3,136 Current Liabilities 709 Long Term Debt 588 Common Equity 1,133 Total Capital 1,744 Capital Expenditures 161 Cash Flow 374 Current Ratio 2.1 % Long Term Debt of Capitalization 33.7 % Net Income of Revenue 8.7 % Return on Assets 8.1 % Return on Equity 24.2

52.4 1,433 2,976 759 593 903 1,561 175 436 1.9 38.0 10.6 11.5 33.5

75.5 1,194 2,733 751 420 1,064 1,542 115 271 1.6 27.2 6.0 5.7 15.0

166 1,068 2,735 702 524 1,056 1,638 116 277 1.5 32.0 6.2 5.3 13.9

206 1,067 2,740 659 640 1,026 1,717 93.5 247 1.6 37.3 5.2 3.9 11.3

212 1,073 2,978 820 822 942 1,816 85.4 310 1.3 45.3 8.6 6.0 22.0

57.0 1,010 2,829 728 1,033 654 1,736 87.0 164 1.4 59.5 2.1 1.4 7.0

364 1,176 2,872 875 1,036 406 1,487 83.9 188 1.3 69.7 3.7 2.6 22.1

23.4 820 2,477 1,079 652 219 915 146 -175 0.8 71.2 NM NM NM

25.1 1,330 3,746 1,400 872 800 1,720 240 366 0.9 50.7 4.5 4.6 23.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1735 Market St, Philadelphia, PA 19103-7597. Telephone: 215-299-6000. Email: [email protected] Website: http://www.fmc.com

Chrmn, Pres & CEO: P.R. Brondeau COO: M.A. Douglas SVP & CFO: W.K. Foster Chief Acctg Officer & Cntlr: G.R. Wood

Treas: T.C. Deas, Jr. Founded: 1884 Investor Contact: B. Arndt (215-299-6266) Domicile: Delaware Board Members: P. R. Brondeau, P. A. Buffler, G. P. Employees: 4,800 D'Aloia, C. S. Greer, D. A. Kempthorne, E. J. Mooney, P. J. Norris, R. C. Pallash, E. Sosa, V. R. Volpe, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FTI | FTI is in the S&P 500

FMC Technologies Inc S&P Recommendation BUY

★★★★★

Price $72.30 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Equipment & Services

12-Mo. Target Price $82.00

Investment Style Large-Cap Growth

Summary This company is a leading provider of oilfield services capital equipment, particularly for subsea equipment used in deepwater energy exploration and development.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $76.54– 46.16 Trailing 12-Month EPS $3.06 Trailing 12-Month P/E 23.6 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.91 3.10 24.8 120.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

40 30

2-for-1

Mil.

HIGH

41

27

S&P Quality Ranking

12 8 4 0

D 4

3

2

3

5

4

3

4

B-

B+ B

B+

A-

A

A+ STRONG

78

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

Relative Strength Rank

1

2008

2009

Analysis prepared by Stewart Glickman, CFA on September 13, 2010, when the stock traded at $ 67.07. Highlights Energy Production Systems backlog at the end of June 2010 was $2.6 billion, up from $2.3 billion at the end of December, with subsea backlog comprising the vast majority ($2.3 billion). While new order flow into backlog may be choppy this year, we think the recent recovery in crude oil prices to above $70 per barrel raises the likelihood of improved order flow. The book-to-bill ratio at Energy Production Systems rose to 1.16 in the second quarter, after averaging 0.73 in 2009, but we forecast a pullback in the remainder of the year, yielding a value of 1.03 in 2010. The revised U.S. deepwater drilling moratorium (now due to expire on November 30) may delay U.S.-bound ordering activity, on fears that the moratorium will be extended further. FTI generated Energy Production Systems margins of 15.7% in the second quarter, which we do not view as sustainable given a tightening supply chain, but we still project operating margins of about 13.5% in the second half of 2010, and 14.0% in 2011. We project EPS of $2.91 in 2010 rising to $3.10 in 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, P, Ph

➤

MEDIUM

Quantitative Evaluations

Vol.

➤

LOW

Our risk assessment reflects the company's exposure to crude oil and natural gas prices and capital spending decisions by oil and gas producers, and its commitment to technological innovation in oilfield services, offset in part by a longer-term trend towards deepwater development.

60

➤

1.30 14 NA

Below Avg.

80

5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

20

$8.677 Nil Nil 91

Based on data from RigLogix, we see the arrival of 15 newbuild floaters in the remainder of 2010, and 28 more in 2011, which should buoy demand for related subsea equipment. The current U.S. deepwater drilling moratorium adds some near-term uncertainty to this schedule, to the extent that these rigs are slated for work in the U.S. Gulf of Mexico; we also see near-term risk to FTI from its North American surface control business, given chronically weak natural gas prices. Long term, however, we expect the moratorium to be lifted, and we view FTI as a prime beneficiary of a secular trend toward deepwater development. Risks to our recommendation and target price include reduced subsea activity, lower energy prices, unexpected contract cancellations, appreciation of the U.S. dollar; and an extended U.S. deepwater drilling moratorium. Our DCF model, assuming free cash flow growth of 12%, terminal growth of 3%, and a WACC of 11%, shows intrinsic value of $94. Applying premium multiples of 13X enterprise value to estimated 2010 EBITDA and 15X projected 2010 cash flow, and blending these values with our DCF model, our 12-month target price is $82.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,050 1,013 2009 1,053 1,104 2008 1,294 1,454 2007 979.9 1,153 2006 826.6 949.2 2005 681.6 812.5

3Q -1,088 1,128 1,136 938.3 776.1

4Q -1,160 1,205 1,364 1,077 956.5

Year -4,405 4,551 4,615 3,791 3,227

Earnings Per Share ($) 2010 0.80 0.78 2009 0.56 0.84 2008 0.62 0.81 2007 0.45 0.55 2006 0.34 0.45 2005 Nil 0.21

E0.64 0.73 0.72 0.60 0.44 0.33

E0.69 0.75 0.74 0.70 0.47 0.22

E2.91 2.87 2.72 2.30 1.51 0.75

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: FTI

FMC Technologies Inc Business Summary September 13, 2010 CORPORATE OVERVIEW. FMC Technologies is a global provider of high technology solutions for the energy industry. The company designs, manufactures and services advanced systems and products such as subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment, measurement solutions, and marine loading systems for the oil & gas industry. Operations are separated into two reportable segments: Energy Production Systems, and Energy Processing Systems. Together, these two segments comprise Energy Systems. Approximately 23% of total 2009 revenues were derived in the United States, followed by Norway, with 21%. In July 2008, the company spun off its former FoodTech and Airport Systems segments to John Bean Technologies (JBT 18, Not Ranked), rendering the remainder of FTI as a pure-play energy services company that specializes in capital equipment. These former segments are now classified under discontinued operations. The Energy Production Systems segment (84% of 2009 revenues, and 83% of 2009 segment operating profits) is a global leader in production systems that control the flow of oil and gas from producing wells. Approximately 70% of this segment's revenue base is derived from sales of subsea systems. Subsea systems are placed on the seafloor, and are used to control the flow of oil or gas from the reservoir to a host facility (such as floating production facility, a fixed platform, or an onshore facility). Many systems that the company provides are used in exploration, development and production of crude oil and

natural gas reserves located in deepwater environments, with water depths greater than 1,000 ft. The remaining 30% of this segment's revenue base is derived from surface production systems. The company is also involved in subsea separation systems, which helps to separate the flow of oil, gas and water more efficiently. Lastly, FTI is advancing the development of subsea processing, an emerging technology in the industry, which would enable separation at the seabed and thus be more cost-efficient for customers. This technology was introduced commercially in the North Sea in 2007. The Energy Processing Systems segment (16%, 17%) designs, manufactures and supplies technologically advanced high pressure valves and fittings for oilfield services customers. FTI also builds and supplies liquid and gas measurement and transportation equipment and systems to customers involved in upstream, midstream and downstream operations. Products include the WECO/Chiksan line of flowline products, which pump fracturing fluids into a well during the well servicing process, or that pump cement during the completion of new wells. Other product lines include flow meters, fluid loading and transfer systems, material handling systems, and blending and transfer systems.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.31 3.61 2.87 2.91 Nil Nil 59.56 23.35 21 8

2008 3.78 3.22 2.72 2.52 Nil Nil 83.18 20.27 31 7

2007 5.79 2.85 2.30 2.20 Nil Nil 67.78 27.57 29 12

2006 5.18 2.01 1.51 1.49 Nil Nil 35.95 21.69 24 14

2005 3.82 1.21 0.75 0.56 Nil Nil 22.11 14.31 29 19

2004 3.45 1.30 0.84 0.58 Nil Nil 17.25 10.99 21 13

2003 1.81 1.01 0.57 0.51 Nil Nil 12.30 8.97 22 16

2002 1.40 0.85 0.48 0.27 Nil Nil 11.92 7.15 25 15

2001 0.55 0.75 0.30 0.17 Nil Nil 11.24 5.50 37 18

2000 0.14 0.91 0.46 NA NA NA NA NA NA NA

4,405 NA 93.0 9.50 518 30.0% 361 366

4,551 596 64.9 1.50 506 30.0% 353 327

4,615 524 73.4 21.5 465 33.7% 308 294

3,791 375 70.8 11.8 299 28.3% 212 208

3,227 198 65.9 9.00 165 34.1% 106 78.3

2,768 174 63.5 Nil 160 26.4% 117 81.3

2,307 174 57.7 10.1 108 28.8% 75.6 68.3

2,072 154 48.6 14.1 92.5 28.3% 64.1 36.1

1,928 149 57.8 14.1 63.5 38.0% 39.4 21.6

1,875 165 59.1 18.8 78.4 22.8% 60.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 461 Current Assets 2,226 Total Assets 3,510 Current Liabilities 1,679 Long Term Debt 392 Common Equity 1,103 Total Capital 1,504 Capital Expenditures 110 Cash Flow 454 Current Ratio 1.3 % Long Term Debt of Capitalization 26.2 % Net Income of Revenue 8.2 % Return on Assets 10.2 % Return on Equity 40.2

340 2,444 3,586 1,963 472 696 1,181 165 418 1.3 40.0 7.8 10.4 41.1

130 2,104 3,211 1,785 122 1,022 1,151 203 381 1.2 10.6 6.7 10.8 32.2

79.5 1,690 2,488 1,208 213 886 1,107 139 282 1.4 19.2 5.6 9.2 26.7

153 1,428 2,096 1,058 253 706 965 91.8 172 1.3 26.2 3.3 5.3 15.4

124 1,217 1,894 995 160 669 835 50.2 180 1.2 19.2 4.2 6.7 20.7

29.0 949 1,591 845 201 442 650 65.2 133 1.1 30.9 3.3 5.1 19.8

32.4 813 1,363 728 175 322 502 68.1 113 1.1 34.9 3.1 4.6 16.8

28.0 755 1,438 681 194 418 616 67.6 97.2 1.1 31.5 2.0 2.8 7.5

12.0 740 1,408 613 250 379 629 NA 120 1.2 39.7 3.2 NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1803 Gears Rd, Houston, TX 77067-4003. Telephone: 281-591-4000. Website: http://www.fmctechnologies.com Chrmn & CEO: P.D. Kinnear

Pres & COO: J.T. Gremp EVP & CFO: W.H. Schumann, III Chief Admin Officer: M.J. Scott CTO: B.D. Beitler

Investor Contact: R. Cherry (281-591-4560) Board Members: M. R. Bowlin, P. Burguieres, C. M. Devine, T. Enger, C. S. Farley, T. Hamilton, P. D. Kinnear, E. J. Mooney, J. H. Netherland, Jr., R. A. Pattarozzi, J. M. Ringler, E. de Carvalho Filho

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2000 Domicile: Delaware Employees: 10,400

Stock Report | October 23, 2010 | NYS Symbol: F | F is in the S&P 500

Ford Motor Co S&P Recommendation BUY

★★★★★

Price $13.95 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Automobile Manufacturers

12-Mo. Target Price $16.00

Investment Style Large-Cap Value

Summary As the world's third largest producer of cars and trucks, Ford also has automotive financing and insurance operations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$14.57– 6.81 $1.68 8.3 $17,698

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.68 1.87 8.3 3,439.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.54 33 B+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly cyclical nature of Ford's markets and our view of the current and long-term challenges it faces, including weak industry demand, intensifying competition, high fixed and legacy costs, and a weak but improving balance sheet.

8 4 2 1

Quantitative Evaluations

Vol.

S&P Quality Ranking

1152

Mil.

C

946

450 300 150 0 5

$46.990 Nil Nil 61

D

C

B-

B

B+

A-

A

Relative Strength Rank 3

STRONG

4

3

83 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Efraim Levy, CFA on October 12, 2010, when the stock traded at $ 13.66. Highlights ➤

We see Ford's total revenues rising 10% in 2010, due to gains in the U.S., China, and most non-European regions. European sales should be restrained in the aftermath of various governments' scrappage programs that stimulated demand in 2009. Automotive sales should increase 13%. The financial services segment has historically been an important contributor to sales and earnings, and we expect it to be more profitable in 2010 than in 2009.

Investment Rationale/Risk ➤

➤ ➤

➤

Margins should benefit from improved volume, more efficient capacity utilization, and costcutting efforts, partly offset by higher raw material costs. In our view, Ford's brand benefited because it did not tap government financial aid, and various new products. In addition, we believe Ford has taken advantage of Toyota's difficulties. However, we expect these benefits to diminish over time. The decision to terminate the Mercury brand should help Ford revive the Lincoln brand. We see Ford's revised contracts with the UAW enhancing profitability by about $2.5 billion a year starting in 2010. The agreements include unprecedented union givebacks in terms of benefits and work rules, customized to Ford's needs.

➤

We think Ford's president and CEO has made a noticeable positive difference in the company's improvement efforts. Also, we have become more confident in Ford's ability to bring successful vehicles to market -- one of the company's most important challenges, in our view -and we also see progress in bolstering the company's image. However, we think competitive and economic challenges remain. Risks to our opinion and target price include increased competition, less-than-expected demand and production, weaker-than-projected financial services income, and an unfavorable shift in cash balances. As for corporate governance, we are concerned about Ford family members having greater voting rights than other shareholders. As of December 31, 2009, total stockholders' equity was negative. The stock recently traded at a price-to-sales (P/S) multiple below that of Ford's largest Japanese peers. In light of our view that the worst may be over for Ford, but some risk to demand remains, and based on historical and peer comparative P/E multiples, our 12-month target price is $13.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 31,566 31,300 2009 24,778 27,189 2008 43,513 38,600 2007 43,019 44,200 2006 41,055 41,965 2005 45,136 44,548

3Q -30,892 32,100 41,100 37,110 40,856

4Q -35,449 29,200 44,100 40,318 46,549

Year -118,308 139,300 172,455 160,123 177,089

Earnings Per Share ($) 2010 0.50 0.61 2009 -0.60 0.69 2008 0.05 -3.88 2007 -0.15 0.30 2006 -0.64 -0.14 2005 0.58 0.47

E0.40 0.29 -0.06 -0.19 -2.79 -0.16

E0.26 0.25 -2.46 -1.33 -2.98 0.21

E1.68 0.86 -6.41 -1.40 -6.72 1.14

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2006.

Stock Report | October 23, 2010 | NYS Symbol: F

Ford Motor Co Business Summary October 12, 2010 CORPORATE OVERVIEW. Ford is the world's third largest motor vehicle manufacturer. It produces cars and trucks, and many of the vehicles' plastic, glass and electronic components, and replacement parts. It also owns a 11% stake in Mazda Motor Corp. Financial services include Ford Motor Credit (automotive financing and insurance) and American Road Insurance Co. In recent years, Ford's margins have been pressured by an increase in competition -- primarily from Asian companies -- and a shift away from the more profitable large pickup truck and SUV segments to smaller, less profitable crossover utility vehicles (CUVs). However, in 2009, competitors' bankruptcy filings and its own new products helped it gain market share, in our view. CORPORATE STRATEGY. Challenged by a shrinking U.S. market share and more recently by lower industry volume, the company has announced restructuring plans in recent years in an attempt to lower its costs. Also, even as global demand begins what we expect to be a multi-year uptrend, the company has worked to prune it product portfolio to focus on its Ford and Lincoln brands. Most recently, the company announced plans to discontinue production of Mercury brand vehicles.

The company sold its Volvo unit to China's Zhejiang Geely Holding Group Co. Ltd. for $1.8 billion in the third quarter of 2010. The company's business and product portfolio has changed several times in recent years, as Ford sought to optimize its financial health and performance. In December 2005, Ford sold its Hertz Corp. unit for about $15 billion, including around $5.6 billion in cash proceeds. We believe the sale diluted EPS in 2006, as Hertz had contributed $0.16 per share to EPS in 2004 and $0.19 in the first nine months of 2005, according to company estimates. In 1999, the company acquired the car operations of AB Volvo for $6.45 billion. In 2000, Ford acquired Land Rover from BMW Group for $1.9 billion. In June 2008, the company sold Jaguar and Land Rover to Tata Motors for $2.3 billion, but used about $600 million of the proceeds to fund the Jaguar and Land Rover pension plans. In late 2008, the company reduced its stake in Mazda from 33% to 13.8% (now 11%).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.91 0.86 0.84 Nil Nil 10.37 1.50 12 2

2008 NM 2.49 -6.41 -7.69 Nil Nil 8.79 1.01 NM NM

2007 0.70 5.26 -1.40 -0.94 Nil Nil 9.70 6.65 NM NM

2006 NM -6.71 -6.72 -5.58 0.35 NM 9.48 1.06 NM NM

2005 3.68 7.62 1.14 0.64 0.40 35% 14.75 7.57 13 7

2004 4.60 9.12 1.80 1.80 0.40 22% 17.34 12.61 10 7

2003 2.30 8.31 0.50 1.03 0.40 80% 17.33 6.58 35 13

2002 NM 8.45 0.15 -1.16 0.40 NM 18.23 6.90 NM NM

2001 NM 5.78 -3.02 -4.56 1.05 NM 31.42 14.70 NM NM

2000 6.10 13.46 3.59 NA 2.30 64% 57.25 21.69 16 6

118,300 10,935 6,931 1,515 3,008 2.29% 2,694 2,631

139,300 16,199 20,329 9,682 -14,303 NM -14,580 -17,458

172,455 21,189 13,158 10,927 -3,746 NM -2,764 -1,866

160,123 8,286 16,453 8,783 -15,051 NM -12,615 -10,472

177,089 21,052 14,042 7,643 1,996 NM 2,228 1,146

171,652 24,945 13,052 7,071 4,853 19.3% 3,634 3,637

164,196 24,770 14,297 7,690 1,370 9.85% 921 1,905

163,420 25,034 15,177 8,824 953 31.7% 284 -2,202

162,412 22,941 15,922 10,848 -7,584 NM -5,453 -8,266

170,064 34,530 14,849 10,902 8,234 32.9% 5,410 NA

Balance Sheet & Other Financial Data (Million $) Cash 31,696 Total Assets 194,850 Long Term Debt 114,727 Total Debt 132,441 Common Equity -7,820 Capital Expenditures 4,561 Cash Flow 9,625 % Return on Assets 1.3 % Return on Equity NM % Long Term Debt of Capitalization 106.0

15,181 218,328 90,534 154,196 -17,311 6,696 5,648 NM NM 111.7

50,031 279,264 107,478 168,530 5,628 6,022 10,394 NM NM 93.9

50,366 278,554 144,373 172,049 -3,465 6,848 -12,615 NM NM 106.0

39,082 269,476 94,428 154,332 12,957 7,517 16,270 0.8 15.4 82.9

33,018 292,654 106,540 172,973 16,045 6,745 16,686 1.2 26.2 82.2

33,642 304,594 119,751 179,804 11,651 7,749 15,218 0.3 10.7 87.5

30,521 289,357 125,806 167,892 5,590 7,278 15,446 0.1 4.0 87.8

15,028 276,543 121,430 168,009 7,786 7,008 10,454 NM NM 87.2

16,490 284,421 99,560 166,229 18,610 8,348 20,244 2.0 23.3 78.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 American Rd, Dearborn, MI 48126-2798. Telephone: 313-322-3000. Website: http://www.ford.com Chrmn & COO: W.C. Ford, Jr.

Pres & CEO: A.R. Mulally EVP & CFO: L.W. Booth CTO: G. Schmidt Chief Acctg Officer & Cntlr: R.L. Shanks

Investor Contact: L. Heck (313-594-0613) Founded: 1903 Board Members: S. G. Butler, K. A. Casiano, A. F. Domicile: Delaware Earley, Jr., E. B. Ford, II, W. C. Ford, Jr., R. A. Employees: 198,000 Gephardt, J. H. Hance, Jr., I. O. Hockaday, Jr., R. A. Manoogian, E. R. Marram, A. R. Mulally, H. A. Neal, G. L. Shaheen, J. L. Thornton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FRX | FRX is in the S&P 500

Forest Laboratories Inc. S&P Recommendation BUY

★★★★★

Price $33.92 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $38.00

Investment Style Large-Cap Growth

Summary This company develops and makes branded and generic ethical drug products, sold primarily in the U.S., Puerto Rico, and Western and Eastern Europe.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.95– 24.17 Trailing 12-Month EPS $2.13 Trailing 12-Month P/E 15.9 $10K Invested 5 Yrs Ago $9,331

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.85 4.10 8.8 285.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

0.68 6 NA

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's recent legal victory against generic challengers to its important Lexapro patent. We also think its R&D pipeline shows much promise. However, Forest's relatively small size among big pharma competitors and our view of its somewhat limited product line are significant risk factors.

40 30

20

Quantitative Evaluations

Vol. Mil.

61

S&P Quality Ranking

24 16 8 0

D 4

4

3

4

3

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

84

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Highlights The 12-month target price for FRX has recently been changed to $38.00 from $35.00. The Highlights section of this Stock Report will be updated accordingly.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

5

$9.686 Nil Nil 98

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on FRX from MarketScope, see below.

➤

10/19/10 12:02 pm ET ... S&P REITERATES BUY OPINION ON SHARES OF FOREST LABORATORIES (FRX 33.26****): Q2 operating EPS of $1.00, versus $0.85, was $0.07 ahead of our estimate, on better than expected sales growth of 7.7%, and tight control over operating costs. We continue to view FRX as an expanding R&D pipeline story, with about a dozen new projects under development. Key opportunities, in our opinion, include Daxas and aclidinium for COPD, ceftaroline novel antibiotic, and linaclotide for chronic constipation. We are raising our target price by $3 to $38, applying a discount-to-peers P/E of 9.9X to our $3.85 EPS estimate for FY '11 (Mar), raised from $3.73. /H. Saftlas

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 1,060 1,080 2010 1,008 1,013 2009 947.9 972.8 2008 928.3 919.0 2007 816.3 847.0 2006 711.8 736.5

3Q -1,065 972.4 998.2 893.0 757.8

4Q -1,050 951.9 990.9 885.4 756.3

Year -4,193 3,845 3,718 3,442 2,962

Earnings Per Share ($) 2011 0.39 1.00 2010 0.87 0.61 2009 0.79 0.80 2008 0.83 0.71 2007 0.62 0.75 2006 0.62 0.59

E0.96 0.69 0.62 0.96 0.78 0.57

E0.94 0.07 0.31 0.55 -0.75 0.28

E3.85 2.25 2.52 3.06 1.41 2.08

Fiscal year ended Mar. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: FRX

Forest Laboratories Inc. Business Summary September 14, 2010 CORPORATE OVERVIEW. Forest Laboratories is a leading producer of nicheoriented branded and generic prescription pharmaceuticals. Most of Forest's products were developed in collaboration with licensing partners. Product sales accounted for 93% of total revenues in FY 10 (Mar.), contract revenues for 5%, and other income for 2%. Lexapro antidepressant is FRX's single most important product. A single enanitomer version of Celexa (an older, off-patent FRX antidepressant), Lexapro is an advanced selective serotonin reuptake inhibitor (SSRI) indicated for both depression and generalized anxiety disorder. Lexapro had sales of $2.3 billion in FY 10, unchanged from FY 09. As of March 2010, Lexapro's share of the branded antidepressant market was estimated at about 11%. FRX inlicensed Lexapro from H. Lundbeck A/S, a Danish drug firm. FRX's Lexapro's patent expires in March 2012. FRX's second most important product is Namenda (licensed from Merz Pharmaceuticals of Germany), a treatment for moderate to severe Alzheimer's disease. Sales of Namenda were $1.1 billion in FY 10, up from $949 million in FY 09. As of March 2010, Namenda was estimated to account for about 34% of the Alzheimer's prescription drug market.

The company's third largest drug is Benicar, an antihypertensive co-promoted with Sankyo. FRX booked income of about $192 million from Benicar in FY 10, down from $196 million in FY 09. In January 2008, FRX launched Bystolic, a novel beta blocker antihypertensive that was in-licensed from Mylan Laboratories. Bystolic had sales of $179 million in FY 10, up from $69 million in FY 09. Other products include Tiazac antihypertensive, Aerobid asthma drug, Campral for alcohol addiction, Combunox for severe pain, and other drugs. COMPETITIVE LANDSCAPE. The U.S. antidepressant drug market totaled about $11 billion in 2009, based on estimates by Standard & Poor's. We expect this market to shrink in terms of dollar sales over the coming years, reflecting the impact of inexpensive generic versions of many patent-expired branded antidepressants. Pfizer's Zoloft antidepressant lost patent protection in 2006, and Wyeth's patent on Effexor antidepressant expired in 2008. Generics now largely comprise previously branded Prozac and Paxil antidepressant markets.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 14.58 2.50 2.25 2.26 Nil Nil 2009 32.76 18.37 15 8

2009 11.94 2.84 2.52 2.53 Nil Nil 2008 42.76 19.23 17 8

2008 10.19 3.34 3.06 3.01 Nil Nil 2007 57.97 34.89 19 11

2007 8.93 1.55 1.41 1.41 Nil Nil 2006 54.70 36.18 39 26

2006 7.69 2.20 2.08 1.97 Nil Nil 2005 45.21 32.46 22 16

2005 8.21 2.32 2.25 2.15 Nil Nil 2004 78.81 36.10 35 16

2004 8.03 2.01 1.95 1.85 Nil Nil 2003 63.23 41.85 32 21

2003 5.66 1.80 1.66 1.58 Nil Nil 2002 54.99 32.12 33 19

2002 3.75 1.06 0.91 0.74 Nil Nil 2001 41.60 23.25 46 26

2001 2.60 0.71 0.59 0.47 Nil Nil 2000 35.33 14.34 60 24

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,112 1,027 76.5 NA 951 28.2% 682 686

3,845 989 96.5 Nil 971 20.9% 768 771

3,718 1,179 86.7 Nil 1,210 20.0% 968 953

3,442 754 45.4 Nil 709 35.9% 454 454

2,962 701 40.7 Nil 870 18.5% 709 673

3,114 1,164 25.4 Nil 1,185 29.2% 839 800

2,650 929 22.2 Nil 937 21.5% 736 697

2,207 833 51.6 Nil 821 24.2% 622 589

1,567 490 54.6 Nil 470 28.1% 338 272

1,181 318 43.3 Nil 299 28.0% 215 170

Balance Sheet & Other Financial Data (Million $) Cash 3,322 Current Assets 4,579 Total Assets 6,224 Current Liabilities 980 Long Term Debt NA Common Equity 4,890 Total Capital 4,890 Capital Expenditures 32.3 Cash Flow 759 Current Ratio 4.7 % Long Term Debt of Capitalization Nil % Net Income of Revenue 16.6 % Return on Assets NA % Return on Equity NA

2,581 3,786 5,197 818 Nil 4,115 4,115 40.6 864 4.6 Nil 20.0 15.8 19.6

1,777 2,908 4,525 611 Nil 3,715 3,716 34.9 1,055 4.8 Nil 26.0 23.7 28.7

1,353 2,423 3,653 628 Nil 3,025 3,026 30.0 500 3.9 Nil 13.5 13.4 15.9

1,323 2,207 3,120 421 Nil 2,698 2,699 55.0 749 5.2 Nil 24.3 20.8 24.3

1,619 2,708 3,705 564 Nil 3,132 3,141 89.0 864 4.8 Nil 26.9 22.2 26.3

2,131 2,916 3,863 605 Nil 3,256 3,258 102 758 4.8 Nil 27.8 21.7 26.2

1,556 2,255 2,918 564 Nil 2,352 2,354 79.6 674 4.0 Nil 28.2 25.5 31.3

893 1,195 1,952 325 Nil 1,625 1,627 36.4 393 3.7 Nil 21.6 19.9 23.7

506 884 1,447 224 Nil 1,222 1,223 30.9 258 4.0 Nil 18.2 16.7 20.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 909 3rd Ave, New York, NY 10022-4748. Telephone: 212-421-7850. Email: [email protected] Website: http://www.frx.com

Chrmn & CEO: H. Solomon Pres & COO: L.S. Olanoff SVP, CFO & Chief Acctg Officer: F.I. Perier, Jr. Secy: H.S. Weinstein

Investor Contact: F.J. Murdolo (212-224-6714) Board Members: N. Basgoz, W. J. Candee, III, G. S. Cohan, D. L. Goldwasser, K. E. Goodman, L. S. Olanoff, L. Salans, H. Solomon, P. J. Zimetbaum

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1956 Domicile: Delaware Employees: 5,200

Stock Report | October 23, 2010 | NYS Symbol: FO | FO is in the S&P 500

Fortune Brands Inc. S&P Recommendation HOLD

★★★★★

Price $56.05 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Housewares & Specialties

12-Mo. Target Price $48.00

Investment Style Large-Cap Blend

Summary This diversified holding company has interests in consumer businesses that include home improvement, spirits, and golf-related products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.40– 37.05 Trailing 12-Month EPS $2.85 Trailing 12-Month P/E 19.7 $10K Invested 5 Yrs Ago $8,315

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.94 3.39 19.1 152.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

MEDIUM

HIGH

Quantitative Evaluations

Vol. Mil.

19

18

9 6 3 0

S&P Quality Ranking D

3

3

2

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Esther Y. Kwon, CFA on August 03, 2010, when the stock traded at $ 44.49. Highlights For 2010, our sales growth forecast of 5% assumes that the home remodeling and golf markets in the U.S. bottomed in 2009 after two to three years of revenue declines. Even the Spirits business has not been immune to weakness in consumer discretionary spending in the U.S. and other major markets. In 2009, total company sales declined 12%, including a negative foreign currency impact, with all segments down: Spirits -1%; Home & Security -20%; and Golf 11%. We think that, for the most part, FO appears to be holding its market shares overall. We look for a partial recovery in the operating margin in 2010 on better sales leverage and continued strong cost control. We are concerned about possible renewed commodity cost pressures later in 2010. In 2009, the operating margin, before restructuring charges, narrowed 310 basis points (which followed 2008's almost 300 bps decline), as worsening operating leverage offset benefits from restructuring programs and moderating commodity costs.

Investment Rationale/Risk ➤

➤

➤

C

B-

B+ B

B+

A-

A

A+

Relative Strength Rank

STRONG 87

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

FO's businesses -- spirits, golf and home & security (primarily for the remodeling market) -are usually less cyclical than many other consumer-related businesses. However, the depth of the economic downturn in the U.S. and in many major international markets has significantly affected FO's results.

40

➤

1.64 12 BBB-

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

80

5

$8.540 1.36 $0.76 77

Our Hold opinion reflects our view that the stock price adequately reflects FO's near-term outlook. We remain concerned about the magnitude and sustainability of a recovery in consumer spending and the continuing low level of recovery in the home repair and remodeling business in the U.S. Due to the early termination in August 2008 of FO's Absolut Vodka distribution agreement, FO no longer reports noncash recognition of about $27 million in annual deferred gains. In April 2009, FO announced a reduction in its quarterly dividend to $0.19 a share, from $0.44. Risks to our recommendation and target price include a delayed recovery in consumer spending in the U.S. and other major markets and weak consumer acceptance of new products. Our 12-month target price of $48 is based on our historical P/E analysis. We apply a forward P/E of approximately 14X, which is the average over the last four years, to our 2011 EPS estimate of $3.39.

Our 2010 EPS estimate is $2.94, up from operating EPS of $2.43 in 2009 and operating EPS of $3.79 in 2008. For 2011, we forecast EPS of $3.39.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,499 1,771 2009 1,338 1,617 2008 1,711 1,967 2007 1,909 2,293 2006 2,017 2,257 2005 1,518 1,783

3Q -1,593 1,922 2,145 2,219 1,802

4Q -1,658 1,628 2,215 2,277 1,959

Year -6,205 7,105 8,563 8,769 7,061

Earnings Per Share ($) 2010 0.47 1.48 2009 0.05 0.66 2008 0.69 0.17 2007 0.78 1.47 2006 1.15 1.63 2005 0.95 1.22

E0.83 0.82 2.01 1.33 0.98 0.52

E0.65 0.08 -1.83 1.22 1.65 1.17

E2.94 1.60 1.07 4.79 5.42 3.87

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.190 0.190 0.190 0.190

01/26 04/27 07/26 09/28

02/08 05/10 08/09 11/08

02/10 05/12 08/11 11/10

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1905. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FO

Fortune Brands Inc. Business Summary August 03, 2010 CORPORATE OVERVIEW. Fortune Brands is a holding company with subsidiaries that produce spirits, home and security products, and golf products. Spirits (formerly Spirits & Wine) (37% of total sales and 81% of operating company contributions before corporate expenses and asset impairment and restructuring charges in 2009) are sold through the Beam Global Spirits & Wine subsidiary. Leading brands include Jim Beam bourbon whiskey, DeKuyper cordials, Gilbey's gin, Kamchatka vodka, and Maker's Mark bourbon. Principal markets are the U.S., the U.K., Spain, Germany, and Australia, with markets outside the U.S. accounting for about 45% of the segment's sales. In July 2005, the company acquired various spirits and wine brands from Pernod Ricard, which in turn were acquired by Pernod from Allied Domecq PLC. This transaction more than doubled the sales of FO's Spirits & Wine segment. In 2007, the U.S. wine businesses were sold; we believe they had annualized sales of about $225 million. In August 2008, Pernod Ricard, which purchased the Absolut Vodka brand earlier in 2008, agreed to pay FO $230 million for an early termination of FO's distribution agreement for Absolut and other brands. Also, Pernod Ricard agreed to sell the Cruzan Rum brand, already distributed by FO, to FO for $103 million.

Major units of FO's Home & Security products segment (45%, 15%) include MasterBrand Cabinets, Moen, Master Lock, Waterloo and Therma-Tru. While we believe that more of the segment's sales go into the remodeling market than the new housing market, the segment has been affected by the recent, deeply depressed housing market. Golf products (18%, 4%) operations are conducted through Acushnet, a leading producer of golf balls (Titleist, Pinnacle), golf shoes (FootJoy), golf clubs (Cobra, Titleist), and golf gloves. Other products include bags, carts, dress and athletic shoes, socks and accessories. In 2009, net sales by geographic region for FO, based on country of destination, were the United States, with 69% of net sales, Canada 7%, the United Kingdom 3%, Australia 4%, Spain 3% and all other 14%.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.27 1.60 1.68 1.01 63% 46.77 17.67 29 11

2008 NM 2.74 1.07 1.66 1.72 161% 74.44 30.24 70 28

2007 NM 6.58 4.79 4.62 1.62 34% 90.80 72.13 19 15

2006 NM 7.37 5.42 5.47 1.50 28% 85.96 68.45 16 13

2005 NM 5.35 3.87 3.73 1.38 36% 96.18 73.50 25 19

2004 NM 6.70 5.23 4.58 1.26 24% 80.50 66.10 15 13

2003 NM 5.14 3.86 3.79 1.14 30% 71.80 40.60 19 11

2002 NM 4.57 3.41 3.14 1.02 30% 57.86 36.85 17 11

2001 2.06 3.89 2.49 2.38 0.97 39% 40.54 28.38 16 11

2000 0.89 0.63 -0.88 NA 0.93 NM 33.25 19.19 NM NM

6,205 974 255 216 283 12.8% 243 255

7,105 1,313 263 237 188 47.6% 165 255

8,563 1,712 280 294 1,120 30.9% 750 722

8,769 1,777 298 332 1,209 25.7% 830 837

7,061 1,715 224 159 926 35.0% 582 559

7,321 1,374 221 87.9 1,086 26.1% 784 684

6,215 1,142 193 73.8 884 32.7% 579 567

5,678 1,011 179 74.1 756 28.3% 526 484

5,679 870 219 96.8 492 19.2% 386 367

5,845 938 237 134 38.9 NM -138 NA

Balance Sheet & Other Financial Data (Million $) Cash 417 Current Assets 3,872 Total Assets 12,371 Current Liabilities 1,464 Long Term Debt 4,413 Common Equity 5,092 Total Capital 9,519 Capital Expenditures 158 Cash Flow 497 Current Ratio 2.7 % Long Term Debt of Capitalization 46.4 % Net Income of Revenue 3.9 % Return on Assets 2.0 % Return on Equity 5.0

163 3,468 12,092 1,190 4,689 4,692 9,393 176 421 2.9 49.9 2.3 1.3 3.2

204 3,781 13,957 2,094 4,374 5,680 11,138 267 1,029 1.8 38.7 8.7 5.2 14.4

183 3,930 14,668 2,515 5,035 4,722 11,458 266 1,128 1.6 43.9 9.5 6.0 19.9

93.6 3,193 13,202 2,818 4,890 3,639 9,788 222 805 1.1 50.0 8.2 5.5 17.2

165 2,642 7,884 2,036 1,240 3,203 5,207 242 1,005 1.3 23.8 10.7 10.2 26.5

105 2,282 7,445 2,134 1,243 2,712 4,664 194 772 1.1 26.6 9.3 8.7 23.1

15.4 1,903 5,822 1,515 200 2,305 2,983 194 704 1.3 6.7 9.3 9.5 23.9

48.7 1,970 5,301 1,258 950 2,094 3,444 207 605 1.6 27.6 6.8 7.0 18.3

20.9 2,265 5,764 2,040 1,152 2,127 3,343 227 99.0 1.1 34.5 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 520 Lake Cook Rd, Deerfield, IL 60015-5611. Telephone: 847-484-4400. Email: [email protected] Website: http://www.fortunebrands.com

Chrmn & CEO: B.A. Carbonari SVP & CFO: C.P. Omtvedt SVP & Treas: M. Hausberg SVP, Secy & General Counsel: M.A. Roche

Cntlr: E.A. Wiertel Founded: 1904 Board Members: B. A. Carbonari, R. A. Goldstein, A. F. Domicile: Delaware Hackett, P. Leroy, A. D. MacKay, A. M. Tatlock, D. M. Employees: 24,248 Thomas, R. V. Waters, III, N. H. Wesley, P. M. Wilson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: BEN | BEN is in the S&P 500

Franklin Resources Inc S&P Recommendation HOLD

★★★★★

Price $115.87 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $109.00

Investment Style Large-Cap Growth

Summary This company is one of the world's largest asset managers, serving retail, institutional and high-net-worth clients.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $121.90– 84.00 Trailing 12-Month EPS $6.29 Trailing 12-Month P/E 18.4 $10K Invested 5 Yrs Ago $14,834

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.26 7.06 18.5 225.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$26.081 0.76 $0.88 51

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.49 28 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong operating margins, well-capitalized balance sheet and international exposure, offset by concerns about uneven client flow trends and recent declines in relative investment performance.

120

80 60

40

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 12 8 4 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

3

2

4

STRONG 78

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Matthew Albrecht on August 02, 2010, when the stock traded at $ 104.40. Highlights ➤

➤

➤

Assets under management have rebounded from their March 2009 lows, boosted by net asset inflows and equity market gains. A general improvement in the mix of assets should allow the management fee rate to recover over time. Net flows remain strongest into fixed income funds, but recent trends suggest the worst of the equity outflows have subsided. We note, however, that BEN's strong international presence likely exposes it to more risk than peers due to currency fluctuations. A return to investment gains, compared to losses, in the past few quarters, has helped results, but performance fee income will likely remain weak. Considering easier comparisons, we think higher average asset balances will help revenues advance nearly 40% in FY 10 (Sep.) before 10% growth in FY 11. Top-line growth should allow for margin improvement in FY 10 and FY 11. Reduced headcount versus prior-year levels should help lower compensation accruals, but improving asset flows will likely keep underwriting and distribution costs elevated in the near term.

Investment Rationale/Risk ➤

➤

➤

We think BEN is one of the best-managed asset gatherers, and we think its balance sheet is characterized by limited debt and ample cash on hand. We have a favorable view of its strong operating free cash flow and diversification. We think the earnings power of the firm has rebounded, taking into account strong relative fund performance, a return to positive net flows from clients, and severe cost cutting. Risks to our recommendation and target price include potential depreciation in global equity, bond and currency markets that would materially hinder growth in assets under management and inflows. The shares recently traded at 15.8X our FY 10 EPS estimate, in line with the multiples of comparable peers, but a discount to the stock's historical multiple. Our 12-month target price of $109 is equal to about 16X our forward 12-month earnings estimate of $6.81, a discount to its historical multiple to reflect its international exposure at a time when the U.S. dollar is strengthening and European markets face headwinds.

We see EPS of $6.26 in FY 10 and $7.06 in FY 11, aided by share repurchases.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,377 1,413 2009 969.3 912.3 2008 1,686 1,504 2007 1,428 1,509 2006 1,181 1,255 2005 986.0 1,051

3Q 1,534 1,074 1,522 1,640 1,317 1,110

4Q -1,239 1,321 1,629 1,297 1,163

Year -4,194 6,032 6,206 5,051 4,310

Earnings Per Share ($) 2010 1.54 1.56 2009 0.52 0.48 2008 2.12 1.54 2007 1.67 1.73 2006 1.21 0.74 2005 0.92 0.85

1.58 1.29 1.71 1.86 1.41 1.00

E1.59 1.60 1.28 1.76 1.49 1.28

E6.26 3.87 6.67 7.03 4.86 4.06

Fiscal year ended Sep. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.220 0.220 0.220 0.220

12/18 03/16 06/15 09/16

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/08/10 04/09/10 07/09/10 10/08/10

Dividends have been paid since 1981. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BEN

Franklin Resources Inc Business Summary August 02, 2010 CORPORATE OVERVIEW. Franklin Resources is one of the largest U.S. money managers, with $523.4 billion in assets under management at the end of FY 09 (Sep.), up from $507.3 billion at the end of FY 08. At the end of FY 09, equitybased investments accounted for 47% of assets under management, fixed income investments 33%, hybrid funds 19%, and money funds 1%. We think that a decline in the dollar relative to other major currencies would aid BEN, due to the high percentage of assets invested globally. Conversely, the company's results may be challenged by a rising U.S. dollar relative to major currencies. At the end of FY 09, about 26% of assets under management were held by investors domiciled outside the U.S. The company's sponsored investment products are distributed under five distinct names: Franklin, Templeton, Mutual Series, Bissett and Fiduciary. The Franklin family of funds is best known for its bond funds, although it includes a range of equity and balanced products. The Templeton family of funds is known for its global investment strategies and value style. Mutual Series funds are primarily known for their value-oriented equity focus. The Bissett family of mutual funds operates in Canada, and serves a broad range of clients, primarily institutions. We are impressed with BEN's broad range of investment products, but we think the company lacks a compelling roster of

growth equity products. The company generates the majority of its revenue from investment management and related services provided to its retail and institutional mutual funds, and to its institutional, high net-worth and separately managed accounts. Investment management and related services include fund administration, shareholder services, transfer agency, underwriting, distribution, custodial, trustee, and other fiduciary services. Investment management fees depend on the level of client assets under management, and it earns higher revenues and income from equity assets, generally, and a shift in assets from equity to fixed income or balanced funds reduces revenue. Underwriting and distribution fees consist of sales charges and commissions derived from sales of sponsored investment products and distribution fees. It also generates fees from investment management services for high net worth individuals and families through Fiduciary Trust.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 24.54 4.66 3.87 3.96 0.83 21% 116.39 37.11 30 10

2008 21.72 7.57 6.67 6.77 0.75 11% 129.08 45.52 19 7

2007 21.49 7.82 7.03 6.64 0.57 8% 145.59 108.46 21 15

2006 18.57 5.86 4.86 4.72 0.36 7% 114.98 80.16 24 16

2005 14.39 5.02 4.06 3.97 0.40 10% 98.86 63.56 24 16

2004 12.23 3.51 2.78 2.47 0.33 12% 71.45 46.85 26 17

2003 9.31 2.67 1.97 1.70 0.29 15% 52.25 29.99 27 15

2002 8.69 2.35 1.65 1.56 0.28 17% 44.48 27.90 27 17

2001 7.23 2.79 1.91 1.61 0.26 14% 48.30 30.85 25 16

2000 7.37 3.13 2.28 NA 0.24 11% 45.63 24.63 20 11

Nil Nil 4,194 2,991 3.77 181 897 917

Nil Nil 6,032 3,933 15.8 215 1,588 1,612

Nil Nil 6,206 4,138 23.2 199 1,773 1,674

NA NA 5,051 3,417 29.2 215 1,268 1,229

NA NA 4,310 3,004 34.0 17.5 1,058 1,033

NA NA 3,438 NA 30.7 NA 702 622

NA NA 2,624 NA 19.9 NA 503 432

NA NA 2,519 NA 12.3 NA 433 410

NA NA 2,355 NA 10.6 NA 485 407

NA NA 2,340 NA 14.0 200 562 NA

Balance Sheet & Other Financial Data (Million $) Cash 5,269 Receivables NA Cost of Investments NA Total Assets 9,468 Loss Reserve Nil Short Term Debt NA Capitalization:Debt NA Capitalization:Equity 7,632 Capitalization:Total NA Price Times Book Value:High 4.7 Price Times Book Value:Low 1.5 Cash Flow 1,078 % Expense/Operating Revenue 71.3 % Earnings & Depreciation/Assets 11.6

2,528 1,062 916 9,177 Nil 13.3 118 7,074 7,416 5.9 2.1 1,803 65.2 18.9

3,584 1,106 1,065 9,943 Nil 420 162 7,332 7,750 6.8 5.2 1,972 66.7 20.3

3,613 711 NA 9,500 NA 168 628 6,685 7,620 6.2 4.3 1,483 67.7 16.1

3,152 549 1,566 8,894 Nil 169 1,208 5,684 7,204 6.9 4.4 1,075 70.1 12.6

2,917 444 NA 8,228 NA NA 1,196 5,107 6,615 NA NA 885 NA NA

1,054 441 NA 6,971 NA 0.29 1,109 4,310 5,622 5.5 3.2 680 NA NA

981 393 NA 6,423 NA 7.80 595 4,267 5,037 5.1 3.2 616 NA NA

569 603 NA 6,266 NA NA 566 3,978 4,544 NA NA 709 NA NA

746 693 NA 4,042 NA NA 294 2,965 3,260 NA NA 762 NA NA

Income Statement Analysis (Million $) Income Interest Income Other Total Income General Expenses Interest Expense Depreciation Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Franklin Parkway, Building 970 1st Floor, San Mateo, CA 94403. Telephone: 650-312-2000. Website: http://www.franklintempleton.com Chrmn: C.B. Johnson

Pres & CEO: G.E. Johnson Vice Chrmn: R.H. Johnson, Jr. COO & EVP: J.J. Bolt EVP, CFO, Chief Acctg Officer & Treas: K.A. Lewis

Board Members: S. H. Armacost, C. Crocker, J. R. Hardiman, F. W. Hellman, C. B. Johnson, G. E. Johnson, R. H. Johnson, Jr., T. H. Kean, C. Ratnathicam, P. M. Sacerdote, L. Stein, A. M. Tatlock

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1947 Domicile: Delaware Employees: 7,745

Stock Report | October 25, 2010 | NYS Symbol: FCX | FCX is in the S&P 500

Freeport-McMoran Copper & Gold Inc. S&P Recommendation HOLD

★★★★★

Price $96.07 (as of Oct 25, 2010)

GICS Sector Materials Sub-Industry Diversified Metals & Mining

12-Mo. Target Price $95.00

Summary FCX is the world's second largest copper producer and a major producer of gold and molybdenum.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $100.34– 56.71 Trailing 12-Month EPS $7.85 Trailing 12-Month P/E 12.2 $10K Invested 5 Yrs Ago $23,667

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

8.38 9.24 11.5 470.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$45.195 2.08 $2.00 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.85 16 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to cyclical demand for copper and gold, along with sizable debt incurred in the merger with Phelps Dodge. However, we think FCX's large share of the global copper market acts as an offset.

150 80

40

20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 120 80 40 0

D

C

B-

BB

B+

A-

A

Relative Strength Rank

5

3

3

4

4

3

2

STRONG 89

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Leo J. Larkin on October 18, 2010, when the stock traded at $ 96.49. Highlights ➤

➤

We think that higher copper and gold prices will offset reduced output of both metals and permit a 7.5% sales gain in 2010, versus a decline of 15.5% in 2009. The estimated increase also reflects a rise in the price and production of molybdenum. Our copper price outlook is based on our forecast for a rebound in global copper demand from 2009's depressed levels and a gradual decline in metal exchange inventories. Our estimate for higher copper demand is based on the IHS Global Insight forecast for world economic growth of 3.7% in 2010, versus a decrease of 1.8% in 2009. Our expectation for a higher gold price in 2010 assumes continued low short-term interest rates worldwide and currency volatility. We look for an increase in operating profit in 2010, benefiting mostly from higher prices. After interest expense and taxes and with more shares outstanding, we project operating EPS of $6.91 in 2010, versus 2009's EPS of $5.86.

Investment Rationale/Risk ➤

➤

➤ ➤

For the long term, we expect earnings and reserves to increase on a secular rise in copper demand, a higher gold price and expansions at existing mines.

In the long term, we think rising secular demand for durable goods in China and India, along with less rapid increases in the supply of copper, will support generally higher prices, sales, earnings and reserves. We believe that the depletion of existing mines will offset production from new mines and keep copper supply tight over the course of the business cycle. We think FCX, as the world's second largest copper producer, is well positioned to capitalize on rising demand and prices for copper with expansion projects in Africa and further development of existing mines. Also, we see EPS being aided on a projected rise in the gold price and a rebound in the price of molybdenum. But, with FCX recently trading in line with our target price, we would not add to positions. Risks to our opinion and target price include a decline in the price of copper in 2011 instead of the increase we project. Our 12-month target price of $95 assumes that FCX will trade at 11.6X our 2011 EPS estimate, which is toward the low end of the stock's historical range of the past 10 years, and a small premium to the P/E we apply to other base metal companies.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,363 3,864 2009 2,602 3,684 2008 5,672 5,441 2007 2,303 5,807 2006 1,086 1,426 2005 803.1 902.9

3Q 5,152 4,144 4,616 5,066 1,636 983.3

4Q -4,610 2,067 4,184 1,642 1,490

Year -15,040 17,796 16,939 5,791 4,179

Earnings Per Share ($) 2010 2.00 1.40 2009 0.11 1.38 2008 2.64 2.24 2007 2.02 2.62 2006 1.23 1.74 2005 0.70 0.91

2.49 2.07 1.31 1.85 1.67 0.86

E2.49 1.97 -36.76 1.07 1.99 2.19

E8.38 5.86 -29.72 7.41 6.63 4.67

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.300 0.300

12/29 03/25 06/24 09/29

01/13 04/13 07/13 10/13

01/15 04/15 07/15 10/15

02/01/10 05/01/10 08/01/10 11/01/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: FCX

Freeport-McMoran Copper & Gold Inc. Business Summary October 18, 2010 CORPORATE OVERVIEW. Freeport-McMoRan Copper & Gold is the world's second largest copper producer and is a major producer of gold and molybdenum. FCX has producing mines located in Indonesia, North America, South America and Africa. Copper production totaled 4.1 billion pounds in 2009, versus 4.0 billion pounds in 2008; and gold production totaled 2.7 million oz., versus 1.3 million oz. in 2008. Molybdenum production was 54 million pounds in 2009, versus 73 million pounds in 2008.

At year-end 2009, consolidated proven and probable reserves totaled 104.2 billion pounds of copper, 37.2 million ounces of gold, and 2.59 billion pounds of molybdenum. Some 33% of FCX's copper reserves were in Indonesia, about 33% were in South America, 26% were in North America and some 8% were in Africa. About 96% of FCX's gold reserves were in Indonesia, with the balance located in South America. Some 80% of molybdenum reserves are primarily in North America, with the remaining in South America.

In 2009, North America accounted for 28% of copper output, versus 36% in 2008; South America 34%, versus 37% in 2008; Indonesia 34% versus 27%; and Africa 4% versus 0%. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.71 7.81 5.86 6.00 Nil Nil 87.35 21.16 15 4

2008 4.43 -25.02 -29.72 -14.14 1.81 NM 127.24 15.70 NM NM

2007 28.56 10.03 7.41 7.26 1.25 17% 120.20 48.85 16 7

2006 6.83 7.33 6.63 6.56 1.25 19% 72.20 43.10 11 7

2005 3.98 5.38 4.67 4.63 1.25 27% 56.35 31.52 12 7

2004 0.36 1.96 0.85 0.48 0.85 100% 44.90 27.76 53 33

2003 4.23 2.52 1.07 1.03 0.27 25% 46.74 16.01 44 15

2002 NM 2.67 0.89 0.84 Nil Nil 20.83 9.95 23 11

2001 NM 2.49 0.53 0.49 Nil Nil 17.15 8.31 32 16

2000 NM 2.09 0.26 NA Nil Nil 21.44 6.75 82 26

15,040 7,736 1,137 586 5,841 39.5% 2,749 2,595

17,796 -4,711 1,782 706 -13,294 NM -11,067 -5,396

16,939 7,801 1,246 660 6,133 39.1% 2,942 2,672

5,791 3,096 228 75.6 2,826 42.5% 1,457 1,381

4,179 2,429 252 132 2,037 44.9% 995 919

2,372 823 206 148 574 57.6% 202 77.7

2,212 1,054 231 197 584 57.9% 197 167

1,910 901 260 171 450 54.6% 168 123

1,839 827 284 174 359 56.6% 113 70.8

1,869 778 284 205 273 58.4% 77.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,656 Current Assets 7,433 Total Assets 25,871 Current Liabilities 3,002 Long Term Debt 6,330 Common Equity 6,259 Total Capital 17,118 Capital Expenditures 1,587 Cash Flow 3,664 Current Ratio 2.5 % Long Term Debt of Capitalization 37.0 % Net Income of Revenue 18.3 % Return on Assets 11.2 % Return on Equity 66.0

872 5,233 23,271 3,158 7,284 2,083 16,643 2,708 -9,559 1.7 43.8 NM NM NM

1,626 5,903 40,661 3,869 7,180 14,259 33,953 1,755 3,980 1.5 26.9 17.4 11.9 35.0

907 2,151 5,390 972 661 1,345 4,119 251 1,624 2.2 16.0 25.2 26.6 133.7

764 2,022 5,550 1,369 1,003 743 3,971 143 1,186 1.5 25.2 23.8 18.7 231.7

551 1,460 5,087 698 1,874 63.6 4,189 141 363 2.1 44.7 8.5 4.1 37.3

464 1,100 4,718 632 2,076 776 3,925 139 401 1.7 52.9 8.9 4.4 49.0

7.84 638 4,192 538 1,961 -83.2 3,514 188 391 1.2 55.8 8.8 4.0 NM

7.59 548 4,212 628 2,133 -246 3,464 167 360 0.9 61.6 6.1 2.8 NM

7.97 569 3,951 634 1,988 -312 3,204 292 323 0.9 62.0 4.1 1.9 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 333 North Central Avenue, Phoenix, AZ 85004. Telephone: 602-366-8100. Email: [email protected] Website: http://www.fcx.com

Chrmn: J.R. Moffett Pres & CEO: R.C. Adkerson Vice Chrmn: B.M. Rankin, Jr. Investor Contact: K.L. Quirk

EVP, CFO & Treas: K.L. Quirk Founded: 1987 Board Members: R. C. Adkerson, R. J. Allison, Jr., R. A. Domicile: Delaware Day, G. J. Ford, H. D. Graham, Jr., C. C. Krulak, B. L. Employees: 28,567 Lackey, J. C. Madonna, D. E. McCoy, J. R. Moffett, B. M. Rankin, Jr., S. H. Siegele

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: FTR | FTR is in the S&P 500

Frontier Communications Corp S&P Recommendation BUY

★★★★★

Price $8.79 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Integrated Telecommunication Services

12-Mo. Target Price $9.00

Investment Style Large-Cap Value

Summary After acquiring wireline assets from Verizon Communications in mid-2010 that more than doubled its size, Frontier provides wireline communications services including voice services to 6 million customers in rural areas and small and medium-sized cities in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$8.91– 6.96 $0.42 20.9 $9,500

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.57 0.52 15.4 992.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.720 8.53 $0.75 19

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.80 4 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Frontier Communications reflects the rural, less competitive nature of its operations, and what we see as the strong and stable cash flow that supports its dividend policy, offset by sensitivity to the U.S. economy and the company's acquisition strategy.

16 12

8 6

Quantitative Evaluations Vol. 151

Mil. 30 20 10 0

S&P Quality Ranking D

C

B-

BB

B+

A-

A

Relative Strength Rank

5

STRONG

4

5

A+

78 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Todd Rosenbluth on August 06, 2010, when the stock traded at $ 7.60. Highlights ➤

➤

➤

Investment Rationale/Risk

We look for FTR to generate revenue of $3.6 billion in 2010, following the July acquisition of wireline assets from Verizon Communications that we expect to add $1.8 billion to revenues. In 2011, we expect revenues of $5.45 billion. In both legacy Frontier markets and in the acquired assets, we see pressure on voice services from access line losses, but we look for partial offsets from DSL and video penetration. We expect Frontier to have some success in new properties with service bundles.

➤

We expect the integration of the new assets to take some time, pushing EBITDA margins in the second half of 2010 down to 48%, from 53% in the first half, although we look for expansion to 50% in 2011. We expect benefits from work force cuts and billing integration, but we see this being offset by increased promotional activities for introductory service bundles and weakness in higher-margin voice services.

➤

We expect higher interest costs related to the merger. We forecast EPS of $0.57 in 2010 and $0.52 in 2011, before certain one-time mergerrelated expenses.

➤

We believe FTR generates sufficient cash flow to support its recently reduced dividend, and we view the Verizon asset combination favorably. We think FTR will have opportunities for cost savings, broadband growth and deleveraging, although we see risks given expected pressure on margins as it will need to spend to retain and expand its voice and broadband customer base. We believe FTR has a strong track record in small deal integration and in generating high revenues per household. Risks to our recommendation and target price include failure to smoothly integrate the Verizon assets in a timely manner; not retaining customers in legacy and acquired markets; and a further dividend reduction. Our 12-month target price of $9 is based on an EV/EBITDA multiple of 6.1X, in line with mid-size wireline telecom peers and down slightly from historical levels to reflect risks. At our target price, FTR's dividend yield of 8.3%, even following the recent reduction, would be above average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 519.9 516.1 2009 538.0 532.1 2008 569.2 562.6 2007 556.2 578.8 2006 506.9 506.9 2005 537.2 531.8

3Q -526.8 557.9 575.8 507.2 537.4

4Q -521.0 547.4 577.2 504.4 556.1

Year -2,118 2,237 2,288 2,025 2,162

Earnings Per Share ($) 2010 0.14 0.11 2009 0.12 0.09 2008 0.14 0.15 2007 0.21 0.12 2006 0.13 0.29 2005 0.11 0.13

E0.11 0.17 0.15 0.14 0.16 0.11

E0.11 0.01 0.11 0.18 0.20 0.23

E0.57 0.38 0.57 0.65 0.78 0.59

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.250 0.188

10/28 02/17 05/12 07/29

12/07 03/05 06/07 09/07

12/09 03/09 06/09 09/09

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: FTR

Frontier Communications Corp Business Summary August 06, 2010 CORPORATE OVERVIEW. Frontier Communications (formerly Citizens Communications) provides wireline services to rural areas and small and mediumsized towns and cities across the country including in Arizona, California, New York and West Virginia. As of June 2010, FTR was an incumbent local exchange carrier (ILEC) with 2 million access lines (down 6% from a year earlier) and 647,000 DSL customers (50% penetration of residential customers).

average monthly customer revenue per access line in the 12 months ended June 2010, to $70.27. In the second half of 2010, we expect FTR to increase its promotional activities in both legacy assets and the newly acquired ones to drive higher non-voice service penetration. In addition, we look for FTR to invest to expand broadband availability in the acquired assets to increase its pool of potential customers.

In July 2010, FTR completed a combination of wireline assets that were spun out by Verizon Communications in a stock and debt assumption deal valued originally at $8.6 billion. We believe the agreed-on price was then equal to a fair 4.5X trailing EBITDA multiple. The Verizon properties, in 14 states, included 4.0 million access lines, and 1.06 million DSL and FiOS customers as of June 2010. On a pro forma basis, the combined company would have had $6 billion in revenues during 2009. FTR, which expects $500 million in expense savings largely in the second year following closing, issued new stock and assumed $3.5 billion of debt to complete the deal.

COMPETITIVE LANDSCAPE. While we believe FTR faced challenges from cable telephony and wireless that led to its 6.3% access line erosion in the 12 months ended June 2010, we are encouraged that the rate of loss slowed from 7.1% in the 12 months ended March 2009. We believe this bodes well as Verizon assets lost 11.2% of their access lines in the 12 months ended June 2010. In new and old markets, FTR competes with cable providers such as Time Warner and Comcast, which began to offer telephony services in 2006. As of late 2009, approximately 73% of FTR's legacy operating territory faced cable telephony competition.

CORPORATE STRATEGY. In the first half of 2010, FTR focused on expanding by providing rural local residential phone customers with enhanced services as well as long distance, DSL and satellite video to offset access line pressure. FTR also had 180,000 satellite TV customers, which led to a 4% increase in the Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.93 0.38 0.45 1.00 NM 8.87 5.32 23 14

2008 NM 2.34 0.57 0.46 1.00 175% 12.94 6.35 23 11

2007 NM 2.30 0.65 0.52 1.00 154% 16.05 12.03 25 19

2006 NM 2.25 0.78 0.64 1.00 128% 14.95 11.97 19 15

2005 NM 2.26 0.59 0.59 1.00 169% 14.05 12.08 24 20

2004 NM 2.09 0.23 0.19 0.50 NM 14.80 11.37 62 47

2003 NM 2.37 0.42 0.68 Nil Nil 13.40 8.81 32 21

2002 NM -0.24 -2.93 -2.89 Nil Nil 11.52 2.51 NM NM

2001 NM 2.08 -0.28 -0.58 Nil Nil 15.88 8.20 NM NM

2000 4.09 1.30 -0.15 NA Nil Nil 19.00 12.50 NM NM

2,118 NA 476 378 193 36.2% 121 139

2,237 1,214 562 363 289 36.8% 183 146

2,288 1,251 546 384 343 37.4% 215 171

2,025 1,121 476 336 390 35.0% 254 206

2,162 1,149 542 339 285 29.6% 200 201

2,193 1,148 573 379 85.5 15.6% 72.2 57.7

2,445 1,173 595 423 189 35.5% 122 198

2,669 1,179 756 478 -1,238 NM -823 -811

2,457 927 632 386 -78.7 NM -63.9 -164

1,802 549 388 194 -44.0 NM -40.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 359 Current Assets 680 Total Assets 6,878 Current Liabilities 393 Long Term Debt 4,794 Common Equity 339 Total Capital 5,140 Capital Expenditures 256 Cash Flow 597 Current Ratio 1.7 % Long Term Debt of Capitalization 93.3 % Net Income of Revenue 5.7 % Return on Assets 1.8 % Return on Equity 28.2

164 468 6,889 383 4,722 519 5,245 288 744 1.2 90.0 8.2 2.6 24.1

226 524 7,256 446 4,739 998 6,446 316 761 1.2 82.6 9.4 3.1 20.9

1,041 1,273 6,791 426 4,461 1,058 6,033 269 730 3.0 73.9 12.5 3.8 24.2

266 542 6,412 617 3,999 1,042 5,366 268 742 0.9 74.5 9.3 3.1 16.7

167 450 6,668 418 4,267 1,362 5,629 276 645 1.1 75.8 3.3 1.0 5.2

584 896 7,689 536 4,397 1,415 6,259 278 717 1.7 70.2 5.0 1.5 9.4

393 1,201 8,147 771 5,159 1,172 6,468 469 -67.5 1.6 79.8 NM NM NM

57.7 2,533 10,554 1,567 5,736 1,946 8,112 531 568 1.6 70.7 NM NM NM

31.2 2,263 6,955 992 3,264 1,720 5,474 537 348 2.3 59.6 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3 High Ridge Park, Stamford, CT 06905-1390. Telephone: 203-614-5600. Email: [email protected] Website: http://www.frontier.com

Chrmn, Pres & CEO: M.A. Wilderotter COO & EVP: D.J. McCarthy EVP & CFO: D.R. Shassian EVP & General Counsel: K.Q. Abernathy

SVP & Chief Acctg Officer: R.J. Larson Board Members: L. T. Barnes, Jr., P. C. Bynoe, J. Finard, E. D. Fraioli, W. M. Kraus, P. D. Reeve, H. L. Schrott, L. D. Segil, M. Shapiro, D. H. Ward, M. Wick, III, M. A. Wilderotter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1927 Domicile: Delaware Employees: 5,403

Stock Report | October 23, 2010 | NYS Symbol: GME | GME is in the S&P 500

GameStop Corp. S&P Recommendation BUY

★★★★★

Price $19.13 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Computer & Electronics Retail

12-Mo. Target Price $26.00

Investment Style Large-Cap Growth

Summary This company is the largest U.S. video game and PC entertainment software specialty retailer, and operates over 6,000 stores worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.05– 17.12 Trailing 12-Month EPS $2.37 Trailing 12-Month P/E 8.1 $10K Invested 5 Yrs Ago $11,223

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.63 2.60 7.3 150.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.876 Nil Nil NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.10 8 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's leading market share position, offset by industry cyclicality, as growth is partly dependent on the timing of new hardware and software releases.

50 40 30

Quantitative Evaluations 20

S&P Quality Ranking Vol.

D

B-

B+ B

B+

A-

A

A+

70

Mil. 30 20 10 0 5

C

Relative Strength Rank

WEAK

25 4

3

LOWEST = 1

5

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Michael Souers on August 25, 2010, when the stock traded at $ 18.42. Highlights ➤

➤

➤

We see FY 11 (Jan.) revenues rising 5.1%, following a 3.1% advance in FY 10. We expect this growth to be driven by the opening of about 300 net new stores worldwide and a 1% increase in comp-store sales. We continue to project that GME's used game business will thrive in the current challenging economic environment, and also expect a strong lineup of new software in calendar 2010. We look for price cuts on next-generation consoles to stem recent declines of hardware sales, although we do expect a sales decline for this category. We forecast that gross margins will widen modestly in FY 11 on an expected shift in product mix to new and used software from hardware following a significant ramp-up in the installed base. We see operating margins widening slightly, as gross margin improvement is only partially offset by the de-leveraging of SG&A expenses due to a meager comp-store sales gain. After a significant decrease in GME's diluted share count, we project FY 11 EPS of $2.63, a 16% increase from the $2.27 the company earned in FY 10, excluding debt extinguishment expense. We see FY 12 EPS of $2.60.

Investment Rationale/Risk ➤

We think the video game industry continues to benefit from a growth cycle unprecedented in strength, and we expect near-term earnings growth from GME despite weakness in consumer spending. Long term, we believe the electronic game industry will benefit from hardware platform technology evolution, a growing used video game market, and broadening demographic appeal, but we have concerns that online gaming will take some share from the retail market. Nonetheless, we consider the shares' valuation to be compelling, with GME recently trading at about 7X our FY 12 EPS estimate, a significant discount to the S&P 500.

Revenue (Million $) 1Q 2Q 2011 2,083 1,799 2010 1,981 1,739 2009 1,814 1,804 2008 1,279 1,338 2007 1,040 963.4 2006 474.7 415.9

3Q -1,835 1,696 1,611 1,012 534.2

4Q -3,524 3,492 2,866 2,304 1,667

Year -9,078 8,806 7,094 5,319 3,092

Earnings Per Share ($) 2011 0.48 0.26 2010 0.42 0.23 2009 0.37 0.34 2008 0.15 0.34 2007 0.08 0.02 2006 0.10 0.07

E0.40 0.31 0.28 0.31 0.09 -0.02

E1.50 1.29 1.39 1.14 0.81 0.55

E2.63 2.25 2.38 1.75 1.00 0.81

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data ➤

Risks to our opinion and target price include a slowdown in consumer spending, inventory shortages, an inability to successfully manage new store openings or merger integration, the threat of online gaming emerging as a viable alternative for gamers, and corporate governance issues including the existence of a nonshareholder-approved "poison pill."

➤

Our 12-month target price of $26, 10X our FY 12 EPS estimate, is based on our DCF analysis, which assumes a weighted average cost of capital of 10.6% and terminal growth of 2.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: GME

GameStop Corp. Business Summary August 25, 2010 CORPORATE OVERVIEW. GameStop is the world's largest retailer of video game products and PC entertainment software. The company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, related accessories and other merchandise. As of January 30, 2010, GameStop operated 6,450 stores in the U.S., Australia, Canada and Europe, primarily under the names GameStop and EB Games. Of the total store count, 4,429 stores are located in the U.S., with the remaining 2,021 located internationally. In October 2005, GameStop acquired close peer Electronics Boutique Holding Corp., which essentially doubled the company's market share in video game retailing. In November 2008, GME purchased Micromania, the leading retailer of video and computer games in France, with 332 locations.

U.S. electronic games industry generated approximately $20 billion in 2009, and, according to the International Development Group, retail sales of video game hardware and software and PC entertainment software totaled $17.5 billion in Europe. The NPD Group also estimated that video game retail sales were approximately $1.8 billion in Canada in 2009. The Entertainment Software Association (ESA) estimates that 65% of all American head of households play video or computer games, and that the average game player is 35 years old. We believe that trends such as hardware platform technology evolution and a broadening demographic appeal will continue to propel growth in this industry.

MARKET PROFILE. According to NPD Group, Inc., a market research firm, the Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.26 3.22 2.25 2.25 NA NA 2009 32.82 20.02 15 9

2009 1.17 3.24 2.38 2.33 Nil Nil 2008 62.29 16.91 26 7

2008 2.80 2.54 1.75 1.75 Nil Nil 2007 63.77 24.95 36 14

2007 NM 1.69 1.00 1.00 Nil Nil 2006 29.21 15.57 29 16

2006 NM 1.34 0.81 0.76 Nil Nil 2005 19.21 9.27 24 12

2005 2.19 0.85 0.53 0.92 Nil Nil 2004 11.76 7.19 22 14

2004 2.41 0.77 0.53 0.47 Nil Nil 2003 9.52 3.75 18 7

2003 2.02 0.62 0.44 0.37 Nil Nil 2002 12.15 4.46 28 10

2002 NM 0.47 0.09 0.09 Nil Nil 2001 NA NA NA NA

2001 NM 0.14 -0.17 NA Nil Nil 2000 NA NA NA NA

9,078 801 164 43.2 589 36.2% 377 377

8,806 825 145 50.5 634 37.2% 398 390

7,094 632 130 61.6 441 34.6% 288 288

5,319 450 110 84.7 254 37.8% 158 158

3,092 273 66.7 37.9 160 37.0% 101 94.1

1,843 163 37.0 2.16 98.9 38.4% 60.9 53.2

1,579 133 28.9 0.66 105 39.7% 63.5 55.6

1,353 110 22.6 1.37 87.7 40.2% 52.4 44.1

1,121 64.4 30.3 19.6 14.6 52.4% 6.96 6.76

757 27.8 22.0 23.0 -17.8 NM -12.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 905 Current Assets 2,127 Total Assets 4,955 Current Liabilities 1,656 Long Term Debt 447 Common Equity 2,723 Total Capital 3,170 Capital Expenditures 164 Cash Flow 541 Current Ratio 1.3 % Long Term Debt of Capitalization 14.1 % Net Income of Revenue 4.2 % Return on Assets 8.0 % Return on Equity 15.0

578 1,818 4,513 1,563 546 2,300 2,845 183 543 1.2 19.2 4.5 9.6 19.1

857 1,795 3,776 1,261 574 1,862 2,437 176 419 1.4 23.6 4.1 8.1 17.8

652 1,440 3,350 1,087 844 1,376 2,220 134 268 1.3 38.0 3.0 5.0 12.7

402 1,121 3,015 888 963 1,115 2,091 111 167 1.3 46.1 3.3 5.1 12.2

171 424 915 314 24.3 543 588 98.3 97.9 1.4 4.1 3.3 6.7 10.7

205 473 899 284 Nil 594 612 63.0 92.4 1.7 Nil 4.0 7.5 11.1

232 416 804 247 Nil 549 554 39.5 75.0 1.7 Nil 3.9 7.4 19.2

80.8 237 607 206 400 -3.99 399 20.5 37.3 1.2 100.2 0.6 1.2 NM

8.70 138 510 140 385 -20.6 367 25.1 10.0 1.0 105.0 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 625 Westport Pkwy, Grapevine, TX 76051-6740. Telephone: 817-424-2000. Email: [email protected] Website: http://www.gamestop.com

Chrmn: D.A. Dematteo Pres: T.D. Bartel CEO: J.P. Raines EVP & CFO: R.A. Lloyd

SVP & Chief Acctg Officer: T.W. Crawford Founded: 1994 Investor Contact: M. Hodges (817-424-2000) Domicile: Delaware Board Members: J. L. Davis, D. A. Dematteo, S. Employees: 59,000 Koonin, L. Riggio, M. N. Rosen, S. M. Shern, S. Steinberg, G. R. Szczepanski, E. A. Volkwein, L. S. Zilavy

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GCI | GCI is in the S&P 500

Gannett Co Inc. S&P Recommendation HOLD

★★★★★

Price $12.18 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Publishing

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary Gannett publishes 82 daily U.S. newspapers, more than 600 non-daily publications in the U.S., and more than 200 U.K. titles, and operates 23 TV stations in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$19.69– 9.53 $2.28 5.3 $2,360

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.41 2.45 5.1 238.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.906 1.31 $0.16 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.46 4 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects a highly competitive and weak advertising environment along with significant industry upheaval as consumers increasingly opt to get their news online and for free. This is only partly offset, in our view, by GCI's strong free cash flow and profitability as well as its relatively low cost of capital.

40 20 8 4 2

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 4

3

2007

2008

2009

B+

A-

A

A+ WEAK

Analysis prepared by Joseph Agnese on October 18, 2010, when the stock traded at $ 12.54. Highlights We look for the contraction in print publishing revenues to continue into 2011, although at a slower rate, given a more stable economic environment in the U.S. and weak ad demand in the U.K., and we see classified advertising continuing to migrate online. We project broadcast revenue growth to moderate in 2011 after expected significant benefits in 2010 from easy comparisons and benefits from the Winter Olympics and the mid-term U.S. elections. Overall, we expect revenues to rise 1.0% in 2011, following contraction of about 2.2% in 2010. GCI has taken preemptive action to deal with weakening demand, including unpaid furloughs and reducing hard copy circulation for some subscribers, but is expanding 24/7 digital channels. We forecast EBIT margins will remain relatively flat at about 19% in 2011. We see the benefits of staff and cost reduction initiatives and lower newsprint usage offset by higher newsprint pricing and negative operating leverage from lower revenues. We see 2011 EPS of $2.45, up slightly from our operating EPS estimate of $2.41 in 2010, which excludes facility closures, asset impairments and workforce restructurings.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B+ B

13 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

We remain concerned by what we see as a secular decline in newspaper advertising, especially as only about 16.5% of the company's revenues in 2009 were from digital operations. We also expect a negative secular trend to continue to negatively impact classified advertising. On a positive note, with strong operating cash flow and a high free cash flow/equity yield, we think there is long-term value in what we see as GCI's strong free cash flow generating capabilities. Risks to our recommendation and target price include weaker-than-expected U.S. GDP, lower audience ratings at network-affiliated TV stations, and a weakening of the British pound versus the U.S. dollar. Our 12-month target price of $14 is derived by applying an enterprise value-to-EBITDA ratio of 5.5X, near the low end of its historical range, to our 2011 EBITDA estimate of $1.3 billion. We believe a historically low valuation multiple is appropriate given unfavorable impacts from a weak cyclical market and the significant negative secular challenges we believe the company is facing.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,322 1,365 2009 1,378 1,413 2008 1,677 1,718 2007 1,871 1,928 2006 1,883 2,028 2005 1,768 1,911

3Q 1,312 1,337 1,637 1,756 1,915 1,865

4Q -1,485 1,735 1,897 2,208 2,055

Year -5,613 6,768 7,439 8,033 7,599

Earnings Per Share ($) 2010 0.49 0.73 2009 0.34 0.30 2008 0.84 -10.03 2007 0.90 1.24 2006 0.99 1.31 2005 1.03 1.34

0.42 0.31 0.69 1.01 1.11 1.13

E0.80 0.56 0.69 1.06 1.51 1.44

E2.41 1.51 -29.11 4.17 4.90 4.92

Fiscal year ended Dec. 31. Next earnings report expected: Early February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040 0.040 0.040

10/28 02/24 05/04 07/27

12/09 03/03 06/02 09/08

12/11 03/05 06/04 09/10

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1929. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GCI

Gannett Co Inc. Business Summary October 18, 2010 CORPORATE OVERVIEW. Gannett Co. is the largest newspaper publisher in the U.S. The company publishes newspapers, operates broadcasting stations, runs Web sites in connection with its newspaper and broadcast operations, and is engaged in marketing, commercial printing, a newswire service, data services, and news programming.

so includes PointRoll, an Internet ad services business, Planet Discover, a provider of local, integrated online search and advertising technology, commercial printing, newswire, marketing and data services operations. GCI's Online Internet Audience in January 2010 was 27.3 million unique visitors, about 13% of the Internet audience as measured by comScore Media Metrix.

The newspaper publishing segment (74% of 2009 revenues) consists of the operations of 82 daily newspapers and about 600 non-daily publications. The segment includes the publication of USA TODAY, the nation's largest selling daily newspaper. The company's strategy for non-daily publications is to target these products at communities of interest, defined by geography, demographics or lifestyle. In the U.K., the company is the second largest regional publisher via its wholly owned subsidiary, Newsquest plc, generating $563 million in 2009 revenues. Newspaper publishing revenues are derived principally from the sale of advertising (67% of 2009 publishing revenues), circulation revenues (27%) and commercial printing revenues (6.0%). Within the advertising category, revenues were derived from retail (52%), national (18%) and classified (31%) advertising.

The broadcast segment (11% of 2009 revenues) consists of 23 network-affiliated TV stations, including 12 NBC, six CBS, three ABC affiliates and two MyNetworkTV affiliates, and Captivate Network, a national news and entertainment network that delivers programming and full-motion video advertising through video screens located in office tower elevators across North America. The principal sources of GCI's television revenues are: local advertising focusing on the immediate geographic area of the stations; national advertising, compensation paid by the networks for carrying commercial network programs; advertising on the stations' Web sites; and payments by advertisers to television stations for other services, such as the production of advertising material. Captivate derives its revenue principally from national advertising.

In 2008, with the purchase of a controlling interest in Careerbuilder, GCI began reporting a separate digital segment (10% of 2009 revenues). The segment alCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.53 1.51 1.54 0.16 11% 15.99 1.85 11 1

2008 NM -27.96 -29.11 -0.17 1.60 NM 39.00 5.00 NM NM

2007 NM 5.38 4.17 4.01 1.42 34% 63.50 34.34 15 8

2006 NM 6.07 4.90 4.86 1.20 24% 64.97 51.65 13 11

2005 NM 6.24 4.92 4.43 1.12 23% 82.41 58.37 17 12

2004 NM 6.14 4.92 4.45 1.04 21% 91.38 78.84 19 16

2003 NM 5.30 4.46 4.23 0.98 22% 89.63 66.70 20 15

2002 NM 5.13 4.31 3.70 0.94 22% 79.90 62.76 19 15

2001 NM 4.78 3.12 2.39 0.90 29% 71.14 53.00 23 17

2000 NM 4.99 3.63 NA 0.86 24% 81.56 48.38 22 13

5,613 1,101 243 176 576 33.6% 355 363

6,768 1,477 262 191 -1,715 NM -1,783 -40.6

7,439 2,005 282 260 1,449 32.7% 976 939

8,033 2,275 277 288 1,719 32.5% 1,161 1,151

7,599 2,322 274 211 1,818 33.4% 1,211 1,092

7,381 2,392 244 141 1,995 34.0% 1,317 1,191

6,711 2,213 232 139 1,840 34.2% 1,211 1,150

6,422 2,149 215 146 1,765 34.3% 1,160 998

6,344 2,034 444 222 1,371 39.4% 831 638

6,222 2,190 376 219 1,609 39.6% 972 NA

Balance Sheet & Other Financial Data (Million $) Cash 98.8 Current Assets 1,049 Total Assets 7,148 Current Liabilities 900 Long Term Debt 3,062 Common Equity 1,604 Total Capital 4,888 Capital Expenditures 67.7 Cash Flow 598 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 6.3 % Return on Assets NA % Return on Equity NA

99.0 1,246 7,797 1,153 3,817 1,056 5,083 165 -6,385 1.1 75.1 NM NM NM

77.3 1,343 15,888 962 4,098 9,017 13,832 171 1,258 1.4 29.6 13.1 6.1 11.2

94.3 1,532 16,224 1,117 5,210 8,382 14,319 201 1,438 1.4 36.4 14.4 7.3 14.6

163 1,462 15,743 1,096 5,438 7,571 13,897 263 1,486 1.3 39.1 15.9 7.8 15.4

136 1,371 15,399 1,005 4,608 8,164 13,685 280 1,561 1.4 33.7 17.8 8.8 15.9

67.2 1,223 14,706 962 3,835 8,423 13,094 281 1,443 1.3 29.3 18.0 8.5 15.8

90.4 1,133 13,733 959 4,547 6,912 12,138 275 1,375 1.2 37.5 18.1 8.6 18.3

141 1,178 13,096 1,128 5,080 5,736 11,319 325 1,275 1.0 44.9 13.1 6.4 15.3

193 1,302 12,980 1,174 5,748 5,103 11,126 351 1,348 1.1 51.7 15.6 8.8 20.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7950 Jones Branch Dr, McLean, VA 22107-0910. Telephone: 703-854-6000. Email: [email protected] Website: http://www.gannett.com

Chrmn & CEO: C. Dubow Pres, COO & CFO: G.C. Martore SVP, Secy & General Counsel: T.A. Mayman Chief Acctg Officer & Cntlr: G.R. Gavagan

Treas: M.A. Hart Founded: 1906 Investor Contact: J. Heinz (703-854-6917) Domicile: Delaware Board Members: C. Dubow, H. Elias, A. H. Harper, J. J. Employees: 35,000 Louis, M. Magner, S. K. McCune, D. M. McFarland, D. E. Shalala, N. Shapiro, K. H. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GPS | GPS is in the S&P 500

Gap Inc. (The) S&P Recommendation HOLD

★★★★★

Price $19.15 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel Retail

12-Mo. Target Price $22.00

Investment Style Large-Cap Blend

Summary This specialty apparel retailer operates Gap, Banana Republic and Old Navy stores, offering casual clothing to moderate, upscale and value-oriented market segments.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.34– 16.62 Trailing 12-Month EPS $1.76 Trailing 12-Month P/E 10.9 $10K Invested 5 Yrs Ago $12,856

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.78 1.92 10.8 618.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.852 2.09 $0.40 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.17 8 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of GPS's strong cash flow and balance sheet, offset by weakness at the Gap brand.

25 20 16

Quantitative Evaluations

12

S&P Quality Ranking D

C

B-

A B

B+

A-

A

A+

Vol. Mil.

Relative Strength Rank

60 40 20 0

MODERATE

47 LOWEST = 1

5

3

2

3

2

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on August 30, 2010, when the stock traded at $ 17.03. Highlights ➤

➤

➤

We are encouraged by Old Navy's turnaround, but we expect increased competition for Banana Republic and continued lackluster top-line results at Gap NA and Gap International to mitigate consolidated gains in FY 11 (Jan.) We look for flat sales in FY 11 as a flat comp and a 3% contraction in store square footage, primarily at the Gap brand are offset by ecommerce gains, new business initiatives and international expansion. For FY 12 we look for 5% sales growth benefiting from e-commerce, the new brands Athleta and Piperlime, and international platforms. We see 40 bps gross margin expansion in FY 11 to 40.7%, reflecting April quarter gains. With a flat July quarter gross margin and promotional pricing pressure expected in the second half, we do not expect further gains on this line item until October FY 12, when we see another 10 bps. We see a 40 bps decline in the SG&A expense ratio in FY 11 and 10 bps in FY 12 despite increased marketing, resulting in a projected 13.5% and 13.8% EBIT margin for FY 11 and FY 12 respectively.

Investment Rationale/Risk ➤

➤

➤

Comp momentum slowed to +1% in the July quarter from April quarter's +4% as Gap NA merchandise misses and weakening apparel spending drove a -3% comp; the comp was +3% at both Old Navy and Banana Republic. GPS is pursuing a number of aggressive growth initiatives in FY 11 that we see providing profitable long term growth. Most promising, in our view, is international expansion. Its brands should be available in 80 countries by yearend either via online or franchise operations. Risks to our recommendation and target price include significantly worse than expected same-store sales trends, a substantially slower than expected global economic recovery, and a resulting further slowdown in consumer spending on discretionary purchases. Our 12-month target price of $22 assumes that GPS will trade at about 11.5X our FY 12 EPS estimate, about a 10% discount to GPS's two-year average forward P/E and its specialty apparel retail peers. GPS had $1.4 billion of cash on its balance sheet in July, and the dividend was increased 18% to $0.40 annually in February.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 3,329 3,317 2010 3,127 3,245 2009 3,384 3,499 2008 3,549 3,685 2007 3,441 3,716 2006 3,626 3,716

3Q -3,589 3,561 3,854 3,856 3,860

4Q -4,236 4,082 4,675 4,930 4,821

Year -14,197 14,526 15,763 15,943 16,023

Earnings Per Share ($) 2011 0.45 0.36 2010 0.31 0.33 2009 0.34 0.32 2008 0.25 0.32 2007 0.28 0.15 2006 0.31 0.30

E0.46 0.44 0.35 0.30 0.23 0.24

E0.52 0.51 0.34 0.35 0.27 0.39

E1.78 1.58 1.34 1.09 0.93 1.24

Fiscal year ended Jan. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.085 0.100 0.100 0.100

11/18 02/25 05/19 09/28

01/04 04/05 07/02 10/08

01/06 04/07 07/07 10/13

01/27/10 04/28/10 07/28/10 10/27/10

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GPS

Gap Inc. (The) Business Summary August 30, 2010 CORPORATE OVERVIEW. Gap, Inc. is a specialty retailer that operates stores selling casual apparel, accessories, and personal care products for men, women and children. As of January 30, 2010, it operated 3,095 stores: 1,152 Gap North America; 576 Banana Republic North America; 1,039 Old Navy North America; and 328 international locations, with 38.8 million sq. ft. of total retail space. MARKET PROFILE. GPS participates in the men's, women's and children's apparel market, which generated approximately $189 billion at U.S. retail in 2009 (a 5.2% decline from 2008), according to ND Fashionworld consumer estimated data. The apparel market is fragmented, with national brands marketed by 20 companies accounting for about 30% of total apparel sales, and the remaining 70% comprised of smaller and/or private label "store" brands. The market is mature, in our view, with demand largely mirroring population growth, and fashion trends accounting for a modicum of incremental volume. Deflationary pricing pressure is a function of channel competition and pro-

duction steadily moving offshore to low-cost producers in India, Asia and China, in our view. S&P forecasts a 2% increase in 2010 apparel sales. COMPETITIVE LANDSCAPE. By channel, specialty stores account for the largest share of apparel sales, at 31% in 2009, according to NPD. Mass merchants (e.g., Wal-mart and Target) came in second, at 22%, and department stores came in third, at 14%, down from 19% in 2003. National chains (e.g., Sears and JC Penney) captured 13% of 2009 apparel sales, and off-price retailers (e.g., TJX and Ross Stores) were at 8%. Factory outlets, direct and email pure plays and other captured the remaining 12%. GPS is the largest U.S. specialty retailer, with an estimated 20% of the channel's volume.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 6.96 2.51 1.58 1.58 0.34 22% 2009 23.36 9.56 15 6

2009 6.04 2.25 1.34 1.34 0.34 22% 2008 21.89 9.41 16 7

2008 11.50 1.89 1.09 1.09 0.32 29% 2007 22.02 15.20 20 14

2007 9.58 1.57 0.93 0.93 0.20 22% 2006 21.39 15.91 23 17

2006 6.33 1.93 1.24 1.15 0.09 7% 2005 22.70 15.90 18 13

2005 5.73 1.79 1.21 1.13 0.09 7% 2004 25.72 18.12 21 15

2004 5.33 1.71 1.09 1.03 0.09 8% 2003 23.47 12.01 22 11

2003 4.12 1.43 0.54 0.50 0.09 17% 2002 17.14 8.35 32 15

2002 3.48 0.93 -0.01 -0.10 0.09 NM 2001 34.98 11.12 NM NM

2001 3.43 1.67 1.00 0.86 0.09 9% 2000 53.75 18.50 54 18

14,197 2,484 573 6.00 1,816 39.3% 1,102 1,102

14,526 2,199 651 9.00 1,584 39.0% 967 967

15,763 1,984 635 36.0 1,406 38.3% 867 867

15,943 1,701 530 49.0 1,264 38.5% 778 776

16,023 2,370 625 45.0 1,793 37.9% 1,113 1,033

16,267 2,705 620 167 1,872 38.6% 1,150 1,073

15,854 2,543 664 234 1,683 38.8% 1,030 978

14,455 1,794 781 249 801 40.4% 477 439

13,848 1,148 810 109 242 NM -7.76 -89.1

13,674 2,035 590 74.9 1,382 36.5% 877 760

Balance Sheet & Other Financial Data (Million $) Cash 2,573 Current Assets 4,664 Total Assets 7,985 Current Liabilities 2,131 Long Term Debt NA Common Equity 4,891 Total Capital 4,891 Capital Expenditures 334 Cash Flow 1,757 Current Ratio 2.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 7.8 % Return on Assets 14.2 % Return on Equity 23.8

1,715 4,005 7,564 2,158 Nil 4,387 4,437 431 1,618 1.9 Nil 6.7 12.6 22.3

1,939 4,086 7,838 2,433 50.0 4,274 4,324 682 1,502 1.7 1.2 5.5 10.6 18.4

2,644 5,029 8,544 2,272 188 5,174 5,362 572 1,308 2.2 3.5 4.9 9.0 14.7

2,987 5,239 8,821 1,942 513 5,425 5,938 600 1,738 2.7 8.6 6.9 11.8 21.5

7,139 6,304 10,048 2,242 1,886 4,936 6,822 442 1,770 2.8 27.6 7.1 11.1 24.0

2,261 6,689 10,343 2,492 2,487 4,783 7,270 272 1,694 2.7 34.2 6.5 10.2 24.4

3,389 5,740 9,902 2,727 2,896 3,658 6,554 303 1,258 2.1 44.2 3.3 5.4 14.3

1,036 3,045 7,591 2,056 1,961 3,010 4,971 940 803 1.5 39.5 NM NM NM

409 2,648 7,013 2,799 780 2,928 3,708 1,859 1,468 0.9 21.0 6.4 14.4 34.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2 Folsom St, San Francisco, CA 94105-1205. Telephone: 650-952-4400 . Email: [email protected] Website: http://www.gapinc.com

Chrmn & CEO: G.K. Murphy COO: A. Peck EVP, CFO & Chief Acctg Officer: S.L. Simmons EVP & CIO: J.T. Keiser

SVP & Secy: M. Banks Founded: 1969 Investor Contact: E. Price (415-427-2360) Domicile: Delaware Board Members: A. D. Bellamy, D. De Sole, R. J. Employees: 135,000 Fisher, W. S. Fisher, B. L. Martin, J. P. Montoya, G. K. Murphy, M. A. Shattuck, III, K. Tsang, K. C. Youngblood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GD | GD is in the S&P 500

General Dynamics Corp S&P Recommendation HOLD

★★★★★

Price $64.50 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $70.00

Investment Style Large-Cap Growth

Summary General Dynamics is the world's fifth largest military contractor and also one of the world's biggest makers of corporate jets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $79.00– 55.46 Trailing 12-Month EPS $6.25 Trailing 12-Month P/E 10.3 $10K Invested 5 Yrs Ago $12,193

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.73 7.00 9.6 380.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$24.534 2.60 $1.68 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 6 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for GD is based on the company's long-term record of consistent earnings and dividend growth, as reflected in its S&P Quality Ranking of A+. In addition, we note the company's conservative capitalization, with a debt-to-total capital ratio of 20% as of June 2010.

100 80 60 50 40

Quantitative Evaluations Vol.

S&P Quality Ranking

35

Mil. 15 10 5 0 5

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank 4

A+

MODERATE

51

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Richard Tortoriello on August 10, 2010, when the stock traded at $ 63.27. Highlights ➤

➤

➤

We project a 5% revenue increase in 2010, with strong growth in Information Systems & Technology (9% projected) and Aerospace (7%), moderate growth in Marine (about 5% each), and a slight decline in Combat Systems. We see growth in IS&T driven by cyber security initiatives; intelligence, surveillance & reconnaissance (ISR); and other IT initiatives. We see Aerospace benefiting from an increase in service demand for business jets. We see Marine growth driven by the Virginia Class submarine, with the Pentagon increasing production from one to two submarines a year in 2011. Finally, we see slightly lower MRAP and Stryker demand in Combat Systems. We see operating margins of 11.9% in 2010, up from 11.5% in 2009, on increased Aerospace margins due to increased volume and a mix shift toward services. GD has the highest margins of the defense contractors under our coverage, partly due to Aerospace, but also due to good execution, in our view. We project EPS of $6.73 in 2010 and $7.00 in 2011. GD generated $6.37 in free cash flow per share in 2009, and we look for free cash flow above net income in 2010.

Investment Rationale/Risk ➤

➤

➤

Although we see modest improvement in Aerospace in 2010, we continue to see results driven increasingly by GD's defense businesses. We see GD benefiting from growth in Marine, due to funding for new Virginia Class submarines and DDG 1000 destroyers, and moderate long-term growth in Combat Systems and IS&T, but we view the longer-term outlook for U.S. defense budget growth as cloudy, on ballooning overall budget deficits and shifting military priorities. We see GD valuations as below average, on a historical basis. Risks to our recommendation and target price include the potential for cuts in military budgets and failure of GD to perform well on existing contracts or to win new contracts, as well as greater-than-expected deterioration in GD's business jet backlog. Our 12-month target price of $70 is based on an enterprise value to estimated 2011 EBITDA multiple of 6.5X, below GD's 20-year historical average of 8X. Given our view of U.S. defense budget pressure, we view a below average multiple as appropriate for the shares.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 7,750 8,104 2009 8,264 8,100 2008 7,005 7,303 2007 6,300 6,591 2006 5,546 5,934 2005 4,819 5,214

3Q -7,719 7,140 6,834 6,069 5,380

4Q -7,898 7,852 7,515 6,514 5,831

Year -31,981 29,300 27,240 24,063 21,244

Earnings Per Share ($) 2010 1.54 1.68 2009 1.53 1.61 2008 1.42 1.60 2007 1.07 1.27 2006 0.95 1.03 2005 0.85 0.85

E1.71 1.54 1.59 1.34 1.08 0.92

E1.81 1.58 1.62 1.42 1.13 1.00

E6.73 6.20 6.22 5.10 4.20 3.63

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.380 0.420 0.420 0.420

12/02 03/03 06/02 08/04

01/13 04/07 06/30 10/06

01/15 04/09 07/02 10/08

02/05/10 05/07/10 08/06/10 11/12/10

Dividends have been paid since 1979. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GD

General Dynamics Corp Business Summary August 10, 2010 CORPORATE OVERVIEW. General Dynamics is the world's sixth largest defense contractor and the second largest maker of corporate jets by revenues. The company conducts business through four segments. Information Systems & Technology (IS&T; 34% of sales and 31% of operating profits in 2009) primarily makes sophisticated electronics for land-, sea- and air-based weapons systems. Customers also include federal civilian agencies and commercial customers. The segment was created in 1998, and has grown through numerous acquisitions and internal development. The group's three principal markets are tactical and strategic mission systems (primarily secure communications systems), information technology and mission services, and intelligence mission systems, which provides specialized intelligence, surveillance and reconnaissance equipment and services, as well as cybersecurity offerings. In 2009, 71% of revenues were from the U.S. government, 9% from international defense, and the remainder from commercial customers. Combat Systems (30% of sales and 33% of operating profit) makes, repairs and supports wheeled and tracked armored vehicles and munitions. Product lines include wheeled armored combat and tactical vehicles; main battle tanks and tracked infantry vehicles; guns and ammunition-handling systems;

ammunition and ordnance; chemical, biological and explosion detection systems; and drive train components and spare parts. Reflecting the U.S. Army's desire to transform itself into a highly agile fighting force, demand is expected to slow for tanks, but to accelerate for its various wheeled combat vehicles. Major current programs include the M1 Abrams tank (upgrade programs) and the Stryker wheeled combat vehicle. Aerospace (16% and 19%) makes the well known Gulfstream business jet. Based on revenues, Gulfstream is the world's second-largest corporate jet maker, slightly behind Canada-based Bombardier. Textron's Cessna division, France's Dassault Aviation and Hawker Beechcraft Corp. are also significant competitors. Gulfstream sells business jets primarily to the high end of the market. In 2008, Gulfstream introduced the ultra-large, ultra-long-range G650 and the super-mid-size G250, which GD says offers the largest cabin, longest range and fastest speed in its class. The G250 is scheduled for service entry in 2011 and the G650 in 2012. Both aircraft met first flight milestones in 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 7.65 6.20 6.08 1.49 24% 70.84 35.28 11 6

2008 NM 6.97 6.22 5.16 1.34 22% 95.13 47.81 15 8

2007 0.46 5.78 5.10 4.90 1.10 22% 94.55 70.61 19 14

2006 0.25 5.16 4.20 4.08 0.66 16% 77.98 56.68 19 13

2005 1.40 4.48 3.63 3.34 0.78 22% 61.14 48.80 17 13

2004 NM 3.57 2.99 2.81 0.70 23% 54.99 42.48 18 14

2003 NM 3.20 2.50 2.34 0.63 25% 45.40 25.00 18 10

2002 2.81 3.14 2.59 1.62 0.59 23% 55.59 36.63 21 14

2001 1.92 2.99 2.33 1.57 0.55 24% 48.00 30.25 21 13

2000 3.22 2.80 2.24 NA 0.51 23% 39.50 18.13 18 8

31,981 4,237 562 171 3,513 31.5% 2,407 2,362

29,300 3,954 301 133 3,604 31.2% 2,478 2,054

27,240 3,391 278 131 3,047 31.7% 2,080 1,999

24,063 3,009 384 101 2,527 32.3% 1,710 1,663

21,244 2,539 342 154 2,100 30.1% 1,468 1,354

19,178 2,173 232 157 1,785 32.6% 1,203 1,130

16,617 1,744 277 98.0 1,372 27.3% 997 931

13,829 1,795 213 45.0 1,584 33.6% 1,051 658

12,163 1,756 271 56.0 1,424 33.8% 943 636

10,356 1,555 226 60.0 1,262 28.6% 901 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,263 Current Assets 13,249 Total Assets 31,077 Current Liabilities 10,371 Long Term Debt 3,159 Common Equity 12,423 Total Capital 16,287 Capital Expenditures 385 Cash Flow 2,969 Current Ratio 1.3 % Long Term Debt of Capitalization 19.4 % Net Income of Revenue 7.5 % Return on Assets 8.1 % Return on Equity 21.4

1,621 11,950 28,373 10,360 3,113 10,053 13,265 490 2,779 1.2 23.5 8.5 9.2 22.7

3,155 12,298 25,733 9,164 2,118 11,768 13,886 474 2,358 1.3 15.3 7.6 8.6 19.3

1,604 9,880 22,376 7,824 2,774 9,827 12,601 334 2,094 1.3 22.0 7.1 8.1 19.0

2,331 9,173 19,591 6,907 2,781 8,145 10,926 279 1,810 1.3 25.5 6.9 7.9 19.1

976 7,287 17,544 5,374 3,291 7,189 10,480 266 1,435 1.4 31.4 6.3 7.1 18.4

860 6,394 16,183 5,616 3,296 5,921 9,217 224 1,274 1.1 35.8 6.0 7.1 17.9

328 5,098 11,731 4,582 718 5,199 5,917 264 1,264 1.1 12.1 7.6 9.2 21.6

442 4,893 11,069 4,579 724 4,528 5,252 356 1,214 1.1 13.8 7.8 9.9 22.6

177 3,551 7,987 2,901 162 3,820 3,982 288 1,127 1.2 4.1 8.7 11.4 25.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2941 Fairview Park Dr Ste 100, Falls Church, VA 22042-4513. Telephone: 703-876-3000. Website: http://www.generaldynamics.com Chrmn, Pres & CEO: J.L. Johnson

SVP & CFO: L.H. Redd SVP, Secy & General Counsel: G.S. Gallopoulos Chief Admin Officer: W. Oliver CTO: G.J. DeMuro

Investor Contact: A. Gilliland (703-876-3748) Founded: 1899 Board Members: N. D. Chabraja, J. S. Crown, W. P. Domicile: Delaware Fricks, J. L. Johnson, G. Joulwan, P. G. Kaminski, J. M. Employees: 91,700 Keane, L. L. Lyles, W. A. Osborn, R. Walmsley

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GE | GE is in the S&P 500

General Electric Co S&P Recommendation BUY

★★★★★

Price $16.06 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Conglomerates

12-Mo. Target Price $20.00

Investment Style Large-Cap Blend

Summary This conglomerate sells products ranging from jet engines and gas turbines to consumer appliances, railroad locomotives and medical equipment. It also owns NBC Universal, and is a leading provider of consumer and commercial financing.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.70– 13.75 Trailing 12-Month EPS $0.92 Trailing 12-Month P/E 17.5 $10K Invested 5 Yrs Ago $5,754

S&P Oper. EPS 2010E 1.12 S&P Oper. EPS 2011E 1.25 P/E on S&P Oper. EPS 2010E 14.3 Common Shares Outstg. (M) 10,691.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

10

MEDIUM

HIGH

Quantitative Evaluations

Vol. 2224

Mil.

S&P Quality Ranking D 5

4

5

4

3

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ WEAK

29

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Richard Tortoriello on October 15, 2010, when the stock traded at $ 16.16. Highlights We estimate a 4% sales decline this year, after a 14% drop in 2009, due to the global recession and credit crisis. We see 2010 results reflecting a 5% decline at Capital Finance, as GE continues to reduce its exposure to this segment, a 7% decline at Energy Infrastructure and a 4% decline at Technology Infrastructure, on continued weakness in long order-cycle businesses, such as gas turbines, wind power, and locomotives. We project a 1% revenue increase at Home & Busines Solutions, on modest economic improvement and easy year-to-year comparisons, and an 8% rise at NBC Universal. We are modeling 3% revenue growth in 2011.

Investment Rationale/Risk ➤

➤

We see significant segment operating margin improvement in 2010, to about 11.5%, from 9.8% in 2009, on strong improvements in Capital Finance, Energy, and Home and Business solutions. We project a further increase, to 12.5%, in 2011. We estimate EPS of $1.12 in 2010, rising to $1.25 in 2011. GE expects to generate $14 to $15 billion in industrial cash flow in 2010. It raised its dividend by 20% in July, to $0.44 annually, and restarted its share repurchase program.

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects our view of GE's long-term record of earnings, cash flow and dividends, which we attribute to good management of a diversified portfolio of profitable businesses, offset by recent financial market turmoil, which has caused GE to access the capital markets.

20

➤

1.63 10 AA+

Below Avg.

30

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

40

600 400 200 0

$171.648 2.99 $0.48 50

We see the following trends supporting our view of stock price appreciation over the next 12 months: order increases in GE's industrial businesses (equipment orders rose 17% in the second quarter and 9% in the third); an anticipated reduction in loan losses at Capital Finance, due to financial market improvement and restructuring by GE (loan loss metrics improved significantly in the third quarter); global demand for health care imaging products; and increasing commercial air traffic. Given this backdrop, we view current below-historical-average valuations for GE as attractive. Risks to our recommendation and target price include the potential that the economy fails to continue to recover from the previous recession, as well as greater-than-anticipated credit losses at Capital Finance. Our 12-month target price of $20 reflects an enterprise value to estimated 2010 EBITDA multiple of 7X. This level is slightly below a recent peer average of about 8X (which includes diversified industrial companies in our coverage universe, excluding GE).

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 36,605 37,444 2009 38,411 39,082 2008 42,243 46,891 2007 39,200 42,384 2006 37,370 39,243 2005 39,409 40,960

3Q 35,888 37,799 47,234 42,534 40,286 41,580

4Q -41,438 46,213 48,588 44,621 40,705

Year -156,783 182,515 172,738 163,391 149,702

Earnings Per Share ($) 2010 0.21 0.30 2009 0.26 0.25 2008 0.44 0.54 2007 0.44 0.52 2006 0.40 0.48 2005 0.33 0.41

0.29 0.22 0.45 0.50 0.48 0.43

E0.32 0.28 0.36 0.68 0.64 0.55

E1.12 1.03 1.78 2.20 1.99 1.72

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.120

12/15 02/12 06/11 07/23

12/23 02/25 06/17 09/16

12/28 03/01 06/21 09/20

01/25/10 04/26/10 07/26/10 10/25/10

Dividends have been paid since 1899. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GE

General Electric Co Business Summary October 15, 2010 CORPORATE OVERVIEW. This multi-industry, heavy-equipment, media and financing giant does business through five segments: Energy Infrastructure, Technology Infrastructure, NBC Universal, Capital Finance, and Home & Business Solutions. Revenue by geographic region in 2009: U.S. 46%, Europe 24%, Pacific Basin 13%, Americas 8%, Middle East and Africa 6%, and Other 3%. The Energy Infrastructure segment (26% of segment sales and 39% of segment operating profits in 2009) consists of GE's Energy and Oil & Gas businesses. Major products include gas turbines and generators, wind turbines, solar technology, integrated coal gasification systems, water treatment solutions for industrial and municipal water systems, and nuclear power plants, through joint ventures with Hitachi and Toshiba (the Energy business line); surface and subsea drilling and production systems, equipment for floating production platforms, compressors, turbines, turboexpanders, and pressure control equipment (Oil & Gas). GE provides extensive aftermarket services for its equipment.

netic resonance and molecular imaging technologies. Aviation primarily makes and services jet engines for commercial and military aircraft. Enterprise Solutions offers integrated solutions using sensors for temperature, pressure, moisture, gas and flow rate, and non-destructive testing inspection equipment. In March 2010, GE sold its security and life safety solutions business to United Technologies. Transportation makes and services locomotives, motors and electrical drive systems for a variety of industries, and gearing technology for applications such as wind turbines. NBC Universal (10%, 12%) principally Provides broadcast network television services within the U.S.; the production of live and recorded TV programs; the production and distribution of motion pictures; the operation of TV broadcasting stations; the ownership of several cable/satellite networks around the work; the operation of theme parks; and a variety of digital media activities. In December 2009, GE agreed to contribute NBCU to a joint venture with Comcast (see below).

Technology Infrastructure (25% of sales and 37% of operating profits) includes the Healthcare, Aviation, Enterprise Solutions and Transportation business lines. Healthcare makes and services a wide variety of medical imaging products, including X-ray, digital mammography, computed tomography, magCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.06 1.55 1.03 1.03 0.61 59% 17.52 5.73 17 6

2008 0.75 2.92 1.78 1.57 1.24 70% 38.52 12.58 22 7

2007 2.38 3.21 2.20 2.07 1.15 52% 42.15 33.90 19 15

2006 2.52 2.90 1.99 1.90 1.03 52% 38.49 32.06 19 16

2005 2.64 2.53 1.72 1.66 0.91 53% 37.34 32.67 22 19

2004 2.55 2.39 1.59 1.54 0.82 52% 37.75 28.88 24 18

2003 2.40 2.24 1.55 1.41 0.77 50% 32.42 21.30 21 14

2002 1.76 2.11 1.51 1.10 0.73 48% 41.84 21.40 28 14

2001 2.34 2.11 1.41 0.98 0.66 47% 53.55 28.50 38 20

2000 2.32 2.04 1.27 NA 0.57 45% 60.50 41.65 48 33

156,783 17,022 5,557 1,478 10,344 NM 11,218 10,780

182,515 57,897 11,492 26,209 19,782 5.32% 18,089 15,939

172,738 69,594 10,278 23,787 27,514 15.0% 22,468 21,155

163,391 53,972 9,158 19,286 25,528 15.5% 20,666 19,701

149,702 46,840 8,538 15,187 23,115 16.7% 18,275 17,548

152,363 40,262 8,385 11,907 21,034 16.7% 16,593 16,138

134,187 36,792 6,956 10,432 20,194 21.4% 15,589 14,195

131,698 35,431 5,998 10,216 19,217 19.6% 15,133 11,038

125,913 38,200 7,089 11,062 20,049 27.8% 14,128 9,889

129,853 38,329 7,736 11,720 18,873 30.3% 12,735 NA

Balance Sheet & Other Financial Data (Million $) Cash 124,200 Current Assets 445,634 Total Assets 781,000 Current Liabilities 167,284 Long Term Debt 510,200 Common Equity 117,300 Total Capital 633,300 Capital Expenditures 8,634 Cash Flow 16,475 Current Ratio 2.7 % Long Term Debt of Capitalization 80.6 % Net Income of Revenue 7.2 % Return on Assets 1.4 % Return on Equity 10.1

12,300 463,602 797,800 236,074 330,067 104,700 448,263 16,010 29,506 2.0 73.6 9.9 2.3 16.4

17,578 451,859 795,337 236,228 319,015 115,559 454,722 17,870 32,746 1.9 70.2 13.2 3.0 19.7

14,275 391,095 697,239 215,266 260,804 112,314 394,867 16,650 29,824 1.8 66.0 12.8 3.0 18.6

9,011 383,745 673,342 200,471 212,281 109,354 346,019 14,441 26,813 1.9 61.3 12.2 2.6 16.6

150,864 358,286 750,330 206,280 213,161 110,284 354,242 13,118 24,978 1.7 60.2 10.8 2.4 17.5

133,388 294,775 647,483 176,530 170,004 79,180 267,611 9,767 22,545 1.7 63.5 11.6 2.5 21.8

125,772 271,784 575,244 181,827 140,632 63,706 222,328 13,351 21,131 1.5 63.3 11.5 2.8 25.5

110,099 239,691 495,023 198,904 79,806 54,824 148,975 15,520 21,217 1.2 53.6 11.2 3.0 26.8

99,534 204,324 437,006 156,112 82,132 50,492 146,250 13,967 20,471 1.3 56.2 9.8 3.0 27.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3135 Easton Tpke, Fairfield, CT 06828-0001. Telephone: 203-373-2211. Website: http://www.ge.com Chrmn & CEO: J.R. Immelt

SVP & Treas: K.A. Cassidy SVP, Secy & General Counsel: B.B. Denniston, III CFO: K.S. Sherin Chief Acctg Officer & Cntlr: J.S. Miller

Investor Contact: D. Janki Board Members: W. G. Beattie, J. I. Cash, Jr., W. M. Castell, A. M. Fudge, S. Hockfield, J. R. Immelt, A. Jung, A. G. Lafley, R. W. Lane, R. S. Larsen, R. B. Lazarus, J. J. Mulva, S. A. Nunn, R. S. Penske, R. J. Swieringa, J. S. Tisch, D. A. Warner, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1892 Domicile: New York Employees: 304,000

Stock Report | October 23, 2010 | NYS Symbol: GIS | GIS is in the S&P 500

General Mills Inc. S&P Recommendation STRONG BUY

★★★★★

Price $37.30 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $41.00

Investment Style Large-Cap Blend

Summary This company is a major producer of packaged consumer food products, including Big G cereals and Betty Crocker desserts/baking mixes.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.98– 32.24 Trailing 12-Month EPS $2.32 Trailing 12-Month P/E 16.1 $10K Invested 5 Yrs Ago $17,763

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.48 2.65 15.0 640.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$23.883 3.00 $1.12 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.20 8 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relatively stable nature of the company's end markets, strong cash flows, and an S&P Quality Ranking of A, which reflects the second highest ranking for historical earnings and dividend growth.

40

32 28 24

2-for-1

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

Quantitative Evaluations

C

B-

A B

B+

A-

A

Relative Strength Rank 4

3

A+

MODERATE

48

5

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Tom Graves, CFA on September 23, 2010, when the stock traded at $ 36.36. Highlights ➤

➤

➤

In FY 11 (May), we look for net sales to increase modestly from $14.8 billion reported for FY 10, bolstered by marketing support and new products. We expect GIS to face profit margin pressure from higher retiree costs and increased input costs. However, we look for productivity gains and the absence of about $0.04 of costs related to debt repurchase to bolster FY 11 profit comparisons. Before some special items, but including about $0.03 of restructuring costs, we estimate FY 11 EPS of $2.48 (based on about 2% fewer shares outstanding), up from $2.30 in FY 10 (adjusted for a recent 2-for-1 stock split), which excludes a net negative impact of about $0.06 per share from some special items. Our FY 11 estimate excludes a favorable commodity mark-to-market impact of about $0.06 in FY 11's first quarter. For FY 12, we estimate EPS of $2.65. Also, in FY 11's first quarter, GIS repurchased 21 million common shares for a total of $788 million. Looking ahead, we expect GIS's demographic focus to include multi-cultural consumers, older adults, and the millennial generation. In developing international markets, we look for rising incomes and changing lifestyles to help GIS.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We expect GIS's important U.S. Retail segment to benefit from consumers eating at home. Also, we generally like the company's brand strength, which we think will provide some protection from competitive pressure presented by less expensive private label products. We believe that GIS has opportunities to bolster longterm profit margins through a focus on areas such as manufacturing and spending efficiency, global sourcing, and sales mix. We look for GIS to continue to generate free cash flow, with a portion being used for dividends and stock repurchases. Risks to our recommendation and target price include competitive pressures, disappointing consumer acceptance of new products, higherthan-expected commodity cost inflation, and an inability to achieve sales and earnings growth forecasts. Our split-adjusted 12-month target price of $41 reflects about a 14% P/E premium to what we project on average for a group of other packaged food stocks, based on our calendar 2011 EPS estimates. Also, with a 14% dividend increase announced in June 2010, GIS shares recently had an indicated yield of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 3,533 -2010 3,519 4,078 2009 3,497 4,011 2008 3,072 3,703 2007 2,860 3,467 2006 2,662 3,273

3Q -3,629 3,537 3,406 3,054 2,860

4Q -3,570 3,646 3,471 3,061 2,845

Year -14,797 14,691 13,652 12,442 11,640

Earnings Per Share ($) 2011 0.70 E0.77 2010 0.63 0.83 2009 0.40 0.55 2008 0.40 0.57 2007 0.37 0.54 2006 0.32 0.49

E0.60 0.49 0.43 0.62 0.37 0.34

E0.48 0.31 0.54 0.26 0.31 0.31

E2.48 2.24 1.90 1.85 1.59 1.45

Fiscal year ended May 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.490 2-for-1 0.280 0.280

03/15 05/03 06/28 09/27

04/08 06/09 07/08 10/06

04/12 05/28 07/12 10/11

05/03/10 06/08/10 08/02/10 11/01/10

Dividends have been paid since 1898. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GIS

General Mills Inc. Business Summary September 23, 2010 CORPORATE OVERVIEW. General Mills (GIS) is one of the largest U.S. producers of ready-to-eat breakfast cereals, and a leading producer of other wellknown packaged consumer foods. The U.S. Retail segment, which accounted for 70% of net sales in FY 10 (May), includes cereals, refrigerated yogurt, soup, dry dinners, vegetables, dough products, baking products, snacks, and organic products. The Bakeries and Foodservice segment (12%) includes products sold to distributors, convenience stores, restaurant operators and cafeterias. The International segment (18%) includes products manufactured in the U.S. for export, mainly to Caribbean and Latin American markets, as well as products manufactured for sale to GIS international joint ventures. Cereal brands include Cheerios, Wheaties, Lucky Charms, Total, Golden Grahams, Chex, Kix, and Fiber One. Other consumer packaged food products include baking mixes (e.g., Betty Crocker, Bisquick); dry dinners; Progresso ready-to-serve soups, Green Giant canned and frozen vegetables; snacks; Pillsbury refrigerated and frozen dough products, frozen pizza; Yoplait refrigerated yogurt; Haagen-Dazs ice cream; and Cascadian Farm and Muir Glen

organic products. Some products may be marketed under licensing arrangements with other parties. GIS also has a grain merchandising operation that holds inventories carried at fair market value, and uses derivatives to hedge its net inventory position and minimize its market exposures. During FY 10, Wal-Mart Stores, Inc., and affiliates accounted for 23% of GIS's consolidated net sales. GIS joint ventures include a 50% equity interest in Cereal Partners Worldwide (CPW), a joint venture with Nestle S.A. that manufactures and markets cereal products outside the U.S. and Canada; and a 50% equity interest in HaagenDazs Japan, Inc., which manufactures, distributes and markets Haagen-Dazs ice cream products and frozen novelties.

Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 2.91 2.24 2.09 NA NA 2009 36.04 23.19 16 10

2009 NM 2.56 1.90 1.44 0.86 41% 2008 36.01 25.50 19 14

2008 NM 2.53 1.85 1.65 0.78 42% 2007 30.76 27.09 17 15

2007 NM 2.30 1.59 1.52 0.72 42% 2006 29.62 23.53 19 15

2006 NM 2.00 1.45 1.36 0.67 46% 2005 26.95 22.34 19 15

2005 NM 2.06 1.54 1.09 0.62 40% 2004 24.98 21.51 16 14

2004 NM 1.89 1.38 1.22 0.55 40% 2003 24.83 20.72 18 15

2003 NM 1.70 1.22 0.87 0.55 45% 2002 25.87 18.69 21 15

2002 NM 1.11 0.68 0.28 0.55 81% 2001 26.43 18.63 39 28

2001 NM 1.52 1.14 0.90 0.55 48% 2000 22.66 14.69 20 13

14,797 3,095 457 402 2,306 NA 1,531 1,429

14,691 2,727 454 417 2,025 35.6% 1,304 988

13,652 2,687 459 422 1,917 32.5% 1,295 1,142

12,442 2,515 418 427 1,704 32.9% 1,144 1,089

11,640 2,420 424 427 1,631 33.2% 1,090 1,024

11,244 2,435 443 488 1,904 34.9% 1,240 863

11,070 2,442 399 537 1,583 33.4% 1,055 931

10,506 2,290 365 589 1,377 33.4% 917 652

7,949 1,569 296 445 700 34.1% 461 189

7,078 1,392 223 223 1,015 34.5% 665 512

Balance Sheet & Other Financial Data (Million $) Cash 673 Current Assets 3,480 Total Assets 17,679 Current Liabilities 3,769 Long Term Debt 5,269 Common Equity 5,403 Total Capital 11,024 Capital Expenditures 650 Cash Flow 1,988 Current Ratio 0.9 % Long Term Debt of Capitalization 47.8 % Net Income of Revenue 10.3 % Return on Assets 8.6 % Return on Equity 28.9

750 3,535 17,875 3,606 5,755 5,175 11,680 563 1,758 1.0 49.3 8.9 7.1 22.9

674 3,620 19,042 4,856 4,349 6,216 12,261 522 1,754 0.8 35.4 9.5 7.0 22.5

417 3,054 18,184 5,845 3,218 5,319 11,109 460 1,562 0.5 28.9 9.2 6.3 20.6

647 3,176 18,207 6,138 2,415 5,772 11,145 360 1,514 0.5 21.7 9.4 6.0 18.7

573 3,055 18,066 4,184 4,255 5,676 12,915 414 1,683 0.7 32.9 11.0 6.8 22.7

751 3,215 18,448 2,757 7,410 5,248 14,730 628 1,454 1.2 50.3 9.5 5.8 22.4

703 3,179 18,227 3,444 7,516 4,175 13,652 711 1,282 0.9 55.1 8.7 5.3 23.7

975 3,437 16,540 5,747 5,591 3,576 9,727 506 757 0.6 57.5 5.8 4.3 25.4

64.1 1,408 5,091 2,209 2,221 52.2 2,696 308 888 0.6 82.4 9.4 13.8 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 General Mills Blvd, Minneapolis, MN 55426-1348. Telephone: 763-764-7600. Website: http://www.generalmills.com Chrmn & CEO: K.J. Powell

EVP & CFO: D.L. Mulligan EVP, Secy & General Counsel: R.A. Palmore CTO: P.C. Erickson Chief Acctg Officer & Cntlr: R.O. Lund

Investor Contact: K. Wenker (800-245-5703) Founded: 1928 Board Members: B. H. Anderson, R. K. Clark, P. Domicile: Delaware Danos, W. T. Esrey, R. V. Gilmartin, J. R. Hope, H. G. Employees: 33,000 Miller, H. M. Ochoa-Brillembourg, S. Odland, K. J. Powell, L. E. Quam, M. D. Rose, R. L. Ryan, D. A. Terrell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GPC | GPC is in the S&P 500

Genuine Parts Co S&P Recommendation STRONG BUY

★★★★★

Price $47.49 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Distributors

12-Mo. Target Price $53.00

Investment Style Large-Cap Blend

Summary This company is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.43– 34.91 Trailing 12-Month EPS $2.87 Trailing 12-Month P/E 16.6 $10K Invested 5 Yrs Ago $13,536

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.93 3.26 16.2 157.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.485 3.45 $1.64 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 12 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects GPC's long-term record of rising sales and earnings and what we view as strong corporate leadership and a healthy balance sheet.

50

40

Quantitative Evaluations

30 25

S&P Quality Ranking

Vol.

D

C

B-

A B

B+

A-

A

A+

Mil. 9 6 3 0 5

Relative Strength Rank

STRONG 73

LOWEST = 1

5

4

3

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, P, Ph

Analysis prepared by Efraim Levy, CFA on October 18, 2010, when the stock traded at $ 47.97. Highlights ➤

➤

➤

We forecast a sales increase of 10.6% for 2010, as we think most segments will enjoy sales growth in the second half of the year as the U.S. economy expands. Margins should benefit from higher volume and cost-cutting efforts, despite price pressures, but we do not see a repeat of fourth quarter 2009 LIFO (last-in-first-out) inventory accounting benefits. We see further sales and margin gains in 2011. We expect long-term prospects for GPC's auto parts segment to be enhanced by the rising number of and increasing complexity of vehicles. The median vehicle age in the U.S. is currently more than nine years. We believe GPC will benefit from an expanding market share, as long-term industry consolidation continues to drive out smaller participants. We also think GPC will use its distribution strength to leverage sales of acquired parts companies. We think the company's solid balance sheet, low debt and strong cash flow provide the ability and resources to help accelerate earnings growth over the long term. We see GPC using cash flow to repurchase shares, invest in the business, make modest-sized acquisitions, and increase the dividend.

Investment Rationale/Risk ➤

➤

➤

Based on our 2010 EPS estimate, the stock's recent P/E of about 16.4X is below the average for peers, as depressed peer earnings increased the group average P/E. In normal economic conditions, we think a premium for GPC is warranted by the company's greater earnings stability. We view GPC as financially strong. Earnings quality appears high to us, and an aboveaverage dividend yield adds to GPC's total return potential. Risks to our recommendation and target price include weaker-than-expected demand for the company's products and a slowerthan-anticipated improvement in operating margins. Our 12-month target price of $53 is based on a weighted blend of our relative valuation and discounted cash flow (DCF) metrics. On a relative basis, we apply a multiple of about 15.5X to our 2011 EPS estimate of $3.26, reflecting historical and peer comparisons, leading to a value of $50.50. Our DCF model, which assumes a weighted average cost of capital of 9.0%, a compound annual growth rate of 1.5% over the next 15 years, and a terminal growth rate of 3%, calculates an intrinsic value of about $56.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,602 2,847 2009 2,445 2,535 2008 2,739 2,873 2007 2,649 2,770 2006 2,554 2,662 2005 2,342 2,476

3Q 2,951 2,607 2,882 2,798 2,700 2,556

4Q -2,471 2,520 2,627 2,543 2,410

Year -10,058 11,015 10,843 10,458 9,783

Earnings Per Share ($) 2010 0.63 0.78 2009 0.56 0.65 2008 0.75 0.81 2007 0.71 0.76 2006 0.66 0.70 2005 0.61 0.63

0.83 0.67 0.81 0.76 0.71 0.63

E0.68 0.62 0.55 0.75 0.70 0.63

E2.93 2.50 2.92 2.98 2.76 2.50

Fiscal year ended Dec. 31. Next earnings report expected: Mid February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.400 0.410 0.410 0.410

11/16 02/15 04/19 08/16

12/02 03/03 06/09 09/08

12/04 03/05 06/11 09/10

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1948. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GPC

Genuine Parts Co Business Summary October 18, 2010 CORPORATE OVERVIEW. Genuine Parts is the leading independent U.S. distributor of automotive replacement parts. It operates 58 NAPA warehouse distribution centers in the U.S., about 1,000 company-owned jobbing stores, three Rayloc auto parts rebuilding plants, four Balkamp distribution centers, two Altrom import parts distribution centers, and 16 heavy vehicle parts distribution centers and facilities. It also has operations in Canada and Mexico. The company has been expanding via a combination of internal growth and acquisitions. The automotive parts segment (52% of 2009 revenues, 55% of profits) serves about 5,800 NAPA Auto Parts stores, including about 1,000 company-owned stores, selling to garages, service stations, car and truck dealers, fleet operators, leasing companies, bus and truck lines, etc.

equipment, and related items from locations in the U.S. and Canada. Through S. P. Richards Co., the office products group (16%, 18%) distributes more than 40,000 office product items, including information processing supplies and office furniture, machines and supplies to office suppliers, from facilities in the U.S. and Canada. The EIS electrical/electronics materials group (3%, 4%) was formed via the 1998 acquisition of EIS, Inc., for $200 million. EIS is a wholesale distributor of material and supplies to the electrical and electronic industries. The U.S. accounted for almost 89% of sales in 2009. Canada contributed nearly 11%, and Mexico represented less than 1%.

The industrial parts segment (29%, 23%) distributes around three million industrial replacement parts and related supply items, including bearings, power transmission equipment replacement parts, including hydraulic and pneumatic products, material handling components, agricultural and irrigation Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.42 3.07 2.50 2.47 1.60 64% 39.82 24.93 16 10

2008 13.58 3.46 2.92 2.54 1.56 53% 46.28 29.92 16 10

2007 15.86 3.49 2.98 2.98 1.46 49% 51.68 46.00 17 15

2006 4.82 3.18 2.76 2.76 1.35 49% 48.34 40.00 18 14

2005 15.21 2.87 2.50 2.40 1.25 50% 46.64 40.75 19 16

2004 14.21 2.61 2.25 2.22 1.20 53% 44.32 32.03 20 14

2003 12.95 2.42 2.03 1.95 1.18 58% 33.75 27.20 17 13

2002 11.88 2.50 2.10 1.80 1.16 55% 38.80 27.10 18 13

2001 10.97 2.21 1.71 1.53 1.14 67% 37.94 23.91 22 14

2000 10.50 2.72 2.20 NA 1.10 50% 26.69 18.25 12 8

10,058 761 90.4 27.9 644 38.0% 400 395

11,015 889 88.7 31.7 768 38.1% 475 414

10,843 926 87.7 31.3 822 37.8% 506 506

10,458 870 73.4 31.6 771 38.3% 475 475

9,783 804 65.5 29.6 709 38.3% 437 420

9,097 698 62.2 Nil 636 37.8% 396 388

8,449 641 69.0 Nil 572 38.1% 354 339

8,259 676 70.2 Nil 606 39.3% 368 316

8,221 656 85.8 Nil 496 40.1% 297 265

8,370 739 92.3 Nil 647 40.4% 385 NA

Balance Sheet & Other Financial Data (Million $) Cash 337 Current Assets 4,033 Total Assets 5,005 Current Liabilities 1,408 Long Term Debt 500 Common Equity 2,621 Total Capital 3,129 Capital Expenditures 142 Cash Flow 490 Current Ratio 2.9 % Long Term Debt of Capitalization 16.0 % Net Income of Revenue 4.0 % Return on Assets 8.2 % Return on Equity 16.2

67.8 3,871 4,786 1,287 500 2,324 2,893 105 564 3.0 17.3 4.3 10.0 18.9

232 4,053 4,774 1,548 250 2,717 3,033 116 594 2.6 8.2 4.7 10.9 19.2

136 3,835 4,497 1,199 500 2,550 3,111 126 549 3.2 16.1 4.5 10.3 18.1

189 3,807 4,772 1,249 500 2,694 3,408 85.7 503 3.0 14.7 4.5 9.5 16.7

135 3,633 4,455 1,133 500 2,544 3,212 72.1 458 3.2 15.6 4.3 9.2 16.3

15.4 3,418 4,116 1,017 625 2,312 3,100 73.9 423 3.4 20.2 4.2 8.6 15.9

20.0 3,336 4,020 1,070 675 2,130 2,950 64.8 438 3.1 22.9 4.4 8.9 16.4

85.8 3,146 4,207 919 836 2,345 3,287 41.9 383 3.4 25.4 3.6 7.1 12.9

27.7 3,019 4,142 988 771 2,261 3,154 71.1 478 3.1 24.4 4.6 9.5 17.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2999 Cir 75 Pkwy, Atlanta, GA 30339. Telephone: 770-953-1700. Website: http://www.genpt.com Chrmn, Pres & CEO: T. Gallagher

Vice Chrmn, EVP, CFO & Chief Acctg Officer: J.W. Nix COO: M.D. Orr SVP & Treas: F.M. Howard SVP & Secy: C.B. Yancey

Board Members: M. B. Bullock, J. E. Douville, T. Founded: 1928 Gallagher, G. C. Guynn, J. D. Johns, M. M. Johns, J. H. Domicile: Georgia Lanier, R. C. Loudermilk, Jr., W. B. Needham, J. W. Employees: 29,000 Nix, L. L. Prince, G. W. Rollins

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GNW | GNW is in the S&P 500

Genworth Financial Inc S&P Recommendation BUY

★★★★★

Price $13.38 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Multi-line Insurance

12-Mo. Target Price $17.00

Investment Style Large-Cap Blend

Summary This insurance holding company serves lifestyle protection, retirement income, investment and mortgage insurance needs around the world.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$19.36– 8.37 $0.58 23.1 $4,554

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.09 1.70 12.3 489.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.547 Nil Nil 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

3.34 60 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the significant exposure of the mortgage insurance business to the volatile U.S. housing market. In addition, we think GNW is vulnerable to investment losses and has a weaker capital position than peers, but its financial health has recently improved. Our assessment also reflects our view of the lower return on equity prospects for GNW's life insurance subsidiaries.

40 20 8 4 2 1

Vol. 204

Mil.

Quantitative Evaluations

90 60 30 0 5

S&P Quality Ranking 4

4

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

NR B

B+

Relative Strength Rank

A-

A

A+

MODERATE 58

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Bret Howlett on October 22, 2010, when the stock traded at $ 13.38. Highlights ➤

➤

➤

We forecast GNW's earnings will increase in the double-digits in 2011, on lower losses at U.S. Mortgage Insurance (MI), strong earnings growth in Intentional MI, and improved Wealth Management net flows. We expect GNW to deploy a large amount of excess liquidity in the debt markets, which will boost investment income. We believe Retirement and Protection earnings will benefit from higher account values due to the rise in the market. We believe life insurance earnings will increase considerably as easy comps, better pricing in the longterm care business, and lower deferred acquisition cost (DAC) amortization are only partially offset by higher funding costs and lower persistency in term life. We forecast U.S. MI will turn a profit in 2011 due to strong new business growth and lower delinquencies. We expect robust International earnings on the improving housing markets in Canada and Australia. We project modest growth in Lifestyle Protection earnings due to the recovery in the European economy. We forecast operating EPS of $1.09 for 2010, and EPS of $1.70 for 2011. Our estimates exclude realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

Our buy recommendation reflects the steep discount that GNW currently trades at relative to peers and our belief that the stock's valuation does not reflect the company's improving fundamentals and strengthened financial position. We are growing increasingly confident that U.S. MI will return to profitability by mid 2011. We believe better results in Retirement and Protection and International MI will boost GNW's ROE to the high single-digits by next year. While we believe GNW's capital and liquidity positions are weak versus peers, its financial position has improved with better credit markets and capital raises. We think GNW's top-line trends will generally improve in 2011, but sales should be weak in interest sensitive product areas. Risks to our recommendation and target price include a continued low interest rate environment; increased investment portfolio risks; high concentrations of product line sales associated with certain third parties; and, a prolonged slowdown in the housing market. Our 12-month target price of $17 is about 0.7X our 2010 book value per share estimate -- below the stock's historical average multiple.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,421 2,410 2009 1,734 2,483 2008 2,753 2,398 2007 2,710 2,765 2006 2,625 2,754 2005 2,611 2,610

3Q -2,391 2,168 2,875 2,804 2,628

4Q -2,461 2,629 2,775 2,846 2,655

Year -9,069 9,948 11,125 11,029 10,504

Earnings Per Share ($) 2010 0.36 0.08 2009 -1.08 -0.11 2008 0.27 -0.25 2007 0.69 0.70 2006 0.69 0.68 2005 0.65 0.60

E0.29 0.04 -0.60 0.76 0.65 0.64

E0.34 0.08 -0.74 0.41 0.81 0.64

E1.09 -0.88 -1.32 2.58 2.83 2.52

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data The most recent payment was $0.10 a share in October 2008.

Stock Report | October 23, 2010 | NYS Symbol: GNW

Genworth Financial Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. Genworth Financial, Inc., carved out from General Electric (GE) in May 2004, is a U.S. insurance company with an expanding international presence. As of February 2010, GNW had operations in 25 countries and offered products and services to over 15 million consumers. The company believed it was one of the largest providers of private mortgage insurance outside the U.S. based on new insurance written. In addition, GNW believed that in the U.S. it was the largest individual provider of long-term care insurance, and also one of the largest providers of mortgage insurance, based on new insurance written. GNW was a leading provider of fixed immediate annuities in 2008, but lost a considerable amount of market share in 2009, mainly given capital constraints at the company. The company conducts its business through three major segments. The Retirement and Protection segment (62% of 2009 total revenues, 63% of 2008 total revenues) is comprised of wealth management (3.1%, 3.0%); retirement income (13%, 11%); life insurance (16%, 14%); and long-term care (30%, 35%). The International segment (28%, 28%) consists of the company's international

mortgage insurance business in Canada, Australia and Europe, in addition to proposals for other target countries for mortgage insurance. The segment also includes lifestyle protection, which provides payment protection insurance intended to help consumers meet their payment obligations in the event of illness, involuntary unemployment, disability or death. The third segment is U.S. Mortgage Insurance (9.1%, 8.0%), which facilitates home ownership by enabling borrowers to buy homes with low down payment mortgages. These products also help financial institutions manage their capital efficiently by reducing the capital required for low down payment mortgages. The company also has a Corporate and Other segment (0.2%, 0.2%), which includes unallocated corporate income and expenses, results of a small, non-core business, and most interest and other financing expenses.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 20.77 NA -0.88 0.44 Nil Nil 13.68 0.78 NM NM

2008 15.71 NA -1.32 1.45 0.40 NM 25.57 0.70 NM NM

2007 10.98 NA 2.58 3.04 0.37 14% 37.16 23.26 14 9

2006 24.20 NA 2.83 2.92 0.32 11% 36.47 31.00 13 11

2005 24.51 NA 2.52 2.52 0.27 11% 35.25 25.72 14 10

2004 21.69 NA 2.34 2.29 0.07 3% 27.84 18.75 12 8

2003 20.18 NA 1.82 1.96 NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

673,719 NA NA 3,033 9,069 -792 NA -460 198

677 NA NA 3,730 9,948 -942 NA -572 624

670 NA NA 4,135 11,125 1,606 NA 1,154 1,359

NA NA NA 3,837 11,029 1,918 NA 1,324 1,369

NA NA NA 3,536 10,504 1,798 NA 1,221 1,221

NA NA NA 3,648 11,057 1,638 NA 1,145 1,126

NA 6,252 Nil 2,928 9,775 1,263 NA 892 956

NA NA NA NA 11,229 1,791 NA 1,380 NA

NA NA NA NA 11,101 1,821 NA 1,231 NA

NA NA NA NA 10,226 1,851 NA 1,275 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 5,693 Premiums Due 17,332 Investment Assets:Bonds 49,752 Investment Assets:Stocks 159 Investment Assets:Loans 8,902 Investment Assets:Total 63,515 Deferred Policy Costs 7,341 Total Assets 108,187 Debt 8,014 Common Equity 12,276 Combined Loss-Expense Ratio 243.0 % Return on Revenue NM % Return on Equity NM % Investment Yield 5.2

8,064 17,212 42,871 234 10,096 60,612 7,786 107,201 8,849 8,926 198.0 NM NM 6.0

3,864 16,483 55,154 366 10,604 70,800 7,034 114,315 7,558 13,478 93.0 10.4 8.6 5.9

3,222 NA 55,448 NA 9,985 68,573 NA 110,871 3,921 13,330 49.0 12.0 2.2 5.7

2,608 NA 53,791 367 8,908 66,548 5,586 105,292 3,336 13,310 48.0 11.6 9.3 5.4

2,125 NA 52,424 374 7,275 65,176 5,020 103,878 3,042 12,866 50.0 10.4 8.0 5.2

1,630 NA 50,081 387 6,794 61,749 4,421 100,216 3,016 12,258 51.0 9.1 6.0 5.4

1,569 NA NA NA NA 72,080 NA 117,357 NA 16,752 39.0 12.3 8.9 5.9

881 NA NA NA NA 62,977 NA 103,998 NA 14,165 50.0 11.1 NA 12.4

NA NA NA NA NA NA NA NA NA NA 42.0 12.5 NA NA

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6620 West Broad Street, Richmond, VA 23230. Telephone: 804-281-6000. Email: [email protected] Website: http://www.genworth.com

Chrmn, Pres & CEO: M.D. Fraizer SVP & CFO: P.B. Kelleher SVP, Secy & General Counsel: L. Roday SVP & CIO: S.J. McKay

Chief Acctg Officer & Cntlr: A.R. Corbin Investor Contact: C. English (804-662-2614) Board Members: S. W. Alesio, W. H. Bolinder, M. D. Fraizer, N. J. Karch, J. R. Kerrey, R. J. Lavizzo-Mourey, C. B. Mead, T. E. Moloney, J. A. Parke, J. Riepe

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2003 Domicile: Delaware Employees: 6,000

Stock Report | October 23, 2010 | NNM Symbol: GENZ | GENZ is in the S&P 500

Genzyme Corp S&P Recommendation HOLD

★★★★★

Price $72.45 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Biotechnology

12-Mo. Target Price $81.00

Investment Style Large-Cap Growth

Summary This biopharmaceutical concern, whose leading product is the Gaucher disease drug Cerezyme, has rejected a $69 a share takeover bid from Sanofi-Aventis.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $73.15– 45.39 Trailing 12-Month EPS $-0.30 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $10,310

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.43 3.90 50.7 254.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.463 Nil Nil 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.35 18 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that Genzyme's manufacturing facility challenges underscore the complexity inherent in producing biologic drugs. Although we view GENZ's portfolio of therapeutic products and diagnostic businesses as diverse, new entrants to the Gaucher disease treatment market could mitigate the benefits of product diversity.

90 80 70 60 50

Vol.

24 16 8 0

Quantitative Evaluations

55

Mil.

S&P Quality Ranking 5

4

5

D

5

4

3

C

B-

B B

B+

A-

Relative Strength Rank

1

MODERATE

LOWEST = 1

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

We expect 2010 revenues to decline 4%, to $4.3 billion, as GENZ has been slow in resuming normal shipment of Cerezyme and Fabrazyme until late in the year, following the temporary 2009 shutdown of GENZ's key manufacturing plant. We look for revenue growth of 20% in 2011, to $5.15 billion. After several prior delays, we are encouraged by the June 2010 FDA approval of large-scale produced Myozyme (called Lumizyme). We have a positive outlook for the potential successor to Cerezyme, eliglustat tartrate (GENZ-112638), in Phase III study. We expect 2010 and 2011 adjusted operating margins of 15% and 31%, respectively, versus 2009's 13%. We look for margins to recover as production and drug availability to meet full patient demand revert toward historical levels, and we see a new initiative to realign operating costs that included reductions in force boosting operational cash flows to fund capital investments and share repurchases. Our 2010 and 2011 adjusted EPS estimates of $1.43 and $3.90, respectively, include previously withheld amortization of intangible assets and other one-time items, upon the company's revision of its adjusted EPS figures.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Steven Silver on October 22, 2010, when the stock traded at $ 72.23. Highlights

A+

67

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

3

We continue to expect Sanofi-Aventis (SNY 35, Buy) to raise its rejected $69 a share bid to acquire GENZ. While we view GENZ's manufacturing issues that have raised regulatory oversight and hastened new competition as an overhang, we see potential for the company to attract additional acquisition interest. In our view, GENZ has a diverse product roster and a promising pipeline, led by Campath, in Phase III study for multiple sclerosis and which has shown robust data to date and potential for once-yearly treatment, in-licensed Phase III cholesterol-lowering drug mipomersen, and large-scale production of Myozyme. Risks to our recommendation and target price include failure to consummate an acquisition of the company, further manufacturing issues limiting drug production and ability to meet patient demand, clinical or regulatory setbacks to GENZ pipeline candidates, and failure to maintain a leading market share for key products. Our 12-month target price of $81 is 20.7X our 2011 adjusted EPS estimate of $3.90, 1.15X our projected three-year growth rate for GENZ, a premium to sector peers given our view of enhanced acquisition prospects.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,074 1,079 2009 1,149 1,229 2008 1,100 1,171 2007 883.2 933.4 2006 730.8 793.4 2005 630.0 668.1

3Q -1,058 1,160 960.2 808.6 708.1

4Q -1,081 1,174 1,037 854.2 728.7

Year -4,516 4,605 3,814 3,187 2,735

Earnings Per Share ($) 2010 -0.43 -0.01 2009 0.70 0.68 2008 0.52 0.25 2007 0.57 0.51 2006 0.37 0.49 2005 0.36 0.46

E0.42 0.06 0.42 0.58 0.06 0.43

E0.81 0.09 0.31 0.29 -1.02 0.39

E1.43 1.54 1.50 1.74 -0.06 1.65

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: GENZ

Genzyme Corp Business Summary October 22, 2010 CORPORATE OVERVIEW. Genzyme develops, manufactures and markets therapeutic drugs focused on rare diseases. Its leading product is Cerezyme, an enzyme replacement therapy (ERT) for Gaucher disease, a debilitating genetic disorder that causes fatigue, anemia and bone erosion. In 2009, Cerezyme sales declined by 36% to $793 million, due to an inventory shortfall caused by the mid-2009 Allston plant closure. Cerezyme's patents expire in 2013. Phase III studies of a potential successor, orally dosed eliglustat tartrate (GENZ-112638), are ongoing. Leading GENZ's renal division is Renagel, which reduces elevated serum phosphorus levels in kidney dialysis patients, and Renvela, a buffered form launched in 2008, which generated $707 million in 2009 sales (up 4% over 2008). In November 2009, studies on an advanced phosphate binder intended as a successor to Renvela failed to outperform Renvela and were discontinued. Key Renagel/Renvela patents expire around 2014.

sales were $430 million in 2009, down 13% from 2008 due to the 2009 Allston plant outage. Myozyme, approved for treating Pompe disease, an often fatal progressive neuromuscular disorder that afflicts an estimated 10,000 patients worldwide, generated 2009 sales of $325 million, up 10% from 2008's $296 million, despite production constraints. Production was approved at 4000 liter scale in Europe in February 2009, but FDA delays in approving the larger production scales (called Lumizyme) led GENZ to move production to a European facility. FDA approved this material in June 2010. Biosurgery unit sales are led by Synvisc, and its single-injection version Synvisc-One, injectable biomaterials to treat knee osteoarthritis, which generated $329 million in 2009 sales, 25% higher than in 2008. Mozobil, in GENZ's transplant unit, was designed to improve stem cell transplant procedure outcomes, and is approved in the U.S. and Europe for patients with non-Hodgkin's lymphoma and multiple myeloma.

Also in GENZ's ERT unit is Fabrazyme, approved for Fabry disease, a rare genetic disorder in which patients are unable to metabolize lipids. Fabrazyme Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 14.93 3.21 1.54 1.54 Nil Nil 73.75 47.09 48 31

2008 15.70 2.79 1.50 1.50 Nil Nil 83.97 57.61 56 38

2007 13.73 2.92 1.74 1.94 Nil Nil 76.90 58.71 44 34

2006 10.91 2.00 -0.06 0.32 Nil Nil 75.34 54.64 NM NM

2005 7.99 2.67 1.65 1.23 Nil Nil 77.82 55.15 47 33

2004 8.11 1.24 0.37 -0.03 Nil Nil 59.14 40.67 NM NM

2003 6.31 0.41 0.42 -0.26 Nil Nil 52.45 28.45 NM NM

2002 NM 1.16 0.81 0.59 Nil Nil 58.55 15.64 72 19

2001 6.10 0.75 0.19 0.02 Nil Nil 64.00 34.34 NM NM

2000 4.05 0.91 0.68 NA Nil Nil 51.88 19.84 77 29

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,516 1,083 456 NA 544 22.3% 422 423

4,605 1,303 375 23.4 623 32.8% 421 420

3,814 1,183 338 26.7 732 34.9% 480 535

3,187 913 541 15.5 -63.1 NM -16.8 90.4

2,735 915 285 19.6 641 29.2% 441 326

2,201 717 205 38.2 222 63.7% 86.5 -6.61

1,714 463 160 26.6 2.82 NM -67.6 -61.0

1,080 318 96.0 17.8 207 27.3% 151 125

982 380 118 23.2 56.5 93.1% 3.88 5.25

752 -185 41.2 14.2 -179 51.9% 85.9 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,050 Current Assets 2,803 Total Assets 10,061 Current Liabilities 1,080 Long Term Debt 21.6 Common Equity 7,684 Total Capital 7,684 Capital Expenditures 662 Cash Flow 879 Current Ratio 2.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 9.4 % Return on Assets 4.5 % Return on Equity 5.6

974 2,516 8,937 914 23.2 7,335 7,331 598 796 2.8 1.7 9.1 4.9 6.0

947 2,609 8,302 1,502 717 6,613 6,727 413 818 1.7 1.7 12.6 6.2 7.8

492 1,990 7,191 651 810 5,661 6,481 334 524 3.1 12.5 NM NM NM

292 1,665 6,879 550 816 5,150 6,301 19.2 726 3.0 12.9 16.1 6.8 9.3

481 1,634 6,069 624 811 4,380 5,417 187 292 2.6 15.0 3.9 1.6 2.4

293 1,323 5,005 392 1,415 2,936 4,558 260 92.9 3.4 30.1 NM NM NM

373 1,100 3,556 275 600 2,586 3,268 220 247 4.0 18.4 14.0 4.4 6.2

167 721 3,225 243 600 2,280 2,961 171 122 3.0 20.3 0.4 0.2 0.1

136 605 2,499 167 454 1,750 2,329 72.6 127 3.6 31.1 11.4 4.0 5.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 Kendall St, Cambridge, MA 02142-1108. Telephone: 617-252-7570. Email: [email protected] Website: http://www.genzyme.com

Chrmn, Pres & CEO: H.A. Termeer COO & EVP: D.P. Meeker EVP & CFO: M.S. Wyzga EVP & Secy: P. Wirth

SVP & CSO: A.E. Smith Founded: 1991 Investor Contact: P. Flanigan (617-768-6563) Domicile: Massachusetts Board Members: D. A. Berthiaume, R. J. Bertolini, G. K. Employees: 12,000 Boudreaux, S. J. Burakoff, R. J. Carpenter, C. L. Cooney, V. J. Dzau, E. J. Ende, D. Fenton, C. McGillicuddy, III, R. F. Syron, H. A. Termeer, R. V. Whitworth

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: GILD | GILD is in the S&P 500

Gilead Sciences Inc S&P Recommendation BUY

★★★★★

Price $39.11 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Biotechnology

12-Mo. Target Price $45.00

Investment Style Large-Cap Growth

Summary This biopharmaceutical company is engaged in the discovery, development and commercialization of treatments to fight viral, bacterial and fungal infections.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.50– 31.73 Trailing 12-Month EPS $3.30 Trailing 12-Month P/E 11.9 $10K Invested 5 Yrs Ago $17,146

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.51 3.75 11.1 838.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

60

$32.799 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.40 13 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Gilead's dependence on the growth of its anti-HIV drug portfolio. Also, the company operates in a highly competitive market, and failure to successfully commercialize future pipeline candidates could diminish future growth expectations.

2-for-1

45 40 35

Quantitative Evaluations Vol.

60 40 20 0 5

S&P Quality Ranking

155

Mil.

D

4

B-

B

B+

A-

A

Relative Strength Rank

5

4

C

B

STRONG

4

81 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Steven Silver on October 21, 2010, when the stock traded at $ 38.39. Highlights ➤

➤

➤

We see 2010 revenues of $7.9 billion, which would mark a 13% increase over 2009, and we forecast 5% growth in 2011 to about $8.3 billion. We expect near-term revenue growth to reflect higher Medicaid rebates and other effects from U.S. health care reform legislation, before GILD benefits from more patients under coverage by 2014. We view favorably GILD's expanding U.S. HIV drug market share, with an 85% share of all HIV patient adds and positive market trends for HIV patient diagnosis and earlier initiation of anti-viral treatment. We forecast operating margins, including stock option expense, between 51% and 52% in 2010 and 2011, and see potential for long-term margin expansion should GILD successfully commercialize its wholly owned HIV "Quad Pill," which is in Phase III study, and other Truvadabased combination drugs. We expect GILD to invest in new growth assets, including a broad early-stage program in Hepatitis C, but we believe it is disciplined in managing expenses. Our EPS estimates are $3.51 for 2010 and $3.75 for 2011. As of September 30, 2010 GILD had 845 million diluted shares outstanding and $5.1 billion in cash.

Investment Rationale/Risk ➤

Despite near-term headwinds to GILD's core HIV franchise due to exposure to U.S. health care reform, which affects approximately 50% of its U.S. anti-viral business as well as concerns over HIV patent expirations late in the decade, we view GILD as a core long-term biotech holding, and consider its valuation attractive. We are encouraged by progress of next-generation combination HIV drugs to possibly extend its market leading HIV franchise. We see GILD as well funded to aggressively repurchase shares and to finance acquisitions of early-stage growth assets to diversify revenues. However, we believe recent diversification efforts in building a cardiovascular unit have fallen short of expectations.

➤

Risks to our recommendation and target price include a slowdown in GILD's HIV product sales from competition or patent challenges, and failure to advance next-generation HIV therapies or complementary business units.

➤

Our 12-month target price of $45 is 12X our 2011 EPS estimate, a discount to GILD's long-term growth rate, reflecting near-term regulatory headwinds and long-term patent uncertainty.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,086 1,927 2009 1,530 1,647 2008 1,258 1,278 2007 1,028 1,048 2006 692.9 685.3 2005 430.4 495.3

3Q -1,801 1,371 1,059 748.7 493.5

4Q -2,032 1,428 1,095 899.2 609.3

Year -7,011 5,336 4,230 3,026 2,028

Earnings Per Share ($) 2010 0.92 0.79 2009 0.63 0.61 2008 0.51 0.46 2007 0.43 0.42 2006 0.28 0.28 2005 0.17 0.21

E0.83 0.72 0.53 0.42 -0.06 0.19

E0.89 E0.80 0.60 0.41 -1.81 0.29

E3.51 E2.82 2.10 1.68 -1.30 0.86

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: GILD

Gilead Sciences Inc Business Summary October 21, 2010 CORPORATE OVERVIEW. Gilead Sciences (GILD) focuses on the research, development and marketing of anti-infective medications, with a primary focus on treatments for HIV. Truvada has been GILD's sales leader, with 2009 sales of $2.49 billion in 2009, 18% above 2008. Truvada, approved in 2004, is a once-daily combination tablet formulated with previous-generation drugs Viread and Emtriva. Emtriva was the lead product of Triangle Pharmaceuticals, acquired in 2003. Viread was approved in 2001 to treat HIV patients who had become resistant to other reverse transcriptase inhibitors, as well as naive patients in front-line treatment settings. Viread sales rose 7% to $668 million in 2009, with most of its current use in treating hepatitis B. In late 2004, GILD and Bristol-Myers Squibb (BMY) partnered on a combination tablet with Truvada and BMY's Sustiva. The formulation, marketed as Atripla, was launched in July 2006. GILD books Atripla sales and then pays BMY its 37% share for the Sustiva portion of the drug, which GILD counts as

cost of goods on its financial statements. Atripla generated 2009 sales of $2.38 billion, up 51% from 2008, and surpassed Truvada for the first time in the fourth quarter of 2009. Atripla received EU approval in December 2007 and began to be launched in 2008. Atripla was available in all five of the largest European markets, after a mid-2009 launch in France. Hepsera was approved for treatment of chronic hepatitis B in the U.S. and EU in September 2002 and March 2003, respectively. Hepsera sales declined 20% in 2009 to $271 million, due to increased use of Viread in this indication. AmBisome is a liposomal formulation of amphotericin B, an antifungal agent that attacks a broad variety of life-threatening fungal infections. AmBisome is also approved to treat cryptococcal meningitis in AIDS patients. Sales were $299 million in 2009, roughly flat compared with 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.38 3.05 2.82 2.81 Nil Nil 53.28 40.62 19 14

2008 4.56 2.15 2.10 2.10 Nil Nil 57.63 35.60 27 17

2007 3.71 1.71 1.68 1.67 Nil Nil 47.90 30.96 29 18

2006 1.97 -1.24 -1.30 -1.29 Nil Nil 35.00 26.24 NM NM

2005 3.30 0.90 0.86 0.78 Nil Nil 28.26 15.20 33 18

2004 2.09 0.51 0.50 0.39 Nil Nil 19.55 12.88 39 26

2003 1.17 -0.06 -0.09 -0.17 Nil Nil 17.65 7.81 NM NM

2002 0.72 0.10 0.09 0.01 Nil Nil 10.00 6.52 NM NM

2001 0.58 0.08 0.06 -0.14 Nil Nil 9.21 3.11 NM NM

2000 0.47 -0.04 -0.06 NA Nil Nil 7.38 2.70 NM NM

7,011 3,802 213 69.7 3,502 25.0% 2,636 2,630

5,336 2,741 51.7 12.1 2,726 26.5% 2,011 2,008

4,230 2,201 36.9 13.5 2,261 29.0% 1,615 1,610

3,026 1,683 47.3 20.4 -644 NM -1,190 -1,188

2,028 1,148 36.8 0.44 1,158 30.0% 814 737

1,325 656 24.4 7.35 656 31.5% 449 354

868 361 20.9 21.9 -168 NM -72.0 -133

467 95.4 14.4 13.9 73.4 1.77% 72.1 8.55

234 -106 14.7 14.0 55.3 7.48% 51.2 -108

196 -40.3 12.0 Nil -41.9 NM -43.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,905 Current Assets 4,813 Total Assets 9,699 Current Liabilities 1,872 Long Term Debt 1,322 Common Equity 6,505 Total Capital 7,827 Capital Expenditures 230 Cash Flow 2,849 Current Ratio 3.4 % Long Term Debt of Capitalization 16.9 % Net Income of Revenue 37.6 % Return on Assets 31.5 % Return on Equity 49.5

3,240 4,300 7,019 1,221 1,300 4,152 5,672 115 2,063 3.5 22.9 37.7 31.3 52.8

1,172 3,028 5,835 736 1,301 3,460 4,772 78.7 1,652 4.1 27.2 38.2 32.6 61.2

937 2,429 4,086 764 1,300 1,816 3,169 105 -1,143 3.2 41.0 NM NM NM

2,324 3,092 3,765 455 241 3,028 3,277 2,226 851 6.8 7.3 40.1 27.5 33.2

1,254 1,850 2,156 253 0.23 1,871 1,871 51.4 474 7.3 NM 33.9 24.2 31.3

707 1,266 1,555 186 345 1,003 1,348 38.6 -51.1 6.8 25.6 NM NM NM

942 1,184 1,288 105 595 571 1,166 17.6 86.5 11.3 51.0 15.4 6.9 14.1

583 708 795 80.1 250 452 703 26.3 65.9 8.8 35.6 21.9 6.9 12.7

513 594 678 58.2 252 351 603 15.6 -31.1 10.2 41.8 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 333 Lakeside Drive, Foster City, CA 94404. Telephone: 650-574-3000. Email: [email protected] Website: http://www.gilead.com

Chrmn & CEO: J.C. Martin Pres & COO: J.F. Milligan EVP & CSO: N.W. Bischofberger EVP & Secy: G.H. Alton

SVP, CFO & Chief Acctg Officer: R.L. Washington Founded: 1987 Investor Contact: S. Hubbard (650 522-5715) Domicile: Delaware Board Members: P. Berg, J. F. Cogan, V. E. Davignon, J. Employees: 3,852 M. Denny, C. A. Hills, K. E. Lofton, J. W. Madigan, J. C. Martin, G. E. Moore, N. G. Moore, R. J. Whitley, G. E. Wilson, P. Wold-Olsen

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GS | GS is in the S&P 500

Goldman Sachs Group Inc (The) S&P Recommendation HOLD

★★★★★

Price $157.76 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Investment Banking & Brokerage

12-Mo. Target Price $176.00

Investment Style Large-Cap Growth

Summary Goldman Sachs is one of the world's leading investment banking and securities companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $186.41– 129.50 Trailing 12-Month EPS $17.56 Trailing 12-Month P/E 9.0 $10K Invested 5 Yrs Ago $13,871

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

12.93 17.15 12.2 515.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.43 -4 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's global footprint and strong client relationships, offset by industry cyclicality, GS's high leverage ratio, litigation, and proposed new government regulations.

200 150 100

Quantitative Evaluations

50

S&P Quality Ranking

Vol. 360

Mil. 120 80 40 0

$81.344 0.89 $1.40 67

D

C

B-

AB

B+

A-

A

Relative Strength Rank 5

4

5

4

3

A+

MODERATE 66

5 3

2

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Robert McMillan on October 19, 2010, when the stock traded at $ 159.25. Highlights ➤

➤

➤

We think recent market volatility and continued weakness in global economies suggest that we are in the midst of a bumpy recovery. Trading results are likely to be uneven in the current environment, but better demand for M&A advice should offset trading weakness. Strength in the lower-margin debt underwriting business should help offset weakness in the equity underwriting business. We look for net revenues to decline about 11% in 2010 before advancing 13% in 2011. GS accrued compensation at 43% of net revenues in the first three quarters of 2010; a similar rate in the fourth quarter would allow for margin expansion in 2010. We see the compensation ratio expanding in 2011, but remaining below historical levels. We expect noncompensation costs to vary with activity levels, but the pretax margin will likely contract in 2010, weighed down by GS's SEC settlement and the U.K. bonus tax, before rising in 2011. We expect EPS of $12.93 in 2010 and $17.15 in 2011, although we acknowledge poor earnings visibility due to uncertainties regarding regulations and the sustainability of the economic recovery.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

While the company has settled the SEC fraud charges concerning the structuring and marketing of a CDO tied to subprime mortgages, we think Goldman remains vulnerable to civil suits by investors. Still, the settlement has helped reduce some overhang on the shares, and we have upgraded our opinion to hold, from sell. We believe the company must continue to assure clients that it holds employees to the highest ethical standards in a business that depends on relationships. Uncertainty regarding the impact of new regulations remains, and their specific impacts will be difficult to determine until rules are written and implemented, which may take several years. Risks to our recommendation and target price include stock and bond market depreciation, rising interest rates, widening credit spreads, and stricter regulations. Our 12-month target price of $176 is equal to 1.2X our projection for the company's book value per share at the end of 2011, which is below the stock's historical valuation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 15,776 16,063 2009 11,880 15,189 2008 18,629 17,643 2007 22,280 20,351 2006 17,246 18,002 2005 9,964 8,949

3Q 1,809 13,682 13,625 23,803 15,979 12,333

4Q -10,922 3,682 21,534 18,126 12,145

Year -51,673 53,579 87,968 69,353 43,391

Earnings Per Share ($) 2010 5.59 0.78 2009 3.39 4.93 2008 3.23 4.58 2007 6.67 4.93 2006 5.08 4.78 2005 2.94 1.71

2.98 5.25 1.81 1.81 3.26 3.25

E3.58 8.20 -4.97 7.01 6.59 3.35

E12.93 22.13 4.47 24.73 19.69 11.21

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.350 0.350 0.350 0.350

01/21 04/20 07/20 10/19

02/26 05/27 08/30 11/30

03/02 06/01 09/01 12/02

03/30/10 06/29/10 09/29/10 12/30/10

Dividends have been paid since 1999. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GS

Goldman Sachs Group Inc (The) Business Summary October 19, 2010 CORPORATE OVERVIEW. Goldman Sachs (GS) is a global investment banking, securities and investment management firm that provides a wide range of services to corporations, financial institutions, governments and high-net-worth individuals. GS operates through three core businesses: Trading and Principal Investments, Investment Banking, and Asset Management and Securities Services. The Trading and Principal Investments business (76% of 2009 net revenues) facilitates customer transactions with a diverse group of corporations, financial institutions, governments and individuals, and takes proprietary positions through market making in, and trading of, fixed income and equity products, currencies, commodities and derivatives. The activities of the Trading and Principal Investments business can be grouped under three segments: Fixed Income, Currency and Commodities (FICC); Equities; and Principal Investments. The FICC business makes markets in and trades interest rate and credit products, mortgage-backed securities, loans and other asset-backed securities, currencies and commodities. The Equities business makes markets in, trades, and acts as a specialist for, equities and equity-related products. It

generates commissions from executing and clearing client transactions on major stock, options and futures exchanges worldwide through its Equities customer franchise and clearing activities. The Principal Investments business primarily represents net revenues from corporate and real estate merchant banking investments. These revenues derive from four primary sources -- returns on corporate and real estate investments, its investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG), its investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), and overrides. Overrides represent net revenues from the increased share of the income and gains derived from GS's merchant banking funds when the return on a fund's investments exceeds certain threshold returns.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 108.32 25.66 22.13 22.20 1.52 7% 193.60 59.13 9 3

2008 104.56 7.24 4.47 4.40 1.40 31% 215.05 47.41 27 6

2007 101.62 27.68 24.73 24.76 1.40 6% 250.70 157.38 10 6

2006 119.66 20.78 19.69 19.72 1.30 7% 206.70 124.23 10 6

2005 52.15 12.22 11.21 11.12 1.00 9% 134.99 94.75 12 8

2004 52.14 9.90 8.92 8.63 1.00 11% 110.88 83.29 12 9

2003 45.73 6.97 5.87 5.26 0.74 13% 100.78 61.02 17 10

2002 40.18 5.20 4.03 3.30 0.48 12% 97.25 58.57 24 15

2001 38.30 5.39 4.26 3.60 0.48 11% 120.00 63.27 28 15

2000 34.15 6.94 6.00 NA 0.48 8% 133.63 65.50 22 11

Income Statement Analysis (Million $) Commissions Interest Income Total Revenue Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,797 13,907 51,673 6,500 19,829 32.5% 13,385 12,196

5,179 35,633 53,579 31,357 2,336 0.60% 2,322 2,009

12,286 45,968 87,968 41,981 17,604 34.1% 11,599 11,419

10,140 35,186 69,353 31,688 14,560 34.5% 9,537 9,416

6,689 21,250 43,391 18,153 8,273 32.0% 5,626 5,560

5,941 11,914 29,839 8,888 6,676 31.8% 4,553 4,406

4,317 10,751 23,623 7,600 4,445 32.4% 3,005 2,693

3,273 11,269 22,854 8,868 3,253 35.0% 2,114 1,737

3,020 16,620 31,138 15,327 3,696 37.5% 2,310 1,949

2,307 17,396 33,000 16,410 5,020 38.9% 3,067 NA

Balance Sheet & Other Financial Data (Million $) Total Assets 848,942 Cash Items 74,954 Receivables 257,839 Securities Owned 342,402 Securities Borrowed 15,207 Due Brokers & Customers 113,634 Other Liabilities 33,855 Capitalization:Debt 185,085 Capitalization:Equity 63,757 Capitalization:Total 255,799 % Return on Revenue 25.9 % Return on Assets 1.5 % Return on Equity 24.0

884,547 122,404 271,359 338,325 17,060 254,043 23,216 168,220 47,898 232,589 4.3 0.2 4.7

1,119,796 131,821 425,596 452,595 28,624 318,453 38,907 164,174 39,700 206,974 13.1 1.1 32.0

838,201 87,283 312,355 416,687 22,208 223,874 31,866 122,842 32,686 189,521 13.8 1.2 31.9

706,804 61,666 75,381 238,043 23,331 188,318 13,830 100,007 26,252 128,009 13.0 0.9 21.9

531,379 52,544 52,545 183,880 19,394 161,221 10,360 80,696 25,079 105,775 15.3 1.0 19.5

403,799 36,802 36,377 160,719 17,528 109,028 8,144 57,482 21,632 79,114 12.7 0.8 14.8

355,574 25,211 28,938 129,775 12,238 95,590 6,002 38,711 19,003 57,714 9.3 0.6 11.4

312,218 29,043 33,463 108,885 81,579 97,297 7,129 31,016 18,231 49,247 7.4 0.8 13.3

289,760 21,002 159,019 95,260 40,211 82,148 11,116 31,395 16,530 47,925 9.3 1.1 23.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Prior to 2009, fiscal year ended November 30. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 85 Broad Street, New York, NY 10004. Telephone: 212-902-1000. Email: [email protected] Website: http://www.gs.com

Chrmn & CEO: L.C. Blankfein Pres & COO: G.D. Cohn EVP & CFO: D.A. Viniar EVP & Secy: E.E. Stecher

EVP & Secy: G.K. Palm Investor Contact: J. Andrews (212-357-2674) Auditor: PricewaterhouseCoopers Board Members: L. C. Blankfein, J. H. Bryan, G. D. Cohn, C. Dahlback, S. Friedman, W. W. George, J. A. Johnson, L. D. Juliber, L. N. Mittal, J. J. Schiro, H. L. Scott, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1869 Domicile: Delaware Employees: 30,067

Stock Report | October 23, 2010 | NYS Symbol: GR | GR is in the S&P 500

Goodrich Corp S&P Recommendation BUY

★★★★★

Price $80.49 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $90.00

Investment Style Large-Cap Value

Summary This company is one of the world's largest providers of equipment, parts and services to the large commercial, regional, business and military jet markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $82.18– 53.57 Trailing 12-Month EPS $4.07 Trailing 12-Month P/E 19.8 $10K Invested 5 Yrs Ago $20,345

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.39 5.25 18.3 125.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.084 1.44 $1.16 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 9 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based in part on GR's S&P Quality Ranking of B+ (average), which reflects its uneven earnings and dividend record of the past 10 years. We also take into account GR's long-term debt-to-capital ratio of 40% as of June 2010, which is slightly above average for peers in the aerospace & defense sub-industry.

80 60

40 30

Quantitative Evaluations

Vol. Mil. 12 8 4 0

S&P Quality Ranking D 5

5

4

3

4

3

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

81

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Highlights The 12-month target price for GR has recently been changed to $90.00 from $86.00. The Highlights section of this Stock Report will be updated accordingly.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on GR from MarketScope, see below.

➤

10/21/10 02:08 pm ET ... S&P REITERATES BUY RECOMMENDATION ON SHARES OF GOODRICH (GR 79.2****): Q3 EPS of $1.25, vs. $1.12, is $0.10 above our view, as sales rose 6%, in line with our estimate. Operating margins rose 150 bps to 17.3%, on increases from all 3 segments. We are reducing our '10 EPS estimate by $0.09 to $4.39, on an expected $0.18 Q4 debt-redemption charge, but increase '11's by $0.10 to $5.25, on GR's outlook for '11 aftermarket and OEM sales growth. We raise our 12-month target price by $4 to $90, on our revised '11 EBITDA estimate. We see GR benefitting from continued strong execution and positive OEM production and commercial aftermarket growth trends. /R.Tortoriello

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,695 1,718 2009 1,696 1,700 2008 1,745 1,849 2007 1,589 1,622 2006 1,424 1,483 2005 1,276 1,353

3Q -1,648 1,772 1,602 1,436 1,371

4Q -1,642 1,695 1,668 1,535 1,398

Year -6,686 7,062 6,392 5,878 5,397

Earnings Per Share ($) 2010 0.86 1.24 2009 1.35 1.15 2008 1.21 1.44 2007 0.78 0.98 2006 1.59 0.64 2005 0.46 0.51

E1.25 1.12 1.33 1.10 0.80 0.49

E1.04 0.83 1.35 1.05 0.78 0.51

E4.39 4.43 5.33 3.89 3.80 1.97

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.270 0.270 0.270 0.290

02/16 04/20 07/16 10/12

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

04/01/10 07/01/10 10/01/10 12/30/10

Dividends have been paid since 1939. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GR

Goodrich Corp Business Summary August 03, 2010 CORPORATE OVERVIEW. Goodrich Corp., a global aircraft components maker and services provider, is also a leading supplier of systems and products to the global defense and aerospace markets. Operations are divided into three segments. Nacelles and Interior Systems (35% of revenues and 49% of operating profits in 2009) manufactures products and provides maintenance, repair and overhaul associated with aircraft engines, including thrust reversers, cowlings, nozzles and their components (a nacelle is the structure that surrounds an aircraft engine and includes all of the foregoing items), and aircraft interior products, including evacuation slides, aircraft crew and ejection seats, and cargo and lighting systems. N&IS's largest customers include Airbus, Boeing, RollsRoyce and global airlines. Primary competitors in this market include Aircelle (a subsidiary of SAFRAN), GE, and Spirit Aerosystems. Actuation and Landing Systems (38% and 25%) provides systems, components and related services pertaining to aircraft taxi, takeoff, flight control, landing and stopping, as well as engine components, including fuel delivery systems and rotating assemblies. Key products include aircraft wheels, brakes, and brake control systems; landing gear; flight control actuation systems; power transmission systems; turbine fuel technologies; and turbomachinery products. A&LS and Messier-Dowty (a division of France-based SAFRAN) each control about 50% of the global landing gear market. Other competitors in-

clude Honeywell (wheels and brakes), Meggitt Aircraft Braking Systems, Messier-Bugati (wheels and brakes), Parker Hannifin (actuation, fuel systems), and United Technologies (actuation). The unit is also a major global provider of aircraft maintenance, repair and overhaul (MRO) services. A&LS's MRO customers mostly comprise the world's major airlines and aircraft leasing companies. Primary aircraft maintenance competitors include TIMCO Aviation Services, SIA Engineering Co., Singapore Technologies and Lufthansa Technik. Electronic Systems (27% and 26%) produces a wide array of systems and components that provide flight performance measurements, flight management information, engine controls, fuel controls, electrical power systems, and safety data, as well as reconnaissance and surveillance systems. Key products include aircraft sensor systems; fuel and utility systems; de-icing systems; aerospace hoists/winches; intelligence, reconnaissance and surveillance systems; power systems; and engine controls. Competitors include Honeywell, Thales, United Technologies, and BAE Systems.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.63 6.49 4.43 5.03 1.02 23% 65.93 29.95 15 7

2008 2.42 7.00 5.33 4.21 0.93 17% 71.14 25.11 13 5

2007 7.15 5.48 3.89 3.77 0.83 21% 75.74 44.97 19 12

2006 1.31 5.78 3.80 3.94 1.00 26% 47.45 37.15 12 10

2005 NM 3.79 1.97 2.10 0.80 41% 45.82 30.11 23 15

2004 NM 3.18 1.30 1.57 0.80 62% 33.90 26.60 26 20

2003 NM 2.18 0.33 0.42 0.80 242% 30.30 12.20 92 37

2002 NM 3.31 1.57 0.42 0.88 56% 34.45 14.17 22 9

2001 4.66 3.28 1.65 0.41 1.10 67% 44.50 15.91 27 10

2000 3.48 4.39 2.68 NA 1.10 41% 43.13 21.56 16 8

6,686 1,200 249 121 784 26.5% 563 629

7,062 1,313 212 117 967 30.3% 674 532

6,392 1,086 205 130 717 30.8% 496 482

5,878 886 240 126 462 NM 481 499

5,397 759 226 131 375 31.8% 244 260

4,725 636 223 143 199 21.7% 156 189

4,383 515 219 163 61.3 37.2% 38.5 48.6

3,910 586 184 117 259 36.0% 166 44.9

4,185 666 174 118 271 34.8% 177 44.7

4,364 830 193 129 443 35.4% 286 NA

Balance Sheet & Other Financial Data (Million $) Cash 811 Current Assets 4,414 Total Assets 8,741 Current Liabilities 1,613 Long Term Debt 2,008 Common Equity 2,921 Total Capital 4,976 Capital Expenditures 169 Cash Flow 812 Current Ratio 2.7 % Long Term Debt of Capitalization 40.4 % Net Income of Revenue 8.4 % Return on Assets 6.9 % Return on Equity 22.5

370 3,668 7,483 1,841 1,410 2,091 3,564 285 885 2.0 39.6 9.5 9.0 28.8

406 3,549 7,534 1,743 1,563 2,579 4,313 283 701 2.0 36.2 7.8 6.9 21.8

201 3,008 6,901 1,633 1,722 1,977 3,756 257 721 1.8 45.8 8.2 7.2 27.9

251 2,425 6,454 1,615 1,742 1,473 3,215 216 470 1.5 54.2 4.5 3.8 17.3

298 2,357 6,218 1,565 1,899 1,343 3,276 152 379 1.5 58.0 3.3 2.6 12.3

378 2,087 5,890 1,401 2,137 1,194 3,330 125 258 1.5 64.2 0.9 0.6 3.6

150 2,008 5,990 1,554 2,254 933 3,187 107 349 1.3 70.7 4.2 3.0 14.5

85.8 1,921 4,638 1,159 1,432 1,361 2,808 191 351 1.7 51.0 4.2 3.6 13.7

77.5 3,080 5,718 2,147 1,590 1,227 2,819 148 479 1.4 56.4 6.6 5.3 22.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Four Coliseum Centre, Charlotte, NC 28217-4578. Telephone: 704-423-7000. Website: http://www.goodrich.com Chrmn, Pres & CEO: M.O. Larsen

EVP & CFO: S.E. Kuechle Chief Admin Officer & General Counsel: T.G. Linnert CTO: J. Witowski Chief Acctg Officer & Cntlr: S. Cottrill

Investor Contact: P. Gifford (704-423-5517) Founded: 1912 Board Members: C. Corvi, D. C. Creel, G. A. Davidson, Domicile: New York Jr., H. E. DeLoach, Jr., J. W. Griffith, W. R. Holland, J. P. Employees: 24,000 Jumper, M. O. Larsen, L. W. Newton, D. E. Olesen, A. M. Rankin, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GT | GT is in the S&P 500

Goodyear Tire & Rubber Co S&P Recommendation BUY

★★★★★

Price $11.74 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Tires & Rubber

12-Mo. Target Price $15.00

Investment Style Large-Cap Blend

Summary GT is the largest U.S. manufacturer of tires, and one of the biggest worldwide. Operations also include rubber and plastic products and chemicals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$18.23– 9.10 $0.66 17.8 $8,632

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.59 1.44 19.9 242.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.852 Nil Nil 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.71 NM BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly cyclical nature of the company's markets as well as the current and long-term challenges that we believe GT faces given its highly leveraged balance sheet, intensifying competition, high fixed costs, and legacy costs.

40 20

8 4

Quantitative Evaluations Vol.

S&P Quality Ranking

100

Mil. 30 20 10 0

D

C

B-

C B

B+

A-

Relative Strength Rank

5

4

3

2

4

3

A

A+

MODERATE 67

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Efraim Levy, CFA on August 05, 2010, when the stock traded at $ 11.48. Highlights ➤

➤

➤

A weak global economy, sharp vehicle production cuts, and reduced miles driven in key markets reduced Goodyear's sales in 2009. In contrast, we expect global vehicle production to rise in 2010, although regions and segments will change at varying rates and spur a return to profitability for Goodyear. We look for higher volume and increased prices to drive sales 15% higher in 2010 and 13% higher in 2011. Firstquarter results were limited by some timing issues that benefited the 2009 fourth quarter. Margins in 2010 should be aided by higher selling prices, greater capacity utilization, and improved mix as well as by past and present expense reductions from restructuring activities, offset by higher raw materials costs, including oil, that we expect in the second half of the year. Pension costs should be lower, but interest expense should rise. We see reductions in higher-cost plant capacity and a shift to Asiabased production leading to savings. We expect GT to save $100 million on an annualized basis now that the courts have approved the transfer of union health care benefits to union responsibility. We expect additional savings from restructuring actions.

Investment Rationale/Risk ➤

➤

➤

GT has been extending its debt maturities, and we see a $350 million convertible debt offering helping liquidity, as should $833 million of net proceeds from the May 2007 equity issuance. While we have increased confidence in GT's near-term liquidity, we regard liquidity challenges from debt and employee retirement obligations as matters of concern for the long term. There is no long-term debt due in 2010. We note that our 2010 EPS estimate excludes a $0.41 per share charge resulting from the Venezuelan currency devaluation. Risks to our recommendation and target price include an increase in GT's need for cash, weaker-than-anticipated demand for tires, lower-than-expected cost savings, an inability to achieve expected price increases, and higherthan-projected raw material costs. Although we expect profits in 2010, with sharply higher projected capital spending, we forecast negative free cash flow, even before cash contributions to fund GT's pension plan. Applying a P/E multiple of about 10.4X, based on historical levels and peer multiples, to our 2010 estimate of $1.44, we derive our 12-month target price of $15.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,270 4,528 2009 3,536 3,943 2008 4,942 5,239 2007 4,499 4,921 2006 4,856 5,142 2005 4,767 4,992

3Q -4,385 5,172 5,064 5,284 5,030

4Q -4,437 4,135 5,160 4,976 4,934

Year -16,301 19,488 19,644 20,258 19,723

Earnings Per Share ($) 2010 -0.19 0.12 2009 -1.38 -0.92 2008 0.60 0.31 2007 -0.61 0.14 2006 0.37 0.01 2005 0.35 0.34

E0.11 0.30 0.13 0.67 -0.27 0.70

E0.10 0.44 -1.37 0.26 -2.02 -0.23

E0.59 -1.55 -0.32 0.66 -1.86 1.21

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Dividends were last paid in 2002.

Stock Report | October 23, 2010 | NYS Symbol: GT

Goodyear Tire & Rubber Co Business Summary August 05, 2010 CORPORATE OVERVIEW. Goodyear Tire & Rubber is the largest U.S. manufacturer of tires, and one of the largest worldwide. Operations also include rubber and plastic products and chemicals. GT holds the leading market share in North America, Latin America, China and India. With the sale of substantially all of its engineered products business in July 2007, the results of that segment have been classified as discontinued operations. In February 2008, Goodyear formed a new strategic business unit, Europe, Middle East and Africa (EMEA). These regions collectively had about $7.2 billion in revenues in 2007, making the unit the second largest, after North America, in terms of sales. The company began reporting the new segment results in the 2008 first quarter.

expenses, including ongoing savings from the master labor agreement with the United Steel Workers. In February 2010, GT announced plans for an additional $1.0 billion in savings over the next three years. The company sometimes uses joint ventures to facilitate the growth of its business. In 1999, GT and Sumitomo Rubber Industries (SRI) completed a global alliance that again made GT the world's leading tire manufacturer. GT created a European joint venture with SRI. GT and SRI owned 75% and 25%, respectively, of both the North American and European joint ventures. In Japan, the ownership ratio is reversed. GT and Pacific Dunlop Ltd. participate in equally owned joint ventures in South Pacific Tyres, an Australian partnership, and South Pacific Tyres N.Z. Ltd., a New Zealand company.

CORPORATE STRATEGY. The company achieved more than $2.5 billion in aggregate cost savings from 2006 through 2009 through a four-point plan. Sources of savings included continuous improvement in processes, increased low-cost country sourcing, high-cost capacity reductions and reduced SG&A Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.08 -1.55 -0.60 Nil Nil 18.84 3.17 NM NM

2008 0.74 2.42 -0.32 -1.48 Nil Nil 30.10 3.93 NM NM

2007 8.58 3.25 0.66 1.15 Nil Nil 36.90 21.40 56 32

2006 NM 1.95 -1.86 -0.88 Nil Nil 21.35 9.75 NM NM

2005 NM 4.16 1.21 2.61 Nil Nil 18.59 11.24 15 9

2004 NM 3.87 0.63 0.84 Nil Nil 15.01 7.06 24 11

2003 NM -0.62 -4.58 -3.32 Nil Nil 8.19 3.35 NM NM

2002 NM -3.01 -6.62 -8.16 0.48 NM 28.85 6.50 NM NM

2001 14.06 2.71 -1.27 -3.09 1.02 NM 32.10 17.37 NM NM

2000 18.49 4.22 0.26 NA 1.20 NM 31.63 15.60 NM NM

16,301 900 636 311 -357 NM -375 -150

19,488 1,434 660 397 186 112.4% -77.0 -355

19,644 1,677 614 566 464 55.0% 139 253

20,258 1,256 675 451 -113 NM -330 -157

19,723 1,706 630 411 584 42.8% 239 522

18,370 1,457 629 369 381 54.6% 115 142

15,119 -549 693 296 -655 NM -802 -584

13,850 915 603 241 37.9 NM -1,106 -1,362

14,147 916 637 292 -273 NM -204 -495

14,417 1,173 630 283 92.3 20.0% 40.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,922 Current Assets 7,225 Total Assets 14,410 Current Liabilities 4,095 Long Term Debt 4,167 Common Equity 735 Total Capital 5,857 Capital Expenditures 746 Cash Flow 261 Current Ratio 1.8 % Long Term Debt of Capitalization 71.2 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,894 8,340 15,226 4,779 4,132 1,022 6,550 1,049 583 1.8 62.6 NM NM NM

3,654 10,172 17,191 4,664 4,329 2,850 8,456 739 753 2.2 51.2 0.7 0.8 13.3

3,899 10,179 17,029 4,666 6,563 -758 7,015 671 345 2.2 93.6 NM NM NM

2,178 8,680 15,627 4,811 4,742 73.0 5,910 634 869 1.8 80.2 1.2 1.5 325.2

1,968 8,632 16,533 5,113 449 72.8 1,774 519 744 1.7 25.3 0.6 0.7 565.5

1,565 6,988 15,006 3,686 4,826 -13.1 5,639 375 -109 1.9 85.6 NM NM NM

947 5,227 13,147 4,071 2,989 651 4,380 458 -503 1.3 68.2 NM NM NM

959 5,255 13,513 3,327 3,204 2,864 6,855 435 433 1.6 46.7 NM NM NM

253 5,467 13,568 4,226 2,350 3,503 6,698 614 671 1.3 35.1 0.3 0.3 1.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1144 East Market Street, Akron, OH, USA 44316-0001. Telephone: 330-796-2121. Email: [email protected] Website: http://www.goodyear.com

Chrmn, Pres, CEO & COO: R.J. Kramer Pres: J.C. Szulc EVP & CFO: D.R. Wells SVP & CTO: J. Kihn

SVP, Secy & General Counsel: D.L. Bialosky Founded: 1898 Investor Contact: G. Dooley (330-796-6704) Domicile: Ohio Board Members: J. C. Boland, J. A. Firestone, P. S. Employees: 69,000 Hellman, R. J. Kramer, W. A. McCollough, D. Morrison, R. O'Neal, S. D. Peterson, S. A. Streeter, G. C. Sullivan, T. H. Weidemeyer, M. R. Wessel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: GOOG | GOOG is in the S&P 500

Google Inc S&P Recommendation STRONG BUY

★★★★★

Price $612.53 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Internet Software & Services

12-Mo. Target Price $700.00

Investment Style Large-Cap Growth

Summary As the world's largest Internet company, Google specializes in online search and advertising.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $629.51– 433.63 Trailing 12-Month EPS $24.62 Trailing 12-Month P/E 24.9 $10K Invested 5 Yrs Ago $18,021

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

25.61 30.23 23.9 318.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$149.380 Nil Nil 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.14 19 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as the Internet segment's emerging nature and relatively low barriers to entry, significant and mounting competition, substantial and increasing investment and related new offerings, and our view of somewhat lacking corporate governance practices.

750

500 400 300

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

30 20 10 0 5

D 5 3

4

3

5

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Scott H. Kessler on October 19, 2010, when the stock traded at $ 611.86.

➤

➤

➤

We believe gross revenues will rise 22% in 2010 and 15% in 2011, benefiting from more spending on Internet advertising, the appeal of search advertising, international expansion, and increasing traction for display and mobile advertising. We think GOOG continues to face challenges in some businesses and believe uncertain economies pose difficulties, but we see it as relatively well positioned. The pro forma operating margin improved in 2009, reflecting less reliance on large content partners and a relatively new focus on cost containment. We project these margins will rise from around 40% in 2010 to 42% in 2012, reflecting scale benefits and continuing investments in expansion and R&D. Although revenues have been adversely affected by currency fluctuations, we believe a relatively new hedging program has aided profits. Our EPS estimates include notable expenses related to stock-based compensation. In July 2010, GOOG announced the proposed acquisition of ITA Software, a provider of airline travel data, information and solutions, for $700 million, to enhance its travel search offerings.

Investment Rationale/Risk ➤

➤

➤

NR B

B+

A-

A

A+ STRONG 92

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

Relative Strength Rank

1

2007

C

We believe competitive pressures and concerns about GOOG's size/power could detract from revenue growth. Nonetheless, its business model has been resilient, in our view. We are constructive on efforts to broaden its offerings, especially with Web applications (Apps) and mobile services, but we believe, in some cases ,GOOG paid excessive amounts to do so. In November 2006, GOOG acquired YouTube for $1.8 billion in stock, and in March 2008 it purchased DoubleClick for $3.2 billion. Risks to our opinion and target price include possible market share losses, new offerings or partnerships that do not succeed or continue as some expect, and challenges related to legal/regulatory issues. Inputs in our DCF model include a WACC of 10.8%, five-year average annual FCF growth of 15%, and a perpetuity growth rate of 3%, and yields an intrinsic value of about $700, which is our 12-month target price. GOOG generates billions of dollars in annual FCF and recently had $33 billion in cash/marketable securities and $2 billion in short-term debt.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,775 6,820 2009 5,509 5,523 2008 5,186 5,367 2007 3,664 3,872 2006 2,254 2,456 2005 1,257 1,385

3Q 7,286 5,945 5,541 4,231 2,690 1,578

4Q -6,674 5,701 4,827 3,206 1,919

Year -23,651 21,796 16,594 10,605 6,139

Earnings Per Share ($) 2010 6.06 5.71 2009 4.49 4.66 2008 4.12 3.92 2007 3.18 2.93 2006 1.95 2.33 2005 1.29 1.19

6.72 5.13 4.06 3.38 2.36 1.32

E7.12 6.13 1.21 3.79 3.29 1.22

E25.61 20.41 13.31 13.29 9.94 5.02

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: GOOG

Google Inc Business Summary October 19, 2010 CORPORATE OVERVIEW. Google is a global technology company whose stated mission is to organize the world's information and make it universally accessible and useful. GOOG has amassed and maintains what we believe is the Internet's largest index of information (consisting of billions of items, including Web pages, images and videos), and makes most of it freely accessible and usable to anyone with online access. GOOG's websites are a leading Internet destination, and its brand is one of the most recognized in the world. International sources contributed 52% of revenues in the second quarter of 2010 and 53% in second quarter of 2009.

tion based on the maximum cost per click set by the advertiser, click-through rates, and other factors used to determine ad relevance. This process is designed to favor the most relevant ads. GOOG's AdSense technology enables Google Network websites to provide targeted ads from AdWords advertisers. Advertising accounted for 97% of revenues in the second quarters of 2010 and 2009. Google websites accounted for 67% of second-quarter revenues in 2010 and 2009, and Google Network websites contributed 30% of revenues in both periods.

GOOG's advertising program, called AdWords, enables advertisers to present online ads when users are searching for related information. Advertisers employ GOOG's tools to create text-based ads, bid on keywords that trigger display of their ads, and set daily spending budgets. Ads are ranked for presentaCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 95.44 25.19 20.41 20.21 Nil Nil 625.99 282.75 31 14

2008 71.09 18.01 13.31 15.54 Nil Nil 697.37 247.30 52 19

2007 63.67 16.36 13.29 13.18 Nil Nil 747.24 437.00 56 33

2006 49.02 11.79 9.94 9.92 Nil Nil 513.00 331.55 52 33

2005 31.20 5.90 5.02 4.68 Nil Nil 446.21 172.57 89 34

2004 10.25 1.93 1.46 1.85 Nil Nil 201.60 85.00 NM NM

2003 7.66 0.75 0.51 0.40 NA NA NA NA NA NA

2002 NA 0.53 0.45 0.44 NA NA NA NA NA NA

2001 NA 0.09 0.04 NA NA NA NA NA NA NA

2000 NA NA -0.22 NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

23,651 9,836 1,524 NA 8,381 22.2% 6,520 6,458

21,796 8,219 1,492 Nil 5,854 27.8% 4,227 4,933

16,594 6,052 968 1.30 5,674 26.0% 4,204 4,170

10,605 3,550 572 0.26 4,011 23.3% 3,077 3,071

6,139 2,274 257 0.78 2,142 31.6% 1,465 1,366

3,189 970 129 0.86 650 38.6% 399 503

1,466 393 50.2 1.93 347 69.5% 106 103

440 204 18.0 2.57 185 46.1% 99.7 97.4

86.4 21.0 10.0 1.76 10.1 30.6% 6.99 NA

19.1 NA NA NA -14.7 Nil -14.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 24,485 Current Assets 29,167 Total Assets 40,497 Current Liabilities 2,747 Long Term Debt NA Common Equity 36,004 Total Capital 36,004 Capital Expenditures 810 Cash Flow 8,045 Current Ratio 10.6 % Long Term Debt of Capitalization Nil % Net Income of Revenue 27.6 % Return on Assets 18.1 % Return on Equity 20.3

15,846 20,178 31,768 2,302 Nil 28,239 28,251 2,358 5,719 8.8 Nil 19.4 14.8 16.6

14,219 17,289 25,336 2,036 Nil 22,690 22,690 2,403 5,172 8.5 Nil 25.3 19.1 21.1

11,244 13,040 18,473 1,305 Nil 17,040 17,080 1,903 3,649 10.0 Nil 29.0 21.4 23.3

8,034 9,001 10,272 745 Nil 9,419 9,454 838 1,722 12.1 Nil 23.9 21.6 23.7

2,132 2,693 3,313 340 Nil 2,929 2,929 319 528 7.9 Nil 12.5 19.1 23.0

1,712 560 2,492 235 NA 2,181 603 177 156 2.4 Nil 7.2 18.2 31.4

146 232 286 89.5 6.50 130 178 37.2 118 2.6 3.7 22.7 NA NA

33.6 NA 84.5 NA NA NA 50.2 13.1 17.0 NA Nil 8.1 NA NA

19.1 NA 46.9 NA NA NA 27.2 NA NA NA NA NM NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1600 Amphitheatre Parkway, Mountain View, CA 94043. Telephone: 650-253-0000. Email: [email protected] Website: http://www.google.com

Chrmn & CEO: E.E. Schmidt COO: U. Holzle SVP & CFO: P. Pichette SVP, Secy & General Counsel: D. Drummond

CTO: S. Brin Investor Contact: M. Shim (650-253-7663) Board Members: S. Brin, J. Doerr, J. L. Hennessy, A. Mather, P. S. Otellini, L. Page, E. E. Schmidt, K. Shriram, S. M. Tilghman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Employees: 19,835

Stock Report | October 23, 2010 | NYS Symbol: GWW | GWW is in the S&P 500

Grainger (W W) Inc. S&P Recommendation BUY

★★★★★

Price $122.61 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Trading Companies & Distributors

12-Mo. Target Price $140.00

Investment Style Large-Cap Blend

Summary Grainger is the largest global distributor of industrial and commercial supplies, such as hand tools, electric motors, light bulbs, and janitorial items.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $126.05– 92.87 Trailing 12-Month EPS $6.36 Trailing 12-Month P/E 19.3 $10K Invested 5 Yrs Ago $20,719

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.65 7.60 18.4 71.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.700 1.76 $2.16 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.93 17 AA+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects uncertain economic conditions, pricing pressures, and possible facilities disruptions or shutdowns. This is offset by GWW's S&P Quality Ranking of A+, which indicates the highest and most consistent level of earnings and dividend growth.

140 120 100 80

60

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 6 4 2 0

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

5

3

4

MODERATE

4

3

A+

66 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Stewart Scharf on October 15, 2010, when the stock traded at $ 121.56. Highlights ➤

➤

➤

We expect sales to advance over 14% (near 10% organic growth) in 2010, with high single digit growth likely in 2011, driven by strength in heavy and light manufacturing, and a rebound in the retail and commercial markets in the U.S. We expect government and contractor sales to remain soft near term before gradually recovering, while growth should continue in Canada in heavy manufacturing, oil & gas, mining and forestry. Additionally, we believe acquisitions and strength in Mexico, India and China will drive emerging markets. We look for gross margin expansion in 2010 from 41.8% in 2009, with further expansion in 2011, as increased volume and higher prices offset a negative mix due to more volume discounts for large customers. We believe EBITDA margins will continue to widen from our 14% projection for 2010 (13% in 2009), as well controlled operating costs outweigh higher payroll and benefits costs. For 2010, we forecast a higher effective tax rate of about 40%, and operating EPS of $6.65 (before a $0.15 net benefit), increasing 14% in 2011 to $7.60.

Investment Rationale/Risk ➤

➤

➤

Our buy opinion is based on our view of improving global market trends as economic conditions gradually improve, while our valuation metrics also indicate upside potential. In our view, GWW will continue to gain market share via organic growth and product line expansion, and acquisitions in emerging regions, targeting more small to mid-size customers and overseas ventures. Risks to our recommendation and target price include another significant downturn in industrial production and non-farm payrolls; a negative impact from entering new markets; loss of customers; and a stronger U.S. dollar mainly versus the Canadian dollar. Our 12-month target price of $140 is based on a blend of our relative and DCF analyses. Based on price-to-EBITDA and P/E-to-EPS growth ratios, we believe GWW deserves an above historical P/E multiple of 17.8X our 2011 EPS estimate, which leads to a value of $135. Our DCFbased model, assuming a 3.5% terminal growth rate and an 8.3% weighted average cost of capital, indicates intrinsic value of $145.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,672 1,784 2009 1,465 1,533 2008 1,661 1,757 2007 1,547 1,601 2006 1,419 1,483 2005 1,335 1,373

3Q 1,899 1,590 1,839 1,659 1,520 1,428

4Q -1,634 1,593 1,612 1,462 1,391

Year -6,222 6,850 6,418 5,884 5,527

Earnings Per Share ($) 2010 1.31 1.73 2009 1.25 1.21 2008 1.43 1.43 2007 1.17 1.21 2006 0.93 1.02 2005 0.79 0.89

2.07 1.88 1.79 1.29 1.16 0.97

E1.63 1.27 1.39 1.28 1.13 1.13

E6.65 5.62 6.04 4.94 4.24 3.78

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.460 0.460 0.540 0.540

10/28 01/27 04/28 07/28

11/05 02/04 05/06 08/05

11/09 02/08 05/10 08/09

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1965. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GWW

Grainger (W W) Inc. Business Summary October 15, 2010 CORPORATE OVERVIEW. W.W. Grainger distributes facilities maintenance and other industrial and commercial supplies, including pumps, tools, motors, and electrical and safety products. The company holds a 4% share of the estimated $140 billion North American facilities maintenance market. As of September 30, 2010, it had 609 branches and multiple websites. Starting in 2006, the company began reporting its Canadian branch-based business as a separate segment: Acklands-Grainger. The branch-based business segment consists mainly of 410 U.S. traditional branch stores, 168 Canadian branches, and 11 Will Call Express branches, as well as 21 stores in Mexico, five stores in Columbia (opened in the third quarter of 2010), three stores in Puerto Rico, and one branch each in China and Panama. In the third quarter of 2010, GWW closed two U.S. branches while opening four in Canada. In the second quarter, it closed two U.S. branches and one in Mexico, following 11 U.S. branch closings in the first quarter. Six Will Call Express locations in China were closed in the fourth quarter of 2009, along with five U.S. branches. These Express branches sell company-made -- as well as third-party -- industrial supplies via in-store catalogs and Internet services. GWW estimates China's current market for facilities maintenance supplies at $38 billion, and projects that it will exceed $70 billion by 2014.

China and Panama) accounted for 2.6% of sales. In June 2010, GWW formed Grainger Colombia, an 80%-owned joint venture with an affiliate of Torhefe S.A., a distributor of maintenance, repair and operating (MRO) supplies in Colombia. Sales in 2009 broke down approximately as follows: 16% heavy manufacturing, 20% commercial, 19% government, 13% contractor, 9% light manufacturing, 8% retail/wholesale, 4% reseller, 4% agriculture and mining, and 7% other. GWW's 2010 catalog offered 307,000 facilities maintenance and other products, up 32% from 2009. Approximately 24% of sales in 2009 consisted of private label items. Through Grainger.com, customers can access more than 600,000 products. E-commerce sales in 2009 accounted for nearly 24% of the total. In the first quarter of 2010, GWW incurred a $0.15 per share charge related to new health care legislation. In the first nine months of 2010, the company recorded a $0.24 per share benefit due to a change in paid time off policy in the U.S., which the company projects will total about $0.30 for the full year.

In 2009, the U.S. branch-based unit accounted for 87% of sales and had a pretax return on invested capital (ROIC) of 34.8%. The Acklands unit accounted for 10% of sales, with ROIC of 11.5%. Other businesses (Japan, Mexico, India, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.06 7.41 5.62 5.34 1.78 32% 102.54 59.95 18 11

2008 24.35 7.52 6.04 6.13 1.55 26% 93.99 58.86 16 10

2007 23.47 6.25 4.94 4.94 1.34 27% 98.60 68.77 20 14

2006 23.40 5.35 4.24 4.26 1.11 26% 79.95 60.60 19 14

2005 23.47 4.85 3.78 3.65 0.92 24% 72.45 51.65 19 14

2004 20.89 4.06 3.13 2.96 0.79 25% 66.99 45.00 21 14

2003 18.43 3.28 2.46 2.36 0.74 30% 53.30 41.40 22 17

2002 16.92 3.30 2.50 2.29 0.72 29% 59.40 39.20 24 16

2001 15.51 2.73 1.84 1.87 0.70 38% 48.99 29.51 27 16

2000 14.67 3.01 2.05 NA 0.67 33% 56.88 24.31 28 12

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

6,222 799 148 8.77 707 39.1% 430 399

6,850 906 117 15.8 773 38.5% 475 482

6,418 782 111 4.37 682 38.4% 420 420

5,884 679 101 1.93 603 36.4% 383 385

5,527 617 98.1 1.86 533 35.0% 346 336

5,050 525 85.6 4.39 445 35.5% 287 272

4,667 463 76.1 6.02 381 40.4% 227 217

4,644 467 75.9 6.16 398 40.8% 235 213

4,754 461 83.7 10.7 297 41.3% 175 177

4,977 426 90.6 24.4 332 41.8% 193 NA

Balance Sheet & Other Financial Data (Million $) Cash 460 Current Assets 2,132 Total Assets 3,726 Current Liabilities 777 Long Term Debt 438 Common Equity 2,227 Total Capital 2,718 Capital Expenditures 141 Cash Flow 555 Current Ratio 2.7 % Long Term Debt of Capitalization 16.1 % Net Income of Revenue 6.9 % Return on Assets 11.9 % Return on Equity 20.2

396 2,144 3,513 762 488 2,034 2,543 169 592 2.8 19.2 6.9 14.4 23.0

134 1,801 3,094 826 4.90 2,098 27,720 189 531 2.2 NM 6.6 13.7 19.7

361 1,862 3,046 706 4.90 2,178 2,189 128 484 2.6 0.2 6.5 12.5 17.2

545 1,998 3,108 727 4.90 2,289 2,301 112 444 2.7 0.2 6.3 11.7 15.9

429 1,755 2,810 662 Nil 2,068 2,072 128 372 2.6 Nil 5.7 10.6 14.7

403 1,633 2,625 707 4.90 1,845 1,850 74.1 303 2.3 0.3 4.9 9.0 12.9

209 1,485 2,437 586 120 1,668 1,787 134 311 2.5 6.7 5.1 9.9 14.4

169 1,393 2,331 554 118 1,603 1,723 100 258 2.5 6.9 3.7 7.3 11.1

63.4 1,483 2,460 747 125 1,537 1,663 65.5 284 2.0 7.5 3.9 7.7 12.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Grainger Pkwy, Lake Forest, IL 60045. Telephone: 847-535-1000. Website: http://www.grainger.com Chrmn, Pres & CEO: J.T. Ryan

SVP & CFO: R.L. Jadin SVP & General Counsel: J.L. Howard Chief Acctg Officer & Cntlr: G.S. Irving Secy: C.L. Kogl

Investor Contact: W.D. Chapman (847-535-0881) Founded: 1927 Board Members: B. P. Anderson, W. H. Gantz, V. A. Domicile: Illinois Hailey, W. Hall, S. L. Levenick, J. W. McCarter, Jr., N. S. Employees: 18,000 Novich, M. J. Roberts, G. L. Rogers, J. T. Ryan, E. S. Santi, J. D. Slavik

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HAL | HAL is in the S&P 500

Halliburton Co S&P Recommendation HOLD

★★★★★

Price $34.18 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Equipment & Services

12-Mo. Target Price $37.00

Investment Style Large-Cap Growth

Summary This leading oilfield services company provides products and services to the global energy industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.89– 21.10 Trailing 12-Month EPS $1.62 Trailing 12-Month P/E 21.1 $10K Invested 5 Yrs Ago $12,731

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.90 2.44 18.0 912.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$31.185 1.05 $0.36 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.50 30 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HAL's exposure to volatile crude oil and natural gas prices, leverage to the North American oilfield services market, and political risk associated with operating in frontier regions such as West Africa and the Middle East. A partial offset is HAL's strong number two position in oilfield services.

60 40 30 20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

120 80 40 0 5

D 4

B-

B B

B+

A-

A

Relative Strength Rank

3

A+ STRONG

76

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Highlights The 12-month target price for HAL has recently been changed to $37.00 from $35.00. The Highlights section of this Stock Report will be updated accordingly.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on HAL from MarketScope, see below.

➤

10/18/10 12:59 pm ET ... S&P MAINTAINS HOLD OPINION ON SHARES OF HALLIBURTON (HAL 34.07***): Q3 EPS from cont. ops. of $0.58, before $0.05 of 1X charges, vs. $0.29, is $0.13 above our est. Onshore No America drove the gains. Still, the shares are down about 5% today, which we attribute to a more tepid nearterm outlook for intl. ops., where margin gains are more likely to be volume-driven, not pricedriven. We think intl. start-up costs continue to weigh on short-term results, but set the stage for long-term gains. We lift our '10 EPS est by $0.22 to $1.90, and '11's $0.13 to $2.44. On DCF model and relative metrics, we lift our target price by $2 to $37. /S.Glickman

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,761 4,387 2009 113.5 3,494 2008 4,029 4,487 2007 3,422 3,735 2006 5,184 5,545 2005 4,938 5,163

3Q 4,665 3,588 4,853 3,928 5,831 5,095

4Q -3,686 4,910 4,179 6,016 5,798

Year -14,675 18,279 15,264 22,576 20,994

Earnings Per Share ($) 2010 0.23 0.52 2009 0.42 0.29 2008 0.64 0.68 2007 0.52 0.63 2006 0.45 0.48 2005 0.36 0.38

0.53 0.29 -0.02 0.79 0.58 0.48

E0.61 0.27 0.87 0.74 0.65 1.04

E1.90 1.28 2.17 2.66 2.16 2.27

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.090 0.090 0.090 0.090

11/09 02/10 05/19 07/16

12/01 02/26 05/27 08/30

12/03 03/02 06/01 09/01

12/23/09 03/23/10 06/22/10 09/21/10

Dividends have been paid since 1947. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HAL

Halliburton Co Business Summary July 30, 2010 CORPORATE OVERVIEW. Halliburton is a leading global provider of oilfield services to the energy industry, and until April 2007, provided engineering and construction expertise to energy, industrial and governmental customers. In 2006, HAL was comprised of two main business units: the Energy Services Group (ESG), and the KBR unit. In April 2007, HAL effected the complete separation of KBR via a split-off of its 135.6 million share stake in KBR in exchange for HAL shares. Under the transaction, HAL exchanged its stake in KBR for about 85.3 million shares of HAL which were retired as treasury stock in early April. Following the separation, HAL was transformed into a pure-play oilfield services company. In the second half of 2007, the company reorganized its four ESG operating segments into two new segments: Completion & Production (51% of 2009 revenues excluding KBR, and 46% of 2009 operating income excluding KBR), and Drilling & Evaluation (49%, 54%). Results from the former KBR segment have been reclassified under discontinued operations. Geographically, HAL generated 39% of its total 2009 revenues from North America, followed by Europe/CIS/West Africa (27%), Middle East/Asia (20%) and Latin America (14%). Approximately 63% of HAL's North American revenues in 2009 were derived from C&P activity.

obligations to KBR for the Barracuda-Caratinga project and the Foreign Corrupt Practices Act (FCPA) investigations limited by terms of the Master Separation Agreement with KBR, we view HAL's exposure to such issues as reduced. While we expect HAL to defend its strong market position in North America, we believe that future capital expenditures will increasingly flow to the Eastern Hemisphere, which we see as growing faster in the long term. In 2007, HAL moved its corporate headquarters to Dubai, from Houston, which we view as symbolic of the growing importance of the Eastern Hemisphere to company operations. UPCOMING CATALYSTS. Geographically, North America remains the dominant source of revenue for HAL, and is the primary driver for the Completion & Production segment. However, results in the Drilling & Evaluation segment are likely to be increasingly drawn from overseas, in our view, given expectations that offshore rig demand will show the strongest growth outside of North America.

CORPORATE STRATEGY. Subsequent to the split-off, with HAL's financial Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.46 2.31 1.28 1.29 0.36 28% 32.00 14.68 25 11

2008 NA 2.99 2.17 2.10 0.36 17% 55.38 12.80 26 6

2007 8.72 3.27 2.66 2.64 0.35 13% 41.95 27.65 16 10

2006 6.61 2.66 2.16 2.12 0.30 14% 41.99 26.33 19 12

2005 5.46 2.76 2.27 2.11 0.25 11% 34.89 18.59 15 8

2004 3.55 1.01 0.44 0.37 0.25 57% 20.85 12.90 48 30

2003 2.14 0.98 0.39 0.34 0.25 64% 13.60 8.60 35 22

2002 3.25 0.18 -0.40 -0.52 0.25 NM 10.83 4.30 NM NM

2001 4.65 1.26 0.64 0.33 0.25 39% 24.63 5.47 38 9

2000 3.90 0.77 0.21 NA 0.25 119% 27.59 16.13 NM NM

14,675 NA 931 297 1,682 30.8% 1,154 1,161

18,279 4,703 738 160 3,163 38.3% 1,961 1,893

15,264 4,029 583 154 3,460 26.2% 2,524 2,505

22,576 3,875 527 175 3,449 33.2% 2,272 2,220

20,994 2,972 504 207 2,492 3.17% 2,357 2,181

20,466 1,291 509 229 651 37.0% 385 320

16,271 1,191 518 139 612 38.2% 339 299

12,572 363 505 113 -228 NM -346 -445

13,046 1,615 531 147 954 40.3% 551 287

11,856 789 503 146 335 38.5% 188 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,394 Current Assets 8,638 Total Assets 16,538 Current Liabilities 2,889 Long Term Debt 3,824 Common Equity 8,728 Total Capital 13,331 Capital Expenditures 1,864 Cash Flow 2,085 Current Ratio 3.0 % Long Term Debt of Capitalization 28.8 % Return on Assets 7.5 % Return on Equity 14.0

1,124 7,411 14,385 2,781 2,586 7,725 10,330 1,824 2,699 2.7 26.9 14.3 26.9

2,235 7,573 13,135 2,411 2,627 6,866 9,587 1,583 3,107 3.1 27.4 16.9 35.4

4,379 11,183 16,820 4,727 2,786 7,376 10,609 891 2,799 2.4 26.3 14.3 33.1

2,391 9,327 15,010 4,437 2,813 6,372 9,330 651 2,861 2.1 30.2 15.3 45.7

2,808 9,962 15,796 7,064 3,593 3,932 7,633 575 894 1.4 47.1 2.5 14.4

1,815 7,919 15,463 6,542 3,415 2,547 6,062 515 857 1.2 56.3 2.4 11.1

1,107 5,560 12,844 3,272 1,181 3,558 4,810 764 159 1.7 24.6 NM NM

290 5,573 10,966 2,908 1,403 4,752 6,196 797 1,082 1.9 22.6 5.2 12.7

231 5,568 10,103 3,826 1,049 5,618 6,705 578 691 1.5 15.6 1.9 3.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3000 N Sam Houston Pkwy E, Houston, TX 77072. Telephone: 281-575-3000. Email: [email protected] Website: http://www.halliburton.com

Chrmn, Pres & CEO: D.J. Lesar EVP & CFO: M.A. McCollum EVP & General Counsel: A.O. Cornelison, Jr. SVP & Treas: C.W. Nunez

SVP & Secy: S.D. Williams Founded: 1919 Investor Contact: C. Garcia (713-759-2688) Domicile: Delaware Board Members: A. Bennett, J. R. Boyd, M. Carroll, N. Employees: 51,000 K. Dicciani, S. M. Gillis, J. T. Hackett, A. S. Jum'ah, D. J. Lesar, R. A. Malone, J. Martin, D. L. Reed

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HOG | HOG is in the S&P 500

Harley-Davidson Inc. S&P Recommendation SELL

★★★★★

Price $31.32 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Motorcycle Manufacturers

12-Mo. Target Price $28.00

Investment Style Large-Cap Growth

Summary This leading maker of heavyweight motorcycles also produces a line of motorcycle parts and accessories.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.13– 21.26 Trailing 12-Month EPS $-0.11 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $7,117

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.29 1.77 24.3 235.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.32 81 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that HOG's market leadership position and strong brand will help offset the prospect that an aging U.S. population will limit future domestic demand for motorcycles.

60

30 20

10

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

30 20 10 0 5

$7.376 1.28 $0.40 84

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ STRONG

79 3

2

3

3

2

2

2

LOWEST = 1

3

HIGHEST = 99

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The STARS recommendation for HOG has recently been changed to 2 (sell) from 3 (hold) and the 12-month target price has recently been changed to $28.00 from $32.00. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on HOG from MarketScope, see below.

➤

10/19/10 10:30 am ET ... S&P LOWERS OPINION ON SHARES OF HARLEY-DAVIDSON TO SELL FROM HOLD (HOG 31.47**): Q3 EPS of $0.40 from continuing operations, vs. $0.24, is above our $0.32 estimate. Although HOG reported a 1.9% net revenue decline, slightly lower than we expected, gross profit margins were better than expected, aided by an improving product mix. HDFS income was $51M (33% of total operating income). We think Q4 gross margins will be weaker than previously expected, and we are also lowering our revenue estimates. We cut our '10 EPS estimate to $1.29 from $1.32, and reduce our target price to $28 from $32, based on our updated peer analysis. /EKolb

Revenue (Million $) 1Q 2Q 2010 1,207 1,309 2009 1,383 1,260 2008 1,306 1,573 2007 1,179 1,620 2006 1,285 1,377 2005 1,235 1,333

3Q 1,260 1,246 1,423 1,541 1,636 1,431

4Q -893.7 1,293 1,386 1,503 1,342

Year -4,782 5,594 5,727 5,801 5,342

Earnings Per Share ($) 2010 0.29 0.59 2009 0.55 0.14 2008 0.79 0.95 2007 0.74 1.14 2006 0.86 0.91 2005 0.77 0.84

0.40 0.24 0.71 1.07 1.20 0.96

ENil -0.63 0.34 0.78 0.97 0.84

E1.29 0.30 2.79 3.74 3.93 3.41

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

12/10 02/11 04/24 09/16

12/17 02/19 06/01 09/29

12/21 02/23 06/03 10/01

12/31/09 03/05/10 06/18/10 10/15/10

Dividends have been paid since 1993. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HOG

Harley-Davidson Inc. Business Summary July 21, 2010 CORPORATE OVERVIEW. Harley-Davidson is a leading supplier of heavyweight motorcycles (engine displacement exceeding about 651 cubic centimeters). The company also sells motorcycle parts, accessories, clothing and collectibles, and has a sizable financial services business. HOG manufactures five families of Harley-Davidson brand motorcycles: Sportster, Dyna, Softail, Touring and VRSC. In 2010, the engines in these product lines ranged in size from 883 cc to 1800 cc. The company's 2010 model year line-up includes 34 models of Harley-Davidson heavyweight motorcycles, with domestic manufacturer's suggested retail prices ranging from $6,595 to $20,195. In 2010, HOG was offering some limited-edition custom motorcycles having suggested retail prices ranging from $24,995 to $33,495. In 2009, HOG shipped 223,023 Harley-Davidson brand motorcycles, down from 303,479 in 2008 and 330,619 in 2007. HOG shipped 5,572 Buell motorcycles in 2009 before shuttering the brand, down from 13,119 in 2008 and 11,513 in 2007.

where we project that HOG's opportunities for growth are stronger than they are in the U.S. In 2009, HOG's international sales totaled about $1.38 billion (32% of total sales), up from $1.75 billion (31%) in 2008. HOG has in the past earned sizable profits from financial services it provides to independent dealers and to retail customers of those dealers. During 2009, Harley-Davidson Financial Services financed 48.8% of the new HarleyDavidson motorcycles retailed by independent dealers in the United States, as compared to 53.5% in 2008. In August 2008, HOG completed its acquisition of 100% of MV Agusta Group, an Italian motorcycle manufacturer, for total consideration of $109 million. In 2007, MVAG shipped 5,819 motorcycles. HOG did not disclose how many units MVAG shipped in 2008. Then, in October 2009, HOG announced it intends to divest the brand to focus on its "single-brand strategy".

CORPORATE STRATEGY. We expect the company to focus both on current owners of HOG motorcycles and on potential new customers. We believe that many purchasers of a new Harley-Davidson motorcycle previously owned a HOG bike. We expect HOG's marketing focus to include international markets, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.86 1.36 0.30 0.54 0.40 133% 30.00 7.99 NM NM

2008 8.49 3.83 2.79 2.57 1.29 46% 48.05 11.54 NA 4

2007 16.32 4.55 3.74 3.76 1.06 28% 74.03 44.37 17 12

2006 10.46 4.87 3.93 3.95 0.81 21% 75.87 47.86 19 12

2005 11.05 4.25 3.41 3.44 0.63 18% 62.49 44.40 18 13

2004 10.73 3.72 3.00 2.98 0.41 13% 63.75 45.20 21 15

2003 9.63 3.18 2.50 2.51 0.20 8% 52.51 35.01 21 14

2002 7.21 2.48 1.90 1.85 0.14 7% 57.25 42.60 30 22

2001 5.64 1.93 1.43 1.34 0.12 8% 55.99 32.00 39 22

2000 4.47 1.56 1.13 NA 0.10 9% 50.63 29.53 45 26

4,782 695 246 21.7 179 60.5% 70.6 128

5,594 1,441 242 141 1,034 36.7% 655 604

5,727 1,721 204 81.5 1,448 35.5% 934 940

5,801 1,431 214 Nil 1,624 35.8% 1,043 1,048

5,342 1,676 206 Nil 1,488 35.5% 960 969

5,015 1,576 214 Nil 1,379 35.5% 890 881

4,624 1,346 197 Nil 1,166 34.7% 761 763

4,091 1,059 176 Nil 886 34.5% 580 564

3,363 816 153 Nil 673 35.0% 438 411

2,906 648 133 Nil 549 36.6% 348 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,670 Total Assets 9,156 Long Term Debt 600 Total Debt NA Common Equity 2,108 Capital Expenditures 117 Cash Flow 317 % Return on Assets 0.8 % Return on Equity 3.3 % Long Term Debt of Capitalization Nil

594 7,829 2,176 3,915 2,116 232 897 9.7 29.2 50.7

405 5,657 980 2,100 2,375 242 1,138 16.7 36.4 29.2

897 5,532 87.0 87.0 2,757 220 1,257 19.3 35.7 3.1

1,046 5,255 1,000 1,205 3,084 198 1,165 17.9 30.5 23.6

1,612 5,483 800 1,295 3,218 214 1,104 17.1 28.8 19.7

1,323 4,923 670 794 2,958 227 958 17.3 29.3 17.8

796 3,861 380 763 2,233 324 756 16.6 29.1 14.4

635 3,118 380 597 1,756 204 591 15.8 27.7 17.6

420 2,436 355 445 1,406 204 481 15.3 27.1 20.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3700 W Juneau Ave, Milwaukee, WI 53208. Telephone: 414-342-4680. Email: [email protected] Website: http://www.harley-davidson.com

Chrmn: B.K. Allen Pres & CEO: K.E. Wandell SVP & CFO: J. Olin Chief Acctg Officer: M.R. Kornetzke

Treas: J.D. Thomas Founded: 1903 Investor Contact: T.E. Bergmann (414-342-4680) Domicile: Wisconsin Board Members: B. K. Allen, J. Anderson, R. I. Employees: 7,900 Beattie, M. F. Brooks, G. H. Conrades, J. C. Green, D. James, S. Levinson, N. T. Linebarger, G. L. Miles, Jr., J. A. Norling, K. E. Wandell, J. Zeitz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HAR | HAR is in the S&P 500

Harman International Industries Inc. S&P Recommendation HOLD

★★★★★

Price $34.33 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Consumer Electronics

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary This company manufactures and markets high-fidelity audio products and electronic systems targeted at OEM, consumer and professional markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $53.36– 28.10 Trailing 12-Month EPS $2.25 Trailing 12-Month P/E 15.3 $10K Invested 5 Yrs Ago $3,377

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.61 2.09 21.3 69.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.387 Nil Nil NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.01 25 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HAR's customer concentration in the automotive segment and sensitivity to the cyclical automobile industry, only partly offset by our view of its strong balance sheet.

80 40 20

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

26

9 6 3 0 5

36

D

19

C

B-

B B

B+

Relative Strength Rank

A-

A

A+

MODERATE

48 4

4

3

2

2

1

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Souers on October 07, 2010, when the stock traded at $ 33.43. Highlights ➤

➤

➤

We see FY 11 (Jun.) revenues rising 6.9%, following a 17% advance in FY 10. We see this increase being driven by an uptick in automotive sales and market share gains. In addition, HAR has captured several audio and infotainment awards, which should lead to sales growth over the next several years. Offsetting these positive drivers is a weak global economy, which we expect to pressure consumer spending over the near to medium term. HAR has identified $400 million of cost savings across engineering, sourcing and manufacturing, and we expect these efforts to be ongoing. In FY 11, given our outlook for increasing revenues, we see the substantial cost-cutting leading to a significant widening of operating margins. After taxes at 30.0% and a slightly higher diluted share count, we project FY 11 EPS of $1.61, a significant improvement from the $0.85 the company earned in FY 10, excluding $0.34 a share of goodwill impairment and restructuring charges. We project EPS of $2.09 in FY 12.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We think HAR's plans to sharply reduce costs have paid off handsomely, and we expect much-improved operating margins as a result. In addition, we think HAR's selection by Toyota to provide infotainment systems for its vehicles sold in Europe is a potentially major boon for future sales. Nevertheless, we continue to project a weak global economic recovery, with only modest improvement in automotive sales over the next couple of years. The shares recently traded at about 16X our FY 12 EPS estimate, a premium to the S&P 500; we think this premium is merited by the company's potential for vast operating margin improvement over the medium term.

➤

Risks to our recommendation and target price include higher-than-anticipated research and development costs; a double-dip recession, which would adversely impact automotive sales and overall consumer spending; and unfavorable foreign currency translation.

➤

We derive our 12-month target price of $35 from our discounted cash flow analysis. Our model assumes a weighted average cost of capital of 10.0% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 748.4 928.3 2009 869.2 755.9 2008 947.0 1,066 2007 825.5 931.7 2006 754.7 832.7 2005 691.7 788.6

3Q 837.0 598.3 1,033 882.8 801.5 742.6

4Q 850.7 667.7 1,067 911.1 859.1 808.0

Year 3,364 2,891 4,113 3,551 3,248 3,031

Earnings Per Share ($) 2010 -0.17 0.19 2009 0.40 -5.41 2008 0.55 0.68 2007 0.85 1.22 2006 0.79 1.07 2005 0.48 0.92

0.21 -1.14 -0.06 1.07 0.94 0.90

0.26 -1.05 0.54 1.58 0.95 1.01

0.50 -7.19 1.73 4.72 3.75 3.31

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Dividends were suspended following the March 2009 payment.

Stock Report | October 23, 2010 | NYS Symbol: HAR

Harman International Industries Inc. Business Summary October 07, 2010 CORPORATE OVERVIEW. Harman International Industries (HAR) has three main operating segments: Automotive (73% of FY 10 (Jun.) sales), Professional (16%) and Consumer (11%). Within Automotive, HAR designs, manufactures and markets audio, electronic and infotainment systems to be installed as original equipment by automotive manufacturers. Infotainment systems are a combination of information and entertainment components that may include or control GPS navigation, traffic information, voice-activated telephone and climate control, rear seat entertainment, wireless Internet access, hard disk recording, MP3 playback, and high-end branded audio systems. Brand names include JBL, Infinity, Mark Levinson, Harmon/Kardon, Logic 7, Lexicon and Becker. Customers include Audi/Volkswagen, BMW, Daimler, Chrysler, Toyota/Lexus, Hyundai, Porsche, Land Rover, PSA Peugeot Citroen and Jaguar. HAR also produces an infotainment system for Harley-Davidson motorcycles. HAR believes its competitive position is enhanced by the company's technical expertise in designing and integrating acoustics, navigation, speech recognition and human-machine interfaces into complete infotainment systems uniquely adapted to the specific requirements of each automotive model.

range of loudspeakers, power amplifiers, digital signal processors, microphones, headphones and mixing consoles used by audio professionals in concert halls, stadiums, airports, houses of worship and other public spaces. HAR's products were used at such venues as the 2008 Beijing Olympics and the 2009 Presidential Inauguration. Products are marketed globally under a number of brand names including JBL, AKG, Crown, Soundcraft, Lexicon, Mark Levinson, Revel, DigiTech, dbx and Studer. In the Consumer segment, HAR makes audio, video and electronic systems for home, mobile and multimedia applications. Mobile products include an array of aftermarket systems to deliver audio entertainment and navigation in vehicles. Products for multimedia applications are primarily focused on enhancing sound for Apple's iPods and iPhones, computers, headphones and MP3 players. Brands include AKG, Harman/Kardon, Infinity, JBL, Mark Levinson and Selenium.

HAR's Professional segment designs, manufactures and markets an extensive Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 14.80 2.31 0.50 0.65 NA Nil 53.36 28.10 NM NM

2009 12.87 -4.68 -7.19 -3.50 0.04 NM 40.33 9.17 NM NM

2008 15.44 4.18 1.73 1.79 0.05 3% 73.75 9.87 43 6

2007 16.71 6.64 4.72 4.75 0.05 1% 125.13 69.48 27 15

2006 12.82 5.66 3.75 3.75 0.05 1% 115.85 74.65 31 20

2005 10.74 4.99 3.31 3.28 0.05 2% 130.45 68.54 39 21

2004 9.43 3.80 2.27 2.27 0.05 2% 131.74 66.12 58 29

2003 6.66 2.85 1.55 1.51 0.05 3% 75.35 26.15 49 17

2002 5.04 2.00 0.85 0.76 0.05 6% 32.65 19.09 38 22

2001 4.33 1.48 0.48 0.41 0.05 10% 23.31 11.64 49 24

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,364 263 128 30.2 49.1 NA 35.2 45.8

2,891 -31.2 147 15.3 -520 NM -423 -206

4,113 351 152 21.2 124 13.8% 108 111

3,551 514 127 1.50 382 18.4% 314 316

3,248 527 130 13.0 376 32.4% 255 256

3,031 470 119 10.5 335 30.6% 233 231

2,711 360 106 17.2 228 30.6% 158 158

2,229 255 88.5 22.6 142 26.0% 105 102

1,826 181 78.1 22.4 80.2 28.2% 57.5 51.5

1,717 138 67.2 25.0 45.1 28.2% 32.4 27.3

Balance Sheet & Other Financial Data (Million $) Cash 646 Current Assets 1,674 Total Assets 2,556 Current Liabilities 863 Long Term Debt 364 Common Equity 1,135 Total Capital 1,499 Capital Expenditures 60.0 Cash Flow 163 Current Ratio 1.9 % Long Term Debt of Capitalization 24.3 % Net Income of Revenue 1.1 % Return on Assets 1.4 % Return on Equity 3.3

591 1,511 2,492 744 629 974 1,603 79.9 -275 2.0 39.2 NM NM NM

223 1,439 2,827 907 427 1,340 1,767 139 260 1.6 24.2 2.6 4.0 7.6

106 1,233 2,509 816 57.7 1,510 1,568 175 441 1.5 3.7 8.8 12.9 22.8

292 1,249 2,355 869 179 1,228 1,410 131 385 1.4 12.7 7.9 11.2 22.3

291 1,183 2,187 729 331 1,061 1,392 176 352 1.6 23.8 7.7 11.2 24.1

378 1,204 1,989 662 388 875 1,263 135 264 1.8 30.7 5.8 8.6 20.6

148 968 1,704 487 498 656 1,154 116 194 2.0 43.2 4.7 6.6 17.8

116 877 1,480 433 470 527 999 114 136 2.0 47.1 3.1 4.4 12.1

2.75 709 1,162 350 Nil 423 424 88.1 99.6 2.0 Nil 1.9 2.8 7.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 400 Atlantic St Ste 1500, Stamford, CT 06901. Telephone: 203-328-3500. Website: http://www.harman.com Chrmn, Pres & CEO: D.C. Paliwal

EVP & CFO: H.K. Parker EVP & CTO: S. Lawande EVP, Secy & General Counsel: T.A. Suko Chief Acctg Officer: J. Peter

Investor Contact: S.B. Robinson (202-393-1101) Board Members: B. F. Carroll, H. Einsmann, R. K. Gupta, A. M. Korologos, J. Liu, E. H. Meyer, D. C. Paliwal, K. M. Reiss, H. S. Runtagh, G. G. Steel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1980 Domicile: Delaware Employees: 9,816

Stock Report | October 23, 2010 | NYS Symbol: HRS | HRS is in the S&P 500

Harris Corp S&P Recommendation BUY

★★★★★

Price $43.80 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $53.00

Investment Style Large-Cap Growth

Summary This company focuses on communications equipment for voice, data and video applications for commercial and governmental customers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $54.50– 37.44 Trailing 12-Month EPS $4.28 Trailing 12-Month P/E 10.2 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.64 NA 9.4 129.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

30

MEDIUM

HIGH

Quantitative Evaluations

Vol. 28

Mil.

S&P Quality Ranking D 5

5

3

4

5 3

4

3

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ WEAK

27

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Todd Rosenbluth on August 17, 2010, when the stock traded at $ 44.50. Highlights We forecast revenues of $6.0 billion in FY 11 (Jun.), up from $5.2 billion the year before, supported by an acquisition. Pressure on the RF Communications segment waned beginning in the FY 10 second quarter, and orders for tactical radios for U.S. military agencies have picked up, which we think should spur growth in segment sales in FY 11. Meanwhile, we see more modest growth for the government communications segment as key projects are completed and newer ones are begun. Following improvement in gross margins in FY 10, we look for a slight decline in FY 11 to 35% due to lower pricing for new contracts and a shift in product mix toward lower-margin products. Despite continued investment in R&D, we see the operating margin widening to 19% due to integration of a recent merger. We estimate operating EPS of $4.64 in FY 11, up from FY 10 results even with a modest increase in interest costs. FY 09 results included a $1.37 asset impairment charge for Stratex, which has since been spun off.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

With most of the company's sales coming from federal governments and government agencies, we believe HRS is exposed to uneven sales patterns and fixed-price contract risks, which may affect profitability. However, we think HRS's balance sheet and competitive position are strong.

40

➤

0.95 9 BBB+

Below Avg.

50

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

9 6 3 0

$5.652 2.28 $1.00 85

Visibility into the company's order demand for its radios has improved, and we believe revenues and earnings will grow in FY 11. We think long-term trends favor growth in HRS's core segments, as local and federal government agencies focus on improving the technological capabilities of their communications systems, although new government spending might be limited in the near term by budgetary issues. We believe HRS has a strong balance sheet and can support its recent acquisitions. With the shares having fallen since the reporting of what we consider strong fiscal fourth-quarter earnings, we view HRS as undervalued. Risks to our recommendation and target price include reduced funding for U.S. government contracts, lower capital spending by service operators, and delays or missed contract orders. Based on projected 9% EPS growth over the next three years and a slight discount to communications and defense peers P/E of about 11.5X our FY 11 EPS estimate, we arrive at our 12-month target price of $53.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,203 1,218 2009 1,173 1,333 2008 1,231 1,318 2007 946.8 1,016 2006 759.7 841.6 2005 669.4 737.2

3Q 1,330 1,205 1,330 1,072 881.1 772.1

4Q 1,456 1,294 1,433 1,208 992.4 821.9

Year 5,206 5,005 5,311 4,243 3,475 3,001

Earnings Per Share ($) 2010 0.79 1.06 2009 0.89 1.06 2008 0.73 0.83 2007 0.60 0.67 2006 0.36 0.22 2005 0.29 0.33

1.26 1.02 0.78 1.52 0.52 0.40

1.16 -0.64 0.91 0.63 0.61 0.44

4.28 2.35 3.26 3.43 1.71 1.46

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.220 0.220 0.250 0.250

02/26 04/23 08/30 10/22

03/04 05/27 09/03 11/17

03/08 06/01 09/08 11/19

03/18/10 06/11/10 09/17/10 12/03/10

Dividends have been paid since 1941. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HRS

Harris Corp Business Summary August 17, 2010 CORPORATE OVERVIEW. Harris Corp. is an international communications equipment company that focuses on providing product, system and service solutions for commercial and governmental customers including communications networks, antennas, aviation electronics, and handheld radios. The company operates in three main business segments: government communications systems, RF communications (which includes the tactical handheld radios and now includes the wireless systems business recently acquired from Tyco Electronics) and broadcast communications. PRIMARY BUSINESS DYNAMICS. The government communications systems (GCS) segment, which contributed 52% of revenues in FY 10 (Jun.), conducts advanced research studies and produces, integrates and supports highly reliable, net-centric communications and information technology that solve the mission-critical challenges of the company's defense, intelligence and civilian U.S. government customers. The government segment has a diverse portfolio of more than 300 programs. During the fourth quarter of FY 10, revenues stemmed from a weather program for the National Oceanic and Atmospheric Administration, the Modernization of Enterprise Terminals program for the U.S. Army and the Joint Strike Fighter program for the DoD, but this was offset by the near completion of the 2010 census. During the fourth quarter of FY 10, new business included an information technology contract with the Air Na-

tional Guard and health care related contracts with the U.S. Department of Veterans Affairs. The Multimax business, acquired in 2007, is part of this segment. The RF Communications segment (40% of revenues) supplies secure wireless voice and data communications products, systems and networks to the U.S. DoD and other federal and state agencies, and foreign government defense agencies. The segment offers a line of secure tactical radio products and systems for person-transportable, mobile, strategic fixed-site and shipboard applications used by military personnel. As of March 2009, orders on a fiscal year to date basis were down 37% from a year earlier, hurt by what HRS said was a delay in two major orders -- one from the U.S. Army and the other from the Iraq Ministry of Defense. Since then, however, orders improved inside and outside the U.S., signaling that the delays were in the past. In the June 2010 quarter, tactical radio orders amounted to $711 million, 1.5X its revenues, including Falcon III radios.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 2.48 5.59 4.32 4.28 0.88 20% 54.50 40.24 13 9

2009 0.20 3.68 2.35 3.14 0.80 34% 48.25 26.11 21 11

2008 2.69 4.46 3.26 3.19 0.60 18% 66.71 27.56 20 8

2007 NM 4.75 3.43 2.74 0.44 13% 66.94 45.85 20 13

2006 3.90 2.53 1.71 1.74 0.32 19% 49.78 37.69 29 22

2005 5.79 1.94 1.46 1.43 0.24 16% 45.78 26.94 31 18

2004 7.96 1.36 0.94 0.90 0.20 21% 34.58 18.92 37 20

2003 7.21 0.87 0.45 0.31 0.16 36% 19.74 12.68 44 28

2002 7.05 1.04 0.63 0.28 0.10 16% 19.35 12.05 31 19

2001 6.82 0.75 0.16 -0.45 0.10 63% 18.50 10.40 NM 65

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,206 1,105 166 72.1 840 NA 562 556

5,005 972 178 52.8 485 35.6% 312 417

5,311 958 164 55.8 638 31.6% 444 435

4,243 676 135 41.1 661 28.9% 480 382

3,475 505 98.4 36.5 381 37.5% 238 243

3,001 393 71.4 24.0 298 32.2% 202 199

2,519 264 55.1 24.5 180 30.2% 126 120

2,093 142 56.4 24.9 90.1 34.0% 59.5 40.8

1,876 153 55.1 26.7 125 34.0% 82.6 36.5

1,955 167 79.7 34.8 72.4 70.4% 21.4 -60.5

Balance Sheet & Other Financial Data (Million $) Cash 455 Current Assets 1,996 Total Assets 4,735 Current Liabilities 1,043 Long Term Debt 1,177 Common Equity 2,190 Total Capital 3,367 Capital Expenditures 190 Cash Flow 727 Current Ratio 1.9 % Long Term Debt of Capitalization 34.9 % Net Income of Revenue 10.8 % Return on Assets 12.2 % Return on Equity 27.7

285 1,859 4,465 1,110 1,177 1,869 3,046 98.7 490 1.7 38.6 6.2 6.9 15.1

392 2,047 4,559 995 832 2,274 3,466 113 609 2.1 24.0 8.4 9.9 21.3

409 1,829 4,406 1,638 409 1,904 2,701 88.8 616 1.1 15.1 11.3 12.7 26.9

181 1,428 3,142 752 700 1,662 2,390 102 336 1.9 29.3 6.8 8.5 15.3

378 1,318 2,457 590 401 1,439 1,867 75.0 274 2.2 21.5 6.7 8.6 14.9

644 1,554 2,226 543 401 1,279 1,683 66.4 181 2.9 23.9 5.0 5.8 10.2

466 1,358 2,080 496 402 1,188 1,590 73.0 116 2.7 25.3 2.8 3.0 5.1

278 1,154 1,859 426 283 1,150 1,433 45.9 138 2.7 19.8 4.4 4.3 7.3

250 1,222 1,960 460 384 1,115 1,500 55.2 101 2.7 25.6 1.1 1.0 1.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1025 W. NASA Boulevard, Melbourne, FL 32919. Telephone: 321-727-9100. Website: http://www.harris.com Chrmn, Pres & CEO: H.L. Lance

COO & EVP: D.R. Pearson SVP & CFO: G.L. McArthur CTO: R.K. Buchanan Chief Acctg Officer: L.A. Schwartz

Investor Contact: P. Padgett (321-727-9383) Founded: 1916 Board Members: T. A. Dattilo, T. D. Growcock, L. Hay, Domicile: Delaware III, K. L. Katen, S. P. Kaufman, L. F. Kenne, H. L. Employees: 15,800 Lance, D. B. Rickard, J. C. Stoffel, G. T. Swienton, H. E. Tookes, II

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HIG | HIG is in the S&P 500

Hartford Financial Services Group Inc. (The) S&P Recommendation BUY

★★★★★

Price $23.95 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Multi-line Insurance

12-Mo. Target Price $29.00

Investment Style Large-Cap Blend

Summary One of the largest U.S. multi-line insurance holding companies, Hartford is a leading writer of property and casualty insurance.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.46– 18.81 Trailing 12-Month EPS $0.29 Trailing 12-Month P/E 82.6 $10K Invested 5 Yrs Ago $3,644

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.30 4.00 10.4 444.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.642 0.84 $0.20 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

3.03 31 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of HIG's vulnerability to further credit writedowns, especially considering its sizable holdings of lower quality CMBS. Our assessment also reflects the potential dilution of shares stemming from the capital infusion from Allianz, and exposure to the equity markets. This is partially offset by the earnings stability of HIG's P&C operations and the company's overall improved capital position.

100 40

10 4

Vol. Mil. 90 60 30 0

188

Quantitative Evaluations S&P Quality Ranking 5

5

4

3

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

BB

B+

A-

A

Relative Strength Rank

A+

MODERATE 56

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Bret Howlett on July 28, 2010, when the stock traded at $ 22.85. Highlights ➤

➤

➤

We believe sales and flows will be below peers at HIG's life unit in 2010, and we expect the company to lose market share in several product areas, most notably annuities. In our view, HIG's life franchise was damaged following the financial crisis and we think sales will be hurt by recent product price increases and redesigns. However, we forecast double-digit earnings growth in the life unit, absent accounting charges, improved distribution, and solid growth of traditional life products. We believe the bright spot for HIG is its retirement segment, and we forecast strong 401(k), mutual fund and employee benefit sales. We forecast premiums in HIG's P&C unit to decline slightly due to heightened competition, reduced exposures, partially offset by solid premium growth at specialty property. We believe earnings in P&C will be down on a deterioration in the combined ratio. Our forecasts assume personal lines written premiums will fall 1%, small commercial lines premiums 1%, and middle-market commercial lines premiums 2%. We forecast operating EPS of $2.73 in 2010 and $4.00 in 2011. Our estimates exclude realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

Our buy recommendation reflects the sizable discount HIG currently trades at versus peers, which we believe will narrow due to the company's improving fundamentals. We believe HIG's balance sheet has stabilized and investment losses have likely peaked and should continue to decline. Also, we view positively the improvement in HIG's life subsidiary's riskbased capital ratio, its repayment of TARP funds, and lower unrealized losses. While we believe HIG's life unit's results will generally be below peers, we think this is overly discounted in the share price. We also think the rebound in financial markets has reduced the likelihood of adverse accounting charges. We believe HIG will benefit from the stability of its P&C franchise, and we expect improvements in many of its life businesses in 2010. Risks to our recommendation and target price include deteriorating claim trends, increased premium price competition, a significant worsening in the credit quality of HIG's investment portfolio, and a downturn in the equity markets. Our 12-month target price of $29 assumes the shares will trade at about 0.7X our 2010 book value estimate, below the peer average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,319 3,336 2009 5,394 7,637 2008 1,544 7,503 2007 6,759 7,660 2006 6,543 4,971 2005 6,002 6,064

3Q -5,230 -393.0 5,823 7,407 7,307

4Q -6,440 565.0 5,674 7,579 7,710

Year -24,701 9,219 25,916 26,500 27,083

Earnings Per Share ($) 2010 -0.42 0.14 2009 -3.77 -0.06 2008 0.46 1.73 2007 2.71 1.96 2006 2.34 1.52 2005 2.21 1.98

E0.90 -0.79 -8.74 2.68 2.39 1.76

E0.98 1.19 -2.71 1.88 2.42 1.51

E2.30 -2.93 -8.99 9.24 8.69 7.44

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

02/18 05/20 07/22 10/21

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

04/01/10 07/01/10 10/01/10 01/03/11

Dividends have been paid since 1996. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HIG

Hartford Financial Services Group Inc. (The) Business Summary July 28, 2010 CORPORATE OVERVIEW. Hartford Financial Services Group (HIG) is a multiline insurer and one of the largest providers of investment, life insurance and property and casualty insurance products in the U.S. Revenues totaled $24.2 billion in 2009 (up from $9.2 billion in 2008). HIG's P&C operations reported operating revenues (excluding realized investment losses) of $11.5 billion, while the life insurance unit reported operating revenues of $15.2 billion. HIG's property-casualty operation provides a wide range of commercial, personal, specialty and reinsurance coverages. It constitutes one of the largest U.S. property-casualty insurance organizations, and is the endorsed provider of automobile and homeowners coverages to members of AARP. Earned premiums of $9.9 billion in 2009 were derived from personal lines (41%), small commercial lines (26%), middle-market commercial lines (21%), and specialty commercial (12%).

array of investment and savings products to individual investors, including annuities, mutual funds, 401(k) plans and 529 college savings plans. Group Benefits generated $4.7 billion of revenues (40%) and offers short- and long-term disability insurance, group life and accident insurance and other specialty products to employers. The Individual Life segment generated revenues of $1.3 billion (11%) and offers an array of life insurance, including variable universal life, universal life, whole life and term life insurance. The Institutional Solutions Group generated revenues of $1.3 billion (11%) and provides customized wealth creation and financial protection solutions for institutions, corporations and high net worth individuals. The Retirement Plans Group generated revenues of $632 million (5%) and provides retirement plans for corporate clients and non-profit organizations. The International unit generated $1.0 billion of revenues (8%), but has mostly suspended offering variable annuities.

HIG's life insurance operations are conducted by Hartford Life. Total assets under management increased to $330 billion in 2009, from $298 billion in 2008 The Retail Investment Products Group generated revenues of $2.8 billion (24% of total life revenues in 2009, excluding investment income) and provides an Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 66.44 NA -2.93 0.90 0.20 NM 29.59 3.33 NM NM

2008 26.18 NA -8.99 4.11 1.91 NM 87.88 4.16 NM NM

2007 55.69 NA 9.24 11.27 2.03 22% 106.23 83.00 11 9

2006 53.12 NA 8.69 8.98 1.70 20% 94.03 79.24 11 9

2005 45.05 NA 7.44 7.62 1.17 16% 89.49 65.35 12 9

2004 42.58 NA 7.20 6.52 1.13 16% 69.57 52.73 10 7

2003 34.80 -0.93 -0.33 -1.15 1.09 NM 59.27 31.64 NM NM

2002 35.31 4.96 3.97 4.27 1.05 26% 70.24 37.25 18 9

2001 29.87 3.00 2.27 2.22 1.01 44% 71.15 45.50 31 20

2000 32.88 4.29 4.36 NA 0.97 22% 80.00 29.38 18 7

1,018,728 14,424 NA 7,219 24,701 -1,728 NA -887 313

968,723 15,503 NA -6,005 9,219 -4,591 NA -2,749 1,290

906,890 15,619 NA 5,359 25,916 4,005 NA 2,949 3,598

920,964 15,023 NA 6,515 26,500 3,602 NA 2,745 2,839

764,293 14,359 NA 8,231 27,083 2,985 NA 2,274 2,335

853,184 13,566 NA 5,162 22,693 2,523 NA 2,138 1,936

704,369 11,891 8,805 3,233 18,733 -550 -253 -91.0 -315

629,028 4,884 8,114 2,953 15,907 1,068 1,250 1,000 1,078

534,489 4,903 7,266 2,850 15,147 354 724 549 538

585,582 4,565 6,975 2,674 14,703 1,418 962 974 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 2,142 Premiums Due 3,404 Investment Assets:Bonds 71,153 Investment Assets:Stocks 33,542 Investment Assets:Loans 8,112 Investment Assets:Total 25,556 Deferred Policy Costs 10,686 Total Assets 307,717 Debt 6,632 Common Equity 14,905 Combined Loss-Expense Ratio 90.4 % Return on Revenue NM % Return on Equity NM % Investment Yield 5.9

1,811 3,604 65,112 32,278 8,677 118,531 13,248 287,583 7,033 9,268 90.7 NM NM NM

2,011 3,681 81,657 38,777 7,471 131,086 11,742 360,361 3,951 19,204 90.8 11.4 15.5 4.3

1,424 3,675 80,755 31,132 5,369 119,173 10,268 326,710 3,762 18,876 89.3 10.4 16.1 5.8

1,273 6,360 76,440 25,495 3,747 106,935 9,702 285,557 4,048 15,325 93.2 8.4 15.4 8.2

1,148 6,178 75,100 14,466 2,662 94,408 8,509 259,735 4,308 14,238 95.3 9.4 16.5 6.4

462 9,043 61,263 565 2,512 65,847 7,599 225,853 4,613 11,639 98.0 NM NM 5.4

377 7,706 48,889 917 2,934 54,530 6,689 182,043 4,064 10,734 99.2 6.3 10.1 5.8

353 2,432 40,046 1,349 3,317 46,689 6,420 181,238 3,377 9,013 112.4 3.6 6.7 6.5

227 6,874 34,492 1,056 3,610 40,669 5,305 171,532 3,105 7,464 102.4 6.6 15.1 6.7

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Hartford Plz, Hartford, CT 06155-0001. Telephone: 860-547-5000. Website: http://www.thehartford.com Chrmn, Pres & CEO: L.E. McGee

EVP & CFO: C.J. Swift EVP & General Counsel: A.J. Kreczko SVP, Chief Acctg Officer & Cntlr: B.A. Bombara SVP & Secy: R.A. Anzaldua

Investor Contact: R. Costello (860-547-8480) Founded: 1810 Board Members: R. B. Allardice, III, T. Fetter, P. G. Kirk, Domicile: Delaware Jr., L. E. McGee, K. Mikells, M. G. Morris, T. A. Renyi, C. Employees: 28,000 B. Strauss, H. P. Swygert

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HAS | HAS is in the S&P 500

Hasbro Inc. S&P Recommendation HOLD

★★★★★

Price $46.00 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Leisure Products

12-Mo. Target Price $50.00

Summary This large toy company has brands that include Monopoly, Playskool and Tonka, as well as various items related to categories such as Star Wars and Pokemon.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.78– 26.82 Trailing 12-Month EPS $2.87 Trailing 12-Month P/E 16.0 $10K Invested 5 Yrs Ago $27,136

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.75 3.00 16.7 139.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.432 2.17 $1.00 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment takes into account our view of HAS's strong market share position and healthy balance sheet, offset by intense industry rivalry and the concentrated buying power of U.S. toy retailers.

50

35 30 25

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

15 10 5 0 5

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 61

4

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Jason N. Asaeda on October 22, 2010, when the stock traded at $ 45.68. Highlights ➤

➤

We look for net revenues to reach $4.15 billion in 2010 and $4.37 billion in 2011. While we think macroeconomic headwinds will limit consumer discretionary spending, we believe toy sales will hold up better than many other areas. Positive momentum in core brands such as Nerf and Playskool, as well as new product introductions, particularly in board games, bode well, in our view. We expect HAS to benefit in 2011 from toy sales related to Transformers 3, which is scheduled for theatrical release in July 2011. We also view The Hub, the company's newly launched children's and family television network with Discovery Communications, as an incremental revenue opportunity.

Investment Rationale/Risk ➤

➤

We forecast operating margins will widen 90 basis points in 2010 to 15.4%, supported by an improved product mix and lower royalty and amortization expenses, partially offset by investments in product development and other growth initiatives. We see operating margins of 15.6% in 2011. Excluding a one-time $0.14 tax benefit in 2010, we estimate EPS of $2.75 and $3.00 in 2010 and 2011, respectively.

We think HAS is well positioned to boost its market share in the toy category, particularly as the company increases its use of technology in offerings, and makes toys more interactive. However, given the weakened economy, we think near-term consumer spending habits are less certain. We believe HAS has strong cash flow and an improved balance sheet, which should enable the company to continue its ongoing share repurchase program. Although we view positively the recent Discovery Communications joint venture, we think it will be $0.25-$0.30 dilutive to 2010 EPS. Risks to our recommendation and target price include more store closings and tight inventory management at toy retailers, weaker than expected consumer spending, poorly received new toy introductions, and increased competition in the consumer electronic toy category from larger consumer electronics manufacturers.

Revenue (Million $) 1Q 2Q 2010 672.4 737.8 2009 621.3 792.2 2008 704.2 784.3 2007 625.3 691.4 2006 468.2 527.8 2005 454.9 572.4

3Q 1,313 1,279 1,302 1,223 1,039 988.1

4Q -1,375 1,231 1,298 1,116 1,072

Year -4,068 4,022 3,838 3,151 3,088

Earnings Per Share ($) 2010 0.40 0.30 2009 0.14 0.26 2008 0.25 0.25 2007 0.19 0.03 2006 -0.03 0.07 2005 -0.02 0.13

1.10 0.99 0.89 0.95 0.58 0.47

E1.10 1.09 0.62 0.84 0.62 0.48

E2.75 2.48 2.00 1.97 1.29 1.09

Fiscal year ended Dec. 31. Next earnings report expected: Early February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.250 0.250 0.250

12/03 02/04 05/20 09/30

01/29 04/29 07/29 10/28

02/02 05/03 08/02 11/01

02/16/10 05/17/10 08/16/10 11/15/10

Dividends have been paid since 1981. Source: Company reports. ➤

➤

Revenue/Earnings Data

2010

Our 12-month target price of $50 applies a multiple of 16.7X, modestly below HAS's historical average, but roughly in line with toy industry peer averages, to our 2011 EPS forecast.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HAS

Hasbro Inc. Business Summary October 22, 2010 CORPORATE OVERVIEW. Hasbro is a worldwide leader in children's and family leisure time and entertainment products and services, including the design, manufacture and marketing of games and toys ranging from traditional to high-tech. Some of the company's widely recognized core brands, both internationally and in the U.S., are Playskool, Tonka, Super Soaker, Milton Bradley, Parker Brothers, Tiger And Wizards of the Coast. Offerings in the games segment include traditional board games, hand-held electronic, trading card, plug and play and DVD games, as well as electronic learning aids and puzzles. Toy offerings include boys' action figures, vehicles and playsets, girls' toys, electronic toys, plush products, preschool toys and infant products, children's consumer electronics, electronic interactive products and toy related specialty products. Part of HAS's growth strategy includes licensing, which has been successful in the past for HAS. In 2008, revenues generated from the sale of Star Wars products produced under its license with Lucas Licensing and Lucasfilm represented approximately 7.8% of total company revenues. In January 2006, HAS completed a licensing agreement with Marvel Entertainment, Inc. to produce action figures and other toys and games based on their library of intel-

lectual property, including Spiderman and the Fantastic 4. Products related to this license began shipping late in 2006, with full ramp-up realized in 2007. In 2008, Marvel accounted for 5.7% of revenues and Transformers for 9.5% (latest available). MARKET PROFILE. According to the NPD Group, a leading consumer and retail information provider, retail sales in the U.S. toy industry were $21.47 billion in 2009, a decline of only 0.8% despite the difficult economic conditions that affected the industry. This compares to a 1.0% rise in U.S. HAS sales for 2009. We think certain HAS subcategories will continue to performed well, contributing to market share gains. In 2009, Boys' toys rose approximately 36% to $1.5 billion, and Girls' toys increased 1.9% to $1.3 million. Excluding HAS's international sales, we estimate that the company had approximately a 12% market share in the U.S. toy industry in 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.12 3.64 2.48 2.51 0.80 32% 32.57 21.14 13 9

2008 2.50 3.05 2.00 1.91 0.76 39% 41.68 21.57 21 11

2007 2.95 2.86 1.97 1.96 0.60 30% 33.49 25.25 17 13

2006 3.34 2.35 1.29 1.29 0.45 35% 27.69 17.00 21 13

2005 3.61 2.20 1.09 1.02 0.33 30% 22.35 17.75 21 16

2004 3.01 1.75 0.96 0.90 0.21 22% 23.33 16.90 24 18

2003 1.32 2.37 0.98 0.93 0.12 12% 22.63 11.23 23 11

2002 0.08 0.95 0.43 0.44 0.12 28% 17.30 9.87 40 23

2001 NM 1.66 0.35 0.19 0.12 34% 18.44 10.31 53 29

2000 NM 0.69 -0.82 NA 0.24 NM 18.94 8.38 NM NM

4,068 776 181 61.6 530 29.2% 375 379

4,022 660 166 47.1 441 30.5% 307 293

3,838 686 157 34.6 462 28.0% 333 332

3,151 523 147 27.5 341 32.6% 230 230

3,088 491 180 30.5 311 31.8% 212 199

2,998 439 146 31.7 260 24.6% 196 184

3,139 509 240 52.5 244 28.3% 175 166

2,816 309 89.3 77.5 104 27.9% 75.1 79.1

2,856 435 226 104 96.2 36.8% 60.8 33.8

3,787 268 264 114 -226 NM -145 NA

Balance Sheet & Other Financial Data (Million $) Cash 636 Current Assets 2,045 Total Assets 3,897 Current Liabilities 816 Long Term Debt 1,132 Common Equity 1,595 Total Capital 2,727 Capital Expenditures 104 Cash Flow 556 Current Ratio 2.5 % Long Term Debt of Capitalization 41.5 % Net Income of Revenue 9.2 % Return on Assets 10.6 % Return on Equity 25.1

630 1,714 3,169 800 710 1,391 2,107 117 473 2.1 33.7 7.6 9.6 22.1

774 1,888 3,237 888 710 1,385 2,095 91.5 490 2.1 33.8 8.7 10.5 22.8

715 1,718 3,097 906 495 1,538 2,033 82.1 377 1.9 24.3 7.3 7.2 14.1

942 1,830 3,301 911 496 1,723 2,219 70.6 392 2.0 22.3 6.9 6.5 12.6

725 1,718 3,241 1,149 303 1,640 1,942 79.2 342 1.5 15.6 6.5 6.1 12.9

521 1,509 3,163 930 687 1,405 2,092 63.1 415 1.6 32.8 5.6 5.6 13.5

495 1,432 3,143 967 857 1,191 2,049 58.7 164 1.5 41.8 2.7 2.3 5.9

233 1,369 3,369 759 1,166 1,353 2,519 50.0 287 1.8 46.3 2.1 1.7 4.5

127 1,580 3,828 1,240 1,168 1,327 2,495 125 120 1.3 46.8 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1027 Newport Ave, Pawtucket, RI, USA 02861-2500. Telephone: 401-431-8697. Website: http://www.hasbro.com Chrmn: A.J. Verrecchia

Pres & CEO: B. Goldner COO: D.D. Hargreaves SVP, CFO & Chief Acctg Officer: D. Thomas SVP & Treas: M.R. Trueb

Investor Contact: K.A. Warren (401-727-5401) Board Members: B. L. Anderson, A. R. Batkin, F. J. Biondi, Jr., K. A. Bronfin, J. M. Connors, Jr., M. W. Garrett, L. Gersh, B. Goldner, J. M. Greenberg, A. G. Hassenfeld, T. A. Leinbach, E. M. Philip, A. J. Verrecchia

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1926 Domicile: Rhode Island Employees: 5,800

Stock Report | October 23, 2010 | NYS Symbol: HCP | HCP is in the S&P 500

HCP Inc S&P Recommendation HOLD

★★★★★

Price $36.37 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $39.00

Investment Style Large-Cap Value

Summary This equity-oriented real estate investment trust, based in California, has direct or joint venture investments in health care-related facilities across the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.05– 26.70 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $17,251

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

2.13 2.27 17.1 310.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.277 5.11 $1.86 85

Beta 1.37 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -1 S&P Credit Rating BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HCP's position as a major and diversified owner of health care-related properties.

40 30

Quantitative Evaluations

20

S&P Quality Ranking

15

D

C

B-

B+ B

B+

A-

A

A+

Vol. Mil.

Relative Strength Rank

30 20 10 0 5

MODERATE

44 LOWEST = 1

3

3

2

HIGHEST = 99

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE

Analysis prepared by Robert McMillan on August 05, 2010, when the stock traded at $ 35.44. Highlights ➤

➤

➤

We believe HCP has assembled a portfolio of health care properties that is well diversified in terms of asset type, geography, and tenant base. With its core focus on senior housing, we think HCP will benefit from increased demand driven by the aging baby boomer population. Following a 1% rise in 2009, we see revenue growth in HCP's need-based businesses advancing 2.2% in 2010. During the second quarter of 2010, net operating income advanced 5.9%; growth in net operating income in senior housing (+4.9%), skilled nursing (+1.2%), medical office buildings (+2.4%) and life sciences (+8.5%) was complemented by the hospital portfolio (+14.0%), which is being re-invigorated by new operators at certain facilities. We think expense management and general rate increases will help the company improve metrics in the senior housing portfolio, the largest of HCP's five sectors. We see management focusing on acquisitions in the life sciences and medical office building sectors. We forecast per-share funds from operations (FFO) of $2.13 for 2010 and $2.27 for 2011.

Investment Rationale/Risk ➤

➤

➤

We like the predictable nature of HCP's longterm, needs-oriented businesses, and believe the stock correlates less with macroeconomic trends than most other REITs. Amid economic uncertainty, we favor what we see as HCP's stable revenue stream with minimal short-term lease expirations and an improving balance sheet. Although the portfolio has been resilient during the recent recessionary environment, we do not see rapid growth as the economy rebounds, unless management significantly accelerates acquisition activities. Risks to our recommendation and target price include a faster-than-expected decline in senior housing occupancy, and a decrease in government reimbursement rates. The stock recently traded at 16.7X trailing 12-month FFO per share. Our 12-month target price of $39 is 18.0X our forward four-quarter FFO per share estimate of $2.16, a reasonable (albeit lofty) multiple relative to recent historical levels that we use given HCP's portfolio and operating performance. We expect a modest widening of the valuation multiple to be driven by continued improvement in operating results.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 295.9 303.0 2009 251.6 267.3 2008 252.2 251.4 2007 223.8 223.2 2006 126.5 127.5 2005 108.4 118.5

3Q -255.3 269.9 262.5 130.2 124.4

4Q -383.4 263.3 273.1 234.9 127.7

Year -1,157 1,026 982.5 619.1 477.3

FFO Per Share ($) 2010 0.54 E0.52 2009 0.56 0.55 2008 0.55 0.51 2007 0.50 0.58 2006 0.53 0.47 2005 0.44 0.47

E0.51 0.52 0.71 0.52 0.50 0.50

E0.54 0.36 0.48 0.54 0.35 0.48

E2.13 1.50 2.25 2.14 1.82 1.89

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.460 0.465 0.465 0.465

10/29 02/01 04/22 07/29

11/05 02/09 04/29 08/05

11/09 02/11 05/03 08/09

11/24/09 02/23/10 05/18/10 08/24/10

Dividends have been paid since 1985. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HCP

HCP Inc Business Summary August 05, 2010 CORPORATE OVERVIEW. HCP Inc. is a self-administered real estate investment trust (REIT) that invests exclusively in health care real estate throughout the U.S. At December 31, 2009, HCP's investment in properties leased to third parties totaled about $10 billion, representing 575 properties, including 30 properties accounted for as direct financing leases. The trust primarily generates revenue by leasing properties under long-term leases. Most of HCP's rents and other earned income from leases are received under triple-net leases or leases that provide for a substantial recovery of operating expenses. CORPORATE STRATEGY. HCP's investment strategy is based on three principles: opportunistic investing, portfolio diversification, and a balance sheet that we view as conservative. The trust completes real estate transactions when they are expected to drive profitable growth and create long-term stockholder value. Another key to HCP's strategy is maintaining a diversified portfolio of health care-related real estate. The trust believes that diversification within the health care industry reduces the likelihood that a single event will materially harm its business. This allows HCP to take advantage of opportunities in different markets, based on individual market dynamics. We view HCP as one

of the most diversified health care REITs in terms of geography, property type and tenant base. Its largest tenants are Brookdale Senior Living, Sunrise Senior Living, Tenet Healthcare, HCA, Inc., and HCR ManorCare. During 2009, HCP had one tenant (Sunrise; 11%) that accounted for more than 10% of revenues. HCP's senior housing portfolio (30%) consisted of interests in 256 senior housing facilities including independent living facilities, assisted living facilities and continuing care retirement communities, which cater to different segments of the elderly population based on their needs. Services provided by HCP's operators or tenants in these facilities are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicaid and Medicare.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.22 0.25 0.49 1.84 NM 33.45 14.93 NM NM

2008 17.18 0.77 0.65 1.82 NM 42.16 14.26 55 19

2007 14.50 0.67 0.67 1.78 NM 42.11 25.11 63 37

2006 12.47 0.57 0.57 1.70 NM 37.84 25.12 66 44

2005 7.82 1.02 1.02 1.68 165% 28.92 23.13 28 23

2004 8.41 1.03 1.02 1.67 162% 29.67 20.00 29 19

2003 8.82 0.94 0.94 1.66 177% 25.85 16.53 27 18

2002 8.46 0.97 0.96 1.63 169% 22.54 17.90 23 19

2001 8.62 0.89 0.88 1.55 174% 19.52 14.63 22 16

2000 8.55 1.07 NA 1.10 103% 15.22 11.53 14 11

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

886 Nil 1,157 264 299 Nil 320 90.4 136

962 Nil 1,026 268 348 Nil 315 204 155

836 Nil 983 257 357 Nil 274 161 140

557 Nil 619 137 213 Nil 144 107 85.5

452 Nil 477 91.1 107 Nil 107 159 138

389 Nil 429 79.3 89.1 Nil 87.0 158 136

349 Nil 400 63.4 90.7 Nil 79.1 155 118

332 Nil 360 51.1 78.0 Nil 75.7 137 112

311 Nil 332 43.3 78.5 Nil 84.1 121 94.5

307 23.0 330 41.0 86.7 Nil 72.6 113 NA

Balance Sheet & Other Financial Data (Million $) Cash 112 Total Assets 12,210 Real Estate Investment 10,246 Loss Reserve Nil Net Investment 9,185 Short Term Debt NA Capitalization:Debt 5,656 Capitalization:Equity 5,495 Capitalization:Total 11,615 % Earnings & Depreciation/Assets 3.4 Price Times Book Value:High 1.9 Price Times Book Value:Low 0.9

57.6 11,850 10,186 Nil 9,358 NA 5,685 4,916 10,751 4.3 2.5 0.8

133 12,522 9,979 Nil 9,250 NA 7,027 3,819 11,954 3.9 2.9 1.7

764 10,013 7,463 Nil 6,867 NA 4,318 3,009 7,774 3.6 3.0 2.0

69.9 3,597 3,856 Nil 3,242 NA 1,837 1,115 3,386 7.9 3.7 3.0

81.1 3,103 3,351 Nil 2,816 NA 1,242 1,134 2,783 8.0 3.5 2.4

228 3,036 2,992 Nil 2,506 NA 1,407 1,155 2,965 8.1 2.9 1.9

41.2 2,748 2,796 Nil 2,371 NA 1,334 1,006 2,686 8.2 2.7 2.1

30.2 2,431 2,535 Nil 2,195 NA 358 972 1,674 8.5 2.3 1.7

81.2 2,399 2,389 Nil 2,101 4.30 1,155 870 2,339 7.6 1.8 1.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3760 Kilroy Airport Way Ste 300, Long Beach, CA 90806-6862. Telephone: 562-733-5100. Email: [email protected] Website: http://www.hcpi.com

Chrmn, Pres, CEO & COO: J.F. Flaherty, III EVP & CFO: T.M. Herzog EVP, Secy & General Counsel: J.A. Gonzalez-Pita SVP & Chief Acctg Officer: S.A. Anderson

Investor Contact: T.M. Herzog Board Members: J. F. Flaherty, III, C. N. Garvey, D. B. Henry, L. E. Martin, M. D. McKee, H. M. Messmer, Jr., P. L. Rhein, K. B. Roath, R. M. Rosenberg, J. P. Sullivan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1985 Domicile: Maryland Employees: 142

Stock Report | October 23, 2010 | NYS Symbol: HCN | HCN is in the S&P 500

Health Care REIT Inc. S&P Recommendation BUY

★★★★★

Price $50.90 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $50.00

Investment Style Large-Cap Value

Summary This REIT invests in health care facilities, including senior housing, specialty care, and medical office buildings.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $51.37– 38.42 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $19,906

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

3.18 3.37 16.0 124.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.343 5.42 $2.76 80

Beta 0.93 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) 7 S&P Credit Rating BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HCN's position as an owner of a large and diversified portfolio of health care-related properties that are leased under long-term contracts and provide what we see as a steady and predictable stream of income.

50

40

30

Quantitative Evaluations 25

S&P Quality Ranking

Vol. 32

Mil. 12 8 4 0

D

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ STRONG

75

5

5

3

2

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, Ph

Analysis prepared by Robert McMillan on August 09, 2010, when the stock traded at $ 45.50. Highlights ➤

➤

➤

We believe HCN has assembled a portfolio of health care properties that is well diversified in terms of asset type, geography, and tenant base. With its core focus on senior housing, we think HCN will benefit from increased demand driven by the aging baby boomer population. Despite a rebounding economy, we do not anticipate a material pick-up in organic growth. HCN's diverse portfolio, which is dominated by needs-based facilities, was resilient during the recession. After rising 8.6% in 2009, we see revenues advancing 15.7% in 2010, driven by stabilizing trends among the facilities operators at HCN's properties as well as acquisitions. During the second quarter, same-space revenues advanced in its skilled nursing facilities (+2.5%) and hospitals (+2.0%), but declined in the senior housing facilities (-2.5% on rent deferrals); occupancy levels in the medical office building portfolio improved to 92.6% at the end of the second quarter from 90.8% a year earlier. We are also encouraged by management's focus on increasing the proportion of its revenues derived from private payers.

Investment Rationale/Risk ➤

➤

➤

Revenue/FFO Data

2010

We like the predictable nature of HCN's longterm triple net lease revenue stream, and believe the stock correlates less with macroeconomic trends than most other REITs. Amid economic uncertainty, we favor HCN's stable revenue stream with minimal short-term lease expirations, solid balance sheet, and a relatively secure dividend payout. Risks to our opinion and target price include a slower-than-expected economic recovery, and decreased government reimbursement rates. The stock recently traded at about 14.6X trailing 12-month FFO per share. Our 12-month target price of $50 is about 15.2X our forward fourquarter FFO estimate of $3.30, a modest multiple by historical standards, but reasonable, we believe, given HCN's portfolio and operating performance. We expect a modest widening of the valuation multiple to be driven by continued improvement in operating results. Further, we also view management's plan to make accretive acquisitions while also attempting to reduce leverage as a positive factor in our valuation.

We forecast per-share funds from operations (FFO) of $3.18 in 2010, and $3.37 in 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 152.8 162.1 2009 139.3 139.5 2008 127.8 133.1 2007 110.4 117.7 2006 76.01 78.64 2005 65.84 66.05

3Q -142.9 143.2 124.4 80.39 71.99

4Q -147.3 147.1 133.5 87.79 77.97

Year -569.0 551.0 486.0 322.8 281.9

FFO Per Share ($) 2010 0.51 2009 0.81 2008 0.81 2007 0.76 2006 0.71 2005 0.72

E0.81 0.77 0.86 0.79 0.73 0.77

E0.82 0.44 0.83 0.80 0.77 0.76

E3.18 2.53 3.38 3.16 2.86 2.65

0.74 0.80 0.87 0.78 0.74 0.36

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.680 0.680 0.680 0.690

10/29 01/28 04/29 07/29

11/05 02/04 05/06 08/05

11/09 02/08 05/10 08/09

11/20/09 02/19/10 05/20/10 08/20/10

Dividends have been paid since 1971. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HCN

Health Care REIT Inc. Business Summary August 09, 2010 CORPORATE OVERVIEW. Health Care REIT is a self-administered equity REIT that invests in health care facilities offering skilled nursing, assisted living, medical office buildings, independent living, and specialty care services. HCN's investments are primarily real estate property leased to operators under long-term operating leases or financed with operators under long-term mortgages. As of December 31, 2009, HCN had real estate investments totaling more than $6 billion, consisting of 590 properties in 39 states. As of December 31, 2009, HCN's portfolio included 179 assisted living facilities, 214 skilled nursing facilities, 50 independent living/continuing care retirement communities, 118 medical office buildings, and 29 hospitals. An assisted living facility is a combination of housing, personalized supportive services, and health care designed to meet the needs of those who require help with the activities of daily living. Skilled nursing facilities provide inpatient skilled nursing and personal care services as well as rehabilitative, restorative and transitional medical services. Specialty care facilities include acute care hospitals, long-term acute care hospitals, and other specialty care

hospitals. Medical office buildings are office and clinical facilities designed for the use of physicians and other health care professionals. CORPORATE STRATEGY. HCN invests mainly in long-term care facilities managed by experienced operators, and diversifies its investment portfolio by operator and by geographic location. Each facility, which includes the land, building, improvements and related rights owned by HCN is leased to an operator pursuant to a long-term operating lease. In order to better diversify the risk of any one facility, a large percentage of HCN's leased properties is subject to master leases. The leases generally cover multiple facilities under one lease and have a fixed term of 12 to 15 years and contain one or more five to 15-year renewal options. The tenants are required to repair, rebuild and maintain the leased properties. The leases for HCN's medical office buildings are generally structured as long-term gross leases, where HCN is responsible for all or a portion of the property operating expenses.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 27.64 1.22 1.22 2.72 NM 46.74 25.86 38 21

2008 27.07 1.35 1.35 2.70 NM 53.98 30.14 40 22

2007 24.26 1.26 1.26 2.28 182% 48.55 35.08 39 28

2006 27.04 1.32 1.32 2.88 NM 43.02 32.80 33 25

2005 19.85 1.06 1.06 2.46 NM 39.20 31.15 37 29

2004 24.23 1.38 1.38 2.39 173% 40.88 27.70 30 20

2003 20.43 1.44 1.41 2.34 163% 36.10 24.84 25 17

2002 19.20 1.47 1.46 2.34 159% 31.82 24.02 22 16

2001 18.57 1.52 1.51 2.34 154% 26.40 16.06 17 11

2000 19.04 1.91 NA 2.34 122% 19.25 13.81 10 7

520 40.9 569 95.6 106 23.3 157 162 140

501 40.1 551 91.2 131 0.01 156 150 127

450 25.8 486 75.1 135 Nil 146 125 100

300 18.8 323 27.1 94.8 1.00 93.1 104 82.0

253 24.0 282 17.2 80.1 1.20 80.0 79.2 57.4

226 22.8 251 16.6 72.0 1.20 73.0 84.9 71.9

177 20.8 201 11.5 54.1 2.87 51.1 75.7 62.4

134 26.5 163 9.67 41.1 1.00 39.3 67.4 54.4

99.0 31.3 135 8.08 32.0 1.00 30.2 60.8 46.8

88.3 41.1 135 7.41 34.6 1.00 22.7 68.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 35.5 Total Assets 6,367 Real Estate Investment 6,764 Loss Reserve 5.18 Net Investment 6,081 Short Term Debt 12.2 Capitalization:Debt 2,402 Capitalization:Equity 3,508 Capitalization:Total 6,210 % Earnings & Depreciation/Assets 5.1 Price Times Book Value:High 1.7 Price Times Book Value:Low 0.9

23.4 6,193 6,463 7.50 5,854 39.7 2,824 2,922 6,046 5.4 2.0 1.1

30.3 5,214 5,498 7.41 5,013 70.3 2,634 2,074 5,048 6.1 2.0 1.4

36.2 4,281 4,477 7.41 4,123 71.7 2,126 1,640 4,107 5.4 1.6 1.2

36.2 2,972 3,131 6.46 2,850 2.60 1,498 1,154 2,929 5.7 2.0 1.6

19.8 2,550 2,667 5.26 2,442 6.28 1,180 1,052 2,515 6.6 1.7 1.1

125 2,183 2,153 7.83 1,992 45.8 967 1,029 2,117 6.7 1.7 1.2

9.55 1,594 1,643 4.96 1,524 0.40 676 770 1,574 7.5 1.7 1.3

9.83 1,270 1,301 6.86 1,214 12.6 479 608 1,236 7.5 1.4 0.9

2.84 1,157 1,180 5.86 1,121 10.0 420 549 1,128 7.5 1.0 0.7

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Seagate Ste 1500, Toledo, OH 43604-1541. Telephone: 419-247-2800. Website: http://www.hcreit.com Chrmn, Pres & CEO: G.L. Chapman

Vice Chrmn: F.S. Klipsch EVP & CFO: S.A. Estes EVP & General Counsel: J.H. Miller SVP & Treas: M.A. Crabtree

Investor Contact: S.A. Estes (419-247-2800) Founded: 1970 Board Members: W. C. Ballard, Jr., P. C. Borra, G. L. Domicile: Delaware Chapman, T. J. Derosa, J. H. Donahue, P. J. Grua, F. S. Employees: 217 Klipsch, S. M. Oster, J. R. Otten, R. S. Trumbull

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HNZ | HNZ is in the S&P 500

Heinz (H J) Co S&P Recommendation BUY

★★★★★

Price $49.55 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $51.00

Investment Style Large-Cap Blend

Summary This company produces a wide variety of food products worldwide, primarily condiments, convenience meals and snacks.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.80– 39.69 Trailing 12-Month EPS $2.79 Trailing 12-Month P/E 17.8 $10K Invested 5 Yrs Ago $16,338

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.04 3.27 16.3 318.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$15.773 3.63 $1.80 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.56 7 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for H. J. Heinz reflects the relatively stable nature of the company's end markets, our view of its strong cash flow, and corporate governance practices that we believe are favorable relative to peers.

50

40 35

Quantitative Evaluations 30

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 61

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Tom Graves, CFA on August 25, 2010, when the stock traded at $ 46.05. Highlights ➤

➤

➤

We look for FY 11 (Apr.) net sales to rise modestly from the $10.5 billion reported for FY 10, with a majority of HNZ's net external sales again coming from outside the U.S. Including China, what HNZ calls emerging markets produced 15% of HNZ's total sales in FY 10. HNZ said that a pending acquisition of a manufacturer of soy sauces and fermented bean curd in China would increase its annual sales in China to about $300 million. HNZ expects emerging markets to produce as much as 25% of sales by 2016. We think HNZ's market share will be bolstered in FY 11 by marketing activity and product innovation. We see the FY 11 commodity cost picture for HNZ as mixed, but we think profit margins will be bolstered by productivity gains. All told, we estimate FY 11 EPS from continuing operations of $3.03, up from the $2.87 reported for FY 10. For FY 11, we estimate EPS of $3.27. In FY 11, if currency exchange rates stay near recent levels, we anticipate at least a modest adverse impact on HNZ's reported EPS.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our buy recommendation reflects our view that the stock will receive support from HNZ's above-average dividend yield, and what we see as some underlying strength in HNZ's business. We expect that HNZ's strategy will include a focus on innovation investments in its core brands, growth in emerging markets, reducing or controlling costs, and leveraging the company's global scale. Risks to our recommendation and target price include competitive product and pricing pressures, adverse currency fluctuations, raw material cost inflation, and unfavorable consumer acceptance of new products. Our 12-month target price of $51 reflects our view that the shares should trade at about 17X our estimated calendar 2010 EPS of $2.98, or about a 12% target P/E premium to what we expect, on average, for a group of other packaged food stocks. HNZ shares recently had an indicated dividend yield of 3.9%, after a 7.1% increase in the quarterly dividend effective with the July payment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 2,481 -2010 2,442 2,647 2009 2,583 2,613 2008 2,248 2,523 2007 2,060 2,232 2006 2,110 2,339

3Q -2,682 2,415 2,611 2,295 2,187

4Q -2,725 2,538 2,688 2,414 2,400

Year -10,495 10,148 10,071 9,002 8,643

Earnings Per Share ($) 2011 0.75 E0.80 2010 0.68 0.76 2009 0.72 0.87 2008 0.72 0.71 2007 0.58 0.59 2006 0.45 0.50

E0.86 0.83 0.76 0.68 0.66 0.40

E0.63 0.60 0.76 0.61 0.55 Nil

E3.04 2.87 2.90 2.63 2.38 1.29

Fiscal year ended Apr. 30. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.420 0.450 0.450

11/11 03/10 05/27 08/31

12/18 03/22 06/22 09/20

12/22 03/24 06/24 09/22

01/10/10 04/10/10 07/10/10 10/10/10

Dividends have been paid since 1911. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HNZ

Heinz (H J) Co Business Summary August 25, 2010 CORPORATE OVERVIEW. Although largely known for its familiar ketchup, H.J. Heinz boasts many other branded food products, ranging from Ore-Ida frozen potatoes to Weight Watchers frozen dinners. In FY 10 (Apr.), the North American Consumer Products segment represented 30% of sales from continuing operations, while Europe accounted for 32%, Asia/Pacific for 19%, U.S. Foodservice for 14%, and the rest of the world for 5%. In FY 10, one customer, WalMart Stores Inc., accounted for 11% of sales. The company's revenues are generated via the manufacture and sale of products in the following categories: ketchup and sauces (42% of FY 10 sales); meals and snacks (41%); infant/nutrition (11%); and other products (6%). Brands or trademarks utilized by HNZ include Heinz, Classico, Weight Watchers (licensed), Smart Ones, Boston Market (licensed), and Ore-Ida. HNZ's top 15 brands generated 70% of the company's sales in FY 10, with Heinz-branded products showing growth of 5.4%.

kets. Growth in emerging markets in FY 10 was led by higher sales of Complan and Glucon D nutritional beverages in India, ABC products in Indonesia, and Heinz Ketchup and infant feeding products in Russia. IMPACT OF MAJOR DEVELOPMENTS. In June 2010, HNZ said that had signed an agreement to acquire Foodstar, a manufacturer of soy sauces and fermented bean curd in China, from Transpac Industrial Holdings Ltd., a private equity holding company, and various Transpac Funds. HNZ said that the acquisition of Foodstar would increase HNZ's annual sales in China to about $300 million, and enable HNZ to enter China's fast-growing retail soy sauce market. HNZ said that the purchase price consists of a cash payment at closing of $165 million and an earn-out potentially payable in 2014 based on the performance of the business. The completion of the proposed acquisition was subject to regulatory approval in China.

CORPORATE STRATEGY. In FY 10, emerging markets accounted for 30% of HNZ's total reported sales growth and 15% of HNZ's total sales. Excluding the impacts of foreign currency exchange rate fluctuations and acquisitions and divestitures, nearly all of HNZ's FY 10 sales growth came from emerging marCompany Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 3.83 2.88 2.82 1.68 58% 2009 43.75 30.51 15 11

2009 NM 3.76 2.90 2.55 1.66 57% 2008 53.00 35.26 18 12

2008 NM 3.49 2.63 2.26 1.52 58% 2007 53.00 35.26 20 13

2007 NM 3.88 2.38 2.36 1.20 50% 2006 46.75 33.42 20 14

2006 NM 2.07 1.29 1.72 1.14 88% 2005 39.13 33.64 30 26

2005 NM 2.82 2.08 2.29 1.10 53% 2004 40.61 34.53 20 17

2004 NM 2.86 2.20 2.11 1.08 49% 2003 36.82 28.90 17 13

2003 NM 2.17 1.57 1.43 1.61 88% 2002 43.48 29.60 24 16

2002 NM 3.22 2.36 1.99 1.55 65% 2001 47.94 36.90 20 16

2001 NM 2.26 1.41 1.31 1.45 102% 2000 48.00 30.81 34 22

10,495 1,852 303 296 1,290 NA 914 897

10,148 1,765 272 340 1,296 28.8% 923 812

10,071 1,847 279 333 1,218 30.6% 845 725

9,002 1,946 500 333 1,124 29.6% 792 784

8,643 1,377 264 316 693 36.2% 443 587

8,912 1,607 252 232 1,059 30.5% 736 809

8,415 1,613 234 212 1,169 33.3% 779 747

8,237 1,389 215 224 869 36.1% 555 500

9,431 1,892 302 294 1,279 34.8% 834 702

9,430 1,282 299 333 673 26.5% 495 458

Balance Sheet & Other Financial Data (Million $) Cash 554 Current Assets 3,051 Total Assets 10,076 Current Liabilities 2,175 Long Term Debt 4,568 Common Equity 1,891 Total Capital 6,531 Capital Expenditures 278 Cash Flow 1,217 Current Ratio 1.4 % Long Term Debt of Capitalization 69.9 % Net Income of Revenue 8.7 % Return on Assets NA % Return on Equity NA

373 2,945 9,664 2,063 5,076 1,220 6,701 292 1,195 1.4 75.8 9.1 9.1 59.4

618 3,326 10,565 2,670 4,406 1,888 7,013 302 1,123 1.3 62.8 8.4 8.2 45.3

653 3,019 10,033 2,505 4,414 2,280 7,256 245 1,291 1.2 60.8 8.8 8.0 34.0

445 2,704 9,738 2,018 4,357 2,049 7,045 231 707 1.3 61.8 5.1 4.4 19.0

1,084 3,646 10,578 2,587 4,122 2,614 7,359 241 988 1.4 56.0 8.3 7.2 26.3

1,180 3,611 9,877 2,469 4,538 8,841 13,797 232 1,013 1.5 32.9 9.3 8.2 8.9

802 3,284 9,225 1,926 4,776 2,876 8,252 154 770 1.7 57.9 6.7 5.7 17.9

207 3,374 10,278 2,509 4,643 1,719 7,197 213 1,136 1.3 64.5 8.8 8.6 53.9

139 3,117 9,035 3,655 3,015 1,374 4,642 411 794 0.9 64.9 5.2 5.5 33.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Ppg Pl, Pittsburgh, PA 15222-5415. Telephone: 412-456-5700. Website: http://www.heinz.com Chrmn, Pres & CEO: W.R. Johnson

EVP & CFO: A.B. Winkleblack EVP & General Counsel: T.N. Bobby SVP & CIO: K.L. Alber CSO: F.K. Dow

Investor Contact: M.R. Nollen Founded: 1869 Board Members: C. E. Bunch, L. S. Coleman, Jr., J. G. Domicile: Pennsylvania Drosdick, E. E. Holiday, W. R. Johnson, C. Kendle, D. R. Employees: 29,600 O'Hare, N. Peltz, D. H. Reilley, L. C. Swann, T. J. Usher, M. Weinstein

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HP | HP is in the S&P 500

Helmerich & Payne Inc. S&P Recommendation BUY

★★★★★

Price $41.57 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Drilling

12-Mo. Target Price $49.00

Investment Style Large-Cap Blend

Summary Helmerich & Payne, Inc. is the holding company for Helmerich & Payne International Drilling Company, an international drilling contactor.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.13– 32.34 Trailing 12-Month EPS $1.16 Trailing 12-Month P/E 35.8 $10K Invested 5 Yrs Ago $16,955

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.50 2.98 16.6 105.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.399 0.58 $0.24 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.01 -12 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HP's sensitivity to volatile crude oil and natural gas prices, capital spending decisions made by its oil and gas producing customers, and project management risk associated with a large newbuild program. Partially offsetting these risks is HP's high percentage of rigs committed to long-term contracts.

80 60 40 30 20

Vol.

Quantitative Evaluations

40

Mil. 12 8 4 0

S&P Quality Ranking D

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE

50

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights

➤

➤

We believe HP, with among the best utilization (76%) levels in the land drilling segment, has gained pricing power despite rig oversupply. On rising operator spending, specifically in U.S. shale plays, we think HP's FlexRigs saw a pickup in activity in FY 10 (Sep.), while older rigs became idle or were retired. With the overhaul of its U.S. fleet near completion, we believe HP will market its FlexRigs more aggressively internationally. HP sees an average of 110 rigs on term contracts in 2010, 78 in 2011 and 42 in 2012, but we see these contracts rolling over to lower dayrates, exposing HP to the weaker spot market. HP is seeing a demand pickup in the Bakken and Eagle Ford shales. In July, Venezuela state oil company PDVSA seized HP's 11 rigs after a year-long dispute over pending payments. Venezuela said it will pay book value for the assets and agree to a price in negotiations with HP. We estimate that revenue declined 5% in FY 10, on a 16% drop in dayrates, and will rise 10% in FY 11. But we see rigs coming off contracts, partly offsetting better utilization forecasts. We see EPS of $2.50 for FY 10, rising to $2.98 in FY 11. HP projects 2010 capex of $350 million.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Michael Kay on October 15, 2010, when the stock traded at $ 44.08.

➤

A+

4

5

HP employs a strategy to develop a premium land rig fleet, and with the expected completion of 15 new HP FlexRigs, 90% (209 rigs) of its U.S. land fleet will have been upgraded for over $3 billion. HP's rig utilization has held up stronger than many peers, as weaker demand has adversely affected older, less efficient conventional rigs. As a result, we estimate HP sees about a 25% premium in dayrates versus peers. HP has done well to gain market share, in our view, as customers prefer the efficiency of its rigs that are capable of horizontal drilling and faster drilling times versus conventional rigs. HP announced 19 newbuilds in FY 10; four are completed and 15 are under construction. We think HP is better positioned than many peers for an eventual recovery in drilling. Risks to our recommendation and target price include lower than expected dayrates or utilization; political risk; and, cost inflation. On above-peer multiples of 6X projected FY 11 EBITDA, 20X estimated FY 11 EPS, and 8X estimated FY 11 cash flows, our 12-month target price is $49. We apply a premium valuation on our view of a top-tier rig fleet, balance sheet, EPS and cash flow growth projections.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 399.8 439.7 2009 623.8 520.3 2008 456.7 473.6 2007 386.4 372.5 2006 255.4 290.8 2005 174.7 185.5

3Q 483.4 387.8 522.5 421.3 319.8 207.4

4Q -362.2 583.7 449.5 358.8 233.2

Year -1,894 2,037 1,630 1,225 800.7

Earnings Per Share ($) 2010 0.59 0.44 2009 1.36 0.99 2008 1.02 0.96 2007 1.06 1.02 2006 0.48 0.61 2005 0.39 0.22

0.60 0.50 1.18 1.09 0.75 0.29

E0.70 0.48 1.18 1.10 0.93 0.34

E2.50 3.32 4.34 4.27 2.77 1.23

Fiscal year ended Sep. 30. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.060 0.060

03/03 06/02 09/01

05/12 08/11 11/10

05/14 08/13 11/15

06/01/10 09/01/10 12/01/10

Dividends have been paid since 1959. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HP

Helmerich & Payne Inc. Business Summary October 15, 2010 CORPORATE OVERVIEW. Helmerich & Payne, Inc. is the holding company for Helmerich & Payne International Drilling Company, an international drilling contactor with land and offshore operations in the United States, South America, Mexico, Trinidad and Africa. It specializes in deep drilling in major gas producing basins of the U.S., and in drilling for oil and gas in remote international areas. Contract drilling operations comprised nearly all of the company's revenue base (99% of FY 09 (Sep.) revenues). The remaining 1% of FY 09 total revenues was derived mainly from its real estate operations. HP generated about 59% of FY 09 consolidated revenues from its 10 largest customers, including BP plc, Devon Energy, Occidental Oil and Gas Corp. and PDVSA (the national oil company of Venezuela). The company's contract drilling operations are principally comprised of three operating segments. The U.S. Land Drilling segment (77% of total FY 09 external sales, and 92% of segment operating income) operated 201 land rigs at the end of September 2009, up from 185 a year earlier. As of December 2009, 190 rigs were of FlexRig design, while the remainder were highly mobile or conventional rigs. Average rig utilization in this segment in FY 09 was 68%, down from 96% in FY 08. Average rig revenue per day was $28,168 in FY 09, up 15%

over FY 08, while the average rig margin per day rose 16%, to $16,194. The U.S. Offshore Platform segment (10% of total FY 09 revenues, and 9% of segment operating income), operated 9 platform rigs in FY 09. Average utilization was 90% in FY 09, versus 75% in FY 08, while the average dayrate was up 4%, to $48,674. The average rig margin per day rose 23%, to $21,288. The International Drilling segment (13% of total FY 09 revenues, -1% of segment operating income) operated 39 land rigs. In Venezuela, HP's 11 rigs were seized in early July by the government, which has stated it will pay book value for the assets and agree to a price in negotiations with HP. HP has rigs in Ecuador, Colombia, Argentina and other areas. Average rig utilization was 71%, down from 83% in FY 08. Average rig revenue per day fell 22%, to $29,220, while the average margin per day fell 76%, to $3,121.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.48 5.53 3.32 3.25 0.20 6% 46.24 19.50 14 6

2008 NA 6.32 4.34 4.02 NA NA NA NA NA NA

2007 17.54 5.66 4.27 3.54 0.18 4% 46.25 22.72 11 5

2006 13.30 3.73 2.77 2.60 0.17 6% 40.24 21.26 15 8

2005 10.39 2.15 1.23 0.93 0.17 13% 32.81 15.68 27 13

2004 9.06 0.97 0.05 -0.19 0.16 NM 17.13 11.97 NM NM

2003 9.15 0.99 0.18 0.12 0.16 91% 16.40 11.30 94 65

2002 8.95 1.14 0.54 0.33 0.15 29% 21.62 11.73 40 22

2001 10.30 2.28 1.42 1.33 0.15 11% 29.37 11.70 21 8

2000 9.56 1.93 0.82 NA 0.15 18% 22.41 9.88 27 12

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,894 813 236 13.5 586 39.7% 354 347

2,037 891 211 18.7 717 35.6% 462 428

1,630 720 146 10.1 690 36.4% 449 372

1,225 511 102 6.64 448 34.4% 294 277

801 275 96.3 12.6 215 40.7% 128 98.5

621 167 94.4 12.7 8.72 50.0% 4.36 -19.2

515 129 82.5 12.3 32.5 45.0% 17.9 11.9

482 154 61.4 0.98 94.3 43.0% 53.7 32.7

827 312 87.3 Nil 237 39.2% 144 135

631 219 111 3.08 140 41.2% 82.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 141 Current Assets 523 Total Assets 4,161 Current Liabilities 302 Long Term Debt 420 Common Equity 2,683 Total Capital 3,785 Capital Expenditures 881 Cash Flow 590 Current Ratio 1.7 % Long Term Debt of Capitalization 11.1 % Return on Assets 9.1 % Return on Equity 14.3

122 691 3,588 309 475 2,265 3,220 706 672 2.2 14.8 14.3 22.6

89.2 499 2,885 227 445 1,816 2,624 894 595 2.2 17.0 17.9 27.3

82.5 429 2,135 265 175 1,480 1,925 529 395 1.6 9.1 15.5 22.5

289 500 1,663 89.5 200 1,130 1,577 86.8 224 5.6 12.7 8.3 12.0

65.3 246 1,407 59.9 200 914 1,309 89.0 98.8 4.1 15.3 0.3 0.5

38.2 198 1,416 88.6 200 917 1,299 246 100 2.2 15.4 1.4 2.0

46.9 179 1,227 72.9 100 879 1,110 312 115 2.5 9.0 4.2 5.8

123 331 1,365 121 50.0 977 1,172 275 232 2.7 4.3 11.0 15.8

108 265 1,259 78.9 50.0 956 1,162 132 193 3.4 4.3 6.9 9.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1437 S Boulder Ave, Tulsa, OK, USA 74119-3623. Telephone: 918-742-5531. Website: http://www.hpinc.com Chrmn: W.H. Helmerich, III

Pres: J.D. Helmerich Pres & CEO: H. Helmerich EVP, Chief Admin Officer, Secy & General Counsel: S.R. Mackey CFO: J.P. Tardio

Board Members: W. L. Armstrong, III, R. A. Foutch, H. Helmerich, W. H. Helmerich, III, P. Marshall, L. F. Rooney, III, E. B. Rust, Jr., J. D. Zeglis

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1920 Domicile: Delaware Employees: 5,384

Stock Report | October 23, 2010 | NYS Symbol: HSY | HSY is in the S&P 500

Hershey Co (The) S&P Recommendation SELL

★★★★★

Price $49.91 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $43.00

Investment Style Large-Cap Growth

Summary Hershey is a major producer of chocolate and confectionery products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.10– 35.05 Trailing 12-Month EPS $2.10 Trailing 12-Month P/E 23.8 $10K Invested 5 Yrs Ago $9,716

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.55 2.74 19.6 227.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.306 2.56 $1.28 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.26 11 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as the relative stability of Hershey's primary end markets, the strength of its U.S. business, and the strength of its balance sheet and cash flow.

50 45 40

Quantitative Evaluations

35 30

S&P Quality Ranking

Vol.

D

C

B-

B+ B

B+

A-

A

A+

Mil. 12 8 4 0

Relative Strength Rank

MODERATE 54

LOWEST = 1

5

3

2

1

2

3

HIGHEST = 99

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for HSY has recently been changed to $43.00 from $40.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on HSY from MarketScope, see below.

➤

10/21/10 12:34 pm ET ... S&P REITERATES SELL OPINION ON SHARES OF HERSHEY CO. (HSY 49.77**): Before special items, Q3 EPS of $0.79, vs. $0.73, is $0.02 above our estimate. We are raising our '10 EPS forecast to $2.55 from $2.52, and increasing '11's projection to $2.74 from $2.70. We think Kraft's (KFT 32***) acquisition of Cadbury will heighten competitive environment in candy industry, and limit international expansion opportunities. But with more favorable EPS outlook, we lift our 12-month target price for HSY to $43, which reflects a P/E premium to what we expect from a group of other packaged food stocks. HSY has an indicated dividend yield of about 2.6%. /TGraves-CFA

Revenue (Million $) 1Q 2Q 2010 1,408 1,233 2009 1,236 1,171 2008 1,160 1,105 2007 1,153 1,052 2006 1,140 1,052 2005 1,126 988.5

3Q -1,484 1,490 1,399 1,416 1,368

4Q -1,407 1,377 1,342 1,337 1,353

Year -5,299 5,133 4,947 4,944 4,836

Earnings Per Share ($) 2010 0.64 0.20 2009 0.33 0.31 2008 0.28 0.18 2007 0.40 0.01 2006 0.50 0.41 2005 0.47 0.39

E0.77 0.71 0.54 0.27 0.78 0.48

E0.61 0.55 0.36 0.24 0.65 0.70

E2.55 1.90 1.36 0.93 2.34 1.99

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.320 0.320 0.320 0.320

02/02 05/04 08/03 10/05

02/23 05/21 08/23 11/22

02/25 05/25 08/25 11/24

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1930. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HSY

Hershey Co (The) Business Summary July 28, 2010 CORPORATE OVERVIEW. The Hershey Co. produces and distributes a variety of chocolate, confectionery and grocery products. The company's brands include Hershey's, Kisses and Reese's. CORPORATE STRATEGY. In June 2010, HSY announced a project called Next Century as part of its efforts to create an enhanced supply chain and cost structure. The project is expected to include a plant expansion in West Hershey, and investment in distribution and administrative facilities located in Hershey, PA. In July 2010, HSY estimated that the Next Century program would incur pretax charges of $140 million to $170 million from 2010-12, including $120 million to $150 million in realignment charges and about $20 million in start-up costs. We expect that the cash portion of the total charge would be about $95 million to $110 million, including start-up costs. Total capital expenditures related to the program were expected to be $250 million to $300 million. At the conclusion of the program, in 2014, we look for ongoing annual savings to have reached about $60 million to $80 million.

non-cash pension settlement charges, it did not expect any significant charges related to the program in 2010. HSY estimated total program savings through 2009 at $160 million, with total ongoing annual savings from the program of $175 million to $185 million expected to be achieved by the end of 2010. Under the program, HSY expected to significantly increase manufacturing capacity utilization by reducing the number of its production lines; outsource the production of low-value-added items; and construct a production facility in Mexico. HSY planned to invest a portion of these savings in strategic growth initiatives. We expect that HSY's strategy will include focus on, and advertising support for, core brands that have provided about 60% of U.S. sales. In 2009, 14.3% of HSY's net sales were from businesses outside the U.S., down slightly from 14.4% in 2008. Longer term, we expect international expansion to include a focus on emerging markets in Asia, particularly India and China, Mexico, and selected markets in South America.

In February 2007, HSY announced a supply chain transformation program that was completed in 2009's fourth quarter. In 2009, HSY took $0.27 a share of charges related to the program. Since inception, total charges for the program amounted to $620.1 million (pretax), including $85 million of non-cash pension settlement charges. In July 2010, HSY said that except for possible Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.10 2.68 1.90 2.13 1.19 63% 42.25 30.27 22 16

2008 NM 2.11 1.36 1.22 1.19 87% 44.32 32.10 33 24

2007 NM 2.27 0.93 1.14 1.14 122% 56.75 38.21 61 41

2006 0.18 3.17 2.34 2.26 1.03 44% 57.65 48.20 25 21

2005 1.63 2.96 1.99 1.94 0.93 47% 67.37 52.49 34 26

2004 2.03 3.17 2.30 2.23 0.84 36% 56.75 37.28 25 16

2003 3.29 2.44 1.76 1.73 0.72 41% 39.33 30.35 22 17

2002 3.55 2.17 1.46 1.37 0.63 43% 39.75 28.23 27 19

2001 2.65 1.44 0.75 0.94 0.58 78% 35.08 27.56 47 37

2000 2.57 1.84 1.21 NA 0.54 45% 33.22 18.88 27 16

5,299 1,039 178 91.3 671 35.0% 436 488

5,133 941 171 105 492 36.7% 311 279

4,947 1,047 311 119 340 37.1% 214 264

4,944 1,207 200 116 877 36.2% 559 540

4,836 1,175 218 89.5 773 36.2% 493 482

4,429 1,092 190 66.5 836 29.3% 591 573

4,173 992 181 63.5 733 36.6% 465 455

4,120 904 178 60.7 638 36.7% 404 377

4,557 812 190 71.5 344 39.7% 207 258

4,221 799 176 81.0 547 38.8% 335 NA

Balance Sheet & Other Financial Data (Million $) Cash 254 Current Assets 1,385 Total Assets 3,675 Current Liabilities 911 Long Term Debt 1,503 Common Equity 760 Total Capital 2,263 Capital Expenditures 126 Cash Flow 614 Current Ratio 1.5 % Long Term Debt of Capitalization 66.4 % Net Income of Revenue 8.2 % Return on Assets 11.9 % Return on Equity 80.9

37.1 1,345 3,635 1,270 1,506 318 1,860 263 482 1.1 81.0 6.1 7.9 68.4

129 1,427 4,247 1,619 1,280 593 2,084 190 525 0.9 61.4 4.3 5.1 33.6

97.1 1,418 4,158 1,454 1,248 683 2,218 183 759 1.0 56.3 11.3 13.3 65.8

67.2 1,409 4,295 1,518 943 1,021 2,364 181 711 0.9 39.9 10.2 12.2 45.7

54.8 1,182 3,798 1,285 691 1,089 2,109 182 781 0.9 32.7 13.3 16.0 46.4

115 1,132 3,583 586 968 1,280 2,626 219 646 1.9 36.9 11.1 13.2 35.1

298 1,264 3,481 547 852 1,372 2,572 133 581 2.3 33.1 9.8 12.0 32.0

134 1,168 3,247 606 877 1,147 2,280 160 398 1.9 38.5 4.5 6.2 17.8

32.0 1,295 3,448 767 878 1,175 2,353 138 511 1.7 37.3 7.9 9.8 29.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Crystal A Drive, Hershey, PA 17033-9790. Telephone: 717-534-4200. Website: http://www.hersheys.com Chrmn: J.E. Nevels

Pres & CEO: D.J. West COO: T.L. O'Day SVP & CFO: H. Alfonso SVP, Secy & General Counsel: B.H. Snyder

Investor Contact: M.K. Pogharian (717-534-7556) Board Members: P. M. Arway, R. F. Cavanaugh, C. A. Davis, J. E. Nevels, T. J. Ridge, D. L. Shedlarz, D. J. West, L. S. Zimmerman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1894 Domicile: Delaware Employees: 13,700

Stock Report | October 23, 2010 | NYS Symbol: HES | HES is in the S&P 500

Hess Corp S&P Recommendation BUY

★★★★★

Price $63.25 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $77.00

Investment Style Large-Cap Blend

Summary This integrated oil and natural gas company has exploration and production activities worldwide, and markets refined petroleum products on the U.S. East Coast.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $66.49– 48.70 Trailing 12-Month EPS $4.93 Trailing 12-Month P/E 12.8 $10K Invested 5 Yrs Ago $16,815

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.91 6.08 12.9 328.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Our risk assessment reflects HES's diversified business profile in volatile, cyclical, and capital-intensive segments of the energy industry. While we see risk from its investments in politically troubled locales, we think offsets include its improved, relatively low cost structure in exploration and production.

60

40

Quantitative Evaluations

Vol. Mil.

62

S&P Quality Ranking

30 20 10 0

D

5

3

2

4

3

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

80

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Tina J. Vital on August 02, 2010, when the stock traded at $ 55.54. Highlights Contributions from the Shenzi in the Gulf of Mexico and the Valhall field in Norway helped boost second quarter oil and gas production by 2%, to 415,000 boe per day. However, we look for less than 1% growth in 2010, reflecting a strategic asset trade with Shell. With about 16% of its oil and gas production from the deepwater Gulf of Mexico, we expect a drilling moratorium to cut 2011 Gulf of Mexico volumes, with little (if any) impact in 2010. While we expect global refining industry conditions to remain pressured through 2016, we see signs that U.S. refining margins are widening on improved demand and reduced operating costs. HES's refining operations incurred a loss in the second quarter reflecting that its Port Reading facility was shut down for 41 days. As of July 2010, we expect U.S. Gulf Coast 3-2-1 crack spreads to widen 9% in 2010 and 3% in 2011.

Investment Rationale/Risk ➤

➤

➤

First half operating EPS excluded net special gains of $0.16 related to asset sales. We project that after-tax operating earnings will increase 117% in 2010 and 24% in 2011, on improved demand and unit costs.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

➤

0.99 44 BBB

Below Avg.

80

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

100

➤

$20.773 0.63 $0.40 79

We expect HES's earnings to be driven by its exploration & production business, which is oilfocused, and this should benefit over the long term from our forecast for higher crude oil prices. The company continues to rationalize its portfolio. So far in 2010, HES sold certain U.K. North Sea natural gas assets, expanded its interest in the Norwegian North Sea, agreed to acquire American Oil & Gas to enhance its Bakken oil play, and entered into a Paris Basin shale oil partnership with Toreador. We believe increased spending has improved HES's exploration success, and drilling continues on the Northwest Shelf of Australia. Risks to our recommendation and target price include deterioration in economic and industry conditions, and the company's potential inability to replace oil and gas reserves. Blending our discounted cash flow ($90 per share, assuming a WACC of 9.2% and terminal growth of 3%) with relative market valuations leads to our 12-month target price of $77, at an expected enterprise value multiple of 4.7X our 2011 EBITDA estimate, a premium to the peer average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 9,305 7,756 2009 6,915 6,751 2008 10,667 11,717 2007 7,319 7,421 2006 7,159 6,718 2005 4,956 4,963

3Q -7,270 11,398 7,451 7,035 5,769

4Q -8,678 7,383 9,456 7,155 7,059

Year -29,569 41,165 31,647 28,067 22,747

Earnings Per Share ($) 2010 1.65 1.15 2009 -0.18 0.31 2008 2.34 2.76 2007 1.17 1.75 2006 2.21 1.79 2005 0.71 0.92

E1.10 1.05 2.37 1.23 0.94 0.87

E1.18 1.10 -0.23 1.59 1.13 1.44

E4.91 2.27 7.24 5.74 6.07 3.98

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

12/02 03/03 06/02 09/08

12/17 03/11 06/14 09/16

12/21 03/15 06/16 09/20

01/04/10 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1922. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HES

Hess Corp Business Summary August 02, 2010 CORPORATE OVERVIEW. Hess Corp. (HES; formerly Amerada Hess Corp.) has two operating segments: Exploration and Production (24% of 2009 revenues; 89% of net income), and Marketing and Refining (76%; 11%). Business is conducted in the U.S. (83% of 2009 revenues; 21% of proved reserves), Europe (6%; 30%), Africa (6%; 23%), and Asia and elsewhere (5%; 26%). As of May 2009, the Hess family owned about 11% of the common shares. Oil and gas production rose 7% in 2009, to 408,000 barrels of oil equivalent (boe) per day (72% crude oil and natural gas liquids (NGLs)). Net proved oil and gas reserves rose 0.35%, to 1.44 billion boe (59% developed; 67% crude oil and NGLs). Using data from John S. Herold, an oil industry consultant, we estimate HES's three-year (2006-08) average proved acquisition costs at $5.66 per boe, below the peer average; its three-year finding and development costs at $18.81 per boe, below the peer average; its three-year reserve replacement costs at $16.60 per boe, below the peer average; and its three-year reserve replacement at 190%, slightly above the peer average. We estimate HES's 2009 organic reserve replacement rate at 92% (103% overall).

fields. HES's refining earnings are mainly derived from its 50% ownership in the refining joint venture HOVENSA, formed in October 1998 with a subsidiary of Petroleos de Venezuela S.A. (PdVSA) in the U.S. Virgin Islands. Refining operations at HOVENSA consist of crude units (500,000 b/d), a fluid catalytic cracker (150,000 b/d), and a delayed coker (58,000 b/d). In addition, HES owns and operates a 70,000 b/d fluid catalytic cracking facility in Port Reading, NJ, to produce gasoline and heating oil. As of year-end 2009, HOVENSA had a long-term supply contract with PdVSA to purchase 115,000 b/d of Venezuelan Merey heavy crude oil. PdVSA also supplies 155,000 b/d of Venezuelan Masa medium gravity crude oil to HOVENSA under a long-term supply contract. The remaining crude oil requirements are purchased mainly under contracts of one year or less from third parties, and through spot purchases on the open market. After sales of refined products by HOVENSA to third parties, the company purchases 50% of HOVENSA's remaining production at market prices.

As December 31, 2009, about 24% of the company's oil and NGL production and 13% of its natural gas production were from U.S. operations: onshore in the Williston Basin of North Dakota and in the Permian Basin in Texas, and offshore in the Gulf of Mexico, which included Shenzi (HES 28%), Llano (50%), Conger (38%), Baldpate (50%), Hack Wilson (25%), and Penn State (50%) Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 37.50 9.19 2.27 2.21 0.40 18% 69.74 46.33 31 20

2008 34.31 13.86 7.24 7.12 0.30 4% 137.00 35.50 19 5

2007 26.67 10.99 5.74 5.83 0.40 7% 105.85 45.96 18 8

2006 21.77 9.80 6.07 5.38 0.40 7% 56.45 37.62 9 6

2005 16.61 7.11 3.98 3.78 0.40 10% 47.50 25.94 12 7

2004 14.34 6.18 3.17 3.06 0.40 13% 31.30 17.75 10 6

2003 13.62 5.61 1.72 1.75 0.40 23% 19.07 13.71 11 8

2002 12.17 4.17 -0.83 -1.28 0.40 NM 28.23 16.47 NM NM

2001 14.70 7.04 3.42 3.25 0.40 12% 30.13 17.92 9 5

2000 14.59 6.43 3.79 NA 0.20 5% 25.42 15.94 7 4

29,614 NA 2,254 360 1,522 47.0% 740 720

41,165 7,207 2,154 267 4,700 49.8% 2,360 2,320

31,647 5,259 1,678 306 3,704 50.5% 1,832 1,865

28,067 4,812 1,224 201 4,040 52.6% 1,916 1,657

22,747 2,967 1,025 224 2,226 44.2% 1,242 1,131

16,733 2,769 970 241 1,558 37.7% 970 888

14,480 2,127 1,053 293 781 40.2% 467 468

12,093 2,382 1,320 269 -51.0 NM -218 -339

13,413 2,399 967 194 1,438 36.4% 914 870

11,993 2,264 714 162 1,672 38.8% 1,023 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,362 Current Assets 7,987 Total Assets 29,419 Current Liabilities 6,850 Long Term Debt 4,319 Common Equity 13,528 Total Capital 17,995 Capital Expenditures 2,918 Cash Flow 2,994 Current Ratio 1.2 % Long Term Debt of Capitalization 24.0 % Return on Assets 2.6 % Return on Equity 5.7

908 7,332 28,908 7,730 3,812 12,307 18,360 4,438 4,514 1.0 20.8 8.6 21.4

607 6,926 26,131 8,024 3,918 9,774 16,054 3,578 3,510 0.9 24.4 7.5 20.5

383 5,848 22,404 6,739 3,745 8,111 13,955 3,844 3,096 0.9 26.8 9.2 26.0

315 5,290 19,115 6,447 3,759 6,272 11,446 2,341 2,219 0.8 32.8 7.0 20.1

877 4,335 16,312 4,697 3,785 5,583 10,566 1,521 1,892 0.9 35.8 6.4 16.9

518 3,186 13,983 2,669 3,868 5,326 10,352 1,358 1,515 1.2 37.4 3.4 9.7

197 2,756 13,262 2,553 4,976 8,498 14,518 1,404 1,102 1.1 34.3 NM NM

37.0 3,946 15,369 3,718 5,283 4,907 11,301 2,501 1,881 1.1 46.7 7.1 20.8

312 4,115 10,274 3,538 1,985 3,883 6,378 938 1,737 1.2 31.1 11.4 29.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1185 Avenue Of The Americas, New York, NY 10036. Telephone: 212-997-8500. Email: [email protected] Website: http://www.hess.com

Chrmn & CEO: J.B. Hess SVP, CFO & Chief Acctg Officer: J.P. Rielly SVP & General Counsel: T.B. Goodell CTO: S. Heck

Treas: R. Biglin Investor Contact: J.R. Wilson (212-536-8940) Board Members: S. W. Bodman, III, N. F. Brady, J. B. Hess, G. P. Hill, E. E. Holiday, T. H. Kean, R. J. Lavizzo-Mourey, C. G. Matthews, J. H. Mullin, III, F. A. Olson, F. B. Walker, R. N. Wilson, E. H. von Metzsch

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1920 Domicile: Delaware Employees: 13,300

Stock Report | October 23, 2010 | NYS Symbol: HPQ | HPQ is in the S&P 500

Hewlett-Packard Co S&P Recommendation STRONG BUY

★★★★★

Price $42.87 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Hardware

12-Mo. Target Price $54.00

Investment Style Large-Cap Blend

Summary This leading maker of computer products, including printers, servers and PCs, has a large service and support network.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $54.75– 37.32 Trailing 12-Month EPS $3.59 Trailing 12-Month P/E 11.9 $10K Invested 5 Yrs Ago $16,187

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.51 5.15 9.5 2,267.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

30

MEDIUM

HIGH

Quantitative Evaluations

Vol. Mil.

414

290

120 80 40 0

S&P Quality Ranking D

4

3

5

5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

46

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Thomas W. Smith, CFA on October 12, 2010, when the stock traded at $ 41.38. Highlights We estimate revenue will grow about 9.7% in FY 10 (Oct.) and 6.0% in FY 11, reflecting a cyclical upturn in demand for information technology goods and services. On September 30, the company announced that Leo Apoteker, a former CEO of software rival SAP AG (SAP 52 Hold), would become CEO and president effective November 1. On September 13, the company agreed to acquire security and compliance software provider ArcSight (ARST 43 NR) for about $1.5 billion in cash, subject to customary closing conditions. On September 27, HPQ closed its acquisition of data storage technology provider 3PAR in a deal valued at approximately $2.35 billion.

Investment Rationale/Risk ➤

➤

We expect operating margins, excluding acquisition and restructuring charges, to widen in FY 10 and FY 11, based on higher volumes and cost reduction efforts. ➤

We estimate operating EPS, excluding restructuring charges and pending acquisitions, of $4.51 for FY 10 and $5.15 for FY 11. Directors authorized an additional $10 billion for share buybacks on August 30, which we believe will support per-share results.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects the intensely price competitive environment in the computer hardware industry and potential integration risk from planned and completed acquisitions, balanced by our view of the company's broad worldwide customer base and its successful efforts in reducing its cost structure.

40

➤

1.08 14 A

Below Avg.

50

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

5

$97.218 0.75 $0.32 79

We believe that HPQ has the potential to gain market share in PCs, servers, printers, and IT services. We think new management can maintain product development and cost-cutting strategies. Acquisitions are helping to broaden the product line and create more comprehensive data center solutions. Deals have been made in the networking, storage, security, and mobile operating system areas in FY 10. We view the valuation as compelling, based on our P/E analysis. Risks to our recommendation and target price include potential problems closing and integrating acquisitions. The arrival of new top leadership poses transition challenges. Costs for acquisitions and share buybacks could limit financial flexibility. Demand for computer hardware could weaken. We apply a target multiple near 10.5X, in the lower half of the seven-year historical range for HPQ and a discount to the recent average for Information Technology sector companies in the S&P 500, to our FY 11 operating EPS estimate of $5.15 to arrive at our 12-month target price of $54.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 31,177 30,849 2009 28,807 27,383 2008 28,467 28,262 2007 25,082 25,534 2006 22,659 22,554 2005 21,454 21,570

3Q 30,729 27,585 28,032 25,377 21,890 20,759

Earnings Per Share ($) 2010 0.96 0.91 2009 0.75 0.71 2008 0.80 0.81 2007 0.55 0.65 2006 0.42 0.66 2005 0.32 0.33

0.75 0.69 0.80 0.80 0.48 0.03

4Q Year --30,777 114,552 33,603 118,364 28,293 104,286 24,555 91,658 22,913 86,696

E1.28 0.99 0.84 0.81 0.60 0.14

E4.51 3.14 3.25 2.68 2.18 0.82

Fiscal year ended Oct. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.080 0.080 0.080 0.080

11/19 01/28 05/20 07/29

12/14 03/15 06/14 09/13

12/16 03/17 06/16 09/15

01/06/10 04/07/10 07/07/10 10/06/10

Dividends have been paid since 1965. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HPQ

Hewlett-Packard Co Business Summary October 12, 2010 CORPORATE OVERVIEW. Hewlett-Packard provides personal computers, printers, enterprise server and storage technology, and a wide range of related products and services to individual and enterprise customers worldwide. Revenues in FY 09 (Oct.) came approximately 68% from products and 32% from services, including financing services. Ongoing work force restructurings have enabled HPQ to develop a global delivery structure that has improved margins by taking advantage of low-cost technical expertise. The cost and efficiency campaign had been led by former NCR Corp. CEO Mark Hurd, who was named CEO and president of HPQ effective April 1, 2005. In addition, Mr. Hurd took over the chairman's role in late September 2006. Mr. Hurd resigned from the company on August 6, 2010, following an internal investigation that found violations of HPQ's Standards of Business Conduct. On September 30, the company announced that Leo Apoteker, a former CEO of software rival SAP AG (SAP 52 Hold), would become CEO and president effective November 1.

The breadth of the company's customer base is illustrated by the nearly 64% of FY 09 revenues that came from outside the U.S. Further, no single customer, nor any single country other than the U.S., accounted for more than 10% of sales in FY 09. The company reports in seven segments. Three segments accounting for about 46% of sales are often grouped together as HP Enterprise Business (formerly the Technology Solutions Group). These include Enterprise Storage and Servers, representing approximately 13% of FY 09 sales, Services 30%, and HP Software 3%. Other segments include the Personal Systems Group, representing about 31% of FY 09 sales, the Imaging and Printing Group 21%, HP Financial Services 2%, and Corporate Investments less than 1%.

Company Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.34 5.10 3.14 3.14 0.32 10% 52.95 25.39 17 8

2008 NM 4.56 3.25 2.97 0.32 10% 50.98 28.23 16 9

2007 4.91 3.67 2.68 2.56 0.32 12% 53.48 38.15 20 14

2006 6.57 3.00 2.18 2.10 0.32 15% 41.70 28.37 19 13

2005 6.04 1.63 0.82 0.74 0.32 39% 30.25 18.89 37 23

2004 6.06 1.93 1.15 0.94 0.32 28% 26.28 16.08 23 14

2003 6.08 1.65 0.83 0.65 0.32 39% 23.90 14.18 29 17

2002 5.35 0.48 -0.37 -0.65 0.32 NM 24.12 10.75 NM NM

2001 7.20 1.01 0.32 0.16 0.32 100% 37.95 12.50 NM NM

2000 7.30 2.37 1.73 NA 0.32 18% 77.75 29.13 45 17

114,552 15,798 4,773 259 9,415 18.6% 7,660 7,659

118,364 14,196 3,367 467 10,473 20.5% 8,329 7,598

104,286 11,773 2,705 289 9,177 20.9% 7,264 6,913

91,658 9,372 2,353 249 7,191 13.8% 6,198 5,992

86,696 7,520 2,344 334 3,543 32.3% 2,398 2,150

79,905 7,017 2,395 247 4,196 16.7% 3,497 2,886

73,061 6,713 2,527 277 2,888 12.1% 2,539 1,983

56,588 4,570 2,119 212 -1,052 NM -923 -1,635

45,226 3,192 1,369 234 702 11.1% 624 285

48,782 5,257 1,368 233 4,625 23.0% 3,561 NA

Balance Sheet & Other Financial Data (Million $) Cash 13,334 Current Assets 52,539 Total Assets 114,799 Current Liabilities 43,003 Long Term Debt 13,980 Common Equity 40,517 Total Capital 54,497 Capital Expenditures 3,695 Cash Flow 12,433 Current Ratio 1.2 % Long Term Debt of Capitalization 25.7 % Net Income of Revenue 6.7 % Return on Assets 6.7 % Return on Equity 19.3

10,246 51,728 113,331 52,939 7,676 38,942 49,292 2,990 11,696 1.0 15.4 7.0 8.3 21.5

11,293 47,402 88,699 39,260 4,997 38,526 43,523 3,040 9,969 1.2 11.5 7.0 8.5 19.0

16,400 48,264 81,981 2,490 2,490 38,144 40,634 2,536 8,551 1.3 6.1 6.8 7.8 16.5

13,911 43,334 77,317 31,460 3,392 37,176 40,568 1,995 4,742 1.4 8.4 2.8 3.1 6.4

12,663 42,901 76,138 28,588 4,623 37,564 42,187 2,126 5,892 1.5 11.0 4.4 4.6 9.3

14,188 40,996 74,708 26,630 6,494 37,746 44,240 1,995 5,066 1.5 14.7 3.5 3.5 6.9

11,192 36,075 70,710 24,310 6,035 36,262 42,297 1,710 1,196 1.5 14.3 NM NM NM

4,197 21,305 32,584 13,964 3,729 13,953 17,682 1,527 1,993 1.5 21.1 1.4 1.9 4.4

3,415 23,244 34,009 15,197 3,402 14,209 17,611 1,737 4,929 1.5 19.3 7.3 10.3 21.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3000 Hanover Street, Palo Alto, CA 94304-1112. Telephone: 650-857-1501. Website: http://www.hp.com CEO & CFO: C.A. Lesjak

EVP & Chief Admin Officer: P.J. Bocian EVP & CTO: S.V. Robison EVP & General Counsel: M.J. Holston EVP & CIO: R.D. Mott

Investor Contact: B. Humphries (650-857-3342) Founded: 1939 Board Members: M. L. Andreessen, L. T. Babbio, Jr., S. Domicile: Delaware Baldauf, R. L. Gupta, J. H. Hammergren, J. Hyatt, J. R. Employees: 304,000 Joyce, R. L. Ryan, L. S. Salhany, G. Thompson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HD | HD is in the S&P 500

Home Depot Inc. (The) S&P Recommendation HOLD

★★★★★

Price $31.48 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Home Improvement Retail

12-Mo. Target Price $31.00

Investment Style Large-Cap Blend

Summary HD operates a chain of over 2,200 retail warehouse-type stores, selling a wide variety of home improvement products for the do-it-yourself and home remodeling markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.03– 24.47 Trailing 12-Month EPS $1.75 Trailing 12-Month P/E 18.0 $10K Invested 5 Yrs Ago $9,148

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.91 2.11 16.5 1,665.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$52.424 3.00 $0.95 71

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.68 11 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Home Depot reflects our view of ample opportunities for growth in the professional market domestically and the retail business overseas, and an S&P Quality Ranking of A. This is partially offset by the cyclical nature of the home improvement retail industry, which is reliant on economic growth.

35 30 25 20

Quantitative Evaluations

Vol. Mil. 120 80 40 0

S&P Quality Ranking D 5

4

5

3

2

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Michael Souers on August 19, 2010, when the stock traded at $ 28.15.

➤

➤

➤

We expect retail sales to increase 2.7% in FY 11 (Jan.), following a 7.2% decline in FY 10. We see this rise reflecting 5 to 10 net new retail store additions, including international store openings, and a 2% to 3% increase in same-store sales. We project a slow recovery in the housing market in calendar 2010, and we expect the tightening of consumer credit to also adversely affect near-term sales for home improvement retailers, particularly on big-ticket remodeling projects. We see FY 11 operating margins widening 70 basis points, driven by a rational pricing environment, continued tight expense control, supply chain benefits from the recent investment in rapid deployment centers, and an improving mix. We also expect the projected increase in same-store-sales will leverage fixed expenses modestly, given HD's stringent cost control. Excluding a $0.02 charge due to a revaluation of a loan, we project FY 11 EPS of $1.91, a 15% increase from the $1.66 the company earned in FY 10, excluding $0.11 in store rationalization charges and a writedown of the company's investment in HD Supply. We see FY 12 EPS of $2.11.

Investment Rationale/Risk ➤

➤

➤

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE 54

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

C

We expect the housing market to recover gradually over the coming year and believe HD will reap rewards from an accelerated focus on customer service. Favorable demographic trends, such as the aging of houses and low interest rates, should help support home remodeling efforts over the long term. However, although we favor HD's strong balance sheet and abundant free cash flow generation, we remain concerned that the recovery in housing will take much longer than widely anticipated. Following a sharp recent selloff, we think the shares are fairly valued trading at under 14X our FY 12 EPS estimate, a modest premium to the S&P 500 and at a slight premium to key peer Lowe's (LOW 21, Hold). Risks to our recommendation and target price include a rapid recovery in consumer spending; a greater-than-expected improvement in the housing market; and favorable currency movements. Our 12-month target price of $31, which is equal to about 15X our FY 12 EPS estimate, is derived from our DCF model, which assumes a weighted average cost of capital of 9.6% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 16,863 19,410 2010 16,175 19,071 2009 17,907 20,990 2008 21,585 22,184 2007 21,461 26,026 2006 18,973 22,305

3Q -16,361 17,784 18,961 23,085 20,744

4Q -14,569 14,607 17,659 20,265 19,489

Year -66,176 71,288 77,349 90,837 81,511

Earnings Per Share ($) 2011 0.43 0.72 2010 0.30 0.66 2009 0.21 0.71 2008 0.53 0.71 2007 0.70 0.90 2006 0.57 0.82

E0.49 0.41 0.45 0.59 0.73 0.72

E0.25 0.18 -0.03 0.40 0.46 0.60

E1.91 1.55 1.37 2.27 2.79 2.72

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.236 0.236 0.236

02/23 05/20 08/19

03/09 06/01 08/31

03/11 06/03 09/02

03/25/10 06/17/10 09/16/10

Dividends have been paid since 1987. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HD

Home Depot Inc. (The) Business Summary August 19, 2010 CORPORATE OVERVIEW. Home Depot is the world's largest home improvement retailer, with $66 billion in revenues in FY 10 (Jan.). At January 31, 2010, HD operated 2,244 Home Depot stores (179 in Canada, 79 in Mexico and 10 in China). In January 2009, the company announced the planned closing of 34 EXPO Design Centers, five Yardbirds stores in California, and two THD Design Centers as part of HD's continued focus on its core business. Home Depot stores average approximately 105,000 sq. ft., plus 24,000 sq. ft. of garden center and storage space. They stock 30,000 to 40,000 items, including brand name and proprietary items. Home Depot stores serve three primary customer groups: Do-It-Yourself (DIY) customers, typically homeowners who complete their own projects and installations; Do-It-For-Me (DIFM) customers, usually homeowners who purchase materials and hire third parties to complete the project and/or installation; and Professional customers, consisting of professional remodelers, general contractors, repairpeople and tradespeople. By product group, plumbing, electrical and kitchen (30% of FY 10 revenues) represented HD's largest source of revenue, followed by hardware and seasonal (29%), building materials, lumber and millwork (22%) and paint and flooring (19%).

CORPORATE STRATEGY. We believe HD is in a period of transition after years of expanding rapidly. We expect Home Depot to confront a rapidly saturating domestic market by accelerating its expansion efforts abroad. Domestically, HD is increasing its focus on service and customer retention as a means to gain market share. At the end of 2006, Home Depot acquired The Home Way, a Chinese home improvement retailer, including 12 stores in six cities. We expect HD to either exit the Chinese market in FY 11 or embark on an aggressive expansion of stores over the next several years. In August 2007, Home Depot closed the sale of HD Supply for $8.3 billion, recognizing a $4 million loss, net of tax. In connection with the sale, it purchased a 12.5% equity interest in the newly formed HD Supply for $325 million, but has since completely written down this investment over the past two years due to asset impairment.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 10.73 2.62 1.55 1.61 0.90 58% 2009 29.44 17.49 19 11

2009 9.81 2.43 1.37 1.43 0.90 58% 2008 31.08 17.05 23 12

2008 9.75 3.19 2.27 2.27 0.68 30% 2007 42.01 25.57 19 11

2007 11.81 3.65 2.79 2.79 0.68 24% 2006 43.95 32.85 16 12

2006 11.12 3.45 2.72 2.68 0.40 15% 2005 43.98 34.56 16 13

2005 9.54 2.85 2.26 2.19 0.33 15% 2004 44.30 32.34 20 14

2004 9.56 2.35 1.88 1.78 0.26 14% 2003 37.89 20.10 20 11

2003 8.39 1.95 1.56 1.46 0.21 13% 2002 52.60 23.01 41 18

2002 7.53 1.62 1.29 1.18 0.17 13% 2001 53.73 30.30 43 24

2001 6.32 1.35 1.10 1.01 0.16 15% 2000 70.00 34.69 64 32

66,176 6,755 1,806 676 3,982 34.2% 2,620 2,721

71,288 7,093 1,783 644 3,590 35.6% 2,312 2,418

77,349 9,032 1,702 742 6,620 36.4% 4,210 4,210

90,837 11,435 1,762 427 9,308 38.1% 5,761 5,761

81,511 10,942 1,579 143 9,282 37.1% 5,838 5,751

73,094 9,245 1,319 70.0 7,912 36.8% 5,001 4,843

64,816 7,922 1,076 62.0 6,843 37.1% 4,304 4,067

58,247 6,733 903 37.0 5,872 37.6% 3,664 3,414

53,553 5,696 764 28.0 4,957 38.6% 3,044 2,780

45,738 4,792 601 21.0 4,217 38.8% 2,581 2,364

Balance Sheet & Other Financial Data (Million $) Cash 1,427 Current Assets 13,900 Total Assets 40,877 Current Liabilities 10,363 Long Term Debt 8,662 Common Equity 19,393 Total Capital 29,075 Capital Expenditures 966 Cash Flow 4,426 Current Ratio 1.3 % Long Term Debt of Capitalization 29.8 % Net Income of Revenue 4.0 % Return on Assets 6.4 % Return on Equity 14.1

525 13,362 41,164 11,153 9,667 17,777 28,794 1,847 4,095 1.2 33.1 3.2 5.4 13.0

457 14,674 44,324 12,706 10,983 17,714 28,982 3,558 5,912 1.2 38.2 5.4 8.7 19.7

614 18,000 52,263 12,931 11,237 25,030 36,272 3,542 7,523 1.4 31.8 6.3 11.9 22.2

793 15,346 44,482 12,901 2,302 26,909 29,713 3,881 7,417 1.2 8.7 7.2 14.0 22.9

506 14,190 38,907 10,529 1,807 24,158 25,976 3,948 6,320 1.3 7.8 6.8 13.6 21.5

2,826 13,328 34,437 9,554 545 22,407 23,461 3,508 5,380 1.4 3.5 6.6 13.4 20.4

2,188 11,917 30,011 8,035 1,049 19,802 20,853 2,749 4,567 1.5 6.1 6.3 13.0 19.3

2,477 10,361 26,394 6,501 1,022 18,082 19,105 3,393 3,808 1.6 6.4 5.7 12.7 18.4

167 7,777 21,385 4,385 1,318 15,004 16,334 3,558 3,182 1.8 9.2 5.6 13.4 18.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2455 Paces Ferry Rd, N.W., Atlanta, GA 30339-1834. Telephone: 770-433-8211. Website: http://www.homedepot.com Chrmn & CEO: F.S. Blake

Pres: A. Campbell COO: M.D. Powers EVP, CFO & Chief Acctg Officer: C.B. Tome EVP, Secy & General Counsel: J.A. VanWoerkom

Investor Contact: D. Dayhoff (770-384-2666) Founded: 1978 Board Members: F. D. Ackerman, D. H. Batchelder, F. S. Domicile: Delaware Blake, A. Bousbib, G. D. Brenneman, A. P. Carey, A. M. Employees: 317,000 Codina, B. G. Hill, K. L. Katen

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HON | HON is in the S&P 500

Honeywell International Inc. S&P Recommendation BUY

★★★★★

Price $47.26 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $52.00

Investment Style Large-Cap Value

Summary The world's largest maker of cockpit controls, small jet engines and climate control equipment, HON also makes industrial materials and automotive products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.63– 35.60 Trailing 12-Month EPS $2.80 Trailing 12-Month P/E 16.9 $10K Invested 5 Yrs Ago $16,175

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.54 2.80 18.6 772.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$36.495 2.56 $1.21 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.36 5 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we believe is above-average exposure to market movements, economic cycles, currency fluctuations, and raw material costs. This is offset by our view of HON's strong balance sheet and its ability to generate significant amounts of cash.

60 50 40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

4

B-

B

B+

A-

A

Relative Strength Rank

5

4

C

B+

STRONG

4

75 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The STARS recommendation for HON has recently been changed to 4 (buy) from 5 (strong buy) and the 12-month target price has recently been changed to $52.00 from $55.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on HON from MarketScope, see below.

➤

10/22/10 11:37 am ET ... S&P DOWNGRADES RECOMMENDATION ON SHARES OF HONEYWELL TO BUY FROM STRONG BUY (HON 46.87****): Q3 EPS of $0.64, vs. $0.80, is $0.02 below our estimate but $0.02 above Street. Sales rose 9%, above our 7% estimate. Margins met our view, but restructuring cost was well above our expectations. HON sees a $300-$400M additional pension headwind in '11, and although we are raising our '10 EPS estimate by $0.02 to $2.54, we are lowering '11's by $0.20 to $2.80. We also trim our 12-month target price by $3 to $52. We continue to see HON as performing well amid a cyclical upturn in aerospace and the global economy, but see more modest upside earnings momentum than previously. /R.Tortoriello

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 7,776 8,161 2009 7,570 7,566 2008 8,895 9,674 2007 8,041 8,538 2006 7,241 7,898 2005 6,453 7,026

3Q -7,700 9,275 8,735 7,952 6,899

4Q -8,072 8,712 9,275 8,276 7,275

Year -30,908 36,556 34,589 31,367 27,653

Earnings Per Share ($) 2010 0.50 0.60 2009 0.54 0.60 2008 0.85 0.96 2007 0.66 0.78 2006 0.51 0.63 2005 0.42 0.33

E0.64 0.80 0.97 0.81 0.66 0.51

E0.80 0.91 0.97 0.91 0.72 0.61

E2.54 2.85 3.76 3.16 2.51 1.86

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.303 0.303 0.303 0.303

10/30 02/11 04/26 07/30

11/18 02/17 05/18 08/18

11/20 02/19 05/20 08/20

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1887. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HON

Honeywell International Inc. Business Summary August 06, 2010 CORPORATE OVERVIEW. Honeywell International Inc., an aerospace and industrial conglomerate with $32 billion in estimated 2010 revenues, conducts business through four operating segments. HON generated about 51% of sales from products sold outside of the U.S. in 2009, primarily in Europe, Canada, Asia, and Latin America. Sales to the U.S. government accounted for 14% of total sales in 2009. The Aerospace segment (35% of 2009 revenues and 45% of operating profits) makes a variety of products for commercial and military aircraft, including cockpit controls and other avionics, flight safety systems, auxiliary power units, environmental controls, electric power systems, inertial sensors, lighting, and wheels and brakes. It is also a leading maker of jet engines for regional and business jet manufacturers, and makes space and military products and subsystems. The Aerospace segment is also a major player in the estimated $103 billion global aircraft maintenance, repair, and overhaul (MRO) industry, and distributes aircraft hardware.

dustrial facilities. Building solutions and services include energy management, security and asset management, building information services, and HVAC and building control. The Specialty Materials segment (13% and 14%) makes specialty chemicals and fibers. Products include resins, fluorine products, specialty films and additives, advanced fibers and composites, intermediates, specialty chemicals, electronic materials and chemicals, and catalysts, absorbents, and equipment and technologies for the petrochemical and refining industries. HON sells its industrial materials primarily to the petrochemical, food, pharmaceutical, and electronic packaging industries. The Transportation Systems segment (11% and 4%) consists of a portfolio of brand name car care products, such as FRAM filters, Prestone antifreeze, Autolite spark plugs, and Simoniz car waxes. The unit is also a leading manufacturer of turbochargers for passenger cars and commercial vehicles and braking products.

HON's Automation and Control Solutions segment (41% of revenues and 37% of operating profits) is a leading global producer of environmental and combustion controls, sensing controls, security and life safety products and services, scanning and mobility products (e.g., bar code scanners), and process automation and building solutions and services for homes, buildings, and inCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 4.12 2.85 2.68 1.21 42% 41.55 23.06 15 8

2008 NM 4.97 3.76 2.14 1.10 29% 62.99 23.24 17 6

2007 NM 4.24 3.16 3.15 1.00 32% 62.29 43.14 20 14

2006 0.09 3.59 2.51 2.62 0.91 36% 45.77 35.24 18 14

2005 1.95 2.74 1.86 1.83 1.03 55% 39.50 32.68 21 18

2004 4.70 2.24 1.49 1.42 0.75 50% 38.46 31.23 26 21

2003 4.46 2.25 1.56 1.57 0.75 48% 33.50 20.20 21 13

2002 2.52 0.53 -0.27 0.15 0.75 NM 40.95 18.77 NM NM

2001 3.45 1.02 -0.12 -0.26 0.75 NM 53.90 22.15 NM NM

2000 4.71 3.28 2.05 NA 0.75 37% 60.50 32.13 30 16

30,908 4,339 957 459 2,978 26.5% 2,153 2,027

36,556 5,444 903 482 3,801 26.6% 2,792 1,590

34,589 4,561 837 456 3,321 26.4% 2,444 2,445

31,367 3,855 794 374 2,798 25.7% 2,078 2,168

27,653 3,178 697 356 2,323 31.9% 1,581 1,554

25,601 2,350 650 331 1,680 23.8% 1,281 1,225

23,103 2,513 595 335 1,647 18.0% 1,344 1,363

22,274 2,573 671 344 -945 NM -220 119

23,652 1,085 926 405 -422 NM NA -207

25,023 3,794 995 481 2,398 30.8% 1,659 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,801 Current Assets 13,936 Total Assets 36,004 Current Liabilities 11,147 Long Term Debt 6,246 Common Equity 8,954 Total Capital 16,218 Capital Expenditures 609 Cash Flow 3,110 Current Ratio 1.3 % Long Term Debt of Capitalization 38.5 % Net Income of Revenue 7.0 % Return on Assets 6.0 % Return on Equity 26.7

2,065 13,263 35,490 12,289 5,865 7,187 13,750 884 3,695 1.1 42.7 7.6 8.1 34.0

1,829 13,685 33,805 11,941 5,419 9,222 15,375 767 3,281 1.2 35.2 7.0 7.5 25.8

1,224 12,304 30,941 10,135 3,909 9,720 13,981 733 2,872 1.2 28.0 6.6 6.5 20.3

1,234 11,962 32,294 10,430 3,082 11,254 14,839 684 2,278 1.1 20.8 5.7 5.0 14.0

3,586 12,820 31,062 8,739 4,069 11,252 15,718 629 1,931 1.5 25.9 5.0 4.2 11.7

2,950 11,523 29,344 6,783 4,961 7,243 12,520 655 1,939 1.7 39.6 5.8 4.7 21.1

2,021 10,195 27,559 6,574 4,719 8,925 14,063 671 451 1.6 33.6 NM NM NM

1,393 9,894 24,226 6,220 4,731 9,170 14,776 876 827 1.6 32.0 NM NM NM

1,196 10,661 25,175 7,214 3,941 9,707 14,821 853 2,654 1.5 26.6 6.6 6.8 18.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 101 Columbia Rd, Morristown, NJ 07960-4640. Telephone: 973-455-2000. Website: http://www.honeywell.com Chrmn & CEO: D.M. Cote

COO: K. Mikkilineni SVP & CFO: D.J. Anderson SVP & General Counsel: K. Adams Chief Acctg Officer & Cntlr: K.A. Winters

Investor Contact: M. Grainger (973-455-2222) Board Members: G. M. Bethune, K. Burke, J. Chico Pardo, D. M. Cote, D. S. Davis, L. F. Deily, C. R. Hollick, G. Paz, B. T. Sheares, M. W. Wright

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1920 Domicile: Delaware Employees: 122,000

Stock Report | October 23, 2010 | NYS Symbol: HRL | HRL is in the S&P 500

Hormel Foods Corp S&P Recommendation HOLD

★★★★★

Price $45.05 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $44.00

Investment Style Large-Cap Blend

Summary This company is a leading processor of branded, convenience meat products (primarily pork) for the consumer market.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $45.62– 36.02 Trailing 12-Month EPS $2.79 Trailing 12-Month P/E 16.2 $10K Invested 5 Yrs Ago $15,715

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.88 2.95 15.6 133.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.40 7 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of HRL's relatively strong balance sheet, offset by the company's sensitivity to changes in commodity costs.

45 40 35 30

Quantitative Evaluations

25

S&P Quality Ranking

Vol.

D

C

B-

A+ B

B+

A-

A

A+

17

Mil. 6 4 2 0 5

$6.000 1.86 $0.84 30

Relative Strength Rank

MODERATE

48 LOWEST = 1

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: Ph

Analysis prepared by Tom Graves, CFA on September 17, 2010, when the stock traded at $ 44.27. Highlights ➤

➤

➤

In FY 11 (Oct.), we look for revenues to rise about 2% from the $7.1 billion that we project for FY 10, which we expect will have an extra week in the fiscal year. We think that sales growth in FY 10 has been bolstered by the inclusion of the new MegaMex Foods joint venture. We estimate that FY 11 EPS will increase about 2%, to $2.95, from the $2.88 that we forecast for FY 10, which excludes a negative impact of $0.10 from special items in FY 10's second quarter. We think that near-term EPS comparisons may be limited by higher hog costs (above the average of FY 10's first half). In September 2010, the MegaMex joint venture entered into a definitive agreement to acquire Don Miguel Foods Corp., a provider of branded frozen and fresh flavored appetizers, snacks and handheld items. The transaction was expected to close in October 2010. In FY 10's third quarter, HRL repurchased 0.6 million shares of HRL common stock under a pair of buyback authorizations. At quarter's end, authorization remained to repurchase 4.8 million shares.

Investment Rationale/Risk ➤

➤

➤

As of July 25, 2010, HRL had cash and equivalents totaling $376.9 million. We think that the company will be looking for opportunities to make strategic acquisitions. Over time, we expect HRL to be able to increase the importance of non-U.S. sales, including a larger presence in some Asian markets. As a producer of protein products, including the Spam brand, HRL should have opportunities to benefit from rising incomes and changing lifestyles in some developing markets, in our view. Risks to our recommendation and target price include weaker-than-expected demand, market share losses to private label competition, and higher-than-expected turkey feed costs. We think the company is well positioned for long-term growth, with profitability expected to benefit as higher-margin, value-added products become a larger part of its business. Our 12-month target price of $44 is based on a P/E multiple about 7% below a historical median for HRL shares. An 11% increase in HRL's quarterly dividend became effective with the February 2010 payment. Based on the current quarterly rate, the indicated yield was recently 1.9%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,727 1,700 2009 1,689 1,595 2008 1,621 1,594 2007 1,504 1,505 2006 1,416 1,365 2005 1,271 1,310

3Q 1,730 1,574 1,678 1,520 1,407 1,355

4Q -1,675 1,862 1,664 1,557 1,478

Year -6,534 6,755 6,193 5,745 5,414

Earnings Per Share ($) 2010 0.82 0.57 2009 0.60 0.59 2008 0.64 0.56 2007 0.54 0.49 2006 0.50 0.48 2005 0.46 0.40

0.63 0.57 0.38 0.38 -0.37

E0.76 0.77 0.50 0.73 0.64 0.59

E2.88 2.53 2.08 2.17 2.05 1.82

Fiscal year ended Oct. 31. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.210 0.210 0.210 0.210

11/24 03/22 05/24 09/28

01/20 04/14 07/21 10/20

01/23 04/17 07/24 10/23

02/15/10 05/15/10 08/15/10 11/15/10

Dividends have been paid since 1928. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HRL

Hormel Foods Corp Business Summary September 17, 2010 CORPORATE OVERVIEW. Probably best known for its ubiquitous Spam, Hormel Foods is a diversified producer of consumer foods. Founded in 1891 as George A. Hormel & Company, the company got its start as a processor of meat products, principally pork. Over the years, it has expanded its business both internally and through acquisitions. In our view, although pork and turkey remain the major raw material for Hormel products, the company has emphasized for several years the manufacture and distribution of branded, consumer packaged items over the commodity fresh meat business closely associated with its business of the past. The company operates under the grocery products, refrigerated foods, Jennie-O Turkey Store, specialty foods, and other business segments. The grocery product segment (14% of FY 09 (Oct.) revenues and 28% of operating income) primarily processes, markets and sells shelf-stable food products predominately in the retail market. The refrigerated foods segment (52%; 40%) primarily processes, markets and sells branded and unbranded pork and beef products for the retail, food service, and fresh product customer markets. Jennie-O Turkey Store (19%; 15%) primarily processes, markets and sells branded and unbranded turkey products for the retail, food service and fresh product customer markets. The specialty foods segment (11%; 12%) packages

and sells various sugar and sugar substitute products, salt and pepper products, liquid portion products, and other products. The "other" segment (4%; 5%) manufactures, markets and sells company products internationally. CORPORATE STRATEGY. We expect the company to look to strategic acquisitions as a prospective use of cash. Effective February 1, 2010, HRL completed the acquisition of the Country Crock chilled side dish line. In June 2008, the company acquired Boca Grande Foods, Inc., a manufacturer and distributor of liquid portion products in Georgia. In December 2006, HRL acquired Pro vena Foods, a provider of pepperoni and pasta to pizza makers and packaged food manufacturers. In November 2006, the company acquired Sag's Products, a processor and marketer of branded, premium gourmet sausages and specialty cooked meats. In March 2006, HRL acquired Valley Fresh, a manufacturer of canned ready-to-eat chicken products and a distributor of pre-cooked chicken products. Also, in 2009, HRL formed a 50/50 joint venture. known as MegaMex Foods, LLC, to market Mexican foods in the U.S.

Company Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.20 3.47 2.53 2.26 0.76 30% 40.46 29.16 16 12

2008 9.20 2.92 2.08 1.88 0.74 36% 42.77 24.81 21 12

2007 8.31 3.08 2.17 2.15 0.60 28% 41.82 30.04 19 14

2006 8.04 2.92 2.05 2.10 0.56 27% 39.09 31.88 19 16

2005 6.77 2.64 1.82 1.88 0.52 29% 35.44 29.16 19 16

2004 6.43 2.33 1.65 1.61 0.45 27% 32.11 24.90 19 15

2003 5.36 1.96 1.33 1.22 0.42 32% 27.49 19.93 21 15

2002 5.41 1.94 1.35 1.10 0.39 29% 28.20 20.02 21 15

2001 4.45 1.95 1.30 1.23 0.37 28% 27.35 17.00 21 13

2000 5.64 1.67 1.20 NA 0.35 29% 20.97 13.63 17 11

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

6,534 659 127 28.0 525 34.7% 343 307

6,755 624 115 28.0 458 37.6% 286 258

6,193 611 127 27.7 470 35.7% 302 300

5,745 567 121 25.6 431 33.5% 286 294

5,414 534 115 27.7 405 37.4% 253 263

4,780 448 94.8 27.1 365 36.5% 232 225

4,200 393 88.0 31.9 289 35.8% 186 171

3,910 394 83.2 31.4 294 35.6% 189 155

4,124 390 90.2 28.0 285 36.0% 182 173

3,675 328 65.9 14.9 264 35.6% 170 NA

Balance Sheet & Other Financial Data (Million $) Cash 385 Current Assets 1,575 Total Assets 3,692 Current Liabilities 685 Long Term Debt 350 Common Equity 2,123 Total Capital 2,473 Capital Expenditures 92.0 Cash Flow 470 Current Ratio 2.3 % Long Term Debt of Capitalization 14.2 % Net Income of Revenue 5.3 % Return on Assets 9.4 % Return on Equity 16.6

155 1,438 3,616 781 350 2,008 2,358 126 400 1.8 14.9 4.2 8.2 14.7

150 1,232 3,394 665 350 1,885 2,235 126 429 1.9 15.6 4.8 9.3 16.3

172 1,142 3,060 585 350 1,803 2,153 142 407 2.0 16.3 5.0 9.7 16.8

170 1,041 2,822 583 350 1,575 1,925 107 369 1.8 18.2 4.7 9.5 17.0

289 1,029 2,534 464 362 1,399 1,765 80.4 326 2.2 20.5 4.8 9.4 17.5

98.0 824 2,393 442 395 1,253 1,659 67.1 274 1.9 23.8 4.4 8.1 15.7

310 962 2,220 410 410 1,115 1,525 64.5 273 2.3 26.9 4.8 8.6 18.0

186 883 2,163 420 462 993 1,455 77.1 273 2.1 31.8 4.4 9.6 19.5

107 711 1,642 343 146 874 1,020 100 236 2.1 14.3 4.6 10.2 19.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Hormel Place, Austin, MN 55912-3680. Telephone: 507-437-5611. Website: http://www.hormel.com Chrmn, Pres & CEO: J.M. Ettinger

SVP & CFO: J.H. Feragen SVP & General Counsel: J.W. Cavanaugh Chief Acctg Officer & Cntlr: J.N. Sheehan Treas: R.G. Gentzler

Investor Contact: K.C. Jones (507-437-5248) Founded: 1891 Board Members: T. K. Crews, J. M. Ettinger, J. H. Domicile: Delaware Feragen, S. Marvin, J. L. Morrison, E. A. Murano, R. C. Employees: 18,600 Nakasone, S. K. Nestegard, R. D. Pearson, D. A. Pippins, H. C. Smith, J. G. Turner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HSP | HSP is in the S&P 500

Hospira Inc S&P Recommendation BUY

★★★★★

Price $59.39 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $63.00

Investment Style Large-Cap Growth

Summary Hospira was spun off from Abbott Laboratories in May 2004, and provides a variety of hospital products, including injectable generic drugs, pumps, and syringes.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.75– 44.44 Trailing 12-Month EPS $2.63 Trailing 12-Month P/E 22.6 $10K Invested 5 Yrs Ago $15,507

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.42 4.05 17.4 167.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.937 Nil Nil 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.71 13 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HSP's broad product portfolio, which reduces dependence on any one product category. We see stable demand for hospital products, given our belief that demand for hospital services will remain strong. However, we see minimal growth overall for this industry.

60 50 40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

C

B-

NR B

B+

A-

Relative Strength Rank 4

4

3

A+

MODERATE 70

LOWEST = 1

1

A

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Steven Silver on September 29, 2010, when the stock traded at $ 57.57. Highlights ➤

➤

➤

We expect revenues to increase about 5% in 2010 as increased Oxaliplatin revenues early in the year are mostly offset by soft results from the medical management business. We look for sales to increase about 10% in 2011 as new product growth accelerates, led by expected generics for cancer drugs Taxotere and Gemzar, and as the medical management business benefits from resumed shipments of the Symbiq pump, currently on hold, and expanded sales of Plum infusion pumps amid a recall of Baxter's Colleague pump. We project a modest increase in operating expenses as a percentage of sales in 2010, as savings from Project Fuel (HSP's new cost optimization program) only partly offset increases in R&D spending. We look for HSP to gradually transition to higher-margin products, particularly in its medication management systems business. We expect operating margins to widen to 21.5% in 2010, up more than 200 basis points over 2009, reflecting the impact of Project Fuel. We project such margins rising to 22% in 2011. We see operating EPS of $3.42 in 2010 and $4.05 in 2011, excluding restructuring charges.

Investment Rationale/Risk ➤

➤

➤

Our buy recommendation reflects a positive outlook for HSP to benefit from its emphasis on strategic assets and operational efficiency under Project Fuel. In addition, we expect steady, though gradually slower, growth in the medication management systems business, from a solid pipeline of new products that launched in 2009, as well as increased international sales. We see unappreciated potential in its biogeneric portfolio, where HSP, with its partner Stada, launched its first biogeneric (a generic EPO with trade name Retacrit) in Europe in the first quarter of 2008, and a second, Nivestim, for chemotherapy-induced neutropenia, in mid2010. Risks to our recommendation and target price include failure to gain approval or slowerthan-anticipated approval for injectable drugs and biogenerics, lower-than-anticipated drug pricing, and a decrease in demand for medication delivery products. Our 12-month target price of $63 applies a 15.5X multiple to our 2011 EPS estimate of $4.05, in line with HSP's historical average forward P/E multiple, reflecting our view of solid growth prospects.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,008 968.2 2009 859.7 956.9 2008 888.7 901.6 2007 782.8 869.4 2006 664.3 629.9 2005 662.1 618.5

3Q -1,008 925.5 838.0 646.6 656.6

4Q -1,055 913.7 946.1 706.5 646.2

Year -3,879 3,630 3,436 2,689 2,627

Earnings Per Share ($) 2010 0.84 0.49 2009 1.03 0.16 2008 0.41 0.43 2007 -0.19 0.20 2006 0.49 0.34 2005 0.49 0.44

E0.70 0.71 0.51 0.37 0.35 0.37

E0.92 0.58 0.65 0.47 0.30 0.16

E3.42 2.48 1.99 0.85 1.48 1.46

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: HSP

Hospira Inc Business Summary September 29, 2010 CORPORATE OVERVIEW. Hospira (HSP) was created on May 3, 2004, as a spinoff from Abbott Laboratories. HSP provides medication delivery systems and specialty pharmaceuticals to hospitals, clinics, and physicians. The legal separation to become a standalone company was completed in the second quarter of 2006. Hospira has operations in the Americas (79% of 2009 revenues); Europe, the Middle East, and Africa (14%); and Asia-Pacific (7%), and operates 13 manufacturing facilities domestically and internationally. Operating segments include specialty injectable pharmaceuticals -- including specialty injectables and biogenerics (2009 sales of $2.07 billion, 53% of sales); medication management systems -- principally infusion pumps as well as related software and services ($658.7 million, 17%); and other pharmaceuticals -- encompassing large volume I.V. solutions, nutritionals and contract

manufacturing services ($701.2 million, 18%), with the balance of sales from other devices. Major competitors include Baxter International, Bedford Laboratories (a divisions of Boehringer Ingelheim), Fresenius Medical Care AG, Sandoz, Teva Pharmaceuticals, and CareFusion. The specialty injectable pharmaceuticals division provides over 200 generic injectable drugs available in a wide array of dosages and formulations. Therapeutic areas of focus include cardiovascular, anesthesia, anti-infectives, analgesics, and other. We expect HSP to market a generic version of cancer drug Taxotere by 2011, following a favorable court ruling over the drug's patents in September 2010.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.96 3.77 2.48 2.58 Nil Nil 51.40 21.21 21 9

2008 1.28 3.55 1.99 1.89 Nil Nil 44.00 23.00 22 12

2007 NM 2.32 0.85 0.79 Nil Nil 44.64 33.60 53 40

2006 8.03 2.45 1.48 1.45 Nil Nil 47.99 31.15 32 21

2005 7.57 2.42 1.46 1.35 Nil Nil 45.10 28.35 31 19

2004 5.74 2.84 1.92 1.31 Nil Nil 34.86 24.02 18 13

2003 NM NA 1.65 1.46 NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,879 878 230 106 385 NM 404 422

3,630 836 252 124 408 21.3% 321 304

3,436 763 235 145 188 27.2% 137 128

2,689 506 157 31.0 324 26.9% 237 233

2,627 493 156 28.3 322 26.8% 236 217

2,645 509 146 18.8 412 26.7% 302 206

2,624 506 146 Nil 359 27.5% 260 231

2,603 512 134 NA 352 30.0% 247 187

2,514 555 123 NA 390 30.0% 273 NA

2,348 552 133 NA 421 29.5% 297 NA

Balance Sheet & Other Financial Data (Million $) Cash 946 Current Assets 2,526 Total Assets 5,503 Current Liabilities 882 Long Term Debt 1,707 Common Equity 2,624 Total Capital 4,355 Capital Expenditures 159 Cash Flow 615 Current Ratio 2.9 % Long Term Debt of Capitalization 39.2 % Net Income of Revenue 10.4 % Return on Assets 7.6 % Return on Equity 18.4

484 2,149 5,074 1,048 1,834 1,776 3,636 164 573 2.1 50.5 8.8 6.3 18.2

241 1,841 5,085 794 2,243 1,745 3,980 211 372 2.3 55.6 4.0 3.5 8.8

322 1,523 2,848 606 702 1,361 2,066 235 393 2.5 34.0 8.8 8.4 17.6

521 1,561 2,789 596 695 1,328 2,027 256 392 2.6 34.3 9.0 9.2 20.4

200 1,198 2,343 536 699 984 1,687 229 447 2.2 41.4 11.4 13.1 24.7

Nil 1,075 2,250 360 Nil 1,453 1,453 197 406 3.0 Nil 9.9 11.8 18.7

NA 982 2,154 411 NA 1,334 1,334 191 380 2.4 Nil 9.5 11.5 17.7

NA 1,029 2,133 373 NA 1,461 1,461 200 396 2.8 Nil 10.9 NA NA

NA NA NA NA NA NA NA 199 430 NA Nil 12.7 NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 275 North Field Drive, Lake Forest, IL 60045. Telephone: 224-212-2000. Website: http://www.hospira.com Chrmn & CEO: C.B. Begley

COO: T.C. Kearney SVP & CFO: T.E. Werner SVP & CSO: S. Ramachandra SVP, Secy & General Counsel: B.J. Smith

Investor Contact: K. King (224-212-2711) Board Members: I. W. Bailey, II, C. B. Begley, B. L. Bowles, C. Curran, R. W. Hale, J. J. Sokolov, J. C. Staley, M. F. Wheeler, H. von Prondzynski

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2003 Domicile: Delaware Employees: 13,500

Stock Report | October 23, 2010 | NYS Symbol: HST | HST is in the S&P 500

Host Hotels & Resorts Inc S&P Recommendation HOLD

★★★★★

Price $16.21 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $17.00

Investment Style Large-Cap Value

Summary This real estate investment trust owns a portfolio of luxury and upper-upscale full-service hotels.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.09– 9.64 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $11,392

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

0.68 0.85 23.8 665.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.795 0.25 $0.04 96

Beta 2.31 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) 3 S&P Credit Rating BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly cyclical nature of the lodging industry, offset by what we view as the advantages of HST's large and well diversified portfolio.

30

15

8

Quantitative Evaluations 4

S&P Quality Ranking Vol.

D

B-

BB

B+

A-

A

A+

190

Mil. 90 60 30 0 5

C

Relative Strength Rank

STRONG 80

LOWEST = 1 4

3

3

2

3

HIGHEST = 99

3

2

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Royal F. Shepard, CFA on October 13, 2010, when the stock traded at $ 15.95. Highlights ➤

➤

We think occupancy levels could rise about 450 basis points at HST's hotels in 2010, to about 70.5%, boosted by a recent uptick in transient as well as group bookings. In our view, pricing is beginning to recover, and we expect it to gain more traction in 2011. HST's ancillary revenues, including food and beverage service, could take longer to rebound due to tight corporate spending. All told, we forecast a 6% increase in 2010 revenue per available room (RevPAR), followed by a 5% gain in 2011. In our estimation, acquisition activity could move to the forefront in 2011. During the third quarter, HST completed three transactions for $430 million. As distressed owners look to capitalize on improving industry conditions, we expect HST to remain aggressive in looking for new investment opportunities. We expect new investments to be funded partly through a continuous equity offering program.

Investment Rationale/Risk ➤

We expect improved room pricing to widen profit margins in 2011 and forecast an operating margin of 8.9%, up from 6.2% estimate for 2010. Our 2011 FFO estimate is $0.85, up from $0.68 in 2010, and does not include any impact from expected acquisition activity.

FFO Per Share ($) 2010 0.08 2009 0.10 2008 0.33 2007 0.30 2006 0.27 2005 0.19

0.23 0.12 0.56 0.48 0.39 0.22

3Q 1,006 912.0 1,168 1,201 1,119 831.0

4Q -1,336 1,634 1,809 1,734 1,272

Year -4,126 5,278 5,437 4,888 3,881

0.11 0.11 0.31 0.38 0.28 0.19

E0.25 0.18 0.53 0.75 0.44 0.35

E0.68 0.52 1.74 1.91 1.53 1.15

Fiscal year ended Dec. 31. Next earnings report expected: Mid February. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) ➤

➤ ➤

For the industry, we think overall revenue growth began to expand in the third quarter of 2010, a trend we expect to continue in 2011. In our view, HST is well positioned to eventually increase profits, given its high-quality portfolio and strong capital-raising efforts. As a result of recent debt refinancings, we believe HST has the liquidity to consider new investments, including acquisitions. We also expect a gradual upturn in operating margins, as room rates rebound toward more historical levels. Over the next twelve months, we expect HST's performance to mirror industry trends and hotel REIT peers.

Revenue (Million $) 1Q 2Q 2010 823.0 1,114 2009 882.0 1,064 2008 1,058 1,417 2007 1,031 1,385 2006 840.0 1,195 2005 802.0 976.0

Risks to our recommendation and target price include a slower than expected recovery in demand for business and leisure travel, in conjunction with any slowing momentum in the economic recovery.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.010 0.010 0.010

09/14 03/16 06/18 09/16

11/04 03/29 06/28 09/28

11/06 03/31 06/30 09/30

12/18/09 04/15/10 07/15/10 10/15/10

Our 12-month target price of $17 is based on a multiple of 20.0X our 2010 FFO estimate of $0.85 a share, a moderate premium to hotel REIT peers, based on our view of HST's strong financial position.

Dividends have been paid since 2005. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: HST

Host Hotels & Resorts Inc Business Summary October 13, 2010 CORPORATE OVERVIEW. Host Hotels & Resorts operates as a self-managed and self-administered real estate investment trust (REIT). At December 31, 2009, HST owned a portfolio consisting of 110 luxury and upper-upscale hotels containing approximately 61,000 rooms. HST's hotels operate under a number of well known brands, including Marriott, Ritz-Carlton, Hyatt, Sheraton, Swissotel, Four Seasons, Hilton, Fairmont and Westin. Seventy-five of the company's properties were operated under the Marriott brand name. HST also holds a minority interest in a joint venture that owns 11 hotels in Europe with approximately 3,500 rooms. HST is geographically diversified, with hotels in most of the major metropolitan areas. The company's locations primarily include central business districts of major cities, airport areas, and resort/conference destinations.

leisure travel did not decline nearly as much in 2009, but we expect high unemployment to continue to crimp demand in 2010. Overseas tourist arrivals in the U.S. in 2009 were down about 9%, and in 2010, we see a pickup in demand only in the low to mid single-digits.

HST's hotel revenue has traditionally experienced moderate seasonality, with a greater percentage of revenue falling in the second and fourth quarters. In addition, the fourth quarter reflects 16 or 17 weeks of results, versus 12 weeks in each of the first three fiscal quarters.

Room rates, which tend to lag movement in occupancy, declined 8.8% in 2009 and are likely to dip slightly in 2010, in our estimation. RevPAR, which fell 16.7% in 2009, should drop a further 3.0% in 2010, based on our occupancy and room rate forecasts.

The number of available room nights in 2009 increased 3.2%, reflecting construction and redevelopment projects already financed before the financial crisis. For 2010, we see room night supply increasing a smaller 2.3%. The room occupancy rate fell 8.6% in 2009, to a rate of 55.1%, indicative of severe, near depressionary levels, by our analysis. For 2010, the smaller increase in supply and higher demand that we expect should lead to a rise in occupancy to approximately 55.5% to 56.0%.

MARKET PROFILE. Our U.S. outlook for 2010 is for hotel room demand to rebound about 5% after declining 5.8% in 2009, based on statistics from Smith Travel Research. We see business demand, including both transient and group travel, picking up 7% to 9% after falling about 12% in 2009. Domestic Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.43 -0.43 -0.38 0.25 NM 12.20 3.08 NM NM

2008 10.32 0.71 0.70 0.65 92% 18.81 4.77 26 7

2007 10.22 1.01 0.92 0.80 79% 28.98 16.55 29 16

2006 9.83 0.60 0.57 0.71 118% 25.79 18.77 43 31

2005 NM 0.30 0.27 0.41 137% 19.24 15.46 64 52

2004 5.64 -0.31 -0.31 0.10 NM 17.40 11.16 NM NM

2003 5.57 -0.92 -0.95 Nil Nil 12.33 6.07 NM NM

2002 4.87 -0.24 -0.25 Nil Nil 12.25 7.50 NM NM

2001 4.77 0.09 0.09 0.78 NM 13.95 6.22 NM NM

2000 5.50 0.64 NA 0.86 106% 12.93 8.00 20 13

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

107 Nil 4,158 3,398 379 Nil 662 -242 -224

120 Nil 5,278 3,955 341 Nil 582 402 386

120 Nil 5,426 4,007 422 Nil 517 550 490

119 Nil 4,888 3,665 450 Nil 459 309 276

111 Nil 3,881 2,936 443 Nil 368 138 98.0

106 Nil 3,640 2,812 483 Nil 354 -64.0 -106

100 Nil 3,448 2,765 523 Nil 367 -225 -267

101 Nil 3,680 2,823 498 Nil 372 -29.0 -65.0

126 Nil 3,754 2,821 492 Nil 378 53.0 20.0

1,390 Nil 1,473 337 465 Nil 331 159 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,642 Total Assets 12,555 Real Estate Investment 14,974 Loss Reserve Nil Net Investment 10,231 Short Term Debt Nil Capitalization:Debt 5,837 Capitalization:Equity 6,092 Capitalization:Total 12,187 % Earnings & Depreciation/Assets 3.4 Price Times Book Value:High 1.3 Price Times Book Value:Low 0.3

508 11,951 15,038 Nil 10,739 410 5,542 5,420 11,239 8.3 1.8 0.5

553 11,812 14,288 Nil 10,588 261 5,364 5,344 11,021 9.0 2.8 1.6

524 11,808 13,897 Nil 10,584 268 5,610 5,125 11,045 7.6 2.6 1.9

225 8,245 10,382 Nil 7,434 NA 5,370 2,176 7,932 6.0 NM NM

416 8,421 9,924 Nil 7,274 NA 5,523 2,058 8,126 3.4 3.1 2.0

838 8,592 9,511 Nil 7,085 NA 3,976 1,797 6,112 1.7 2.2 1.1

627 8,316 9,193 Nil 7,031 NA 5,638 1,271 7,471 4.1 2.5 1.5

608 8,338 8,828 Nil 6,999 148 5,929 1,270 7,748 5.2 2.9 1.3

566 8,396 8,599 Nil 7,110 54.0 5,743 1,225 7,649 5.9 2.4 1.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6903 Rockledge Drive, Bethesda, MD 20817. Telephone: 240-744-5121. Website: http://www.hosthotels.com Chrmn: R.E. Marriott

Pres & CEO: W.E. Walter EVP & CFO: L.K. Harvey EVP, Secy & General Counsel: E.A. Abdoo Investor Contact: G.J. Larson (240-744-5120)

Board Members: R. M. Baylis, W. W. Brittain, Jr., T. C. Golden, A. M. Korologos, R. E. Marriott, J. B. Morse, Jr., G. Smith, W. E. Walter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1927 Domicile: Maryland Employees: 186

Stock Report | October 23, 2010 | NYS Symbol: HRB | HRB is in the S&P 500

Block (H&R) Inc. S&P Recommendation HOLD

★★★★★

Price $10.78 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Specialized Consumer Services

12-Mo. Target Price $15.00

Investment Style Large-Cap Blend

Summary This diversified company provides a wide range of financial products and services, including income tax preparation, business, consulting, and retail banking services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.23– 10.13 Trailing 12-Month EPS $1.42 Trailing 12-Month P/E 7.6 $10K Invested 5 Yrs Ago $5,184

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.49 1.59 7.2 308.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

12

MEDIUM

HIGH

Quantitative Evaluations

Vol. Mil.

91

S&P Quality Ranking

24 16 8 0

D 3

2008

2009

Analysis prepared by Erik Kolb on October 11, 2010, when the stock traded at $ 13.82.

After a 5.1% total revenue decline in FY 10 (Apr.), we see roughly flat revenues in FY 11. HRB has been under pressure of late as potential filers, feeling pressured by job and economic uncertainty, have increasingly opted for DIY and e-filing options. Specifically, we see 1.1% growth in the tax service business offset by a 1.5% decline in business services. We are encouraged to hear HRB's goals of reducing early season customer losses and increasing digital competitiveness. However, at this point, we are awaiting signs of improvement. In FY 12, we see trends remaining relatively stable, and expect revenues to increase fractionally. We think the operating margin will remain flat at 20.2% in FY 11, reflecting our projection for a slightly lower cost of sales margin, but for other expenses to largely offset this. In FY 12, we see positive cost trends, and forecast the operating margin will reach 21.0%. We project EPS from continuing operations of $1.49 in FY 11, following FY 10's $1.43. In 2009, HRB authorized $2 billion of share repurchases through FY 12. Our FY 12 EPS estimate is $1.59.

B

B+

A-

A

A+ WEAK

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

6

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

B

Relative Strength Rank

3

2

1

➤

LOW

Despite HRB's leading tax preparer position in its market, our risk assessment reflects uncertainty surrounding a pending IRS ruling regarding a case on refund anticipation loan products. We are also concerned about internal accounting control issues, which, in 2006, caused HRB to restate almost three years of results.

16

➤

0.57 4 BBB

Below Avg.

20

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

25

5

$3.326 5.57 $0.60 93

We think HRB is increasing its focus on its core tax preparer business, which we view positively given its strong market share position in that business. We also view favorably HRB's efforts to drive growth in the expert-filer demographic. However, in a difficult macroeconomic environment, we see increased risk from e-filing trends and competition from independents offering lower-priced services. We believe management made progress toward narrowing its organizational focus through the May 2008 sale of Option One and the November 2008 sale of its H&R Block Financial Advisors business, but think further work may be required. HRB's last CEO and other high-level executives departed in 2010, raising some concerns regarding the company's near-term direction. Risks to our recommendation and target price include increased competition and ongoing litigation. We derive our 12-month target price of $15 by applying a 10.0X multiple, slightly below peers and HRB's historical five-year range given the near-term risks we see, to our FY 11 estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 274.5 -2010 275.5 326.1 2009 271.9 351.5 2008 381.2 434.8 2007 342.8 396.1 2006 615.0 605.0

3Q -934.9 993.5 972.6 931.2 1,157

4Q -2,338 2,467 2,615 2,351 2,496

Year -3,874 4,084 4,404 4,021 4,873

Earnings Per Share ($) 2011 -0.40 E-0.41 2010 -0.39 -0.38 2009 -0.39 -0.40 2008 -0.39 -0.42 2007 -0.36 -0.38 2006 -0.08 -0.25

E0.16 0.16 0.20 0.03 0.07 0.04

E2.14 2.10 2.09 2.11 1.81 1.77

E1.49 1.46 1.53 1.39 1.15 1.47

Fiscal year ended Apr. 30. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

11/30 02/22 05/05 07/29

12/09 03/09 06/08 09/08

12/12 03/11 06/10 09/10

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1962. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HRB

Block (H&R) Inc. Business Summary October 11, 2010 CORPORATE OVERVIEW. H&R Block (HRB) provides various financial products and services, which the company believes are complementary. In FY 10 (Apr.), Tax Services accounted for 76.8% of revenues and 110.6% of profits, Business Services 22.2% and 7.5%, and the corporate division accounted for 1.0% and -18.0%. The Tax Services division served about 23.2 million clients in FY 10 vs. 24.0 million in FY 09 and 24.6 million in FY 08. HRB's revenues related directly to the RAL program totaled $146.2 million in FY 10 or 3.8% of consolidated revenues. There were 11,506 company-owned and franchised U.S. H&R Block offices at April 30, 2010. In addition, HRB offers tax preparation services at hundreds of H&R Block Premium offices for more complex returns. International operations are located primarily in Australia, and Canada, with combined company owned and franchise offices numbering 1,643 at April 30, 2010. Tax Services also offers online tax preparation, tax preparation software, and guarantee programs.

MARKET PROFILE. HRB's largest segment, Tax Services, competes with other tax service chains, professional CPA/accounting firms, "mom and pop" local tax service providers and do-it-yourselfers DIYers). In addition, HRB and some other online tax service product providers participate in the Free Filing Alliance, which offers free online federal return preparation with no income limitations. We believe HRB competes successfully by offering many services at what customers believe is an acceptable price-to-value relationship. These services include: the convenience of the largest retail tax office network in the U.S.; a "Peace of Mind" Guarantee" (POM) whereby HRB commits to representing its clients if they are audited by the IRS, and assuming the cost of additional taxes resulting from errors attributable to an HRB tax professional; "Refund Anticipation Loans" and "Refund Anticipation Checks" and a service whereby DIYers using HRB's online service can have an HRB tax professional check their returns and receive the POM guarantee. By offering increased value, HRB has been able to raise its rates 5%-7% annually since 2002.

HRB also provides wealth management, accounting, tax and consulting services, and tax, and capital market services.

Company Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 0.72 1.78 1.47 1.52 NA NA 2009 23.27 13.73 16 9

2009 0.51 1.90 1.53 1.53 0.56 37% 2008 27.97 15.00 18 10

2008 NM 1.83 1.39 1.40 0.53 38% 2007 24.95 17.57 18 13

2007 0.74 1.62 1.15 1.15 0.49 42% 2006 25.75 19.80 22 17

2006 1.90 2.05 1.47 1.53 0.54 37% 2005 30.00 22.99 20 16

2005 1.64 2.43 1.88 1.76 0.39 21% 2004 30.50 22.08 16 12

2004 1.41 2.42 1.95 1.85 0.39 20% 2003 27.89 17.64 14 9

2003 1.69 2.02 1.58 1.44 0.35 22% 2002 26.75 14.50 17 9

2002 0.73 1.57 1.16 1.07 0.29 25% 2001 23.19 9.16 20 8

2001 0.67 2.61 0.76 0.73 0.27 35% 2000 12.38 6.73 16 9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,874 865 105 90.6 784 NA 489 506

4,084 963 122 1.65 839 38.9% 513 514

4,404 871 146 243 745 39.0% 454 458

4,021 810 150 46.9 636 41.1% 374 374

4,873 128 192 49.1 827 40.7% 490 509

4,420 215 184 62.4 1,018 37.5% 636 593

4,206 1,411 172 84.6 1,164 39.5% 704 665

3,780 240 162 92.6 987 41.2% 580 527

3,318 987 155 116 717 39.4% 434 400

3,002 913 206 243 473 41.5% 277 268

Balance Sheet & Other Financial Data (Million $) Cash 1,804 Current Assets 2,649 Total Assets 5,234 Current Liabilities 2,321 Long Term Debt 1,060 Common Equity 1,441 Total Capital 2,554 Capital Expenditures 90.5 Cash Flow 594 Current Ratio 1.1 % Long Term Debt of Capitalization 41.5 % Net Income of Revenue 12.6 % Return on Assets 9.2 % Return on Equity 34.4

1,655 2,571 5,360 2,398 1,107 1,406 2,546 97.9 635 1.1 43.5 12.6 9.3 42.9

729 2,382 5,623 3,096 1,032 988 2,131 106 600 0.8 48.4 10.3 6.9 37.8

1,254 3,454 7,499 5,176 520 1,414 1,934 161 525 0.7 26.9 9.3 5.6 21.0

1,088 2,824 5,989 2,893 418 2,148 2,565 251 682 1.0 16.3 12.4 8.5 23.9

1,617 3,071 5,539 2,209 923 1,976 2,899 209 820 1.4 31.8 14.3 11.8 33.5

1,617 2,961 5,380 2,472 546 1,897 2,443 128 876 1.2 22.3 16.7 13.9 39.6

1,337 2,747 4,604 1,897 822 1,664 2,486 151 742 1.4 33.1 21.4 13.1 38.2

617 2,245 4,231 1,880 868 1,369 2,238 112 590 1.2 38.8 13.1 10.4 34.2

326 2,271 4,122 1,988 871 1,174 2,045 90.0 482 1.1 42.6 9.2 5.6 23.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 H&R Block Way, Kansas City, MO 64105. Telephone: 816-854-3000. Email: [email protected] Website: http://www.hrblock.com

Chrmn: R.C. Breeden Pres & CEO: A. Bennett SVP & CIO: R. Agar CFO & Chief Acctg Officer: J. Brown

Secy: A.J. Somora Investor Contact: S. Dudley (816-854-4505) Board Members: A. Bennett, R. C. Breeden, W. C. Cobb, R. A. Gerard, L. J. Lauer, D. B. Lewis, B. C. Rohde, T. D. Seip, L. E. Shaw, Jr., C. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1946 Domicile: Missouri Employees: 110,400

Stock Report | October 23, 2010 | NNM Symbol: HCBK | HCBK is in the S&P 500

Hudson City Bancorp Inc S&P Recommendation BUY

★★★★★

Price $11.53 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Thrifts & Mortgage Finance

12-Mo. Target Price $15.00

Investment Style Large-Cap Blend

Summary Hudson City Bancorp, through Hudson City Savings Bank, operates over 100 branches in the New York metropolitan area. It caters to high median household income counties and focuses on jumbo mortgage loan funding, largely through time deposits.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $14.75– 11.35 Trailing 12-Month EPS $1.14 Trailing 12-Month P/E 10.1 $10K Invested 5 Yrs Ago $11,584

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.11 1.14 10.4 526.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.072 5.20 $0.60 59

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.61 5 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the solid credit quality of HCBK's loan portfolio and its history of profitability. While the company operates in a highly competitive and fragmented industry, companies in the industry tend to produce relatively stable financial results.

25

16 12

8

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 60 40 20 0 5

D 5 3

4

C

B-

A B

B+

A-

A

Relative Strength Rank

5

4

3

A+ WEAK

18 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Rafay Khalid, CFA on October 20, 2010, when the stock traded at $ 11.67. Highlights ➤

➤

➤

We forecast revenues will increase 7% in 2010, versus 34% in 2009, on our view of 6% loan growth. But we see flat loan growth in 2011 due to a lack of qualified borrowers and increasing competition in the jumbo loan market. As a result, we see revenues decreasing 2% in 2011. We expect the net interest margin to decline to 2.07% and 2.02% in 2010 and 2011, respectively, from 2.21% in 2009. Our forecast assumes that the low mortgage interest rate environment will continue for the rest of 2010 and in 2011. We look for HCBK's efficiency ratio to remain among the best in the industry, at 19.6% in 2010 and 18.2% in 2011. While we see full-year 2010 loss provisions increasing to $190 million, we expect quarterly provisions will gradually decline during 2010. We note that loss provisions increased to 0.68% of total loans as of September 2010, up from 0.44% as of December 2009. We see charge-offs rising through 2010, largely due to the more lengthy default and foreclosure process associated with lower loan-to-value mortgages. We forecast EPS of $1.11 in 2010 and $1.14 in 2011, compared to $1.07 in 2009.

Investment Rationale/Risk ➤

➤

➤

We think HCBK's avoidance of subprime, option adjustable rate mortgages and high loanto-value products will enable the company to weather the difficult housing market better than competitors. In our opinion, HCBK has adequate capital to continue pursuing its riskaverse growth strategy, based on its tangible equity to assets ratio of 9.28% as of September 2010. We believe the new financial legislation will have little or no financial impact on the company, reflecting what we view as HCBK's conservative business operations. Risks to our opinion and target price include greater-than-expected job losses in the New York City metropolitan area, competition significantly increasing in the jumbo loan market, and severe deterioration in prime loans. Our 12-month target price of $15 is based on a on a historical average tangible book value ratio of 1.2X our 2011 tangible book value per share forecast of $12.52. We believe this historical average is warranted, reflecting what we see as an improving economic recovery environment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 767.9 750.8 2009 725.6 754.4 2008 615.5 648.8 2007 481.2 513.3 2006 361.0 385.6 2005 257.5 280.5

3Q -746.7 683.5 550.3 423.7 315.2

4Q -748.7 714.0 590.0 449.0 333.8

Year -2,975 2,662 2,135 1,621 1,187

Earnings Per Share ($) 2010 0.30 0.29 2009 0.26 0.26 2008 0.18 0.22 2007 0.13 0.14 2006 0.13 0.13 2005 0.11 0.11

E0.25 0.27 0.25 0.15 0.13 0.13

E0.26 0.28 0.25 0.16 0.13 0.13

E1.11 1.07 0.90 0.58 0.53 0.48

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

01/20 04/21 07/21 10/20

02/03 05/03 08/03 11/03

02/05 05/05 08/05 11/05

03/02/10 05/28/10 08/27/10 11/30/10

Dividends have been paid since 1999. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: HCBK

Hudson City Bancorp Inc Business Summary October 20, 2010 CORPORATE OVERVIEW. New Jersey-based Hudson City Bancorp, Inc. (HCBK), a community- and consumer-oriented retail savings bank holding company, offers traditional deposit products, residential real estate mortgage loans and consumer loans. In addition, HCBK purchases mortgages, mortgage-backed securities, securities issued by the U.S. government and government-sponsored agencies and other investments permitted by applicable laws and regulations. HCBK is the holding company of its only subsidiary, Hudson City Savings Bank. The company's revenues are derived principally from interest on mortgage loans & mortgage-backed securities and interest & dividends on investment securities. The bank's primary sources of funds are customer deposits, borrowings, scheduled amortization and prepayments of mortgage loans and mortgage-backed securities, maturities and calls of investment securities and funds provided by operations.

folio. HCBK's loan portfolio also includes multi-family and commercial mortgage loans, construction loans and consumer and other loans, which primarily consist of fixed-rate second mortgage loans and home equity credit lines. The company does not originate or purchase subprime loans, negative amortization loans or option adjustable rate mortgage loans. CORPORATE STRATEGY. HCBK seeks to continue its growth by focusing on the origination and purchase of mortgage loans, while purchasing mortgagebacked securities and investment securities as a supplement. It intends to fund its growth with customer deposits and borrowed funds. The company aims to increase customer deposits by continuing to offer desirable products at competitive rates and by opening new branch offices. HCBK continues to focus on high median household income counties, in line with its jumbo mortgage loan and consumer deposit business model.

PRIMARY BUSINESS DYNAMICS. As of December 31, 2009, HCBK had total loans of $31.8 billion. Hudson's loan portfolio primarily consists of one-to-four family residential first mortgage loans. HCBK's first mortgage loans totaled $30.8 billion as of December 31, 2009, representing 97% of the total loan portCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.55 1.07 1.07 0.59 55% 15.89 7.46 15 7

2008 9.77 0.90 0.89 0.60 67% 25.05 13.28 28 15

2007 9.22 0.58 0.58 0.33 57% 16.08 11.45 28 20

2006 8.54 0.53 0.53 0.30 57% 14.09 11.90 27 22

2005 8.83 0.48 0.47 0.27 56% 12.61 10.09 26 21

2004 2.35 0.40 0.39 0.22 54% 12.79 9.79 32 24

2003 2.18 0.35 0.34 0.16 47% 12.00 5.79 35 17

2002 2.14 0.32 0.31 0.11 34% 6.71 4.04 21 13

2001 2.03 0.21 0.20 0.07 35% 4.14 2.72 20 13

2000 2.04 0.16 NA 0.03 21% 3.16 1.97 19 12

Income Statement Analysis (Million $) Net Interest Income Loan Loss Provision Non Interest Income Non Interest Expenses Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

1,243 138 33.6 266 874 39.7% 527 2.21 529

942 19.5 8.50 198 733 39.2% 446 1.96 440

647 4.80 7.27 168 482 38.6% 296 1.64 294

613 Nil 6.29 159 461 37.3% 289 1.96 287

562 0.07 5.27 128 442 37.6% 276 2.35 272

485 0.79 16.6 118 382 37.4% 239 3.66 235

401 0.90 5.34 103 327 36.6% 207 2.65 204

388 1.50 5.95 93.5 301 36.3% 192 3.10 186

287 1.88 4.69 81.8 208 35.3% 135 2.87 128

254 2.13 4.54 79.0 177 35.3% 115 2.90 NA

Balance Sheet & Other Financial Data (Million $) Total Assets 60,268 Loans 31,721 Deposits 24,578 Capitalization:Debt 29,975 Capitalization:Equity 5,339 Capitalization:Total 35,314 % Return on Assets 0.9 % Return on Equity 10.3 % Loan Loss Reserve 0.4 % Risk Based Capital 21.0 Price Times Book Value:High 1.5 Price Times Book Value:Low 0.7

54,163 29,441 18,464 30,225 4,949 35,174 0.9 9.3 0.2 21520.0 2.6 1.4

44,424 24,198 15,153 24,141 4,611 28,752 0.7 6.2 0.1 24.8 1.1 0.8

35,507 19,069 13,416 16,966 4,930 21,896 0.9 5.7 0.2 31.0 1.6 1.4

28,075 15,037 11,383 11,350 5,201 16,551 1.1 8.4 0.2 41.3 1.4 1.1

20,146 11,328 11,477 7,150 1,403 8,553 1.3 17.5 0.2 17.5 5.4 4.2

17,033 8,766 10,454 5,150 1,329 6,479 1.3 15.7 0.2 7.5 5.5 2.7

14,145 6,932 9,139 3,600 1,316 4,916 1.5 14.7 0.4 26.8 3.1 1.9

11,427 5,932 7,913 2,150 1,289 3,439 1.3 9.8 0.4 32.0 2.0 1.3

9,380 4,841 6,604 650 1,465 2,115 1.3 7.8 0.5 43.0 1.5 0.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 80 W Century Rd, Paramus, NJ, USA 07652-1405. Telephone: 201-967-1900. Website: http://www.hcbk.com Chrmn, Pres & CEO: R.E. Hermance, Jr.

COO, EVP & Chief Acctg Officer: D.J. Salamone EVP & CFO: J.C. Kranz SVP, Treas & Secy: V.A. Olszewski Investor Contact: S. Munhall (201-967-8290)

Board Members: M. W. Azzara, W. G. Bardel, S. A. Belair, V. H. Bruni, W. J. Cosgrove, C. E. Golding, R. E. Hermance, Jr., D. O. Quest, D. J. Salamone, J. G. Sponholz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1868 Domicile: Delaware Employees: 1,552

Stock Report | October 23, 2010 | NYS Symbol: HUM | HUM is in the S&P 500

Humana Inc.

★★★★★

S&P Recommendation BUY

Price $56.97 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Managed Health Care

12-Mo. Target Price $58.00

Investment Style Large-Cap Growth

Summary This company provides a broad range of managed health care services to more than 10.3 million individuals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $57.14– 35.78 Trailing 12-Month EPS $6.78 Trailing 12-Month P/E 8.4 $10K Invested 5 Yrs Ago $12,404

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.39 5.50 8.9 169.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.641 Nil Nil 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.08 -2 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HUM's heavy reliance on Medicare Advantage (MA) for growth. We also believe that intense competition will continue to limit commercial enrollment growth.

80 60 40

Quantitative Evaluations 20

S&P Quality Ranking Vol.

D

C

B-

B+ B

B+

A-

A

A+

126

Mil.

48

24 16 8 0

Relative Strength Rank

STRONG 86

LOWEST = 1 4

5

4

3

4

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Phillip M. Seligman on October 05, 2010, when the stock traded at $ 50.22. Highlights ➤

➤

➤

We see operating revenues (premium, fee and other revenues, but not investment income) rising to over $33.7 billion in 2010, from $30.7 billion in 2009. Drivers we see include 255,000 more Medicare Advantage (MA; Medicare health plan) members by year end, but 215,000 fewer Medicare Part D standalone drug program members, 210,000 fewer fully insured commercial members and 120,000 fewer self-funded commercial members, and no change in Medicaid and TRICARE enrollment. We believe companywide medical costs will rise 60 basis points (bps) to 83.4% of premium revenues (MCR; medical cost ratio) in 2010. We see the impact of the reduced MA premium rate and more people covered via COBRA (temporary health plan continuation for laid-off workers) partly offset by favorable prior-year claims reserve development. We expect SG&A costs to decline 40 bps to 13.5% of operating revenue, on scale efficiencies and cost control. We project operating EPS of $6.39 (including an estimated $0.23 charge for the planned March 2011 TRICARE exit and $0.28 for additional Medicare growth initiatives) in 2010, versus $6.15 in 2009. We look for $5.50 in 2011.

Investment Rationale/Risk ➤

We believe HUM has the size, scale and flexibility to adjust to the reduced MA premium rates and the MCR floor requirements of health care reform. Moreover, as long as current and prospective members view HUM's MA plans as more attractive than rivals' or traditional Medicare, we think they will continue to expand. Meanwhile, we are encouraged that HUM has been making progress transitioning some PFFS members to its higher-margin HMOs and PPOs prior to the 2011 end of PFFS in nonrural geographies, and has developed a network-PFFS product to attract PFFS members who might otherwise leave. We are also positive on its new joint venture with Cigna (CI 36, Buy), which could augment MA enrollment, and one with Wal-Mart Stores (WMT 54, Strong Buy), which could add to its Medicare Part D enrollment.

➤

Risks to our recommendation and target price include intensified competition, a medical cost spike, and MA rate cuts.

➤

Our 12-month target price of $58 assumes a multiple of 9X applied to our 2010 EPS estimate. The slightly below-peer multiple reflects significant dependence on government business.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 8,441 8,653 2009 7,712 7,899 2008 6,960 7,351 2007 6,205 6,427 2006 4,704 5,407 2005 3,887 3,546

3Q -7,717 7,148 6,320 5,650 3,821

4Q -7,633 7,488 6,339 5,655 3,663

Year -30,960 28,946 25,290 21,417 14,418

Earnings Per Share ($) 2010 1.52 2.00 2009 1.22 1.67 2008 0.47 1.24 2007 0.42 1.28 2006 0.50 0.53 2005 0.54 0.51

E1.70 1.78 1.09 1.78 0.95 0.30

E0.62 1.48 1.03 1.43 0.92 0.39

E6.39 6.15 3.83 4.91 2.90 1.87

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 1993.

Stock Report | October 23, 2010 | NYS Symbol: HUM

Humana Inc. Business Summary October 05, 2010 CORPORATE OVERVIEW. Humana is one of the largest managed care organizations, with medical membership of 10,274,300 (8,480,300 excluding Medicare Prescription Drug Program (PDP) enrollment) as of June 30, 2010, versus 10,283,300 (8,355,500) at December 31, 2009. The Commercial segment consists of members enrolled in products marketed to employer groups and individuals, including fully insured medical (1,702,500 versus 1,839,500), administrative services only (ASO; 1,582,600 versus 1,571,000), and specialty (7,297,000 versus 7,200,100). Fully insured medical members (20.0% of total premium and fee revenues in 2009) are in health maintenance organizations (HMOs), which require members to use only doctors in their networks and generally reimburse providers on a capitated basis, and in preferred provider organizations (PPOs), which allow members the option to go to doctors outside of the network, with the members paying a portion of the provider's fees. ASO products (1.3%), which include HMOs, PPOs and consumer-directed health plans, are offered to employers that self-insure their employee health plans. Specialty products (3.1%) include dental, group and individual life, and short-term disability.

634,800 versus 591,900; PPO: 618,300 versus 352,400; private fee-for-service; PFFS: 479,300 versus 564,200; and ASO: 28,700 versus none); Medicare PDP (1,793,400 versus 1,927,900); Medicaid (404,600 versus 401,700), and the Dept. of Defense health program, TRICARE (fully insured: 1,759,800 versus 1,756,000; ASO: 1,270,900 versus 1,278,400). In 2009, MA revenues were $16.4 billion (53.9% of premium and fee revenues) and Medicare PDP revenues were $3.4 billion (11.2%). As of April 2008 (latest available), MA plans included 14 local HMOs, 41 local PPOs, a regional PPO in 25 states, and private fee-for-service (PFFS) programs in 50 states. HUM also offered the Medicare Prescription Drug Program in 50 states. The Medicaid unit (2.1%) has contracts in Puerto Rico and Florida. HUM's current TRICARE South Region contract (fully insured: 11.3%; administrative services fees: 0.3%) covers beneficiaries in 10 states.

The Government segment consists of Medicare Advantage (MA; HMO: Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 20.80 NA 6.15 6.08 Nil Nil 46.20 18.57 8 3

2008 12.99 5.13 3.83 4.14 Nil Nil 88.10 22.33 23 6

2007 13.91 6.00 4.91 4.87 Nil Nil 81.50 51.00 17 10

2006 10.46 3.79 2.90 2.64 Nil Nil 68.24 41.08 24 14

2005 7.41 2.68 1.87 1.99 Nil Nil 55.70 28.92 30 15

2004 7.52 2.45 1.72 1.55 Nil Nil 31.02 15.20 18 9

2003 6.54 2.20 1.41 1.23 Nil Nil 23.39 8.68 17 6

2002 5.09 1.57 0.85 0.87 Nil Nil 17.45 9.78 21 12

2001 4.33 1.67 0.70 0.63 Nil Nil 15.63 8.38 22 12

2000 3.43 1.42 0.54 NA Nil Nil 15.81 4.75 29 9

30,960 NA NA 106 1,602 35.1% 1,040 1,027

28,946 1,293 220 80.3 993 34.8% 647 699

25,290 1,543 185 68.9 1,289 35.3% 834 826

21,417 974 149 63.1 762 36.0% 487 443

14,418 590 129 39.3 422 26.9% 308 330

13,104 415 118 23.2 416 32.7% 280 252

12,226 489 127 17.4 345 33.6% 229 200

11,261 384 121 17.0 210 32.0% 143 145

10,195 114 162 25.0 183 36.1% 117 104

10,395 171 147 29.0 114 21.1% 90.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,614 Current Assets NA Total Assets 14,153 Current Liabilities NA Long Term Debt 1,678 Common Equity 5,776 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 1.8 % Long Term Debt of Capitalization 22.5 % Net Income of Revenue 3.4 % Return on Assets 7.7 % Return on Equity 20.3

1,970 8,396 13,042 5,184 1,937 4,457 6,394 262 868 1.6 30.3 2.2 5.0 15.3

5,676 8,733 12,879 5,792 1,688 4,029 5,717 239 1,018 1.5 29.5 3.3 7.3 23.5

1,740 7,333 10,127 5,192 1,269 3,054 4,323 193 636 1.4 29.4 2.3 5.7 17.5

732 4,206 6,870 3,220 514 2,474 2,988 166 437 1.3 17.2 2.1 4.9 13.5

580 3,596 5,658 2,327 637 2,090 2,727 114 398 1.5 23.3 102.6 5.1 14.3

931 3,321 5,293 2,265 643 1,836 2,479 101 356 1.5 25.9 1.9 4.5 13.3

721 2,795 4,600 2,390 340 1,606 1,946 112 264 1.2 17.5 1.3 3.2 9.2

651 2,623 4,404 2,307 315 1,508 1,823 115 279 1.1 17.3 1.2 2.7 8.2

2,067 2,499 4,167 2,665 Nil 1,374 1,374 135 237 0.9 Nil 0.9 2.0 6.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 W Main St, Louisville, KY 40202-4268. Telephone: 502-580-1000. Website: http://www.humana.com Chrmn, Pres & CEO: M.B. McCallister

COO: J.E. Murray SVP, CFO & Treas: J.H. Bloem SVP & General Counsel: C.M. Todoroff SVP & CIO: B.J. Goodman

Investor Contact: R.C. Nethery (502-580-3644) Founded: 1964 Board Members: F. A. D'Amelio, W. R. Dunbar, K. J. Domicile: Delaware Hilzinger, D. A. Jones, Jr., M. B. McCallister, W. J. Employees: 28,100 McDonald, W. E. Mitchell, D. B. Nash, J. J. O'Brien, M. T. Peterson, W. A. Reynolds

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: HBAN | HBAN is in the S&P 500

Huntington Bancshares Inc S&P Recommendation BUY

★★★★★

Price $5.69 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $7.00

Investment Style Large-Cap Blend

Summary This regional bank holding company has over 600 banking offices in Ohio, Michigan, Indiana, Pennsylvania, Kentucky, and West Virginia.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$7.40– 3.50 $-0.82 NM $3,150

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.25 0.51 22.8 716.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.079 0.70 $0.04 63

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.68 NA BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects HBAN's Midwestern lending exposure, offset by our view of its recently strengthened capital position, and prospects for improving credit metrics.

20

8 4

Quantitative Evaluations

2 1

S&P Quality Ranking

Vol.

D

Mil.

B-

BB

B+

A-

A

A+

299

257

120 80 40 0 5

C

Relative Strength Rank

WEAK

26 LOWEST = 1 3

2

3

3

2

3

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Highlights ➤

The 12-month target price for HBAN has recently been changed to $7.00 from $8.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on HBAN from MarketScope, see below.

➤

10/21/10 03:37 pm ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF HUNTINGTON BANCSHARES (HBAN 5.6****): Q3 EPS of $0.10, vs. a loss per share of $0.33, misses our $0.11 EPS estimate, on a higher than expected loan loss provision and noninterest expenses. However, the decline of the provision, and improvement in credit quality was faster than most peers. On Q3 results, we lower our '10 EPS estimate to $0.25 from $0.26. On our lower credit cost estimates for '11, we raise our '11 EPS estimate to $0.51 from $0.49. On our analysis of relative valuation multiples, we lower our target price to $7, down $1, based on a slight premium to peers 13.7X our '11 EPS estimate. /E.Oja

Revenue (Million $) 1Q 2Q 2010 787.6 805.3 2009 809.1 829.0 2008 971.2 933.1 2007 689.1 698.7 2006 624.3 684.9 2005 544.2 558.5

3Q -809.9 853.6 1,056 636.9 581.6

4Q -795.9 729.6 985.0 685.5 589.8

Year -3,244 3,505 3,420 2,632 2,274

Earnings Per Share ($) 2010 0.01 0.03 2009 -6.79 -0.40 2008 0.35 0.25 2007 0.40 0.34 2006 0.45 0.46 2005 0.41 0.45

E0.10 -0.33 0.17 0.38 0.65 0.47

E0.11 -0.56 -1.20 -0.65 0.37 0.44

E0.25 -6.14 -0.44 0.25 1.92 1.77

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

01/20 04/19 07/21 10/20

03/16 06/15 09/15 12/16

03/18 06/17 09/17 12/20

04/01/10 07/01/10 10/01/10 01/03/11

Dividends have been paid since 1912. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: HBAN

Huntington Bancshares Inc Business Summary August 16, 2010 CORPORATE OVERVIEW. Huntington Bancshares Inc. (HBAN) is a multi-state diversified financial holding company focused on the Midwest region of the United States. It provides full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, and brokerage services. The company also offers insurance services. The regional banking line of business provides traditional banking products and services to consumer, small business and commercial customers located in its eight operating regions within the six states of Ohio, Pennsylvania, Michigan, West Virginia, Indiana and Kentucky. It provides these services through a banking network of 600 branches, over 1,300 ATMs, along with Internet and telephone banking channels. It also provides certain services outside of these six states, including mortgage banking and equipment leasing. Each region is further divided into retail and commercial banking units.

$25.8 billion in deposits, a nearly 11% deposit market share, and a number three ranking in the state. In Michigan, HBAN had 121 branches, $6.4 billion in deposits, a 3.93% deposit market share, ranking eighth. In Pennsylvania, HBAN had 60 offices, $2.7 billion in deposits, ranking 19th. IMPACT OF MAJOR DEVELOPMENTS. During 2009, HBAN completed several transactions to increase equity capital. In the third quarter of 2009, HBAN completed an offering of 109.5 million shares of its common stock at $4.20 per share, or $460.1 million in aggregate gross proceeds. In the second quarter of 2009, HBAN completed an offering of 103.5 million shares of its common stock at $3.60 per share, or $372.6 million in aggregate gross proceeds. Also, during 2009, HBAN completed three separate discretionary equity issuance programs, issuing a total of 92.7 million new shares of common stock worth a total of $345.8 million.

As of June 30, 2009, based on the most recent FDIC data, HBAN operated 624 branches, including 349 branches in its home state of Ohio. In Ohio, HBAN had Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.07 -6.14 -1.25 0.04 NM 8.00 1.00 NM NM

2008 6.27 -0.44 -0.52 0.04 NM 14.87 4.37 NM NM

2007 7.14 0.25 0.32 1.06 NM 24.14 13.50 97 54

2006 10.12 1.92 1.95 1.00 52% 24.97 22.56 13 12

2005 11.41 1.77 1.73 0.85 48% 25.41 20.97 14 12

2004 10.02 1.71 1.66 0.75 44% 25.38 20.89 15 12

2003 8.99 1.67 1.56 0.67 40% 22.55 17.78 14 11

2002 8.95 1.49 0.67 0.64 43% 21.77 16.00 15 11

2001 6.77 0.71 0.60 0.72 101% 19.28 12.63 27 18

2000 9.43 1.32 NA 0.74 56% 21.82 12.52 17 9

1,424 11.5 1,006 2,075 166.0% -3,678 NM -3,094 3.11 -662

1,532 20.2 707 1,057 57.0% -296 NM -114 3.25 -190

1,302 19.3 706 644 62.5% 22.6 NM 75.2 3.36 96.8

1,019 16.0 634 65.2 60.0% 514 10.3% 461 3.29 467

962 13.4 640 81.3 60.5% 544 24.2% 412 3.33 405

911 NA 803 55.1 65.5% 553 27.8% 399 3.33 388

849 9.68 1,064 164 64.3% 524 26.4% 386 3.49 360

984 5.21 680 227 50.6% 589 38.4% 363 4.19 165

996 6.35 509 309 67.4% 173 NM 179 4.02 152

942 8.31 494 90.5 61.7% 460 28.6% 328 3.73 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 403 Investment Securities 8,588 Commercial Loans 20,577 Other Loans 14,731 Total Assets 51,555 Demand Deposits 12,797 Time Deposits 27,697 Long Term Debt 3,803 Common Equity 3,648 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 4.0 % Loans/Deposits 90.9 % Equity to Assets 8.5

419 4,384 23,639 16,553 54,312 9,560 32,466 6,871 5,349 NM NM 2.2 108.3 10.4

1,965 4,500 22,308 17,746 54,697 5,372 32,371 6,955 5,949 0.2 1.7 1.4 105.4 10.0

551 4,363 12,354 13,799 35,329 3,616 21,432 4,513 3,014 1.4 16.6 1.0 105.5 8.2

105 4,527 10,845 13,627 32,765 3,390 19,020 4,597 2,594 1.3 16.0 -0.7 171.3 7.8

960 4,239 10,303 13,257 32,565 3,392 17,376 6,227 2,538 1.3 16.6 1.1 114.5 7.6

138 4,929 9,486 11,590 30,484 2,987 15,500 6,808 2,275 1.3 17.3 1.6 115.2 7.7

86.6 3,411 9,336 11,619 27,579 3,074 14,425 3,304 2,304 1.3 15.4 1.7 122.8 8.4

118 2,862 10,415 11,187 28,500 3,741 16,446 3,039 2,416 0.6 7.5 1.8 110.1 8.4

143 4,107 8,887 11,723 28,599 3,505 16,272 3,338 2,366 1.1 14.4 1.4 105.0 7.9

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 41 S High St, Columbus, OH 43287. Telephone: 614-480-8300. Website: http://www.huntington.com Chrmn, Pres & CEO: S.D. Steinour

COO, CTO & CIO: Z. Afzal EVP, CFO & Treas: D.R. Kimble EVP, Secy & General Counsel: R.A. Cheap EVP & Cntlr: D.S. Anderson

Investor Contact: D.R. Kimble (614-480-5676) Founded: 1966 Board Members: D. M. Casto, III, A. B. Crane, M. J. Domicile: Maryland Endres, J. B. Gerlach, Jr., D. J. Hilliker, D. P. Lauer, J. A. Employees: 10,272 Levy, W. J. Lhota, G. P. Mastroianni, R. W. Neu, D. L. Porteous, K. H. Ransier, W. R. Robertson, S. D. Steinour

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: ITW | ITW is in the S&P 500

Illinois Tool Works Inc. S&P Recommendation BUY

★★★★★

Price $46.94 (as of Oct 25, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $51.00

Investment Style Large-Cap Growth

Summary This diversified manufacturer operates a portfolio of about 840 industrial and consumer businesses throughout the world.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.72– 40.33 Trailing 12-Month EPS $3.25 Trailing 12-Month P/E 14.4 $10K Invested 5 Yrs Ago $13,104

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.04 3.34 15.4 503.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.08 10 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects an S&P Quality Ranking of A, a balance sheet that we see as strong with a relatively low level of debt, and free cash flow that has averaged about 121% of net income over the past 10 years.

60 50 40

30

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

$23.635 2.90 $1.36 81

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

43 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Mathew Christy, CFA on October 25, 2010, when the stock traded at $ 47.04. Highlights ➤

➤

➤

Investment Rationale/Risk

After a decline of nearly 19% in 2009, we expect that revenue will increase nearly 14% in 2010, based on better economic conditions along with the positive benefits of acquisitions. In addition, we believe that ITW's early-cycle businesses will have larger gains relative to the remainder of the business, and we expect the company to benefit from better industrial activity, higher demand, and some inventory restocking. For 2011, we see revenue advancing more than 9% on continued growth in the industrial economy and as a result of acquisitions.

➤

Following the nearly four percentage point decline in the operating margin in 2009, we believe that margins will improve this year due mainly to better operating leverage and production rates along with benefits associated with cost-cutting initiatives. In 2011, we project that operating margins will be somewhat lower as compared to 2010 results.

➤

Assuming taxes at an effective rate between 29% and 32% in 2010 and 2011, we forecast EPS of $3.04 and $3.34 for the respective years.

➤

Revenue/Earnings Data

2010

Following the weak results in 2009 due to the global recession, revenues have been improving sequentially as the global economy recovers and global industrial activity improves. (S&P forecasts economic growth for 2010 and 2011.) We look for ITW to benefit from higher industrial-related demand, acquisitions, and marginal benefits from an expected increase in automotive build rates. We view the shares as attractive, recently trading at about 13.9X our 2011 EPS estimate, below the peer average, versus a 10% historical premium. Risks to our recommendation and target price include lower-than-expected industrial activity and/or capital spending; acquisition execution risk; and, a significant slowing of construction activity and/or automotive markets. Our 12-month target price of $51 represents a blend of two valuation metrics. Our discounted cash flow model, which assumes 3% growth in perpetuity and a 9.6% weighted average cost of capital, indicates intrinsic value of about $53. In terms of relative valuation, we apply a target multiple of about 15X, ahead of peers, to our 2011 EPS estimate, suggesting a value of $50.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 3,606 4,076 2009 2,914 3,393 2008 4,139 4,570 2007 3,759 4,160 2006 3,297 3,579 2005 3,074 3,296

3Q 4,018 3,580 4,148 4,094 3,538 3,258

4Q -3,757 3,678 4,244 3,641 3,294

Year -13,877 15,869 16,171 14,055 12,922

Earnings Per Share ($) 2010 0.58 0.83 2009 -0.06 0.36 2008 0.57 1.01 2007 0.71 0.90 2006 0.65 0.81 2005 0.53 0.65

0.83 0.60 0.85 0.89 0.78 0.72

E0.78 E0.80 0.54 0.87 0.77 0.71

E3.04 1.93 3.04 3.28 3.01 2.60

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.310 0.310 0.310 0.340

10/30 02/12 05/07 08/06

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/12/10 04/13/10 07/13/10 10/13/10

Dividends have been paid since 1933. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: ITW

Illinois Tool Works Inc. Business Summary October 25, 2010 CORPORATE OVERVIEW. Illinois Tool Works (ITW) operates about 840 consumer and industrial businesses in 57 countries in a highly decentralized structure that places responsibility on managers at the lowest level possible, in an attempt to focus each business unit on the needs of particular customers. Each business unit manager is held strictly accountable for the results of his or her individual business. CORPORATE STRATEGY. ITW is diversified not only by customer and industry, but also by geographic region, with about 57.5% of revenues derived from overseas. At the end of 2009, ITW diversified its business segmentation beyond its former four reporting segments and now reports on the basis of eight reportable segments -- Industrial Packaging, Power Systems & Electronics, Transportation, Construction Products, Food Equipment, Decorative Surfaces, Polymers & Fluids and All Other. The Industrial Packaging segment (13.7% of revenues and 6.4% of operating income in 2009; 4.7% operating profit margin) produces steel, plastic and paper products used for bundling, shipping and protecting transported goods. In 2009, major markets served were primary metals (20%), general industrial (29%), construction (10%) and food and beverage (12%).

duces equipment and consumables associated with specialty power conversion, metallurgy, welding, and electronics. In 2009, this segment primarily served the general industrial (46%), electronics (16%) and construction (7%) markets. The Transportation segment (14.9% and 11%; 7.4%) produces components, fasteners, fluids, fillers and putties, truck parts services, and polymers for transportation-related applications. In 2009, this segment primarily served the automotive original equipment manufacturers (56%) and auto aftermarket (28%). The Construction Products segment (11% and 7.1%; 6.4%) produces fasteners and related fastening tools for wood applications; anchors, fasteners and related tools for concrete and wood applications; metal plate truss components and related equipment and software; and packaged hardware fasteners, anchors and other products for retail. In 2009, this segment primarily served the residential (47%), commercial (26%), and renovation (24%) construction markets.

The Power Systems & Electronics segment (11.6% and 15.6%; 13.4%) proCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.43 3.06 1.93 2.12 1.24 64% 51.16 25.60 27 13

2008 2.78 3.71 3.04 2.84 1.18 39% 55.59 28.50 18 9

2007 7.37 4.22 3.28 3.27 0.98 30% 60.00 45.60 18 14

2006 6.94 3.79 3.01 3.03 0.92 30% 53.54 41.54 18 14

2005 6.89 3.26 2.60 2.60 0.61 23% 47.32 39.25 18 15

2004 7.59 2.78 2.20 2.13 0.52 24% 48.35 36.46 22 17

2003 8.22 2.18 1.69 1.63 0.47 28% 42.35 27.28 25 16

2002 6.90 2.01 1.51 1.38 0.45 30% 38.90 27.52 26 18

2001 5.42 1.94 1.31 1.13 0.42 32% 36.00 24.58 27 19

2000 4.82 2.25 1.58 NA 0.38 24% 34.50 24.75 22 16

13,877 2,060 569 165 1,214 20.1% 969 1,064

15,869 2,690 351 152 2,191 27.8% 1,583 1,476

16,171 3,147 523 102 2,581 29.3% 1,826 1,818

14,055 2,865 444 85.6 2,445 29.8% 1,718 1,729

12,922 2,558 383 87.0 2,182 31.5% 1,495 1,493

11,731 2,410 353 69.2 1,999 33.0% 1,340 1,299

10,036 1,940 307 70.7 1,576 34.0% 1,040 1,009

9,468 1,812 306 68.5 1,434 35.0% 932 851

9,293 1,692 386 68.1 1,231 34.8% 802 691

9,984 1,977 413 72.4 1,478 35.2% 958 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,319 Current Assets 5,675 Total Assets 16,082 Current Liabilities 2,836 Long Term Debt 2,915 Common Equity 8,808 Total Capital 11,733 Capital Expenditures 247 Cash Flow 1,538 Current Ratio 2.0 % Long Term Debt of Capitalization 24.8 % Net Income of Revenue 7.0 % Return on Assets 6.2 % Return on Equity 11.8

743 5,924 15,213 4,876 1,244 7,663 9,022 355 1,935 1.2 13.8 10.0 10.3 18.6

828 6,166 15,526 2,960 2,299 9,351 11,501 353 2,349 2.1 16.8 11.3 12.4 19.9

590 5,206 13,880 2,637 956 9,018 9,973 301 2,162 2.0 9.6 12.2 13.6 20.7

370 4,112 11,446 2,001 958 7,547 8,505 293 1,878 2.1 11.3 11.6 13.1 19.7

667 4,322 11,352 1,851 921 7,628 8,549 283 1,693 2.3 10.8 11.4 11.9 17.3

1,684 4,783 11,193 1,489 920 7,874 8,795 258 1,347 3.2 10.5 10.4 9.5 14.3

1,058 3,879 10,623 1,567 1,460 6,649 8,109 271 1,238 2.5 18.0 9.8 9.1 14.7

282 3,163 9,822 1,518 1,267 6,041 7,308 257 1,189 2.1 17.3 8.6 8.3 14.0

151 3,329 9,603 1,818 1,549 5,401 6,950 314 1,371 1.8 22.3 9.6 10.3 18.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3600 W. Lake Avenue, Glenview, IL 60026-5811. Telephone: 847-724-7500. Website: http://www.itw.com Chrmn & CEO: D.B. Speer

SVP & CFO: R.D. Kropp SVP, Secy & General Counsel: J.H. Wooten, Jr. Chief Acctg Officer: R.J. Scheuneman Investor Contact: J. Brooklier (847-657-4104)

Board Members: M. D. Brailsford, S. M. Crown, D. H. Davis, Jr., R. C. McCormack, R. S. Morrison, J. Skinner, D. H. Smith, Jr., D. B. Speer, P. B. Strobel, K. M. Warren, A. D. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1912 Domicile: Delaware Employees: 59,000

Stock Report | October 23, 2010 | NYS Symbol: TEG | TEG is in the S&P 500

Integrys Energy Group Inc

★★★★★

S&P Recommendation STRONG SELL

Price $53.39 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $40.00

Investment Style Large-Cap Blend

Summary This utility holding company serves about 485,000 regulated electric and 1,674,000 regulated gas customers. The company also operates an unregulated retail marketing business.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $53.92– 34.20 Trailing 12-Month EPS $2.63 Trailing 12-Month P/E 20.3 $10K Invested 5 Yrs Ago $13,362

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.33 3.48 16.0 77.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.123 5.09 $2.72 56

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.92 11 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as a balanced portfolio of operations, which includes lower risk gas and electric utility businesses as well as higher risk unregulated retail energy marketing services.

60

40 30

Quantitative Evaluations

20

S&P Quality Ranking

Vol. 12

Mil.

D

6 4 2 0

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 65

4

5

3

LOWEST = 1 2

HIGHEST = 99

1

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: P, Ph

Analysis prepared by Christopher B. Muir on August 23, 2010, when the stock traded at $ 49.03. Highlights ➤

➤

We see 2010 revenues falling 22.8%. We see utility revenues falling 2.5%, reflecting lower gas prices and lower gas volumes. We estimate a 43% decline in unregulated revenues, reflecting the scaling back of the company's unregulated operations. In 2011, we see revenues rising 2.3% due to higher utility and slightly higher unregulated revenues. We forecast operating margins of 8.1% for 2010 and 8.4% for 2011, versus 2009's 5.6%, as we see lower per-revenue fuel costs partly offset by higher per-revenue non-fuel operating expenses. Margins are being helped as the company scales back lower margin unregulated operations. Our pretax profit margin estimates are 6.7% for 2010 and 7.6% for 2011, versus 2009's 4.5%, as we see lower interest expense, partly offset by lower non-operating income.

Investment Rationale/Risk ➤

➤

➤ ➤

Our 2010 EPS estimate, excluding net charges of $0.37, is $3.33, up 27% from 2009's $2.63, which excluded net charges of $3.59. We see EPS of $3.48 in 2011, up 20%, helped by lower interest costs. Excluding mark-to-market gains and losses, we see EPS of $3.05 in 2010, versus $2.60 in 2009.

Revenue/Earnings Data

2010

We think TEG has made some good acquisitions of late, and recently completed scaling back its unregulated businesses. As a result, TEG has substantially higher cash balances due to the return of capital, which we think will be used to maintain its dividend as well as to lower debt. TEG also said it would consider stock repurchases with any excess cash. However, we think it will take TEG until 2018 to lower its 100%-plus 2009 payout ratio to about 55%, a level in line with the multi-utility peer average, assuming 5% EPS growth from a 2011 base and no dividend growth. Risks to our recommendation and target price include greater-than-expected economic activity, merger savings and share repurchases, and lower-than-expected interest rates. TEG recently traded at 14X our 2011 EPS estimate, a 14% premium to its multi-utility peers. Our 12-month target price of $40 is 11.5X our 2011 EPS estimate, a 10% discount to our average peer forecast. We think the discounted valuation is warranted by the absence of dividend growth and the near peer average earnings growth we see.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,903 1,015 2009 3,201 1,428 2008 3,989 3,417 2007 2,747 2,362 2006 1,996 1,475 2005 1,462 1,328

3Q -1,298 3,223 2,123 1,555 1,757

4Q -1,574 3,418 3,062 1,865 2,391

Year -7,500 14,048 10,292 6,891 6,826

Earnings Per Share ($) 2010 0.64 1.01 2009 -2.35 0.45 2008 1.77 -0.31 2007 2.01 -0.53 2006 1.44 0.97 2005 1.62 0.62

E0.57 0.63 -0.77 0.14 0.63 1.25

E0.73 0.30 0.27 1.19 0.50 0.53

E3.33 -0.96 1.58 2.48 3.50 4.11

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.680 0.680 0.680 0.680

02/16 04/15 07/16 10/14

02/24 05/26 08/27 11/26

02/26 05/28 08/31 11/30

03/20/10 06/19/10 09/20/10 12/20/10

Dividends have been paid since 1940. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TEG

Integrys Energy Group Inc Business Summary August 23, 2010 CORPORATE OVERVIEW. Integrys Energy Group (TEG) is a holding company with regulated and unregulated business units. As of December 31, 2009, the company's subsidiaries were organized in three operating segments: electric utility, gas utility, and Integrys Energy Services, Inc. (ESI). A holding company and other segment includes operations that do not fit into the other segments, including nonutility operations of the regulated utilities. In 2009, ESI was the largest contributor to TEG's revenues, at 53%, although we expect this contribution to decline in 2010 as a result of the sale of part of the business. The electric utility segment contributed 17%, while the gas utility segment contributed 30%. The electric utility segment includes the electric operations of Wisconsin Public Service Corporation (WPSC) and Upper Peninsula Power Company (UPPCO). The gas utility segment includes the gas operations of WPSC, Michigan Gas Utilities Corporation (MGUC), Minnesota Energy Resources Corporation (MERC), The Peoples Gas Light and Coke Company (PGL); and North Shore Gas Company (NSG). Integrys Energy Services is an unregulated subsidiary that operates electric generation facilities and energy marketing operations and provides energy generation and management services.

IMPACT OF MAJOR DEVELOPMENTS. On February 25, 2009, TEG announced that it intended to either fully or partially divest its ESI segment, or reduce its size, risk and financial requirements in response to increased collateral requirements. On January 20, 2010, TEG said it had achieved the objectives of its reorganization and decided to retain its retail marketing business. TEG reduced the invested capital at ESI from approximately $1 billion to $300 million as of April 30, 2010, and the invested capital for the segment's nonregulated energy marketing business segment is expected to be insignificant by December 31, 2010. TEG said it expects the remaining retail business to contribute about 16% of its 2011 EPS and for that segment to increase its earnings at a rate of 6% to 8%, faster than the 3% to 4% growth that we expect at the utility. The retail segment is also planning to reduce its scope to focus on the northeastern quadrant of the US. Longer term, ESI will be a smaller segment that requires significantly less capital, parental guarantees and overall financial liquidity.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 29.10 -0.96 2.43 2.72 NM 45.10 19.44 NM NM

2008 28.22 1.58 0.73 2.68 170% 53.92 36.91 34 23

2007 29.97 2.48 2.49 2.50 101% 60.63 48.10 24 19

2006 28.36 3.50 3.58 2.28 62% 57.75 47.39 16 13

2005 31.69 4.11 2.86 2.24 55% 60.00 47.67 15 12

2004 29.12 4.07 3.82 2.20 54% 50.53 43.50 12 11

2003 27.25 3.24 3.12 2.16 67% 46.80 36.80 14 11

2002 24.48 3.42 1.48 2.12 62% 42.68 30.47 12 9

2001 22.91 2.74 0.99 2.08 76% 36.80 31.00 13 11

2000 20.42 2.53 NA 2.04 81% 39.00 22.63 15 9

7,500 231 NA 3.22 NA 978.8% -73.7 186

14,048 235 NA 2.11 NA 29.6% 122 56.4

10,292 195 NA 2.57 NA 32.2% 181 179

6,891 106 NA 2.85 NA 23.3% 152 152

6,826 142 NA 3.80 NA 20.7% 148 111

4,891 107 NA 4.31 NA 16.1% 153 144

4,321 138 NA 3.55 NA 22.0% 114 103

2,675 98.0 NA 3.97 NA 18.5% 109 47.1

2,676 86.6 NA 2.32 NA 5.83% 77.6 28.2

1,952 99.8 73.0 2.14 4.46 8.23% 67.0 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 7,792 Capital Expenditures 444 Net Property 4,945 Capitalization:Long Term Debt 2,446 Capitalization:% Long Term Debt 46.1 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 2,859 Capitalization:% Common 53.9 Total Capital 5,420 % Operating Ratio 95.1 % Earned on Net Property 9.3 % Return on Revenue NM % Return on Invested Capital 8.3 % Return on Common Equity NM

7,483 533 4,773 2,339 43.0 Nil Nil 3,100 57.0 5,911 98.6 5.5 0.9 4.8 3.8

7,066 393 4,464 2,316 41.7 Nil Nil 3,236 58.3 6,085 97.3 10.5 1.8 7.7 7.5

3,961 342 2,535 1,338 46.6 Nil Nil 1,534 53.4 2,970 97.0 10.9 2.2 9.4 10.5

3,099 414 2,044 918 41.3 Nil Nil 1,304 58.7 2,317 98.2 9.2 2.2 25.0 13.3

3,308 290 2,003 866 42.0 Nil Nil 1,114 58.0 2,062 96.7 9.9 3.1 18.6 14.5

3,065 176 1,829 923 47.9 Nil Nil 1,003 52.1 2,024 97.8 7.4 2.6 9.3 12.8

3,186 229 1,610 926 53.7 Nil Nil 798 46.3 1,816 95.3 9.8 4.1 10.1 14.5

2,979 249 1,464 829 53.7 Nil Nil 716 46.3 1,635 96.2 7.6 2.9 9.1 12.3

2,716 191 1,351 761 58.4 Nil Nil 543 41.6 1,428 94.5 8.6 3.4 9.1 12.4

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 130 East Randolph Drive, Chicago, IL 60601. Telephone: 312-228-5400. Email: [email protected] Website: http://www.integrysgroup.com

Chrmn, Pres & CEO: C.A. Schrock SVP & CFO: J.P. O'Leary VP & Treas: B.A. Johnson VP, Secy & Chief Lgl Officer: B.J. Wolf

Investor Contact: S.P. Eschbach (312-228-5408) Founded: 1883 Board Members: K. E. Bailey, R. A. Bemis, W. J. Domicile: Wisconsin Brodsky, A. J. Budney, Jr., P. S. Cafferty, E. Employees: 5,025 Carnahan, R. C. Gallagher, K. M. Hasselblad-Pascale, J. W. Higgins, J. L. Kemerling, M. E. Lavin, W. F. Protz, Jr., C. A. Schrock

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: INTC | INTC is in the S&P 500

Intel Corp S&P Recommendation BUY

★★★★★

Price $19.83 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $22.00

Investment Style Large-Cap Growth

Summary This company is the world's largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.37– 17.60 Trailing 12-Month EPS $1.86 Trailing 12-Month P/E 10.7 $10K Invested 5 Yrs Ago $9,729

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.99 1.86 10.0 5,568.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$110.441 3.18 $0.63 63

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.16 15 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Intel's exposure to the sales cycles of the semiconductor industry and demand trends for personal computers, offset by its large size, long corporate history, and its low debt levels compared to peers.

25 20 16

Quantitative Evaluations

12

S&P Quality Ranking

Vol. Mil.

D

450 300 150 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank 5

4

A+

MODERATE

45 4

4

3

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on October 14, 2010, when the stock traded at $ 19.30. Highlights ➤

➤

➤

Investment Rationale/Risk

We think sales will rise 8% in 2011, after a projected 24% increase in 2010. Although we see some inventory digestion over the near-term, we believe IT spending, driven by Microsoft Windows 7, aging computers and bandwidthconsuming applications for PCs and servers will provide healthy demand for microprocessors. Laptop sales growth should balance desktop weakness and support top-line advances, in our view. We expect Intel's 32 nanometer (nm) and 22 nm chips to outperform competitors' offerings, which should lead to market share gains in higher-end segments, helping preserve average selling prices. Furthermore, we see INTC's Atom processor providing additional growth opportunities.

➤

We see gross margins narrowing to 62% in 2011 from 66% seen in 2010, as higher startup costs for implementation of its 22 nm processes offset lower chip costs and an improving sales mix. Also assuming higher expenses for compensation and headcount, we think operating margins will fall to 31% in 2011 from 37% during 2010.

➤

Our EPS projections include company-guided gains/losses and a 30% effective tax rate.

➤

Revenue/Earnings Data

2010

We think Intel has the best competitive position in our semiconductor coverage universe, a solid balance sheet, and strong free cash flows, while carrying lower business and financial risks than most other chipmakers. As demand improves and after Intel ramps up new production lines, which should yield leading-technology chips and cost benefits, we see the company in an even better competitive position, with a larger market share in higher-end segments, and new market opportunities with Atom. With the share price reflecting relative multiples that are at a notable discount to the broader industry and their historical average, we see multiples expanding and the share price appreciating. Risks to our recommendation and target price include lower-than-expected demand for PCs, accelerated ASP erosion, and less-than anticipated traction for INTC's latest chips. Our 12-month target price of $22 is based on our P/E analysis. We apply a P/E multiple of 12X, which reflects our view of INTC's relative growth, return on equity, and risk compared to the chip industry, to our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 10,299 10,765 2009 7,145 8,024 2008 9,673 9,470 2007 8,852 8,680 2006 8,940 8,009 2005 9,434 9,231

3Q 11,102 9,389 10,217 10,090 8,739 9,960

4Q -10,569 8,226 10,712 9,694 10,201

Year -35,127 37,586 38,334 35,382 38,826

Earnings Per Share ($) 2010 0.43 0.51 2009 0.12 -0.07 2008 0.25 0.28 2007 0.28 0.22 2006 0.23 0.15 2005 0.35 0.33

0.52 0.33 0.35 0.30 0.22 0.32

E0.54 0.40 0.04 0.38 0.26 0.40

E1.99 0.77 0.92 1.18 0.86 1.40

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.158 0.158 0.158 0.158

01/22 03/19 07/22 09/24

02/03 05/05 08/04 11/03

02/07 05/07 08/07 11/07

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1992. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: INTC

Intel Corp Business Summary October 14, 2010 CORPORATE OVERVIEW. Intel Corp. is the world's largest semiconductor chipmaker based on revenue and unit shipments, and is well known for its dominant market share in microprocessors for personal computers (PCs). The microprocessor is the central processing unit of the computer system, and acts like "the brain" of the computer. The company also sells chipsets, which it refers to as "the nervous system" in a PC or computing device, sending data between the microprocessor and input, display, and storage devices. The company has three main operating segments: PC Client Group (PCGG), Data Center Group (DCG), and Other Intel Architecture (Other IA). The PC Client Group (75% of 2009 total sales) makes microprocessors and related chipsets for the notebook, netbook, and desktop segments. This segment also includes motherboards designed for desktop and wireless connectivity products. The Data Center Group (18%) makes products, including microprocessors, chipsets, motherboards, and wired connectivity devices, that are used in servers, storage, workstations, and other applications that are used in the data center and for cloud computing.

businesses such as the Embedded and Communications Group, which makes scalable microprocessors and chipsets for various embedded applications, the Ultra-Mobility Group, which offers processors an chipsets for mobile Internet devices, and the Digital Home Group, which produces products for use in various consumer electronics devices. CORPORATE STRATEGY. Intel's stated mission is to be the pre-eminent supplier of silicon chips and platform solutions to the worldwide digital economy. Shipping over 80% of total microprocessors in 2009, the company is a clear share leader in the worldwide microprocessor market. Although INTC has a sizable lead over competitors, runner-up Advanced Micro Devices (AMD), with about a 20% market share, has effectively increased its presence over the past couple of years. In 2005, when Intel was focusing on creating faster microprocessors, AMD went in a different direction and focused on creating chips that were not only fast but also power efficient, a quality that became increasingly attractive to enterprises with large energy bills and to laptop customers facing short battery lives, among others.

The Other Intel Architecture segments (4%) includes the company's smaller Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.59 1.67 0.77 0.94 0.56 73% 21.27 12.05 28 16

2008 6.18 1.72 0.92 0.96 0.55 60% 26.34 12.06 29 13

2007 6.51 1.98 1.18 1.18 0.45 38% 27.99 18.75 24 16

2006 5.70 1.65 0.86 0.77 0.40 47% 26.63 16.75 31 19

2005 5.46 2.15 1.40 1.22 0.32 23% 28.84 21.94 21 16

2004 5.57 1.91 1.16 0.99 0.16 14% 34.60 19.64 30 17

2003 5.26 1.62 0.85 0.83 0.08 9% 34.51 14.88 41 18

2002 4.74 1.25 0.46 0.35 0.08 17% 36.78 12.95 80 28

2001 4.59 1.13 0.19 0.11 0.08 42% 38.59 18.96 NM NM

2000 4.67 2.20 1.51 NA 0.07 4% 75.81 29.81 50 20

35,127 13,691 5,052 1.00 5,704 23.4% 4,369 5,325

37,586 14,283 4,619 8.00 7,686 31.2% 5,292 5,521

38,334 13,643 4,798 15.0 9,166 23.9% 6,976 6,978

35,382 10,861 4,654 1,202 7,068 28.6% 5,044 4,518

38,826 16,685 4,595 19.0 12,610 31.3% 8,664 7,555

34,209 15,019 4,889 50.0 10,417 27.8% 7,516 6,374

30,141 13,225 5,070 62.0 7,442 24.2% 5,641 5,467

26,764 9,746 5,344 84.0 4,204 25.9% 3,117 2,332

26,539 8,923 6,469 56.0 2,183 40.9% 1,291 740

33,726 15,339 4,835 35.0 15,141 30.4% 10,535 NA

Balance Sheet & Other Financial Data (Million $) Cash 13,920 Current Assets 21,157 Total Assets 53,095 Current Liabilities 7,591 Long Term Debt 2,049 Common Equity 41,704 Total Capital 43,753 Capital Expenditures 4,515 Cash Flow 9,421 Current Ratio 2.8 % Long Term Debt of Capitalization 4.7 % Net Income of Revenue 12.4 % Return on Assets 8.4 % Return on Equity 10.8

11,843 19,871 50,715 7,818 1,886 39,088 41,020 5,197 9,911 2.5 4.6 14.1 10.0 12.9

15,363 23,885 55,651 8,571 1,980 42,762 45,153 5,000 11,774 2.8 4.4 18.2 13.4 17.6

6,598 18,280 48,368 8,514 1,848 36,752 38,865 5,779 9,698 2.1 4.8 14.3 10.4 13.8

7,324 21,194 48,314 9,234 2,106 36,182 38,991 5,818 13,259 2.3 5.4 22.3 18.0 23.2

8,407 24,058 48,143 8,006 703 38,579 40,137 3,843 12,405 3.0 1.8 22.0 15.8 19.7

7,971 22,882 47,143 6,879 936 37,846 40,264 3,656 10,711 3.3 2.3 18.7 12.3 15.4

7,404 18,925 44,224 6,595 929 35,468 37,629 4,703 8,461 2.9 2.5 11.6 7.0 8.7

7,970 17,633 44,395 6,570 1,050 35,830 37,825 7,309 7,760 2.7 2.8 4.9 2.8 3.5

2,976 21,150 47,945 8,650 707 37,322 39,295 6,674 15,370 2.4 1.8 31.2 23.0 30.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2200 Mission College Boulevard, Santa Clara, CA 95054-1549. Telephone: 408-765-8080. Website: http://www.intc.com Chrmn: J.E. Shaw

Pres & CEO: P.S. Otellini EVP & Chief Admin Officer: A. Bryant SVP, CFO & Chief Acctg Officer: S.J. Smith SVP & General Counsel: A.D. Melamed

Investor Contact: R. Gallegos (408-765-5374) Board Members: C. Barshefsky, S. Decker, J. J. Donahoe, R. E. Hundt, P. S. Otellini, J. Plummer, D. S. Pottruck, J. E. Shaw, F. D. Yeary, D. B. Yoffie

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1968 Domicile: Delaware Employees: 79,800

Stock Report | October 23, 2010 | NYS Symbol: ICE | ICE is in the S&P 500

IntercontinentalExchange Inc S&P Recommendation BUY

★★★★★

Price $116.84 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized Finance

12-Mo. Target Price $134.00

Investment Style Large-Cap Growth

Summary ICE is a fully electronic marketplace that offers exchange-based and over-the-counter trading of a variety of energy and soft commodity products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $129.53– 92.18 Trailing 12-Month EPS $5.03 Trailing 12-Month P/E 23.2 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.89 6.28 19.8 74.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.651 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.28 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatility of energy product trading volumes, recent acquisition activity in the sector, and a changing regulatory environment.

200 160 120

80

Quantitative Evaluations S&P Quality Ranking Vol.

D

C

B-

NR B

B+

A-

A

A+

Mil. 15 10 5 0 5

Relative Strength Rank

STRONG 76

LOWEST = 1 3

3

4

HIGHEST = 99

4

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Rafay Khalid, CFA on August 27, 2010, when the stock traded at $ 96.72. Highlights ➤

➤

➤

Investment Rationale/Risk

We forecast revenue growth of 18% in 2010 and 7% in 2011. We think trading volumes in both years will improve versus 2009, but remain below historical levels. In 2010, we foresee volume growth, driven by strength in the popular U.K.-based oil futures contracts and the U.S. derivatives business. We also see additional revenues from the new credit default swap clearing business and the recently acquired Climate Exchange Plc.

➤

We project that total expenses as a percentage of sales will decline to 40.1% in 2010 and 39.2% in 2011, reflecting our outlook for tighter control over expenses, especially selling, general, and administrative expense. As a result, we forecast operating margins will increase to 59.9% in 2010 and 60.8% in 2011, from 51.5% in 2009.

➤

We estimate operating EPS of $5.89 this year and see $6.28 in 2011, excluding one-time items. This compares to operating EPS of $4.50 in 2009, also excluding one-time items. We assume a 34% effective tax rate in our 2010 and 2011 EPS forecasts.

➤

In the short term, we believe ICE has an advantage over competitors in the credit default swap clearing business, as we see its platform generating higher trading volumes. We think the recently acquired Climate Exchange will be accretive to EPS in 2011, on our outlook for leveraging the company's existing resources. While we see a recovery in trading volumes during 2010 and 2011, we believe they will remain below historical levels. Risks to our recommendation and target price include greater-than-expected competition in the credit default swap clearing business, a significant decline in trading volumes, regulation of position limits on derivatives contracts, and a slowdown in the macroeconomic environment. Our 12-month target price of $134 is based on a historical average multiple of 21.4X our 2011 EPS projection. We believe the historical average is warranted as we forecast a gradual recovery in trading volumes.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 281.6 296.2 2009 231.6 250.4 2008 207.2 197.2 2007 126.6 136.7 2006 73.59 73.59 2005 31.83 37.53

3Q -256.3 201.4 151.7 94.66 45.24

4Q -256.6 207.3 159.3 95.26 41.26

Year -994.8 813.1 574.3 313.8 155.9

Earnings Per Share ($) 2010 1.36 1.36 2009 0.98 0.97 2008 1.29 1.19 2007 0.80 0.75 2006 0.33 0.52 2005 0.17 -0.13

E1.51 1.18 1.04 0.93 0.73 0.05

E1.51 1.13 0.67 0.90 0.81 -0.48

E5.89 4.27 4.17 3.39 2.40 0.39

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: ICE

IntercontinentalExchange Inc Business Summary August 27, 2010 CORPORATE OVERVIEW. IntercontinentalExchange, Inc. operates a fully electronic marketplace offering exchange-based and over-the-counter (OTC) trading of a variety of energy products, and is the leading global exchange for soft commodities. The company's primary products include futures contracts for Brent crude oil and West Texas Intermediate crude oil, OTC trading of Henry Hub natural gas contracts, and various soft commodity futures. ICE provides trading for financial settlement and contracts for physical delivery of the underlying commodity. In addition, the company provides clearing services for credit default swaps. ICE was formed in May 2000 to provide a platform for OTC energy trading. In June 2001, the company acquired the International Petroleum Exchange (IPE), which was mainly a floor-based futures exchange. In early 2002, the company introduced the industry's first cleared OTC contract through its partnership with LCH.Clearnet. In April 2005, ICE closed the IPE trading floor and moved to an entirely electronic marketplace. In January 2007, ICE acquired the New York Board of Trade (NYBOT) for approximately $1.1 billion. NYBOT, which has been renamed ICE Futures U.S., is a leading soft commodity exchange for products such as sugar, coffee, cocoa, orange juice, pulp and cotton, as well as several financial products.

In 2009, ICE derived approximately 89% of its revenue from transaction fees associated with trading its products on its exchange and OTC platforms. ICE generates a majority of its trading commissions from a relatively small amount of crude, gas oil, and North American power futures and OTC contracts. The remaining 11% of 2009 revenues is dominated by the market data business. This business provides various data products covering the company's energy futures, OTC markets, agricultural commodities, equity indexes, and currencies. COMPETITIVE LANDSCAPE. ICE's principal competitor in the energy market is the New York Mercantile Exchange (NYMEX). In August 2008, NYMEX merged with the Chicago Mercantile Exchange. ICE also faces global competition from a number of natural gas and power exchanges and OTC brokers. We believe competition is based on a number of factors, including the depth and liquidity of markets, transaction costs, reliability, and clearing and settlement support.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.15 5.50 4.27 4.26 Nil Nil 121.93 50.10 29 12

2008 NM 5.03 4.17 4.31 Nil Nil 193.87 49.69 46 12

2007 NM 3.85 3.39 3.30 Nil Nil 194.92 108.15 57 32

2006 6.42 2.63 2.40 2.39 Nil Nil 113.85 36.00 47 15

2005 2.82 1.04 0.39 0.82 Nil Nil 44.21 26.00 NM NM

2004 2.56 0.73 0.41 0.32 NA NA NA NA NA NA

2003 NA 0.72 0.37 0.18 NA NA NA NA NA NA

2002 NA 0.89 0.37 NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

995 617 91.4 22.9 494 36.4% 316 315

813 556 62.3 19.6 474 36.4% 301 311

574 397 32.7 18.6 358 32.9% 241 234

314 218 13.7 0.23 213 32.6% 143 143

156 91.1 15.1 0.61 60.0 32.6% 40.4 43.8

108 49.4 17.0 0.14 33.7 34.7% 21.9 17.0

93.7 38.3 19.3 0.08 19.9 32.7% 13.4 9.81

125 65.3 14.4 0.40 25.4 33.8% 34.7 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 554 Current Assets 19,460 Total Assets 21,885 Current Liabilities 18,968 Long Term Debt 209 Common Equity 2,400 Total Capital 2,741 Capital Expenditures 24.4 Cash Flow 407 Current Ratio 1.0 % Long Term Debt of Capitalization 7.6 % Net Income of Revenue 31.8 % Return on Assets 1.7 % Return on Equity 14.3

287 12,553 14,960 12,312 336 2,006 2,544 30.5 363 1.0 13.2 37.0 3.4 17.3

280 1,142 2,796 911 184 1,477 1,770 43.3 273 1.3 10.4 41.9 14.6 24.9

204 341 493 37.9 Nil 454 454 12.4 157 9.0 Nil 45.5 37.7 41.6

32.6 164 266 26.4 Nil 233 238 8.61 55.5 6.2 Nil 25.9 NM NM

89.2 100 208 34.4 Nil 221 221 1.70 38.9 2.9 Nil 20.3 10.4 13.1

56.9 106 215 17.9 NA 186 186 1.61 39.3 5.9 Nil 14.3 NA NA

NA NA NA NA NA NA NA 14.8 49.1 NA Nil 27.8 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2100 RiverEdge Parkway, Atlanta, GA 30328. Telephone: 770-857-4700. Email: [email protected] Website: http://www.theice.com

Chrmn & CEO: J.C. Sprecher Pres & COO: C.A. Vice SVP, CFO & Chief Acctg Officer: S.A. Hill SVP & CTO: E.D. Marcial

SVP, Secy & General Counsel: J.H. Short Founded: 2000 Investor Contact: K. Loeffler (770-857-4726) Domicile: Delaware Board Members: C. R. Crisp, J. Forneri, F. W. Hatfield, T. Employees: 826 F. Martell, C. C. McCarthy, R. Reid, F. V. Salerno, F. W. Schneider, J. C. Sprecher, J. Sprieser, V. Tese

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: IBM | IBM is in the S&P 500

International Business Machines Corp S&P Recommendation BUY

★★★★★

Price $139.67 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry IT Consulting & Other Services

12-Mo. Target Price $160.00

Investment Style Large-Cap Growth

Summary IBM's global capabilities include information technology services, software, computer hardware equipment, fundamental research, and related financing.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $143.03– 116.00 Trailing 12-Month EPS $11.00 Trailing 12-Month P/E 12.7 $10K Invested 5 Yrs Ago $18,185

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

11.45 12.60 12.2 1,261.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.72 12 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as IBM's competitively positioned solutions offerings, global market presence, and significant economies of scale, offset by what we see as an intensely competitive pricing environment.

140 120 100 80

Quantitative Evaluations S&P Quality Ranking

Vol. Mil. 60 40 20 0

$176.163 1.86 $2.60 59

D

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE 62

5

4

5

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Thomas W. Smith, CFA on October 19, 2010, when the stock traded at $ 138.24. Highlights ➤

➤

➤

We expect revenues to rise about 4.7% this year and 4.8% in 2011, reflecting an improving global economy. Despite a slowing pace for new service signings in the third quarter, signings for the fourth quarter are off to a good start. The services order backlog stood at $134 billion at the end of September 2010, providing some earnings visibility, in our opinion. We see growth in IBM's Software segment, partly reflecting acquisitions. New server products launched in September should boost Systems and Technology segment sales into 2011. We look for gross margins to widen to 46.0% in 2010 and to 46.6% in 2011, from 45.7% in 2009, on ongoing cost reduction efforts and an improved sales mix. We think pretax margins will expand as well. Effective tax rates should benefit from more international business. We estimate EPS of $11.45 for 2010 and $12.60 for 2011. The company spent about $3.7 billion on share repurchases in the third quarter of 2010, and we expect share buybacks to bolster EPS going forward. A dividend yield recently near 2% adds appeal.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

IBM's results should benefit from relatively strong revenue growth in emerging markets and improved profitability in more mature markets, by our analysis. We see a gradual widening of margins reflecting cost containment and more software in the product mix. We expect per share results to benefit from lower effective tax rates as business shifts overseas, and from share buybacks. Risks to our recommendation and target price include pricing pressure and other competitive risks, the potential for product transitions to go less smoothly than we project, and the potential for antitrust and other lawsuits to hamper results. Our 12-month target price of $160 reflects a target P/E of 14X, which is toward the middle of the recent five-year historical range for IBM, applied to our 2010 EPS estimate of $11.45. Our target P/E is lower than the P/E for Information Technology Sector companies in the S&P 500 Index based on 2010 earnings estimates. We view the stock's valuation as attractive, given IBM's economies of scale and relatively steady earnings performance.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 25,857 23,724 2009 21,711 23,250 2008 24,502 26,820 2007 22,029 23,772 2006 20,659 21,890 2005 22,908 22,270

3Q 24,272 23,566 25,302 24,119 22,617 21,529

Earnings Per Share ($) 2010 1.97 2.61 2009 1.70 2.32 2008 1.65 1.98 2007 1.21 1.55 2006 1.08 1.30 2005 0.85 1.14

2.82 2.40 2.05 1.68 1.45 0.94

4Q Year --27,230 95,758 27,006 103,630 28,866 98,786 26,257 91,424 24,427 91,134

E4.05 3.59 3.28 2.80 2.30 2.01

E11.45 10.01 8.93 7.18 6.06 4.91

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.550 0.550 0.650 0.650

10/27 01/26 04/27 07/27

11/06 02/08 05/06 08/06

11/10 02/10 05/10 08/10

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1916. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: IBM

International Business Machines Corp Business Summary October 19, 2010 CORPORATE OVERVIEW. With a corporate history dating back to 1911, International Business Machines has grown to be a major contributor to each major category that comprises the total information technology market: hardware, software, and services. The company is a leading server vendor, among the largest software vendors (behind Microsoft Corp.), and has the largest global services organization. The company strives for innovation as a means of product differentiation, and had a research and development budget of $5.8 billion in 2009, down from $6.3 billion in 2008, which represents about 6.1% of revenue for each year. IBM reports being awarded over 4,900 patents in 2009, more than any other company. The company operates in over 170 countries. The global scope of operations is reflected in the mix of revenue sources in 2009, with the Americas representing about 42%, EMEA 34%, Asia Pacific 22%, and an OEM category 2%. Regional revenue performance was strongest in Asia Pacific in 2009. The company's revenue from the so-called BRIC countries (Brazil, Russia, India and China) grew 1% in 2009.

CORPORATE STRATEGY. IBM has evolved from being a computer hardware vendor to a systems, services and software company that focuses on integrated solutions. While computer hardware (included in the Systems and Technology segment) accounted for about 17% of sales in 2009 (19% of sales in 2008), IBM has emphasized -- through acquisitions and investments -- services and software. These areas serving adjacent markets to hardware have gained momentum as IBM leverages its ability to offer total solutions to customers. IBM's focus on higher value added segments such as services, at 58% of 2009 sales (57% of 2008 sales), and software 23% (21%) resulted in these areas together representing almost 81% of revenue in 2009. Global financing represented approximately 2% (3%) of 2009 revenues, and is primarily used to leverage IBM's financial structuring and portfolio management, and to expand the customer base.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 13.73 10.01 9.43 2.15 21% 132.85 81.76 13 8

2008 NM 12.49 8.93 6.04 1.90 21% 130.93 69.50 15 8

2007 8.72 10.22 7.18 6.94 1.50 21% 121.46 88.77 17 12

2006 8.93 9.39 6.06 5.88 1.10 18% 97.88 72.73 16 12

2005 13.97 8.10 4.91 3.93 0.78 16% 99.10 71.85 20 15

2004 11.86 7.82 4.94 4.06 0.70 14% 100.43 90.82 20 18

2003 12.36 7.01 4.34 3.00 0.63 15% 94.54 73.17 22 17

2002 10.84 5.61 3.07 0.08 0.59 19% 126.39 54.01 41 18

2001 12.96 7.08 4.35 1.33 0.55 13% 124.70 83.75 29 19

2000 11.08 6.95 4.44 NA 0.51 11% 134.94 80.06 30 18

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

95,757 23,660 4,994 402 18,138 26.0% 13,425 12,648

103,630 21,680 4,930 1,477 16,715 26.2% 12,334 8,340

98,786 18,765 4,405 1,431 14,489 28.1% 10,418 10,072

91,424 16,912 4,983 278 13,317 29.3% 9,416 9,116

91,134 14,564 5,188 220 12,226 34.6% 7,994 6,395

96,293 15,890 4,915 139 12,028 29.8% 8,448 6,923

89,131 14,790 4,701 145 10,874 30.0% 7,613 5,270

81,186 11,175 4,379 145 7,524 29.1% 5,334 111

85,866 14,115 4,820 238 10,953 29.5% 7,723 2,302

88,396 16,147 4,513 717 11,534 29.8% 8,093 NA

Balance Sheet & Other Financial Data (Million $) Cash 13,974 Current Assets 48,935 Total Assets 109,022 Current Liabilities 36,002 Long Term Debt 21,932 Common Equity 22,637 Total Capital 44,687 Capital Expenditures 3,447 Cash Flow 18,419 Current Ratio 1.4 % Long Term Debt of Capitalization 49.1 % Net Income of Revenue 14.0 % Return on Assets 12.3 % Return on Equity 74.4

12,907 49,004 109,524 42,435 22,689 13,465 45,096 4,171 17,264 1.2 71.6 11.9 10.7 58.8

16,146 53,177 120,431 44,310 23,039 28,470 51,509 4,630 14,823 1.2 44.7 10.6 9.3 36.6

10,656 44,660 103,234 40,091 13,780 28,506 42,286 4,362 14,399 1.1 32.6 10.3 9.0 30.6

13,686 45,661 105,748 35,152 15,425 33,098 48,523 3,842 13,182 1.3 31.7 8.8 7.4 24.7

10,570 46,970 109,183 39,798 14,828 29,747 44,575 4,368 13,363 1.2 33.3 8.8 7.9 29.3

7,647 44,998 104,457 37,900 16,986 27,864 44,850 4,393 12,314 1.2 37.9 8.5 7.6 30.1

5,975 41,652 96,484 34,550 19,986 22,782 42,768 4,753 9,713 1.2 46.7 6.6 5.7 23.1

6,393 42,461 88,313 35,119 15,963 23,614 39,577 5,660 12,533 1.2 40.3 9.0 8.7 35.1

3,722 43,880 88,349 36,406 18,371 20,624 38,995 5,616 12,586 1.2 47.1 9.2 9.2 39.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 New Orchard Road, Armonk, NY 10504-1722. Telephone: 914-499-1900. Website: http://www.ibm.com Chrmn, Pres & CEO: S.J. Palmisano

SVP & CFO: M. Loughridge SVP & General Counsel: R.C. Weber CTO: R.C. Adkins Treas: M.J. Schroeter

Investor Contact: T.S. Shaughnessy (914-499-1900) Founded: 1910 Board Members: A. J. Belda, C. P. Black, W. R. Domicile: New York Brody, K. I. Chenault, M. L. Eskew, S. A. Jackson, A. N. Employees: 399,409 Liveris, W. J. McNerney, Jr., T. Nishimuro, J. W. Owens, S. J. Palmisano, J. E. Spero, S. Taurel, L. H. Zambrano

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: IFF | IFF is in the S&P 500

International Flavors & Fragrances Inc. S&P Recommendation BUY

★★★★★

Price $49.80 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Specialty Chemicals

12-Mo. Target Price $56.00

Investment Style Large-Cap Growth

Summary This leading producer of flavors and fragrances, used in a wide variety of consumer goods, derives over 70% of annual sales from operations outside the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $51.77– 37.74 Trailing 12-Month EPS $2.91 Trailing 12-Month P/E 17.1 $10K Invested 5 Yrs Ago $16,855

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.25 3.50 15.3 79.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.977 2.17 $1.08 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.92 8 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the stable nature of the company's businesses and end markets, and its leadership product positions, offset by a somewhat concentrated customer base.

50 40

30

Quantitative Evaluations

25

S&P Quality Ranking

Vol. Mil.

D

6 4 2 0 5

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 57

3

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE

Analysis prepared by Richard O'Reilly, CFA on August 09, 2010, when the stock traded at $ 47.62. Highlights ➤

➤

➤

We expect sales in 2010 to increase by about 11%, aided by modest impact from favorable currency exchange rates in the first half, following a 3% decline in 2009, which included a 3% impact from unfavorable exchange rates and slowdowns in domestic and European consumer markets earlier in the year. Sales in local currency rose 15% in the first half of 2010, including strong gains for fine fragrances and ingredients, and some benefit from customer restocking. We believe IFF continues to gain share with major customers in 2010, based on a high win rate of new business. We forecast a gross margin of about 41.5% in 2010, aided by a decline in raw material and freight costs, up from 40.2% in 2009, which reflected lower sales of high-margin fine fragrances and higher input costs. We expect a decline in interest expense in 2010, on lower debt and in the absence of a $4 million charge in the 2009 first quarter for the settlement of an interest rate swap. We project a 27.5% effective tax rate for 2010, down from 2009. Reported EPS for 2009 included $0.23 of special and restructuring charges.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We have a buy opinion on the shares partly based on valuation. We expect the company to be helped in 2010 by a high win rate of new business, especially in flavors, and some benefit of customer restocking, although currency exchange rates should turn into a headwind in the second half. We believe IFF has strong cash flows and ample liquidity. Risks to our recommendation and target price include increased economic and political uncertainties in global markets, greater currency fluctuations, an inability to maintain close relationships with customers, lack of customers' success in new product launches, and unexpected increases in raw material costs. The shares, with a dividend yield of about 2.3%, recently traded at about 14.4X our 2010 EPS estimate, a discount to industry peers. We think the stock will outperform the S&P 500 over the next 12 months, reflecting what we see as a favorable EPS outlook for 2010 and 2011. Assuming a P/E multiple of 16X, similar to peers, our 12-month target price is $56. The dividend was recently raised 8%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 653.9 665.8 2009 599.6 568.3 2008 596.6 636.1 2007 566.1 573.7 2006 511.4 530.5 2005 523.1 515.6

3Q -612.6 617.5 583.3 539.1 493.1

4Q -585.6 539.1 553.5 514.3 461.7

Year -2,326 2,389 2,277 2,095 1,993

Earnings Per Share ($) 2010 0.80 0.84 2009 0.60 0.60 2008 0.69 0.83 2007 0.69 0.87 2006 0.58 0.67 2005 0.55 0.60

E0.81 0.66 0.73 0.67 0.70 0.72

E0.74 0.59 0.62 0.58 0.53 0.16

E3.25 2.46 2.87 2.82 2.48 2.04

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.250 0.270

12/08 03/09 04/27 07/27

12/17 03/22 06/21 09/20

12/21 03/24 06/23 09/22

01/06/10 04/07/10 07/07/10 10/06/10

Dividends have been paid since 1956. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: IFF

International Flavors & Fragrances Inc. Business Summary August 09, 2010 CORPORATE OVERVIEW. International Flavors & Fragrances, founded in 1909, is a leading global maker of products used by other manufacturers to enhance the aromas and tastes of consumer products.

dietary foods, dairy products, drink powders, pharmaceuticals, oral care products, alcoholic beverages and tobacco. Two of the largest customers for flavor products are major U.S. producers of prepared foods and beverages.

IFF receives more than 70% of its sales outside the U.S. In 2009, North America contributed 26% of sales; Europe 35%; Latin America 15%; and Asia-Pacific 24%.

By category, 46% of sales in 2009 were from flavor compounds, 25% functional fragrances (for personal care and household products, including soaps, detergents, and fabric care), 17% fine fragrances and beauty care (perfumes, colognes, hair care and toiletries), and 12% ingredients.

Fragrance products accounted for 54% of sales and 45% of operating profits in 2009. Fragrances are used in the manufacture of soaps, detergents, cosmetic creams, lotions and powders, lipsticks, after shave lotions, deodorants, hair preparations, air fresheners, perfumes and colognes and other consumer products. Most major U.S. companies in these industries are IFF customers. Cosmetics (including perfumes and toiletries) and household products (soaps and detergents) are the two largest customer groups.

The company uses both synthetic and natural ingredients in its compounds. IFF manufactures most of the synthetic ingredients, of which a substantial portion (45% in 2008) is sold to others. It has had a consistent commitment to R&D spending, spending 8% to 9% of annual revenues on research and development activities for each of the three years through 2009. R&D is conducted in 33 laboratories in 26 countries.

Flavor products account for IFF's remaining sales and profits. Flavors are sold principally to the food, beverage and other industries for use in consumer products such as soft drinks, candies, cake mixes, desserts, prepared foods, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.21 3.46 2.46 2.45 1.00 41% 42.58 24.96 17 10

2008 NM 3.82 2.87 2.29 0.96 33% 48.01 24.72 17 9

2007 NM 3.77 2.82 2.75 0.88 31% 54.75 45.71 19 16

2006 1.78 3.46 2.48 2.35 0.77 31% 49.88 32.53 20 13

2005 1.54 3.07 2.04 2.04 0.73 36% 42.90 31.19 21 15

2004 1.28 3.01 2.05 1.82 0.69 33% 43.20 32.77 21 16

2003 NM 2.77 1.83 1.70 0.63 34% 36.61 29.18 20 16

2002 NM 2.72 1.84 1.37 0.60 33% 37.45 26.05 20 14

2001 NM 2.47 1.20 0.70 0.60 50% 31.69 19.75 26 16

2000 NM 1.90 1.22 NA 1.52 125% 37.94 14.69 31 12

2,326 443 78.5 61.8 277 29.3% 196 195

2,389 452 76.0 74.0 281 18.1% 230 183

2,277 452 82.8 41.5 329 24.8% 247 241

2,095 421 89.7 25.5 313 27.7% 227 214

1,993 382 91.9 24.0 246 21.6% 193 193

2,034 433 91.0 24.0 281 30.2% 196 174

1,902 415 86.7 28.5 252 31.5% 173 161

1,809 396 84.5 37.0 266 34.0% 176 131

1,844 409 123 70.4 188 38.2% 116 68.5

1,463 322 69.3 25.1 184 33.2% 123 NA

Balance Sheet & Other Financial Data (Million $) Cash 80.1 Current Assets 1,128 Total Assets 2,645 Current Liabilities 484 Long Term Debt 935 Common Equity 772 Total Capital 1,707 Capital Expenditures 66.8 Cash Flow 274 Current Ratio 2.3 % Long Term Debt of Capitalization 54.8 % Net Income of Revenue 8.4 % Return on Assets 7.3 % Return on Equity 29.1

179 1,161 2,762 451 1,154 573 1,727 85.4 306 2.6 66.8 9.6 8.4 38.6

152 1,190 2,727 539 1,060 617 1,677 65.6 330 2.2 63.2 10.9 9.1 33.2

115 1,080 2,479 447 791 873 1,665 58.3 316 2.4 47.5 10.8 8.9 26.0

273 1,191 2,638 1,203 131 915 1,047 93.4 285 1.0 12.5 9.7 7.7 21.1

32.6 961 2,363 400 669 910 1,579 70.6 287 2.4 42.4 9.6 8.4 23.7

12.1 903 2,307 526 690 743 1,433 6.40 259 1.7 48.2 9.1 7.6 26.2

14.9 867 2,233 359 1,007 575 1,582 81.8 260 2.4 63.7 9.7 7.8 32.0

48.5 896 2,268 560 939 524 1,508 52.0 239 1.6 62.3 6.3 4.9 20.1

129 1,019 2,489 1,179 417 631 1,152 60.7 192 0.9 36.2 8.4 6.3 16.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 521 West 57th Street, New York, NY 10019-2960. Telephone: 212-765-5500. Email: [email protected] Website: http://www.iff.com

Chrmn & CEO: D.D. Tough Pres: B.M. Tansky EVP & CFO: K.C. Berryman SVP, Secy & General Counsel: D.M. Meany

Treas: C.D. Weller Investor Contact: M. DeVeau (212-708-7164) Board Members: M. H. Adame, M. V. Bottoli, L. B. Buck, J. M. Cook, R. W. Ferguson, Jr., P. A. Georgescu, A. A. Herzan, H. W. Howell, Jr., K. M. Hudson, A. C. Martinez, D. D. Tough

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1909 Domicile: New York Employees: 5,400

Stock Report | October 23, 2010 | NYS Symbol: IGT | IGT is in the S&P 500

International Game Technology S&P Recommendation STRONG SELL

★★★★★

Price $14.81 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Casinos & Gaming

12-Mo. Target Price $13.00

Investment Style Large-Cap Growth

Summary This company is a leading maker of gaming machines and proprietary software systems for gaming machine networks.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $21.94– 13.65 Trailing 12-Month EPS $0.54 Trailing 12-Month P/E 27.4 $10K Invested 5 Yrs Ago $6,130

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.85 0.93 17.4 298.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.60 5 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

MEDIUM

HIGH

Our risk assessment reflects the company's industry-leading position as a supplier of gaming machines. We expect the company to generate free cash flow, with at least some of it used for stock repurchases. This is offset by our projection that IGT will continue to spend heavily on research and development and our view that growth prospects depend on regulatory factors and technology changes, including the legalization of gaming markets.

30 20

10

Vol. 76

Mil.

LOW

Below Avg.

50 40

30 20 10 0 5

$4.415 1.62 $0.24 86

Quantitative Evaluations S&P Quality Ranking 3

2

1

D

C

B-

B+ B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

2010 Options: ASE, CBOE

WEAK

23 LOWEST = 1

HIGHEST = 99

Analysis prepared by Esther Y. Kwon, CFA on October 14, 2010, when the stock traded at $ 14.77. Highlights ➤

➤

➤

In FY 10 (Sep.), we see revenues decreasing about 6% after about a 16% drop in FY 09, as a slight pickup in spending by operators to refresh stale floors is more than offset by lower sales of units for new casino openings. We expect gaming operations to decline at a greater rate than product sales as IGT loses share to its competitors in this arena. In FY 11, we project a recovery in revenue growth to over 6%. On reduced materials costs and a greater mix of higher-margin non-machine product sales, we see product gross margins expanding to over 51% and gaming gross margins of about 61% in FY 10. On restructuring benefits, we forecast R&D expenses to decline slightly from FY 09 levels, but see SG&A costs down about 18%. Overall, we project operating margin expansion of over 400 basis points and EPS of $0.85 in FY 10, versus operating EPS of $0.87 in FY 09. In FY 11, we forecast EPS of $0.93. In May 2009, IGT issued $850 million of convertible notes due May 2014 and entered into hedging transactions on its common stock and separate warrant transactions with hedge counterparties. These actions may affect share count depending on the stock price.

Investment Rationale/Risk ➤

➤

➤

We are concerned about market share losses and revenue declines in gross gaming revenues at casino operator customers, which we think may result in purchasing delays or price competition among equipment manufacturers. There has also been excessive management turnover at IGT, which we think will make a turnaround more difficult. Effective April 1, 2009, former director Patti Hart, who has held several high level positions at technology companies, was named president and CEO, replacing T.J. Matthews. While we believe IGT has done a good job of reducing expenses, we think the majority of those benefits have been realized and believe it will have to invest more aggressively in R&D to catch up to competitors. Risks to our recommendation and target price include prospects for growth from new or expanded gaming markets becoming more favorable than we expect. Our 12-month target price of $13 reflects a P/E at a discount to peers. We see limited nearterm positive catalysts for the shares, given market share losses, new management, and reservations about the speed and scope of developing demand for new equipment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 515.7 494.4 2009 601.6 475.7 2008 645.8 573.2 2007 642.3 609.7 2006 616.2 644.4 2005 641.2 551.0

3Q 489.7 522.1 677.4 706.5 612.4 579.6

4Q -514.6 632.2 662.9 638.7 607.6

Year -2,114 2,529 2,621 2,512 2,379

Earnings Per Share ($) 2010 0.25 Nil 2009 0.22 0.13 2008 0.36 0.22 2007 0.35 0.38 2006 0.34 0.35 2005 0.33 0.26

0.32 0.22 0.35 0.41 0.33 0.32

E0.20 -0.07 0.18 0.38 0.33 0.30

E0.85 0.51 1.10 1.51 1.34 1.20

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.060 0.060 0.060 0.060

12/15 03/02 06/08 08/24

12/24 03/12 06/18 09/02

12/29 03/16 06/22 09/07

01/15/10 04/09/10 07/09/10 10/08/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: IGT

International Game Technology Business Summary October 14, 2010 CORPORATE OVERVIEW. International Game Technology (IGT) is a leading maker of gaming machines. In addition to selling machines, IGT's business includes the placement of machines from which it receives recurring revenues.

standalone participation and flat fee, equipment leasing and rental, as well as hybrid pricing or premium products that include a product sale and a recurring fee.

In FY 09 (Sep.), 44% of IGT revenues came from product sales, compared to 47% in FY 08, with the remainder from gaming operations, including progressive systems.

CORPORATE STRATEGY. In FY 09, IGT's research and development spending totaled $211.8 million (about 10.0% of revenues), down from $223.0 million (8.8%) in FY 08, and up from $202.2 million (7.7%) in FY 07. We expect that the company's ability to develop successful machines and games, with features that appeal to gamblers and casinos, will be a significant factor in the amount of product sales it has.

Product sales in FY 09 included the sale of 53,600 machines, down from 72,700 machines in FY 08 and 105,900 in FY 07. FY 09 sales included 25,900 for North America versus 35,000 and 43,000 in FY 08 and FY 07, respectively. Shipments to international markets totaled 27,700, down from 37,700 machines in FY 08 and 62,900 in FY 07. International sales may include some lower-priced machines with relatively low-value prizes. In addition to machines for casinos, IGT has made video gaming terminals (VGTs) for government-sponsored programs, including lotteries.

During the next few years, we expect a shift toward sales or licensing of server-based games to become more evident, creating opportunities for increased IGT revenues from sales or licensing of replacement machines or games for use in such locations as U.S. casinos.

IGT's gaming operations segment includes the placement of games in both casinos and government-sponsored gaming markets, under a variety of recurring revenue pricing arrangements, including wide-area progressive systems, Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.45 0.51 0.54 0.33 64% 23.30 6.81 46 13

2008 NM 2.03 1.10 1.20 0.57 51% 49.41 7.03 45 6

2007 0.29 2.30 1.51 1.47 0.52 34% 48.79 33.57 32 22

2006 2.06 1.99 1.34 1.33 0.50 37% 46.76 30.12 35 22

2005 1.56 1.78 1.20 1.15 0.48 40% 34.63 24.20 29 20

2004 1.98 1.56 1.18 1.11 0.30 25% 47.12 28.22 40 24

2003 1.42 1.45 1.07 1.02 0.18 16% 37.00 18.05 35 17

2002 0.55 1.23 0.80 0.79 Nil Nil 20.03 11.94 25 15

2001 0.40 0.91 0.70 0.67 Nil Nil 17.99 8.93 26 13

2000 NM 0.67 0.50 NA Nil Nil 12.34 4.36 25 9

2,114 713 277 125 238 37.4% 149 159

2,529 947 286 102 591 42.0% 343 371

2,621 1,066 266 77.6 805 36.9% 508 493

2,512 960 235 50.8 747 36.6% 474 470

2,379 886 222 58.1 681 35.9% 437 415

2,485 964 150 90.5 653 34.2% 430 405

2,128 800 134 117 599 37.3% 375 357

1,848 646 146 117 110 NM 277 273

1,199 315 63.3 102 339 37.0% 214 204

1,004 343 54.4 102 245 36.0% 157 NA

Balance Sheet & Other Financial Data (Million $) Cash 168 Current Assets 1,234 Total Assets 4,388 Current Liabilities 624 Long Term Debt 2,170 Common Equity 967 Total Capital 3,142 Capital Expenditures 257 Cash Flow 426 Current Ratio 2.0 % Long Term Debt of Capitalization 69.2 % Net Income of Revenue 7.1 % Return on Assets 3.3 % Return on Equity 15.9

266 1,470 4,557 737 2,247 909 3,156 298 628 2.0 71.2 13.6 7.9 29.0

261 1,287 4,168 692 1,503 1,453 2,956 344 774 1.9 50.9 19.4 12.6 29.1

295 1,376 3,903 1,247 200 2,042 2,242 311 709 1.1 8.9 18.9 12.2 24.0

289 1,437 3,864 1,218 200 1,906 2,106 239 659 1.2 9.5 18.3 11.3 22.5

765 1,510 3,873 560 792 1,977 2,768 211 580 2.7 28.6 17.3 10.7 23.5

1,316 2,078 4,185 945 1,146 1,687 2,833 30.8 509 2.2 40.4 17.6 10.0 24.1

424 1,195 3,316 511 971 1,433 2,413 33.8 423 2.3 40.3 15.0 10.6 32.0

364 968 1,923 371 985 296 1,281 34.7 277 2.6 76.9 17.8 12.1 109.0

245 814 1,624 259 992 96.6 1,088 18.5 211 3.1 91.1 15.6 9.3 92.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 9295 Prototype Drive, Reno, NV 89521. Telephone: 775-448-7777. Website: http://www.igt.com Chrmn: P.G. Satre

Pres & CEO: P.S. Hart COO: E.P. Tom EVP, CFO, Chief Acctg Officer & Treas: P.W. Cavanaugh EVP & CTO: C.J. Satchell

Board Members: P. L. Alves, J. Chaffin, G. Creed, P. S. Founded: 1980 Hart, R. A. Mathewson, T. J. Matthews, R. J. Miller, D. Domicile: Nevada E. Roberson, V. L. Sadusky, P. G. Satre Employees: 5,100

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: IP | IP is in the S&P 500

International Paper Co

★★★★★

S&P Recommendation BUY

Price $23.68 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Paper Products

12-Mo. Target Price $31.00

Investment Style Large-Cap Value

Summary This company is a leading worldwide producer and distributor of printing papers and packaging products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.25– 19.33 Trailing 12-Month EPS $0.47 Trailing 12-Month P/E 50.4 $10K Invested 5 Yrs Ago $9,913

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.90 2.50 12.5 437.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.32 46 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

IP operates in a cyclical and capital-intensive industry and is affected by changes in industrial production, interest rates, and economic growth. However, it is one of the largest companies in the sector, and has greater economies of scale than many of its competitors.

40

20

8

4

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

$10.349 2.11 $0.50 84

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

4

3

4

MODERATE

4

3

60 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Stuart J. Benway, CFA on July 30, 2010, when the stock traded at $ 24.20. Highlights ➤

➤

➤

We forecast sales in 2010 to increase 5%-8%. Volume in the industrial and consumer packaging businesses should improve along with renewed growth in the economy. We also expect prices to rise significantly after falling for much of 2009. Demand for printing papers is likely to be helped by replenishment of depleted inventories. We project operating margins from continuing operations to widen moderately in 2010 to 8.2%, from 6.3% in 2009. IP is continuing to find opportunities for cost reduction, especially in its packaging business, and capacity is likely to be better utilized. We also expect higher prices to add to margin gains, although higher input costs could offset some off this improvement. Pension expense is projected to rise again, but interest costs should decline. We see operating EPS of $1.90 in 2010 up from $0.88 earned in 2009, excluding unusual items. In our view, profits appear to be well on their way to recovery at IP, and we look for solid growth again in 2011 with EPS projected at $2.50.

Investment Rationale/Risk ➤

➤

➤

IP has made many moves in recent years aimed at focusing on faster-growing regions and higher-return businesses. The company has investments and joint ventures in Brazil, China, and Russia that we believe will contribute meaningfully to earnings as the economy recovers. Cost synergies from the major linerboard acquisition are also being realized and debt levels have been reduced. Risks to our recommendation and target price include a lack of further economic recovery, worse-than-projected demand and pricing trends for uncoated paper and packaging, and the failure of new ventures to achieve targeted returns. Our discounted cash flow model, which assumes a 9.0% weighted average cost of capital, reduced capital expenditures over the next several years, and a 2.5% terminal growth rate, calculates intrinsic value of $30. A peer group of paper stocks was recently trading at 12.9X 2011 EPS estimates. Applying this valuation to our 2011 EPS estimate for IP, we derive a value of $32. Our 12-month target price of $31 is an equal blend of these two metrics.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,807 6,121 2009 5,668 5,802 2008 5,668 5,807 2007 5,217 5,291 2006 5,668 6,270 2005 6,011 5,916

3Q -5,919 6,808 5,541 5,867 6,036

4Q -5,977 6,546 5,841 5,324 6,134

Year -23,366 24,829 21,890 21,995 24,097

Earnings Per Share ($) 2010 -0.38 0.22 2009 0.61 0.32 2008 0.35 0.54 2007 1.02 0.46 2006 0.14 0.24 2005 0.22 0.19

E0.77 0.87 0.35 0.52 0.23 1.48

E0.67 -0.24 -1.08 0.80 4.53 -0.17

E1.90 1.55 0.17 2.81 2.65 1.74

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.025 0.125 0.125 0.125

01/12 04/26 07/13 10/12

02/11 05/13 08/12 11/12

02/16 05/17 08/16 11/16

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1946. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: IP

International Paper Co Business Summary July 30, 2010 CORPORATE OVERVIEW. International Paper is the world's largest paper and forest products company. We believe its market share is about 25% in uncoated free sheet (UFS), used in copiers and for envelopes and forms, giving it the number-two position in that major category. It is the largest linerboard producer, used to make corrugated boxes, with an estimated 30% of the market. It also manufactures bleached paperboard used to package cosmetics, food, beverages, and pharmaceuticals, and is the second-largest boxboard producer in the U.S. IMPACT OF MAJOR DEVELOPMENTS. On March 17, 2008, International Paper agreed to acquire the corrugated packaging business of Weyerhaeuser for $6 billion in cash and closed the deal on August 4, 2008. Because the transaction was a purchase of assets rather than stock, IP said that it would realize a tax benefit with a net present value of approximately $1.4 billion. This business had sales in 2007 of $5.2 billion and EBITDA of $670 million. IP originally expected to generate $400 million of synergies on an annual basis after three years but reached that target in the first 12 months. These savings have come from reduced overhead, improved logistics, greater efficiency, and better customer mix. The deal gives IP just under a 30% share of the North American corrugated packaging market. We think the move is a good strategic fit for IP,

and it is reducing debt from the acquisition faster than initially expected. MARKET PROFILE. IP operates in a highly cyclical and capital-intensive industry. Demand for the company's products is dependent on a number of factors, including industrial non-durable goods production, consumer spending, commercial printing and advertising activity, white collar employment levels, and movements in currency exchange rates. Historical prices for paper and wood products have been volatile, and, despite its size, IP has had only a limited direct influence over the timing and extent of price changes for its products. Pricing is significantly affected by the relationship between supply and demand, and supply is mainly influenced by fluctuations in available manufacturing capacity. Technology seems to be having an impact on paper demand, especially in uncoated free sheet, where demand has grown more slowly than the economy in recent years. We doubt the trend is likely to improve in the near term considering the weakness in the worldwide economy.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.62 4.99 1.55 1.68 0.32 21% 27.79 3.93 18 3

2008 5.01 0.19 0.17 0.12 1.00 588% 33.77 10.20 NM NM

2007 14.08 5.31 2.81 2.45 1.00 36% 41.57 31.05 15 11

2006 11.10 4.99 2.65 1.13 1.00 38% 37.98 30.69 14 12

2005 6.75 4.38 1.74 1.67 1.00 57% 42.59 26.97 24 15

2004 6.69 4.19 0.98 0.84 1.00 102% 45.01 37.12 46 38

2003 6.01 4.07 0.66 0.51 1.00 152% 43.32 33.09 66 50

2002 4.31 3.90 0.61 0.92 1.00 164% 46.20 31.35 76 51

2001 7.78 1.51 -2.37 -2.25 1.00 NM 43.31 30.70 NM NM

2000 11.89 4.28 0.82 NA 1.00 122% 60.00 26.31 73 32

23,366 3,139 1,472 702 1,150 40.8% 663 720

24,829 2,717 1,347 572 235 68.9% 70.0 55.0

21,890 2,796 1,086 483 1,654 25.1% 1,215 1,058

21,995 2,609 1,158 651 3,188 59.3% 1,282 539

24,097 3,228 1,376 593 586 NM 859 819

25,548 3,251 1,565 743 746 27.6% 478 402

25,179 3,293 1,644 766 346 NM 315 242

24,976 3,576 1,587 783 371 NM 295 444

26,363 3,305 1,870 929 -1,265 NM -1,142 -1,091

28,180 5,432 1,916 791 497 23.5% 142 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,892 Current Assets 7,551 Total Assets 25,548 Current Liabilities 4,012 Long Term Debt 8,729 Common Equity 6,023 Total Capital 14,984 Capital Expenditures 534 Cash Flow 2,135 Current Ratio 1.9 % Long Term Debt of Capitalization 58.3 % Net Income of Revenue 2.8 % Return on Assets 2.5 % Return on Equity 13.0

1,144 7,360 28,252 4,755 11,246 5,508 16,215 1,002 78.0 1.6 69.3 0.3 0.3 1.0

905 6,735 24,159 3,842 6,620 8,672 18,172 1,288 2,301 1.8 41.7 5.6 5.0 14.6

1,624 8,637 24,034 4,641 6,531 10,839 19,816 1,009 2,440 1.9 33.0 5.8 4.9 13.4

1,641 7,409 28,771 4,844 11,023 8,351 20,311 1,155 2,235 1.5 54.3 3.6 2.7 10.3

2,596 9,319 34,217 4,872 14,132 8,254 25,631 1,262 2,043 1.9 55.1 1.9 1.4 5.8

2,363 9,337 35,525 6,803 13,450 8,237 25,085 1,166 1,959 1.4 53.6 1.3 0.9 4.0

1,074 7,738 33,792 4,579 13,042 7,374 25,435 1,009 1,882 1.7 51.3 1.2 0.8 3.3

1,224 8,312 37,158 5,374 14,262 10,291 29,804 1,049 728 1.5 47.9 NM NM NM

1,198 10,455 42,109 7,413 14,453 12,034 32,541 1,352 2,058 1.4 44.4 0.5 0.4 1.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6400 Poplar Ave, Memphis, TN 38197-0198. Telephone: 901-419-7000. Email: [email protected] Website: http://www.internationalpaper.com

Chrmn & CEO: J.V. Faraci SVP & CFO: T.S. Nicholls SVP, Secy & General Counsel: M.A. Smith SVP & CIO: J.N. Balboni

CTO: T.S. Joseph Founded: 1898 Investor Contact: T.A. Cleves (901-419-7566) Domicile: New York Board Members: D. J. Bronczek, L. L. Elsenhans, J. V. Employees: 56,100 Faraci, S. G. Gibara, S. J. Mobley, J. L. Townsend, III, J. F. Turner, W. G. Walter, A. Weisser, J. S. Whisler

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: IPG | IPG is in the S&P 500

Interpublic Group of Companies Inc. (The) S&P Recommendation BUY

★★★★★

Price $10.43 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Advertising

12-Mo. Target Price $11.00

Investment Style Large-Cap Blend

Summary Interpublic is one of the world's largest organizations of advertising agencies and marketing communications companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$12.25– 5.71 $0.30 34.8 $10,087

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.48 0.57 21.7 488.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.65 12 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of a highly competitive advertising industry, and economic cyclicality associated with advertising spending, offset by what we see as a moderately conservative balance sheet structure and structural improvements in profitability for IPG.

12

6 4

2

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

$5.098 Nil Nil 96

D

C

B-

BB

B+

A-

A

Relative Strength Rank 4

3

4

3

STRONG

4

3

2

79 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Joseph Agnese on August 02, 2010, when the stock traded at $ 9.33. Highlights ➤

➤

➤

The contraction in global advertising showed continued signs of easing in the second quarter of 2010, with U.S. organic revenues climbing 13.6% and an overall rise in organic revenues of 8.5%. Favorable foreign exchange rates boosted sales by 1.1%. Despite weakness in the U.K. and continental Europe, with organic sales down 7.6% and 1.0%, respectively, in the second quarter, sequential results continued to improve. We expect favorable client marketing trends to continue in the auto, financial services and retail sectors, although we expect weakness in the technology and telecom sectors, resulting in overall 2010 revenue growth of 5.3% to $6.35 billion. We expect margins to widen in 2010 due to improved sales leverage and easier comparisons. While we see headcount rising throughout 2010, we look for year-to-year comparisons to be favorable, reflecting significant reductions taken throughout 2009. Additionally, we see savings from reduced rent costs and severance expenses. We estimate EPS of $0.48 for 2010, up significantly from $0.19 in 2009.

Investment Rationale/Risk ➤

➤

➤

Advertising fundamentals improved in the first half of 2010, with significant increases in demand from the auto, financial services and retail sectors, despite contraction in Europe. With a more stable macro-economic environment expected in the U.S. going forward, we look for increased client marketing budgets to continue to benefit earnings growth into 2011. However, we believe risks remain high as visibility regarding a recovery in international markets remains poor and could offset some of the benefits we are expecting in the U.S. Risks to our recommendation and target price include unexpected business losses, unfavorable forex impacts, a slower-than-expected U.S. economic recovery, and higherthan-expected severance expenses or professional fees. Our 12-month target price of $11 is derived by applying an enterprise value/EBITDA multiple of 7.0X to our 2011 EBITDA estimate of approximately $880 million. This reflects a modest premium to peers and the historical average reflecting potential significant EPS benefits we see from a more favorable economic environment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,341 1,618 2009 1,325 1,474 2008 1,485 1,836 2007 1,359 1,653 2006 1,327 1,533 2005 1,328 1,611

3Q -1,427 1,740 1,560 1,454 1,440

4Q -1,801 1,902 1,983 1,877 1,896

Year -6,028 6,963 6,554 6,191 6,274

Earnings Per Share ($) 2010 -0.15 0.15 2009 -0.16 0.04 2008 -0.15 0.17 2007 -0.29 0.24 2006 -0.43 0.09 2005 -0.36 0.01

E0.10 0.03 0.08 -0.06 -0.03 -0.25

E0.30 0.24 0.39 0.31 0.11 -0.10

E0.48 0.18 0.52 0.26 -0.20 -0.70

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2002.

Stock Report | October 23, 2010 | NYS Symbol: IPG

Interpublic Group of Companies Inc. (The) Business Summary August 02, 2010 CORPORATE OVERVIEW. The Interpublic Group of Companies, along with its subsidiaries, is one of the world's largest advertising and marketing services companies, made up of communication agencies around the world that deliver custom marketing solutions to clients. These agencies cover the spectrum of marketing disciplines and specialties, from traditional services such as consumer advertising and direct marketing, to emerging services such as mobile and search engine marketing. The company generates revenue from planning, creating and placing advertising in various media and from planning and executing other communications or marketing programs. IPG also receives commissions from clients for planning and supervising work done by outside contractors in the physical preparation of finished print advertisements and the production of TV and radio commercials and other forms of advertising. In addition, IPG derives revenue in a number of other ways, including the planning and placement in media of advertising produced by unrelated advertising agencies, the creation and publication of brochures, billboards, point of sale materials and direct marketing pieces for clients, the planning and carrying out of specialized marketing research, public relations campaigns, and creating and managing special events at which client products are featured.

Draftfcb, Lowe, Momentum, McCann Healthcare, media agencies and other standalone agencies, and the Constituent Management Group (CMG), which is made up of the bulk of IPG's specialist marketing service offerings. Draftfcb was formed from the merger of two IPG companies in 2006, and is focused on consumer advertising and behavioral, data-driven direct marketing. Lowe is a creative advertising agency operating in the world's largest advertising markets. McCann Worldgroup is a marketing communications company that consists of McCann Erickson Advertising, MRM Worldwide for relationship marketing and digital expertise, Momentum for experiential marketing, and McCann Healthcare for health care communications, as well as various other brands. Mediabrands was installed in recent years to oversee all media operations in order to align the company's media networks with its global brand agencies. Also, in recent years the company has focused on making strategic investments, including a number of acquisitions in Brazil, India, Russia, and China, or "BRIC" countries.

IPG has two reportable segments: the McCann Worldgroup unit, comprised of Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 0.52 0.18 0.21 Nil Nil 7.77 3.08 43 17

2008 NM 0.85 0.52 0.51 Nil Nil 10.47 2.57 20 5

2007 NM 0.63 0.26 0.29 Nil Nil 13.94 7.91 54 30

2006 NM 0.21 -0.20 -0.18 Nil Nil 12.83 7.79 NM NM

2005 NM -0.30 -0.70 -0.62 Nil Nil 13.80 9.08 NM NM

2004 NM -0.91 -1.36 -0.82 Nil Nil 17.31 10.47 NM NM

2003 NM -0.90 -1.43 -0.84 Nil Nil 16.50 7.20 NM NM

2002 NM 0.83 0.26 0.36 0.38 146% 34.98 9.85 NM NM

2001 NM -0.36 -1.37 -0.60 0.38 NM 47.44 18.25 NM NM

2000 NM 1.99 1.15 NA 0.37 32% 57.69 32.69 50 28

6,028 681 170 156 234 38.6% 121 104

6,963 780 173 212 475 33.0% 295 265

6,554 547 177 237 243 24.2% 168 150

6,191 341 174 219 2.00 NM -36.7 -75.8

6,274 156 169 182 -173 NM -272 -265

6,387 589 185 172 -261 NM -545 -363

5,863 719 204 173 -330 NM -553 -325

6,204 762 218 146 271 51.8% 99.5 136

6,727 1,113 372 165 -519 NM -505 -217

5,626 1,096 263 109 672 40.7% 359 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,506 Current Assets 7,638 Total Assets 12,263 Current Liabilities 6,906 Long Term Debt 1,638 Common Equity 1,973 Total Capital 4,667 Capital Expenditures 67.1 Cash Flow 264 Current Ratio 1.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 2.0 % Return on Assets NA % Return on Equity NA

2,275 7,488 12,125 6,877 1,787 1,951 4,517 138 441 1.1 39.5 4.2 2.4 14.2

2,083 7,686 12,458 7,121 2,044 1,807 4,376 148 317 1.1 46.7 2.6 1.4 10.4

1,957 7,209 11,864 6,663 2,249 1,416 4,236 128 89.3 1.1 53.1 NM NM NM

2,192 7,497 11,945 6,857 2,183 1,047 4,178 141 -129 1.1 52.3 NM NM NM

1,970 7,637 12,272 7,563 Nil 1,345 1,773 194 -380 1.0 Nil NM NM NM

2,006 7,350 12,235 6,625 2,192 2,721 5,356 160 -349 1.1 40.9 NM NM NM

933 6,322 11,794 7,090 1,818 2,100 3,988 183 317 0.9 45.6 1.6 0.9 5.1

935 6,467 11,515 6,434 2,481 2,384 4,953 268 -133 1.0 50.1 NM NM NM

748 6,026 10,238 6,106 1,505 2,046 3,637 202 622 1.0 41.4 6.4 3.7 18.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1114 Avenue Of The Americas, New York, NY 10036. Telephone: 212-704-1200. Website: http://www.interpublic.com Chrmn & CEO: M.I. Roth

EVP & CFO: F. Mergenthaler SVP, Chief Acctg Officer & Cntlr: C.F. Carroll SVP & Treas: E.T. Johnson SVP, Secy & General Counsel: N.J. Camera

Investor Contact: J. Leshne (212-704-1439) Founded: 1902 Board Members: R. K. Brack, Jr., J. E. Carter-Miller, J. Domicile: Delaware M. Considine, R. A. Goldstein, H. J. Greeniaus, M. J. Employees: 40,000 Guilfoile, W. T. Kerr, M. I. Roth, D. M. Thomas

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ISRG | ISRG is in the S&P 500

Intuitive Surgical Inc S&P Recommendation HOLD

★★★★★

Price $265.84 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $290.00

Investment Style Large-Cap Blend

Summary This company has developed the da Vinci Surgical System, which uses advanced robotics and computerized visualization technology for minimally invasive surgeries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $393.92– 243.10 Trailing 12-Month EPS $8.41 Trailing 12-Month P/E 31.6 $10K Invested 5 Yrs Ago $38,135

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

8.75 10.25 30.4 39.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.446 Nil Nil 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.75 25 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects risks that we see as specific to a maker of medical devices such as ISRG, including those associated with protecting its intellectual property rights, compliance with regulations of U.S. and foreign health agencies, and legal liability for injury that may result from use of the company's products, such as inappropriate or "off-label" use.

400 300 200 150 100

Vol.

Quantitative Evaluations

Mil. 9 6 3 0 5

S&P Quality Ranking D 4

3

4

3

2

C

B-

BB

B+

A-

Relative Strength Rank

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

WEAK

➤

The 12-month target price for ISRG has recently been changed to $290.00 from $355.00. The Highlights section of this Stock Report will be updated accordingly.

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

Highlights

A+

11 LOWEST = 1

2007

A

3

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on ISRG from MarketScope, see below.

➤

10/20/10 04:43 pm ET ... S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF INTUITIVE SURGICAL (ISRG 259.45***): Q3 EPS of $2.14 vs. $1.64 is $0.07 below our view, partly on lower revenue than we expected. While instrument and systems sales grew strongly year/year, they declined slightly sequentially, vs. yearearlier growth. We are positive on ISRG's push into new procedures, which would help reduce its reliance on prostatectomies, the growth of which has slowed in the U.S. Meantime, ISRG faces a challenging capital equipment market in Europe. We cut our '10 EPS est $0.05 to $8.75, '11's by $0.15 to $10.25, and target price by $65 to $290, on narrower P/E premium to medical device group. /P.Seligman

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 328.6 350.7 2009 188.4 260.6 2008 118.2 219.2 2007 114.2 140.3 2006 77.26 87.03 2005 41.61 52.76

3Q 344.4 280.1 236.0 156.9 95.83 60.87

4Q -323.0 231.6 189.5 112.6 72.10

Year -1,052 874.9 600.8 372.7 227.3

Earnings Per Share ($) 2010 2.12 2.19 2009 0.72 1.62 2008 1.12 1.28 2007 0.62 0.79 2006 0.38 0.44 2005 0.25 0.40

2.14 1.64 1.44 1.04 0.45 0.55

E2.31 1.95 1.27 1.24 0.62 1.31

E8.75 5.93 5.12 3.70 1.89 2.51

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: ISRG

Intuitive Surgical Inc Business Summary July 27, 2010 Intuitive Surgical (ISRG) has designed the da Vinci Surgical System, a product that incorporates advanced robotics and computerized visualization technologies to improve the ability of surgeons to perform complex, minimally invasive procedures. As of 2009 year end, the company had an installed base of 1,395 da Vinci Surgical Systems, and surgeons using the company's technology had successfully completed about 205,000 surgical procedures of various types, including urologic, gynecologic, cardiothoracic and general surgery. The da Vinci Surgical System consists of a surgeon's console, a patient-side cart, a high performance vision system, and proprietary wristed instruments. By placing computer-enhanced technology between the surgeon and patient, ISRG believes da Vinci lets surgeons perform better surgery in a manner never before experienced. The system translates a surgeon's natural hand movements on instrument controls on a console into corresponding micromovements of instruments positioned inside the patient through small puncture incisions (ports). It gives a surgeon the intuitive control, range of motion, fine tissue manipulation capability, and 3-D visualization characteristics of open surgery, while simultaneously allowing use of the small ports of minimally invasive surgery. During 2009, surgeons using ISRG products performed

about 90,000 prostatectomy procedures and 69,000 hysterectomy procedures worldwide. Intuitive's strategy is targeted at establishing Intuitive surgery as the standard for complex surgical procedures and many other procedures. Over time, the company hopes to broaden the number of procedures performed using the da Vinci Surgical System and to educate surgeons and hospitals about the benefits of Intuitive surgery. The da Vinci System is covered by over 290 U.S. patents and 300 foreign patents that are licensed or owned by the company. The manufacture, marketing, and use of Class II medical devices such as the da Vinci System is governed by extensive regulations administered by the FDA, which we think act as significant barriers to entry by competitors.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 35.59 6.82 5.93 5.93 Nil Nil 309.09 84.86 52 14

2008 28.07 5.74 5.12 5.31 Nil Nil 357.98 110.35 70 22

2007 19.61 4.04 3.70 3.70 Nil Nil 359.59 86.20 97 23

2006 12.55 2.15 1.89 1.89 Nil Nil 139.50 85.63 74 45

2005 8.64 2.64 2.51 2.14 Nil Nil 124.79 35.69 50 14

2004 4.83 0.82 0.67 0.39 Nil Nil 40.60 15.08 61 23

2003 3.87 -0.23 -0.41 -0.57 Nil Nil 18.61 7.34 NM NM

2002 3.46 -0.80 -1.02 -1.10 Nil Nil 22.50 11.20 NM NM

2001 4.14 -0.76 -0.94 -1.14 Nil Nil 29.56 6.00 NM NM

2000 4.86 -1.42 -1.56 NA Nil Nil 38.13 10.75 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,052 412 34.6 NA 396 41.3% 233 233

875 336 25.1 Nil 335 39.1% 204 212

601 220 13.0 Nil 237 39.1% 145 145

373 117 10.0 Nil 120 40.0% 72.0 72.0

227 73.6 4.86 0.02 73.8 NM 94.1 80.1

139 26.3 5.10 0.09 24.2 3.00% 23.5 13.6

91.7 -7.73 4.15 0.20 -9.62 NM -9.62 -13.6

72.0 -16.3 3.89 0.20 -18.4 NM -18.4 -20.0

51.7 -17.3 3.12 0.27 -16.7 NM -16.7 -20.3

26.6 -20.7 1.60 0.40 -18.5 NM -18.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,172 Current Assets 847 Total Assets 1,810 Current Liabilities 203 Long Term Debt NA Common Equity 1,537 Total Capital 1,537 Capital Expenditures 53.4 Cash Flow 267 Current Ratio 8.4 % Long Term Debt of Capitalization Nil % Net Income of Revenue 22.1 % Return on Assets 14.2 % Return on Equity 16.6

902 704 1,475 165 Nil 1,267 1,267 62.5 229 4.3 Nil 23.4 16.3 19.0

427 610 1,040 132 Nil 889 889 20.3 158 4.6 Nil 24.1 16.9 19.6

34.4 374 672 80.7 Nil 590 590 15.9 82.1 4.6 Nil 19.3 12.3 14.0

5.51 209 502 58.0 Nil 443 443 30.1 99.0 3.6 Nil 41.4 22.0 24.9

5.77 177 354 38.4 Nil 315 315 22.4 28.6 4.6 Nil 16.9 7.0 7.9

11.3 152 315 34.2 0.70 279 280 2.53 -5.47 4.4 0.2 NM NM NM

17.6 78.6 91.6 26.1 1.84 63.7 65.5 5.79 -14.5 3.0 2.8 NM NM NM

10.5 89.2 100 21.3 0.77 78.3 79.1 5.53 -13.6 4.2 1.0 NM NM NM

22.7 104 112 19.8 1.86 90.7 92.6 3.56 -16.9 5.2 2.0 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1266 Kifer Rd, Sunnyvale, CA, USA 94086-5304. Telephone: 408-523-2100 . Email: [email protected] Website: http://www.intuitivesurgical.com

Chrmn: L.M. Smith Pres & CEO: G.S. Guthart SVP, CFO & Chief Acctg Officer: M.L. Mohr SVP & General Counsel: M.J. Meltzer

Cntlr: J.J. Skoglund Board Members: R. Duggan, G. S. Guthart, E. H. Halvorson, A. M. Johnson, A. J. Levy, F. D. Loop, H. E. Rubash, L. M. Smith, G. J. Stalk, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1995 Domicile: Delaware Employees: 1,263

Stock Report | October 23, 2010 | NNM Symbol: INTU | INTU is in the S&P 500

Intuit Inc S&P Recommendation HOLD

★★★★★

Price $47.21 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Application Software

12-Mo. Target Price $45.00

Investment Style Large-Cap Growth

Summary This company develops and markets small business accounting and management, tax preparation and personal finance software.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.90– 28.79 Trailing 12-Month EPS $1.77 Trailing 12-Month P/E 26.7 $10K Invested 5 Yrs Ago $20,820

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.13 2.45 22.2 317.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.991 Nil Nil 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.77 15 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong market position within the consumer and professional tax segments and its solid balance sheet. However, this is tempered by our concern about the potential for a slowdown in the company's small business segment (excluding acquisitions) if the economy weakens considerably.

50 40

25 20 Vol.

Quantitative Evaluations

Mil. 24 16 8 0 5

S&P Quality Ranking D

C

B-

B+ B

B+

A-

Relative Strength Rank

1

STRONG

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights We estimate that sales will rise 11% in FY 11 (Jul.), to $3.8 billion, driven mainly by organic growth and aided modestly by acquisitions including Medfusion (May 2010). We forecast 13% sales growth for INTU's consumer tax business, supported by rising usage of online consumer tax preparation offerings. We expect small business segment sales to increase nearly 11%, with QuickBooks sales projected to rise 10%, supported by growth in INTU's online offering even as the economic backdrop limits new business formation. We look for sales to advance 10% in FY 12.

Investment Rationale/Risk ➤

➤

➤

We expect INTU to continue to exercise cost discipline, but we see FY 11 non-GAAP operating margins widening modestly as INTU absorbs the recent acquisitions. Organically, we believe the company will benefit from selective hiring and data center consolidation, but we see ongoing investment in R&D, marketing, and infrastructure. We anticipate further modest margin expansion in FY 12. We estimate operating EPS of $2.13 for FY 11, excluding amortization and acquisition-related expense but including projected stock-based compensation expense of approximately $0.27.

➤

HIGHEST = 99

2010

Analysis prepared by Zaineb Bokhari on August 24, 2010, when the stock traded at $ 42.68.

➤

A+

79

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

A

3

We expect INTU's small business segment to see improving growth as economic conditions continue to stabilize. While there are modest signs of new business formation, we see INTU having success through cross-sales and from its online channel. INTU's tax franchise is less sensitive to the economy, and we see the company continuing to outpace the market with projected growth of 11%. We expect recent acquisitions to help drive growth, and are encouraged by recent gains in its user base for its online financial offerings. Risks to our recommendation and target price include increased competition in the consumer tax market and a material worsening of the economic environment leading to elevated losses in INTU's small business segments. We are also concerned about potential acquisitionintegration issues. Our 12-month target price of $45 is 21.0X our FY 11 operating EPS estimate, near the average three-year P/E multiple highs that we calculate for the stock, reflecting our view of share gains in INTU's consumer tax and small business franchises.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 474.0 837.0 2009 481.4 791.0 2008 444.9 834.9 2007 350.5 750.6 2006 304.1 742.7 2005 266.0 662.6

3Q 1,607 1,434 1,313 1,139 952.6 849.5

4Q 537.0 475.8 478.2 432.7 342.9 301.8

Year 3,455 3,183 3,071 2,673 2,342 2,038

Earnings Per Share ($) 2010 -0.21 0.26 2009 -0.16 0.26 2008 -0.14 0.34 2007 -0.17 0.40 2006 -0.17 0.43 2005 -0.11 0.39

1.78 1.47 1.33 1.04 0.84 0.81

-0.15 -0.22 -0.19 -0.19 -0.06 -0.06

1.66 1.35 1.33 1.25 1.05 1.00

Fiscal year ended Jul. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: INTU

Intuit Inc Business Summary August 24, 2010 CORPORATE OVERVIEW. Intuit is a leading provider of accounting, financial management, personal finance and tax software for consumers and small businesses. The company's flagship products include QuickBooks, TurboTax, Lacerte and Quicken. In FY 09 (Jul.), the company had four main product categories, which contained seven segments. The company's Small Business Group includes the Financial Management Solutions (formerly QuickBooks), Employee Management Solutions (formerly Payroll) and Payment Solutions (formerly Payments) segments. Its Tax Products group includes the Consumer Tax and Accounting Professional segments; other segments include Financial Institutions and Other Businesses. Financial Management Solutions (which accounted for 18% of total net revenues in FY 09) includes products and services that provide bookkeeping capabilities and business management tools. INTU offers QuickBooks Simple Start for very small, less complex businesses; QuickBooks Pro for slightly larger businesses and QuickBooks Pro for Mac; QuickBooks Premier, to support businesses that need advanced accounting capabilities and business planning tools; and QuickBooks Enterprise Solutions, designed for mid-sized companies. INTU also offers an online version of QuickBooks and Premier and Enterprise versions that cater to specific industries, including Manufacturing, Wholesale, Retail, Non-Profit, Contractor, and Professional Services.

Employee Management Solutions (11%) consists of solutions including outsourced payroll services QuickBooks Payroll in different varieties and QuickBooks Online Payroll, for use with QuickBooks Online Edition. Direct deposit and electronic tax payment and filing services are available with some of these offerings for additional fees. The Payment Solutions (9%) segment includes credit card, debit card, electronic benefits, check guarantee and gift card processing, Web-based transaction processing services for online merchants as well as customer service, charge-back retrieval and support, and fraud and loss prevention screening. The Consumer Tax (31%) segment is centered on TurboTax. TurboTax software enables individuals and small businesses to prepare and file income tax returns using computers. TurboTax for the Web allows individuals to prepare tax returns online. Versions of TurboTax Premier software are designed to address the special income tax needs of different types of users, including investors, those planning for retirement, and rental property owners. Electronic tax filing services are also provided.

Company Financials Fiscal Year Ended Jul. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 2.07 2.45 1.66 1.66 NA Nil 47.90 29.00 29 17

2009 1.35 2.19 1.35 1.35 Nil Nil 31.29 21.07 23 16

2008 0.32 1.97 1.33 1.22 Nil Nil 32.00 20.18 24 15

2007 0.66 1.51 1.25 1.19 Nil Nil 33.10 26.14 26 21

2006 3.41 1.34 1.05 1.04 Nil Nil 35.98 23.99 34 23

2005 3.61 1.31 1.00 0.86 Nil Nil 27.97 18.62 28 19

2004 2.75 1.03 0.79 0.61 Nil Nil 26.63 17.92 34 23

2003 3.44 0.81 0.82 0.41 Nil Nil 26.95 16.65 33 20

2002 4.02 0.30 0.16 NA Nil Nil 27.52 17.26 NM NM

2001 4.15 -0.09 -0.24 -0.32 Nil Nil 23.69 11.31 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,455 1,119 256 61.0 815 NA 539 538

3,183 957 275 51.2 653 31.4% 447 446

3,071 891 216 52.3 698 35.2% 451 414

2,673 773 135 27.1 696 36.1% 443 422

2,342 677 104 Nil 610 38.0% 377 372

2,038 659 118 Nil 556 32.6% 375 323

1,868 561 97.0 Nil 453 30.0% 317 245

1,651 461 76.5 Nil 393 33.0% 263 172

1,358 343 59.9 Nil 84.9 17.9% 69.8 -0.77

1,261 265 59.9 Nil -96.5 NM -97.1 -129

Balance Sheet & Other Financial Data (Million $) Cash 1,622 Current Assets 2,295 Total Assets 5,198 Current Liabilities 1,221 Long Term Debt 998 Common Equity 2,821 Total Capital 3,819 Capital Expenditures 130 Cash Flow 795 Current Ratio 1.9 % Long Term Debt of Capitalization 26.1 % Net Income of Revenue 15.6 % Return on Assets 10.8 % Return on Equity 20.1

1,347 1,968 4,826 1,084 998 2,556 3,556 182 722 1.8 28.1 14.1 9.4 19.3

828 1,774 4,667 1,467 1,000 2,073 3,079 306 667 1.2 32.5 14.7 10.1 22.0

255 1,952 4,252 1,160 998 2,035 3,034 105 538 1.7 32.9 16.6 24.1 23.5

180 1,817 2,770 1,016 15.4 1,738 1,754 44.6 482 1.8 0.9 16.1 13.8 22.0

83.8 1,614 2,716 1,003 17.5 1,695 1,713 38.2 493 1.6 1.0 18.4 13.8 21.3

27.2 1,517 2,696 857 5.77 1,822 1,828 52.3 414 1.8 0.3 17.0 11.6 16.7

1,207 1,669 2,790 796 29.3 1,965 1,994 50.4 340 2.1 1.5 15.9 9.2 12.6

452 1,995 2,963 733 14.6 2,216 2,230 42.6 130 2.7 0.7 5.1 2.4 3.2

535 2,148 2,962 788 12.4 2,170 2,182 77.1 -37.2 2.7 0.6 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2700 Coast Ave, Mountain View, CA 94043-1140. Telephone: 650-944-6000. Email: [email protected] Website: http://www.intuit.com

Chrmn: W.V. Campbell Pres & CEO: B.D. Smith SVP & CFO: R.N. Williams SVP, Secy & General Counsel: L.A. Fennell

Chief Acctg Officer & Cntlr: J.P. Hank Founded: 1984 Investor Contact: K. Patel (650-944-3560) Domicile: Delaware Board Members: D. H. Batchelder, C. W. Brody, W. V. Employees: 7,700 Campbell, S. D. Cook, D. B. Greene, M. R. Hallman, S. N. Johnson, E. A. Kangas, D. D. Powell, B. D. Smith

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: IVZ | IVZ is in the S&P 500

Invesco Ltd S&P Recommendation BUY

★★★★★

Price $22.11 (as of Oct 25, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This diversified investment manager offers an array of investment options to individuals and institutions through offices around the world.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.00– 16.37 Trailing 12-Month EPS $0.79 Trailing 12-Month P/E 28.0 $10K Invested 5 Yrs Ago $20,675

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.31 1.64 16.9 468.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.350 1.99 $0.44 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.75 33 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong market share, broad product base and improving investment performance, offset by economic and industry cyclicality, the firm's bias toward equity products, and recent relative fund underperformance.

25 20 15

10

Quantitative Evaluations Vol. Mil.

S&P Quality Ranking

103

69

30 20 10 0

D

5

3

5

4

C

B-

NR B

B+

A-

A

Relative Strength Rank 4

3

MODERATE

4

66 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

Highlights ➤

The 12-month target price for IVZ has recently been changed to $26.00 from $25.00. The Highlights section of this Stock Report will be updated accordingly.

2009

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on IVZ from MarketScope, see below.

➤

10/25/10 01:15 pm ET ... S&P REITERATES BUY RECOMMENDATION ON SHARES OF INVESCO (IVZ 22.18****): IVZ posts adjusted Q3 EPS of $0.39, vs. $0.27, above our $0.31 estimate, driven by higher fees, but inflows were weak. We think IVZ's shift in asset allocation toward equities bodes well for AUMs and inflows. We belive IVZ has the flexibility to increase its adjusted operating margin to 40% in '11 on costsavings from its acquisition of Morgan Stanley's unit (MS 25, Hold). We raise our '10 estimate to $1.31 from $1.18 and '11's to $1.64 from $1.54 on expected margin improvement. We lift our target price by $1 to $26, 16X our revised '11 EPS estimate, a slight premium to peers. / B.Howlett

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 719.1 787.0 2009 548.6 625.1 2008 910.4 935.6 2007 900.2 979.0 2006 584.1 588.1 2005 537.8 547.8

3Q -705.8 827.2 976.6 587.1 536.2

4Q -747.8 634.4 1,023 655.3 551.4

Year -2,627 3,308 3,879 2,415 2,173

Earnings Per Share ($) 2010 0.22 0.09 2009 0.08 0.18 2008 0.39 0.41 2007 0.38 0.43 2006 0.26 0.30 2005 0.18 0.18

E0.39 0.24 0.33 0.41 0.26 0.18

E0.38 0.25 0.08 0.43 0.40 -0.02

E1.31 0.76 1.21 1.64 1.20 0.52

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.103 0.110 0.110 0.110

01/27 04/28 07/27 10/25

02/19 05/20 08/19 11/17

02/23 05/24 08/23 11/19

03/10/10 06/09/10 09/09/10 12/08/10

Dividends have been paid since 1995. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: IVZ

Invesco Ltd Business Summary July 28, 2010 CORPORATE OVERVIEW. Invesco is an independent global investment management company that provides an array of investment choices for retail, institutional and high-net-worth clients around the globe. It is incorporated under the laws of Bermuda, and it is headquartered in Atlanta, Georgia. Prior to May 2007, the company was called AMVESCAP PLC, formed through the 1997 merger of Invesco and AIM. Through its subsidiaries, it offers equity, fixed income, and alternative strategies to investors domiciled throughout the world. Assets under management (AUM) totaled $423 billion at December 31, 2009, up from $357 billion at year-end 2008. Retail assets accounted for 49% of AUM, institutional assets were 48% of the total, and assets in the private wealth management unit accounted for the remaining 3%. Clients domiciled in the U.S. accounted for 61% of AUM at the end of 2009, U.K. clients owned 20%, and clients in Canada, Europe, and Asia each represented less than 10% of assets. The company distributes its products utilizing a number of brands through various distribution channels. Its retail products are distributed through Invesco AIM in the U.S., Invesco Trimark in Canada, Invesco Perpetual in the U.K., Invesco in Europe and Asia, and PowerShares for exchange traded funds (ETFs). Retail products are primarily distributed through third parties, including broker-dealers, retirement platforms, financial advisors and insurance com-

panies. Its assets in China are managed through its joint-venture called Invesco Great Wall. It offers a full array of investment options, including money market, fixed income, balanced, equity and alternative fund choices. Its institutional clients are served throughout the world through Invesco and Invesco AIM. It offers a range of products, including equities, fixed income, real estate, financial structures and absolute return strategies. Private equity options are offered through W.L. Ross & Co. A global salesforce distributes products and provides service to clients around the world. Clients include public entities, corporate, union, non-profit, endowments, foundations, and financial institutions. Invesco's private wealth management services are offered through Atlantic Trust. It provides high-net-worth individuals with personalized service, including financial counseling, estate planning, asset allocation, investment management, private equity, trust, custody and other services. It had offices in 20 countries at December 31, 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NA NA 0.76 0.31 40% 24.07 9.33 32 12

2008 NM 1.33 1.21 0.52 43% 31.40 8.35 3 1

2007 NM 1.85 1.64 0.37 23% 32.25 26.10 20 16

2006 NM 1.37 1.20 0.36 30% 25.04 15.46 21 13

2005 NM 0.76 0.52 0.33 63% 15.92 11.15 31 21

2004 NM -0.60 -0.84 0.32 NM 17.33 9.62 NM NM

2003 NM 0.80 -0.08 0.37 NM 18.16 7.65 NM NM

2002 NM 0.89 0.06 0.36 NM 31.80 7.62 NM NM

2001 NM 1.27 0.54 0.30 56% 48.00 16.20 89 30

2000 NM 1.65 1.22 0.46 38% 61.19 20.60 51 17

2,627 NA NA NA 358 41.5% 323

3,308 795 47.6 76.9 657 35.9% 482

3,879 1,058 64.1 71.3 1,244 28.7% 674

2,415 853 67.6 81.3 755 35.0% 490

2,173 595 94.5 85.1 360 40.7% 212

1,158 -63.3 45.6 44.1 -138 NM -173

1,158 362 200 48.3 36.4 NM -17.3

1,345 427 210 52.6 102 83.5% 16.9

1,620 591 206 55.9 280 44.8% 155

1,629 591 110 51.6 446 35.3% 289

Balance Sheet & Other Financial Data (Million $) Cash 972 Current Assets NA Total Assets 10,910 Current Liabilities NA Long Term Debt 746 Common Equity 6,913 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 1.4 % Long Term Debt of Capitalization Nil % Net Income of Revenue 12.3 % Return on Assets NA % Return on Equity NA

658 2,379 9,757 2,103 862 5,690 7,458 84.1 529 1.1 11.6 14.6 5.9 7.8

1,130 4,194 12,925 3,641 1,276 6,591 8,988 36.7 738 1.2 14.2 17.4 5.3 10.6

924 3,497 9,292 3,582 973 4,270 5,248 37.7 558 1.0 18.5 20.3 5.8 12.4

1,957 2,706 7,578 2,523 1,212 3,613 4,872 38.2 307 1.1 24.9 9.8 2.8 5.9

369 1,385 3,907 1,253 683 1,863 2,590 27.6 -128 1.1 26.4 NM NM NM

393 1,297 4,110 1,070 730 2,232 2,993 36.6 183 1.2 24.4 NM NM NM

424 1,150 4,138 1,139 596 2,283 2,918 54.6 227 1.0 20.4 1.3 0.4 0.7

209 785 4,432 641 844 2,282 3,126 68.0 361 1.2 27.0 9.6 3.6 7.1

466 1,152 4,296 764 960 2,103 3,063 62.0 399 1.5 31.3 17.7 9.4 22.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Prior to 2005 balance sheet and income statement in pounds. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1555 Peachtree St, NE Ste 1800, Atlanta, GA 30309. Telephone: 404-479-1095. Email: [email protected] Website: http://www.invesco.com

Chrmn: R.D. Adams Pres & CEO: M.L. Flanagan CFO: L.M. Starr Chief Admin Officer: C.D. Meadows

Chief Acctg Officer & Cntlr: D.A. Hartley Founded: 1935 Investor Contact: J. Krugman (404-439-4605) Domicile: Bermuda Board Members: R. D. Adams, J. Banham, J. R. Employees: 4,890 Canion, M. L. Flanagan, B. F. Johnson, III, D. Kessler, E. P. Lawrence, J. T. Presby, J. I. Robertson, P. A. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: IRM | IRM is in the S&P 500

Iron Mountain Inc S&P Recommendation HOLD

★★★★★

Price $22.61 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Diversified Support Services

12-Mo. Target Price $23.00

Investment Style Large-Cap Growth

Summary This company provides information protection and storage services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.49– 19.93 Trailing 12-Month EPS $0.84 Trailing 12-Month P/E 26.9 $10K Invested 5 Yrs Ago $9,181

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.12 1.22 20.2 201.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.556 NA NA 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 11 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of IRM's diversified and significant recurring revenue base, offset by notable and increasing competition and a substantial amount of debt on its balance sheet.

35 30 25 20

Quantitative Evaluations S&P Quality Ranking

Vol. 47

Mil.

43

9 6 3 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 54

4

3

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Dylan Cathers on October 06, 2010, when the stock traded at $ 20.45. Highlights ➤

➤

➤

We expect a somewhat improving demand environment to lead to sales growth of 4.5% in 2010, but we look for a decline to 3.0% in 2011. We think that weakness within the core services business in North America will remain for the next couple of quarters, given weak economic activity in general. We note that some verticals are being particularly weighed down, including legal services. Sales of complementary services, however, should increase at a slightly faster pace, despite soft project activity and subscription rates. We also see elongated sales cycles and high levels of destructions adversely affecting growth next year. Over the long term, we think revenue growth will be helped by a rigorous regulatory environment, as well as selective acquisitions, such as the recent purchase of Mimosa Systems. We expect solid operating margin gains in 2010 and 2011, as increased operational efficiencies, lower costs and improved pricing should partly offset weak sales of higher-margin services. Excluding one-time items, operating EPS was $0.96 in 2009. In 2010, we look for EPS of $1.12, improving to $1.22 in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our hold opinion is based on valuation. We believe IRM's brand and customer base are competitive advantages for the long term. Further, we take a positive view of the company's recent initiation of a $0.25 per year dividend. Nonetheless, we think still weak recycled paper prices and higher levels of destructions (which adversely affects growth in storage) will limit sales and earnings growth. In addition, we continue to have concerns about a longer sales cycle and weak demand in the difficult, but improving, economic environment. Risks to our recommendation and target price include slower growth in corporate storage spending than we project, lower-than-expected recycled paper prices, further deterioration in overseas markets, and less favorable foreign currency rates. Our 12-month target price of $23 is based on our P/E analysis. We use a peer-premium multiple of 18.9X our 2011 EPS estimate. While we believe the stability of IRM's business merits a peer-premium valuation, our P/E ratio is near a four-year low for the company reflecting what we believe are poor long-term revenue growth prospects.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 776.5 779.8 2009 723.4 746.0 2008 749.4 768.9 2007 632.5 668.7 2006 563.7 581.6 2005 501.4 511.9

3Q -764.9 784.3 701.8 595.6 526.5

4Q -779.3 752.6 727.0 609.5 538.4

Year -3,014 3,055 2,730 2,350 2,078

Earnings Per Share ($) 2010 0.13 0.20 2009 0.14 0.43 2008 0.17 0.18 2007 0.17 0.19 2006 0.13 0.19 2005 0.11 0.13

E0.28 0.21 0.06 0.25 0.13 0.18

E0.33 0.30 0.01 0.14 0.18 0.15

E1.12 1.08 0.40 0.76 0.64 0.57

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.063 0.063 0.063

02/25 06/04 09/15

03/23 06/23 09/24

03/25 06/25 09/28

04/15/10 07/15/10 10/15/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: IRM

Iron Mountain Inc Business Summary October 06, 2010 CORPORATE OVERVIEW. We view Iron Mountain as the global leader in information protection and storage services. IRM helps organizations reduce related costs and risks. Specifically, the company offers records-management and data protection solutions, and helps address information challenges including rising storage costs, litigation, regulatory compliance, and disaster recovery. Revenues are generated by providing storage for a variety of information media formats, core records management services, data and recovery offerings, information destruction services, and an expanding menu of complementary products and services to a diverse customer base. Core services, which are highly recurring in nature, primarily consist of the collection, handling, and transportation of stored records and information. In 2009, IRM's storage and core service revenues represented about 88% of total revenues.

records management facilities. The share of international contributions to IRM's revenue in 2009 was flat versus 2008 at 32%, but it has crept up to 32% from 28% in 2005. The customer base is diversified by industry, with commercial, legal, banking, health care, accounting, financial, entertainment and government organizations all represented. Further, no single customer represented more than 2% of revenue for 2009 or either of the three prior years. CORPORATE STRATEGY. Primary growth drivers include increasing revenues from existing customers, adding new clients, introducing new products and services (such as secure shredding, electronic vaulting and digital archiving), and acquisitions.

As of year-end 2009, IRM had more than 140,000 corporate clients around the world, including more than 97% of the Fortune 1000 and over 93% of the FTSE 1000. The company provides services in 38 countries and operates over 1,000 Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.64 1.08 1.08 Nil Nil 32.04 16.91 30 16

2008 NM 1.83 0.40 0.40 Nil Nil 37.13 16.71 93 42

2007 NM 1.99 0.76 0.69 Nil Nil 38.85 25.05 51 33

2006 NM 1.71 0.64 0.61 Nil Nil 29.91 22.64 47 35

2005 NM 1.54 0.57 0.55 Nil Nil 30.06 17.77 52 31

2004 NM 1.31 0.48 0.46 Nil Nil 23.39 17.22 49 36

2003 NM 1.12 0.43 0.43 Nil Nil 18.06 13.44 41 31

2002 NM 0.91 0.35 0.33 Nil Nil 15.20 8.95 44 26

2001 NM 0.64 -0.17 -0.17 Nil Nil 13.54 9.37 NM NM

2000 NM 0.57 -0.14 NA Nil Nil 11.65 8.22 NM NM

3,014 868 319 230 333 33.2% 221 221

3,055 791 291 237 225 63.6% 82.0 82.4

2,730 699 249 229 223 30.9% 153 139

2,350 611 214 195 224 41.8% 129 122

2,078 575 192 184 197 41.4% 114 110

1,818 507 164 186 167 41.7% 94.2 91.9

1,501 441 135 150 157 42.5% 84.6 83.4

1,319 364 110 137 120 41.1% 67.0 63.5

1,171 302 154 135 -8.13 NM -32.2 -31.7

986 257 127 118 -18.0 NM -24.9 NA

Balance Sheet & Other Financial Data (Million $) Cash 447 Current Assets 1,211 Total Assets 6,847 Current Liabilities 815 Long Term Debt 3,211 Common Equity 2,141 Total Capital 5,397 Capital Expenditures 313 Cash Flow 540 Current Ratio 1.5 % Long Term Debt of Capitalization 59.5 % Net Income of Revenue 7.3 % Return on Assets 3.4 % Return on Equity 11.2

278 976 6,357 730 3,207 1,803 5,050 387 373 1.3 63.5 2.7 1.3 4.6

133 822 6,308 766 3,213 1,795 5,389 386 402 1.1 64.2 5.6 2.7 9.1

45.4 680 5,210 639 2,606 1,553 4,444 382 343 1.1 58.6 5.5 2.6 8.8

53.4 554 4,766 592 2,504 1,370 4,105 272 306 0.9 61.0 5.5 2.5 8.8

31.9 501 4,442 515 2,439 1,219 3,877 232 258 1.0 62.9 5.2 2.3 8.2

74.7 472 3,892 585 1,974 1,066 3,262 204 219 0.8 60.5 5.6 2.4 8.4

56.3 367 3,231 428 1,662 945 2,748 197 177 0.9 60.5 5.1 2.2 7.3

21.4 309 2,860 359 1,461 886 2,459 197 121 0.9 59.4 NM NM NM

6.20 237 2,659 314 1,314 924 2,320 169 102 0.8 56.6 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 745 Atlantic Ave, Boston, MA 02111-2717. Telephone: 617-535-4766. Website: http://www.ironmountain.com Chrmn: C.R. Reese

Pres & CEO: R.T. Brennan EVP, CFO & Chief Acctg Officer: B.P. McKeon EVP & CIO: T. Tsolakis SVP, Secy & General Counsel: E.W. Cloutier

Investor Contact: S.P. Golden (617-535-4766) Founded: 1951 Board Members: C. H. Bailey, C. R. Boden, R. T. Domicile: Delaware Brennan, K. P. Dauten, P. F. Deninger, P. Halvorsen, M. Employees: 20,100 W. Lamach, A. D. Little, C. R. Reese, V. J. Ryan, L. A. Tucker, A. J. Verrecchia

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ITT | ITT is in the S&P 500

ITT Corp S&P Recommendation STRONG BUY

★★★★★

Price $48.51 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $63.00

Investment Style Large-Cap Growth

Summary This company is a diversified industrial manufacturer of advanced technology products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $57.99– 42.05 Trailing 12-Month EPS $3.48 Trailing 12-Month P/E 13.9 $10K Invested 5 Yrs Ago $9,390

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.23 4.53 11.5 183.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.897 2.06 $1.00 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.12 16 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of ITT's favorable growth prospects in most of the markets it serves and our view of its strong management team and solid balance sheet. This is offset by our outlook for U.S. defense spending growth, which we think may slow in coming years.

70 60 50 40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 4

3

3

5

4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Efraim Levy, CFA on August 06, 2010, when the stock traded at $ 45.76. Highlights We expect U.S. GDP to rise in 2010, with ITT also benefiting from increased global sales. We see ITT's sales advancing 3% for the year, with the motion & flow control segment showing the strongest annual growth, followed by fluid technology. We expect the defense segment to be down for the year before rising in 2011 as some programs wind down. We expect all three segments to post sales gains in 2011 and overall sales to rise by mid-single digits. We think operating margins in 2010 will benefit from revenue growth and cost-cutting actions, despite asbestos-related costs. The recent acquisition of Godwin Pumps should be dilutive to 2010 EPS but accretive in 2011. We see higher tax rates, as well as higher pension and retirement expense, reducing profits. Our $4.23 EPS forecast excludes restructuring charges. Although we view the company's balance sheet and cash flow as strong, ITT has said it will focus on liquidity and temporarily cut back on share buybacks and acquisition activity. Longer term, we expect the company to post 8% to 10% average annual revenue growth, reflecting new products, expanded markets and potential acquisitions.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

➤

AB

54 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

We believe strong cash flow will support a modest cash dividend, debt reduction, share buybacks, and strategic acquisitions. The cash dividend was recently increased, and we expect the dividend payment to rise on an annual basis. With its long-term debt below 27% of total capitalization, which is in line with key peers, we see ITT's balance sheet as solid. Risks to our recommendation and target price include reduced demand at ITT's operating segments, competitive price pressures, and slower-than-expected economic growth. While we do not consider the company's expected asbestos obligations to be material, there is a risk that obligations will be greater than expected. Our 12-month target price of $63 is based on relative and DCF metrics. Applying a multiple of about 15X, reflecting peer and historical comparisons, to our 2010 EPS estimate of $4.23 leads to a value of $63. Our discounted cash flow model, which assumes a weighted average cost of capital of 11.5%, compound annual growth of 3.5% over the next 15 years, and a terminal growth rate of 3.0%, also generates intrinsic value of $63.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,636 2,739 2009 2,557 2,780 2008 2,806 3,064 2007 2,070 2,223 2006 1,792 1,964 2005 1,776 1,874

3Q -2,698 2,879 2,181 2,001 1,828

4Q -2,870 2,945 2,529 2,051 1,950

Year -10,905 11,695 9,003 7,808 7,427

Earnings Per Share ($) 2010 0.79 1.22 2009 1.01 1.10 2008 0.93 1.22 2007 0.74 1.08 2006 0.55 0.72 2005 0.65 0.70

E1.03 0.36 1.20 0.92 0.75 0.79

E1.19 1.06 0.96 0.70 0.65 -0.48

E4.23 3.54 4.23 3.44 2.67 1.67

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.250 0.250

02/22 05/11 08/09 10/12

03/01 05/19 08/25 11/09

03/03 05/21 08/27 11/12

04/01/10 07/01/10 10/01/10 01/01/11

Dividends have been paid since 1996. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ITT

ITT Corp Business Summary August 06, 2010 CORPORATE OVERVIEW. ITT Corp. (name changed from ITT Industries in July 2006) is primarily a producer of defense electronics and fluid technology products. Fluid technology products (31% of 2009 sales) include pumps, valves, heat exchangers, mixers and fluid measuring instruments and controls for residential, agricultural, commercial, municipal and industrial applications. The fluid technology segment became the world's largest pump manufacturer (formerly third largest) following its 1997 acquisition of Goulds Pumps, Inc. Defense electronics and services (58%) are sold to the military and to government agencies. Products include traffic control systems, jamming devices that guard military planes against radar guided missiles, digital combat radios, night vision devices, radar, satellite instruments and other.

ous automotive and industrial markets for the transportation industry. CORPORATE STRATEGY. The company seeks to expand revenues through a combination of internal growth and acquisitions. We expect the company to continue its history of successful acquisition integrations. At the same time, ITT plans to divest operations that do not fit its strategic goals or provide adequate returns. A recent example is the 2007 divestiture of the switch components operations, which accounted for about half of the electronics segment's 2006 revenues. We expect the company to increase revenues via new products, expanded markets and acquisitions.

Motion & flow control products (11%) include switches and valves for industrial and aerospace applications, products for the marine and leisure markets, and fluid handling materials such as tubing systems and connectors for variCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 5.13 3.54 3.51 0.85 24% 56.95 31.94 16 9

2008 NM 5.74 4.23 2.65 0.70 17% 69.73 34.75 16 8

2007 NM 4.45 3.44 3.35 0.56 16% 73.44 56.30 21 16

2006 1.72 3.58 2.67 2.74 0.55 21% 58.73 45.34 22 17

2005 1.38 2.71 1.67 2.28 0.36 22% 58.05 40.24 35 24

2004 NM 3.37 2.32 2.13 0.34 15% 43.36 35.52 19 15

2003 0.78 3.08 2.08 1.94 0.32 15% 37.70 25.06 18 12

2002 NM 2.94 2.03 0.69 0.30 15% 35.43 22.90 17 11

2001 NM 2.37 1.20 -0.18 0.30 25% 26.00 17.78 22 15

2000 NM 2.59 1.47 NA 0.30 20% 19.81 11.19 13 8

10,905 1,519 293 99.5 825 21.2% 651 644

11,695 1,566 278 141 1,088 28.7% 775 485

9,003 1,229 185 115 898 29.6% 633 616

7,808 1,024 172 86.2 727 31.3% 500 512

7,427 985 197 75.0 448 29.8% 314 429

6,764 871 199 50.4 610 28.3% 438 400

5,627 559 188 Nil 531 26.3% 391 364

4,985 706 171 68.8 509 25.3% 380 129

4,676 707 213 85.5 333 35.0% 217 -31.7

4,829 695 202 93.1 420 37.0% 265 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,216 Current Assets 4,256 Total Assets 11,129 Current Liabilities 2,616 Long Term Debt 1,431 Common Equity 3,878 Total Capital 5,309 Capital Expenditures 272 Cash Flow 943 Current Ratio 1.6 % Long Term Debt of Capitalization 27.0 % Net Income of Revenue 6.0 % Return on Assets 6.0 % Return on Equity 18.8

965 4,064 10,480 4,031 468 3,060 3,541 249 1,054 1.0 13.3 6.6 7.0 22.1

1,840 4,930 11,553 5,456 3,566 3,945 4,637 239 818 0.9 10.9 7.0 6.7 18.6

937 3,348 7,430 2,759 500 3,362 3,863 177 671 1.2 13.0 6.4 6.9 16.1

451 2,772 7,063 2,560 516 2,723 3,240 179 511 1.1 15.9 4.2 4.4 12.4

263 2,329 7,277 2,446 543 2,343 2,886 165 636 1.0 18.8 6.5 6.6 20.9

414 2,106 5,938 1,687 461 1,848 2,309 154 579 1.2 20.0 6.9 6.9 26.2

202 1,701 5,390 1,730 492 1,137 1,630 153 551 1.0 30.2 7.6 7.7 30.2

121 1,459 4,508 1,897 456 1,376 1,832 174 430 0.8 24.9 4.6 4.8 16.8

88.7 1,506 4,611 2,233 408 1,211 1,620 181 466 0.7 25.2 5.5 5.8 22.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1133 Westchester Ave, White Plains, NY 10604-3516. Telephone: 914-641-2000. Website: http://www.itt.com Chrmn, Pres & CEO: S.R. Loranger

SVP & CFO: D.L. Ramos Treas: C. Ostrowski Secy: B.M. Fealing General Counsel: F.R. Jimenez

Investor Contact: P.J. Milligan Founded: 1920 Board Members: C. J. Crawford, A. Day, R. English, C. Domicile: Indiana A. Gold, R. F. Hake, J. J. Hamre, P. J. Kern, A. Employees: 40,200 Lambert, S. R. Loranger, F. T. MacInnis, S. N. Mohapatra, L. S. Sanford, M. I. Tambakeras, I. Vasello

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JBL | JBL is in the S&P 500

Jabil Circuit Inc S&P Recommendation BUY

★★★★★

Price $14.18 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Electronic Manufacturing Services

12-Mo. Target Price $16.00

Investment Style Large-Cap Growth

Summary This company manufactures circuit board assemblies for international OEMs in the computing, peripheral, storage, communications, networking and industrial markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $18.49– 10.17 Trailing 12-Month EPS $0.78 Trailing 12-Month P/E 18.2 $10K Invested 5 Yrs Ago $5,149

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.80 2.00 7.9 217.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.97 27 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the historically volatile nature of the electronic manufacturing services industry as well as what we see as the company's relatively high exposure to fluctuations in commodity prices.

30

15 8

4

Quantitative Evaluations S&P Quality Ranking

Vol. 49

Mil.

D

24 16 8 0 5

$3.084 1.97 $0.28 83

C

B-

BB

B+

A-

A

Relative Strength Rank

A+

MODERATE 57

3

3

3

4

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Thomas W. Smith, CFA on October 01, 2010, when the stock traded at $ 14.30. Highlights ➤

➤

➤

Investment Rationale/Risk

We forecast an 18% revenue increase for FY 11 (Aug.), and a 9% rise in FY 12, reflecting our projection of a recovery for the electronic manufacturing services (EMS) industry from a deep downturn. We see the potential for new business wins and a continued push into low-cost geographies helping sales. While JBL benefits from providing end-to-end solutions to a welldiversified customer base, we believe some rivals have even greater scale efficiencies.

➤

We expect margins to continue to widen in FY 11, aided by rising volumes and by savings from restructuring activities. Capital expenditures rose in FY 10 to support new programs, but we project capital spending to be stable to slightly lower in FY 11 as some projects are completed. A focus on higher-margin product lines should also aid margins.

➤

On an operating basis excluding restructuring-related charges, but including stock option expense that we see at about $0.34 in FY 11 and $0.37 in FY 12, we estimate EPS of $1.80 in FY 11 and $2.00 for FY 12.

➤

Revenue/Earnings Data

2010

We think that an economic upturn through FY 12 will lead to better results for the company. We believe a push by the company to diversify its business mix away from lower-margin consumer business will aid margins. Cost savings from restructurings should also help. However, we believe that the boost in capital expenditures creates some risk. Overall, we view these volatile shares as attractively valued in the context of an industry upturn that we project. Risks to our recommendation and target price include smaller market share gains than we project, slower and more costly implementation of new contracts and facilities than we expect, and less smooth restructuring than we foresee. We apply a price-to-book multiple of 1.9X, which is toward the low end of the 10-year historical range for JBL, to our estimate of tangible book value per share of $8.40 to derive a valuation near $16. Applying a peer-based target P/E of 9X to our FY 11 operating EPS estimate of $1.80 results in a similar valuation and, blending these measures, we arrive at our 12-month target price of $16.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 3,088 3,005 2009 3,383 2,887 2008 3,368 3,059 2007 3,224 2,935 2006 2,404 2,315 2005 1,833 1,716

3Q 3,456 2,615 3,088 3,002 2,592 1,938

4Q 3,861 2,800 3,265 3,130 2,954 2,037

Year 13,409 11,685 12,780 12,291 10,265 7,524

Earnings Per Share ($) 2010 0.13 0.14 2009 -1.34 -4.19 2008 0.30 -0.12 2007 0.20 0.07 2006 0.37 0.32 2005 0.27 0.22

0.24 -0.14 0.19 0.03 0.30 0.29

0.27 0.03 0.28 0.06 -0.22 0.34

0.78 -5.63 0.65 0.35 0.77 1.12

Fiscal year ended Aug. 31. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.070 0.070 0.070 0.070

01/22 04/14 07/22 10/21

02/11 05/13 08/12 11/10

02/16 05/17 08/16 11/15

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: JBL

Jabil Circuit Inc Business Summary October 01, 2010 CORPORATE OVERVIEW. Jabil Circuit provides electronic manufacturing services (EMS), working with customers in a variety of industries at facilities around the world. Among the many services the company offers are design and engineering, component selection and procurement, automated assembly, product testing, parallel global production, enclosure services, systems assembly, direct order fulfillment, and aftermarket services. The company reports in three operating segments: Electronic Manufacturing Services (EMS) represented 58% of sales in FY 09 (Aug.), Consumer represented 36%, and Aftermarket Services (AMS) represented 6%. Within the EMS segment, industry sectors served include Automotive, at 3% of FY 09 total sales, Computing and Storage 11%, Instrumentation and Medical 19%, Networking 17%, Telecommunications 6%, and Other 2%. Within the Consumer segment, Display represented 4% of FY 09 total sales, Mobility 20%, and Peripherals 12%. Notably among trends within the company's focus, revenue from the Mobility operations revived to 20% in FY 09, after a dip to 12% in FY 08

and 16% in FY 07, almost rising back to the level of 21% set in FY 06. In FY 09, Cisco Systems and Research in Motion were the only customers accounting for more than 10% of sales, with Cisco at 13% (16% of FY 08 sales) and Research in Motion at 12% (under 10% of FY 08 sales). Among other large customers are Hewlett-Packard, which accounted for 11% of FY 08 sales, Nokia Corp., IBM, EchoStar, NetApp, Royal Philips Electronics, and Pace PLC. In FY 09, the five largest customers represented 43% of sales, and 50 customers accounted for 90% of JBL's revenues. Overall, we believe the company faces some risk from reliance on large customer accounts. However, this is typical within the EMS industry, and we think the company has made some progress in broadening its customer base over the past three years.

Company Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA NA 0.78 0.90 0.28 36% 18.49 10.17 24 13

2009 6.15 -4.22 -5.63 -0.73 0.28 NM 17.91 3.10 NM NM

2008 6.90 1.99 0.65 0.64 0.28 43% 18.78 4.77 29 7

2007 5.97 1.51 0.35 0.35 0.28 80% 27.86 14.27 80 41

2006 8.26 1.71 0.77 0.77 0.14 18% 43.70 22.01 57 29

2005 8.22 2.18 1.12 0.64 Nil Nil 39.00 21.80 35 19

2004 7.29 1.89 0.81 0.59 Nil Nil 32.40 19.18 40 24

2003 6.06 1.32 0.21 0.04 Nil Nil 31.66 21.20 NM NM

2002 6.63 1.11 0.17 NA Nil Nil 26.79 11.13 NM 65

2001 6.43 1.35 0.59 0.46 Nil Nil 40.99 14.00 69 24

13,409 643 NA 80.3 247 NA 169 195

11,685 457 292 82.3 -1,005 NM -1,165 -152

12,780 582 276 94.3 157 16.0% 134 131

12,291 494 240 86.1 94.5 22.6% 73.2 73.9

10,265 522 199 23.5 225 26.9% 165 165

7,524 507 220 24.8 276 16.1% 232 134

6,253 439 222 19.4 198 15.5% 167 122

4,729 369 224 17.0 37.0 NM 43.0 8.12

3,545 296 188 13.1 44.8 22.4% 34.7 -0.11

4,331 353 155 5.86 166 28.7% 119 93.4

Balance Sheet & Other Financial Data (Million $) Cash 744 Current Assets 4,503 Total Assets 6,217 Current Liabilities 3,455 Long Term Debt 1,019 Common Equity 1,578 Total Capital 2,779 Capital Expenditures NA Cash Flow NA Current Ratio 1.3 % Long Term Debt of Capitalization 36.7 % Net Income of Revenue 1.3 % Return on Assets 2.9 % Return on Equity 11.2

876 3,677 5,318 2,686 1,037 1,435 2,677 292 -873 1.4 38.7 NM NM NM

773 4,139 7,032 3,048 1,100 2,716 3,832 338 410 1.4 28.7 1.1 2.0 5.2

664 3,666 6,295 2,991 760 2,443 3,226 302 313 1.2 23.6 0.6 1.3 3.1

774 3,679 5,412 2,701 330 2,294 2,632 280 363 1.4 12.5 1.6 3.5 7.4

796 2,686 4,077 1,568 327 2,135 2,462 257 452 1.7 13.3 3.1 6.3 11.7

621 2,183 3,329 1,159 305 1,819 2,125 218 389 1.9 14.4 2.7 5.1 9.8

700 2,094 3,245 1,263 297 1,588 1,905 117 267 1.7 15.6 0.9 1.5 2.8

641 1,588 2,548 593 355 1,507 1,903 85.5 223 2.7 18.6 1.0 1.4 2.4

431 1,447 2,358 505 362 1,414 1,813 309 274 2.9 20.0 2.7 5.4 8.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 10560 Dr. Martin Luther King Jr. Street North, St. Petersburg, FL 33716. Telephone: 727-577-9749. Email: [email protected] Website: http://www.jabil.com

Chrmn: W.D. Morean Pres & CEO: T.L. Main Vice Chrmn: T.A. Sansone COO: M.T. Mondello

CFO & Chief Acctg Officer: F.I. Alexander Founded: 1969 Investor Contact: B. Walters (727-803-3349) Domicile: Delaware Board Members: M. S. Lavitt, T. L. Main, W. D. Employees: 61,000 Morean, L. J. Murphy, F. A. Newman, S. Raymund, T. A. Sansone, D. Stout, K. A. Walters

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JEC | JEC is in the S&P 500

Jacobs Engineering Group Inc. S&P Recommendation STRONG BUY

★★★★★

Price $39.21 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Engineering

12-Mo. Target Price $53.00

Investment Style Large-Cap Growth

Summary This company provides engineering, construction and maintenance services to private industry and federal government agencies on a worldwide basis.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $50.68– 33.70 Trailing 12-Month EPS $1.98 Trailing 12-Month P/E 19.8 $10K Invested 5 Yrs Ago $13,083

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.60 3.00 15.1 125.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.930 Nil Nil 77

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.37 3 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the company's various markets, its growth-by-acquisition strategy, changes in global political conditions, timing issues related to new awards, and fluctuations in interest rates and foreign currencies. These factors are offset by what we see as JEC's strong cash position and virtually no debt.

100 80 60 40

Vol. Mil. 12 8 4 0

Quantitative Evaluations

33

26

S&P Quality Ranking 5

D

5

C

B-

B+ B

B+

A-

A

A+

5

Relative Strength Rank

1

MODERATE

49

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Stewart Scharf on October 12, 2010, when the stock traded at $ 39.60. Highlights ➤

➤

➤

We believe revenue declined in the low double digits in FY 10 (Sep.), as backlog continued to be hurt by soft customer spending levels, especially in field services. However, we see modest revenue growth resuming in FY 11, as we see improving global market trends leading to a resurgence in orders, especially for upstream oil & gas projects, driven by the oil sands in Canada. We also expect more infrastructure and building projects, while JEC targets acquisitions in the Middle East, China and India. We think gross margins narrowed to near 13% in FY 10, from 13.7% in FY 09, driven by competitive pricing pressures in the private sector. Margins should begin to improve sequentially during FY 11, due to a better backlog mix, while we believe operating margins will expand on increased global engineering work at low-cost centers (mainly in India), and other cost control efforts. We expect the effective tax rate to remain near 36% during FY 11, with FY 10 operating EPS of $2.60 (before a $0.48 litigation charge and a $0.04 office closing charge), advancing 15%, to $3.00, in FY 11.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

We base our strong buy opinion on our valuation metrics, along with the company's diversified customer and geographic base, and relationship-based business model, which focuses on relatively small, lower-risk projects rather than the competitively bid large lump-sum projects that are the industry standard. Also, the company's balance sheet remains strong. Risks to our recommendation and target price include a prolonged global economic downturn; project delays or cancellations based on customer liquidity issues or sharply lower oil prices; an inability to outsource skilled labor overseas; and a lack of acquisition opportunities. Our discounted cash flow (DCF) model suggests an intrinsic value of $58, assuming a perpetuity growth rate of 4% and a weighted average cost of capital (WACC) of about 13%. Based on relative metrics, and JEC's risk averse business model, we apply an above-peer and market P/E of 16X to our FY 11 EPS estimate, resulting in a value of $48. Blending these metrics, we arrive at our 12-month target price of $53.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,478 2,587 2009 3,233 2,975 2008 2,472 2,665 2007 2,019 2,092 2006 1,683 1,832 2005 1,283 1,383

3Q 2,508 2,707 2,919 2,084 1,926 1,449

4Q -2,553 3,197 2,280 1,979 1,519

Year -11,467 11,252 8,474 7,421 5,635

Earnings Per Share ($) 2010 0.58 0.62 2009 0.94 0.88 2008 0.79 0.80 2007 0.51 0.55 2006 0.36 0.37 2005 0.28 0.31

0.15 0.76 0.87 0.61 0.42 0.34

E0.73 0.63 0.92 0.68 0.49 0.36

E2.60 3.21 3.38 2.35 1.64 1.29

Fiscal year ended Sep. 30. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 1984.

Stock Report | October 23, 2010 | NYS Symbol: JEC

Jacobs Engineering Group Inc. Business Summary October 12, 2010 CORPORATE OVERVIEW. Jacobs Engineering focuses on providing a broad range of technical, professional and construction services to a large number of industrial, commercial and governmental clients worldwide. The company offers project services; consulting services; operations and maintenance services; and construction services via offices primarily in North America, Europe, Asia and Australia. In November 2007, the company was moved into the S&P 500 Index from S&P's MidCap 400 Index. In FY 09 (Sep.), revenues by sector were: refining (downstream), 35%; national government (environmental, defense and NASA), 21%; chemicals, 11%; pharmaBio (pharmaceutical and biotech), 8%; oil and gas (upstream), 8%; infrastructure, 8%; buildings, 5%; and pulp and paper, high tech, food and consumer products, 4%. The higher-margin technical professional services component accounted for 48% of revenues and 54% of backlog in FY 09, with the balance derived from field services (construction). As of July 2, 2010, backlog was $13.5 billion ($7.8 billion technical professional), down 8% sequentially and 15% from $15.8 billion a year earlier. Approximately $1.9 billion was removed from backlog due to project cancellations during FY 09 ($200 million from professional services), following $2.4 billion in FY 08. The company generally realizes about 60% to 65% of its backlog as revenues during any

12-month period. However, JEC believes about 52% of the backlog will be realized as revenues in FY 10. About 36% of revenues was generated from operations outside of the U.S in FY 09, including 19% in Europe and 14% in Canada. Project services include the engineering and design of process plants and high-technology facilities. Construction services offers traditional field services to private and public sector clients. Operations and maintenance services include all tasks required to keep a process plant in day-to-day operation. In FY 09, revenues derived from agencies of the U.S. government accounted for over 20% of the total, up from 16.8% in FY 08. Cost-reimbursable projects accounted for 85% of the FY 09 total, down slightly from 86% in FY 08. Fixedprice contracts accounted for 14%, while guaranteed maximum price was 1%. At the end of FY 09, the company's pension plans were underfunded by $312 million, up from $234 million a year earlier.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.19 3.90 3.21 3.01 Nil Nil 54.71 30.16 17 9

2008 10.28 3.97 3.38 3.08 Nil Nil 103.29 26.00 31 8

2007 8.42 2.85 2.35 2.38 Nil Nil 99.62 38.25 42 16

2006 7.36 2.04 1.64 1.68 Nil Nil 46.64 33.90 29 21

2005 5.10 1.70 1.29 1.16 Nil Nil 34.71 22.33 27 17

2004 4.04 1.44 1.13 1.02 Nil Nil 24.11 18.43 21 16

2003 4.00 1.45 1.14 0.91 Nil Nil 24.97 17.48 22 15

2002 2.73 1.31 0.99 0.75 Nil Nil 21.45 13.05 22 13

2001 2.55 1.16 0.81 0.53 Nil Nil 18.92 10.56 24 13

2000 2.15 0.86 0.48 NA Nil Nil 12.30 6.55 25 14

11,467 707 86.3 2.92 625 36.0% 400 374

11,252 716 73.1 4.41 657 36.0% 421 383

8,474 498 55.7 8.00 449 36.0% 287 290

7,421 350 48.3 7.50 305 35.5% 197 202

5,635 288 46.4 6.47 236 36.0% 151 136

4,594 232 34.2 3.57 198 35.0% 129 118

4,616 232 35.4 3.25 197 35.0% 128 102

4,556 207 35.1 7.50 169 35.0% 110 82.3

3,957 183 38.9 11.7 138 36.5% 87.8 57.5

3,419 165 40.1 11.4 81.3 37.3% 51.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,034 Current Assets 2,818 Total Assets 4,429 Current Liabilities 1,296 Long Term Debt 0.74 Common Equity 2,626 Total Capital 2,650 Capital Expenditures 55.5 Cash Flow 486 Current Ratio 2.2 % Long Term Debt of Capitalization NM % Net Income of Revenue 3.5 % Return on Assets 9.2 % Return on Equity 16.4

604 2,750 4,278 1,577 55.7 2,245 2,386 115 494 1.7 2.3 3.7 11.0 20.6

613 2,278 3,389 1,276 40.0 1,844 1,884 64.6 343 1.8 2.1 3.3 9.1 17.5

434 1,818 2,854 1,041 77.7 1,423 1,508 54.0 245 1.7 5.2 2.7 7.5 15.2

240 1,337 2,354 785 89.6 1,141 1,237 43.9 197 1.7 7.2 2.7 6.8 14.1

100 1,084 2,071 686 78.8 1,005 1,089 37.1 163 1.6 7.2 2.8 6.9 14.0

126 970 1,671 611 17.8 842 865 25.8 163 1.6 2.1 2.8 7.7 16.7

48.5 975 1,674 740 85.7 690 781 37.2 145 1.3 11.0 2.4 6.8 17.1

49.3 946 1,557 701 164 592 761 28.8 127 1.4 21.6 2.2 6.0 16.1

65.8 851 1,384 684 147 496 648 44.4 91.1 1.2 22.7 1.5 3.9 10.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1111 South Arroyo Parkway, Pasadena, CA, USA 91105. Telephone: 626-578-3500. Website: http://www.jacobs.com Chrmn: N. Watson

Pres & CEO: C.L. Martin EVP, CFO, Chief Admin Officer & Treas: J. Prosser, Jr. SVP, Chief Acctg Officer & Cntlr: N.G. Thawerbhoy SVP & General Counsel: W.C. Markley, III

Investor Contact: J.W. Prosser, Jr. (626-578-6803) Founded: 1957 Board Members: J. R. Bronson, J. F. Coyne, R. C. Domicile: Delaware Davidson, Jr., E. V. Fritzky, J. P. Jumper, C. L. Martin, B. Employees: 53,200 Montoya, T. M. Niles, P. Robertson, N. Watson, L. F. levinson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JNS | JNS is in the S&P 500

Janus Capital Group Inc S&P Recommendation BUY

★★★★★

Price $10.73 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary Janus is an investment management company focused on equity growth and quantitative strategies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$15.72– 8.63 $0.60 17.9 $7,267

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.70 0.87 15.3 183.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.971 0.37 $0.04 100

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.69 NM BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's lack of product diversification, previous regulatory issues, and turnover of investment personnel.

40

20

Quantitative Evaluations

8

S&P Quality Ranking

4

D

C

B-

BB

B+

A-

A

A+

Vol. Mil.

66

Relative Strength Rank

24 16 8 0

MODERATE

30 LOWEST = 1

5

4

3

2

HIGHEST = 99

Revenue/Earnings Data

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Rafay Khalid, CFA on October 22, 2010, when the stock traded at $ 10.83. Highlights ➤

We think strong relative fund performance at JNS will attract client assets once general investor sentiment improves. Right now, the firm's growth equity is seeing outflows while its fixed income and value offerings are still seeing strong sales trends. Performance at its INTECH quant subsidiary has appeared to rebound while outflows have slowed, suggesting an improving trend there too. We also expect the company will benefit from improved distribution channels and increased penetration of the institutional market. Higher average assets under management and a more favorable asset mix should help revenues grow 18% in 2010 and 12% in 2011.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect compensation accruals to remain above historical levels in 2010, before falling on a relative basis in 2011. Cost-cutting measures have already helped reduce non-compensation expenses, and a modest decline in the accrual rate in 2010 should allow pretax margins to rebound above 20% during the year. Interest costs should also continue to decrease, and seed investment losses have abated. We project EPS of $0.70 in 2010 and $0.87 in 2011.

➤

As of September 2010, 42%, 86% and 91% of firm-wide mutual funds were in the top half of their categories on a one-, three- and five-year total return basis, respectively, and we think consistently strong relative fund performance has attracted client assets. We believe investors prefer growth products and we see solid fund performance from the company in an improving investment environment. While we think caution is warranted as the company is less diversified than many peers, an improved economic outlook and a gradual recovery in equity markets brighten our view, and our recommendation is buy. Risks to our recommendation and target price include potential equity and bond market depreciation, and increased competition. We are concerned about Janus's corporate governance practices, as we see a need for a higher proportion of independent directors. Our 12-month target price of $14 is based on a historical average P/E ratio of 16.2X our 2011 EPS estimate. We believe this historical average is warranted, reflecting what we see as an improving economic recovery environment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 246.9 249.3 2009 170.3 200.2 2008 281.2 304.2 2007 247.9 273.0 2006 256.1 254.6 2005 239.0 229.3

3Q -227.6 275.4 284.6 250.1 237.5

4Q -250.6 177.1 311.5 265.9 247.3

Year -848.7 1,038 1,117 1,027 953.1

Earnings Per Share ($) 2010 0.17 0.17 2009 0.02 0.10 2008 0.24 0.40 2007 0.20 0.28 2006 0.17 0.15 2005 0.09 0.12

E0.18 0.05 0.16 0.29 0.15 0.15

E0.18 -5.22 0.05 0.30 0.19 0.05

E0.70 -5.22 0.86 1.07 0.66 0.40

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040

04/29

05/12

05/14

05/28/10

Dividends have been paid since 2000. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: JNS

Janus Capital Group Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. Janus Capital Group, a global asset management company, was created through the January 1, 2003, merger of Janus Capital Corp. into its parent company, Stilwell Financial Inc., which had been spun off from Kansas City Southern Industries in July 2000 via a stock offering. The company had total assets under management of $159.7 billion at the end of 2009, up from $123.5 billion at the end of 2008. The company distributes its products through one global distribution network directly to investors, and through advisers and financial intermediaries. Wholly owned Janus Capital Management focuses on growth equities, and uses both fundamental and quantitative investment research. It also offers core, international, specialty fixed-income, and money market products. Its largest funds include Janus Fund (JANSX), Janus Worldwide (JAWWX) and Janus Twenty (JAVLX).

per contractual obligations with the founders) of Enhanced Investment Technologies, LLC (INTECH), which focuses on mathematically driven equity investing strategies. INTECH's assets under management totaled $48.0 billion at the end of 2009, up from $7.3 billion at the end of 2002. INTECH, which manages assets for large institutions and endowments, seeks to achieve longterm returns that outperform a passive index, while controlling risks and trading costs. JNS owns about 80% of Perkins Investment Management LLC (formerly Perkins, Wolf, McDonnell and Co.), which focuses on value investing and subadvises a number of Janus's small- and mid-cap value products.

The company owns 89.5% (and is in the process of upping its stake to 92%, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM -4.38 -5.22 0.49 0.04 NM 16.06 3.73 NM NM

2008 NM 1.04 0.86 1.10 0.04 5% 36.88 5.18 43 6

2007 NM 1.21 1.07 1.05 0.04 4% 37.08 19.35 35 18

2006 NM 0.93 0.66 0.61 0.04 6% 24.20 15.50 37 23

2005 0.88 0.64 0.40 0.42 0.04 10% 20.59 12.75 51 32

2004 1.43 0.99 0.73 0.32 0.04 5% 17.90 12.60 25 17

2003 1.00 4.46 4.17 1.60 0.04 1% 19.00 9.46 5 2

2002 NM 0.70 0.38 0.42 0.05 13% 29.24 8.97 77 24

2001 NM 1.93 1.31 1.18 0.04 3% 46.63 18.20 36 14

2000 3.50 3.30 2.90 NA 0.01 NM 54.50 30.75 19 11

849 NA NA 74.0 -750 0.84% -757 83.1

1,038 362 28.8 75.5 216 31.9% 138 178

1,117 375 24.9 58.8 330 35.3% 192 189

1,027 267 47.1 32.3 237 34.5% 134 124

953 224 50.1 28.6 176 38.6% 87.8 92.5

1,011 264 60.4 38.4 272 33.9% 170 74.1

995 396 67.6 60.5 895 NM 956 367

1,145 441 72.3 57.8 320 72.6% 84.7 92.4

1,556 872 131 34.8 620 35.1% 302 276

2,248 1,118 81.2 7.70 1,202 35.5% 664 NA

Balance Sheet & Other Financial Data (Million $) Cash 432 Current Assets NA Total Assets 2,530 Current Liabilities NA Long Term Debt 792 Common Equity 1,022 Total Capital NA Capital Expenditures NA Cash Flow -729 Current Ratio 3.4 % Long Term Debt of Capitalization 43.7 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

408 584 3,337 157 1,106 1,608 2,752 20.1 167 3.7 41.2 13.3 4.0 8.3

691 954 3,564 227 1,128 1,724 3,272 16.7 217 4.2 39.3 17.2 5.4 9.5

560 925 3,538 186 537 2,306 3,261 17.0 181 5.0 16.5 13.0 3.7 5.5

553 1,004 3,629 268 262 2,581 3,283 23.6 138 3.7 8.0 9.2 2.4 3.3

527 1,065 3,768 155 378 2,735 3,553 26.5 230 6.9 10.6 16.8 4.2 6.3

1,223 1,466 4,332 301 769 2,661 3,997 23.9 1,023 4.9 19.2 96.1 25.0 45.9

161 346 3,322 185 856 1,508 3,097 16.3 157 1.9 27.6 7.4 2.5 5.9

237 478 3,392 881 400 1,363 2,466 34.3 433 0.5 16.2 19.4 12.2 25.0

364 641 1,581 196 Nil 1,058 1,342 107 745 3.3 Nil 29.5 47.2 70.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 151 Detroit St, Denver, CO 80206-4928. Telephone: 303-333-3863. Website: http://www.janus.com Chrmn: S.L. Scheid

CEO: R.M. Weil COO, SVP & CTO: G.S. Batejan EVP, CFO, Chief Acctg Officer & Treas: G.A. Frost EVP, Chief Admin Officer, Secy & General Counsel: K.D. Howes

Board Members: T. K. Armour, P. F. Balser, G. A. Cox, J. Founded: 1998 J. Diermeier, J. Fredericks, D. R. Gatzek, L. E. Domicile: Delaware Kochard, R. T. Parry, J. Patton, L. H. Rowland, G. S. Employees: 1,126 Schafer, S. L. Scheid, R. J. Skidelskiy, R. M. Weil

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: JDSU | JDSU is in the S&P 500

JDS Uniphase Corp S&P Recommendation HOLD

★★★★★

Price $11.58 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $13.00

Investment Style Large-Cap Blend

Summary This company manufactures fiber optic products and communications test and measurement solutions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$13.95– 5.35 $-0.28 NM $7,027

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.43 0.65 26.9 221.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

2.30 17 NA

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly competitive nature of the communications equipment industry, and the company's dependence on telecom carrier spending, which tends to be uneven due to the uncertain timing of network projects and upgrades.

8

4

2

Quantitative Evaluations

Vol.

S&P Quality Ranking

110

70

69

30 20 10 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

15

Mil.

$2.566 Nil Nil 67

D

C

B-

C B

B+

A-

Relative Strength Rank 3

2

3

3

2

A+

MODERATE

34

3

LOWEST = 1

1

A

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Ari Bensinger on September 16, 2010, when the stock traded at $ 12.07. Highlights ➤

➤

Following a 6% increase in FY 10 (Jun.), we see sales advancing 26% in FY 11, to $1.7 billion, reflecting higher demand for optical communication and test measurement products, as well as $165 million in additional revenue from the May 2010 Network Solutions Division (NSD) acquisition. We see several catalysts ahead, including the implementation of emerging technologies such as LTE and DOCSIS3.0 and an industry 40G upgrade cycle. We expect FY 11 gross margins to widen 160 basis points, to 46%, on a favorable product mix and lean manufacturing initiatives, partly offset by higher component expediting fees. Despite increased NSD transition costs, we believe JDSU will manage costs prudently, and we see FY 11 operating expenses rising at a slower rate than sales.

Investment Rationale/Risk ➤

➤

➤ ➤

We think JDSU can meet its 11% to 14% operating margin target range by its FY 11 second quarter. Overall, we estimate FY 11 EPS of $0.43, including $0.20 of projected stock option expense, up from the $0.22 EPS registered in FY 10, which excludes $0.50 of non-recurring items, mostly related to acquired technology amortization expense.

Industry fundamentals are strong, in our view, as telecom carriers need to upgrade their networks to address a rapid increase in network bandwidth demand. We also are encouraged by JDSU's cost management progress, which is leading to a material ramp in profitability margins, as evidenced by our forecast for earnings growth of 95% and 51% during FY 11 and FY 12, respectively. Even so, based on our valuation analysis, we think the current stock price appropriately reflects the potential operating leverage that we see in JDSU's business model. Risks to our recommendation and target price include a prolonged downturn in telecom spending, market share losses, and slowerthan-expected margin improvement. Our 12-month target price of $13 translates to an enterprise value to EBITDA ratio of 17X and 3X book value, valuation multiples that are in line with the peer mean. On a P/E basis, our target price equates to 30X our FY 11 EPS estimate of $0.43 (including $0.20 of stock option expense), above peers, warranted, in our view, by the potential earnings ramp that we see occurring over the next two years.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 297.8 342.9 2009 380.7 357.0 2008 356.7 399.2 2007 318.1 366.3 2006 258.3 312.9 2005 194.5 180.5

3Q 332.3 280.6 383.9 361.7 314.9 166.3

4Q 390.9 276.1 390.3 350.7 318.2 170.9

Year 1,364 1,294 1,530 1,397 1,204 712.2

Earnings Per Share ($) 2010 -0.14 -0.09 2009 -0.08 -3.28 2008 -0.03 0.09 2007 -0.08 0.10 2006 -0.32 -0.24 2005 -0.16 -0.24

-0.05 -0.39 -0.03 -0.07 0.02 -0.24

0.01 -0.27 -0.13 -0.08 -0.24 -0.80

-0.27 -4.02 -0.10 -0.12 -0.72 -1.44

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: JDSU

JDS Uniphase Corp Business Summary September 16, 2010 CORPORATE OVERVIEW. JDS Uniphase supplies optical components, as well as communications test and measurement solutions for the communications market. The company also leverages its optical science capabilities on noncommunications applications, offering products for display, security, medical environmental instrumentation, decorative, aerospace and defense applications. The company operates in three principal segments: communications test and measurement (47% of FY 09 (Jun.) revenue); communications and commercial optical products (37%); and advanced optical technologies (16%). PRIMARY BUSINESS DYNAMICS. The communications test and measurement segment provides instruments, software, systems and services that help communications equipment manufacturers and service providers accelerate the deployment of broadband networks and services from the core of the network to the home, including deployment over fiber to the curb, node or premise and digital networks. Solutions focus primarily on lab and production test platforms, field test instrumentation and software, and network and service as-

surance systems. The communications and commercial optical product group supplies the basic building blocks for fiber optic networks, which enable the rapid transmission of large amounts of data over long distances via light waves through fiber optic components, modules and subsystems. Transmission products include optical transceivers, optical transponders, and their supporting components such as modulators and source lasers. Transport products primarily consist of amplifiers and reconfigurable optical add/drop multiplexers (ROADMs) and their supporting components such as pump lasers, passive devices, and array waveguides. The segment also offers a broad portfolio of lasers used by customers in markets and applications such as biotechnology and graphics imaging, remote sensing, and materials processing and precision machining.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 2.19 0.35 -0.27 -0.32 NA Nil 13.95 7.66 NM NM

2009 2.44 -3.35 -4.02 -0.52 Nil Nil 8.75 2.21 NM NM

2008 2.73 0.55 -0.10 -0.12 Nil Nil 15.33 2.01 NM NM

2007 2.80 0.48 -0.12 -0.21 Nil Nil 17.99 12.41 NM NM

2006 2.72 -0.46 -0.72 -0.88 Nil Nil 34.40 13.93 NM NM

2005 5.76 -1.11 -1.44 -2.24 Nil Nil 26.08 10.56 NM NM

2004 7.12 -0.32 -0.64 -2.56 Nil Nil 47.08 22.72 NM NM

2003 7.92 -4.82 -5.28 -7.84 Nil Nil 37.68 19.84 NM NM

2002 11.44 -42.21 -52.00 -32.88 Nil Nil 82.72 12.64 NM NM

2001 22.24 -370.58 -411.20 -175.60 Nil Nil 519.50 40.96 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,364 93.7 137 24.3 -57.2 NA -59.7 -69.4

1,294 39.8 145 7.70 -869 NM -866 -111

1,530 87.6 145 8.80 -19.3 NM -21.7 -27.5

1,397 36.8 128 7.10 -24.3 NM -26.3 -45.7

1,204 -107 57.4 27.7 -152 NM -151 -181

712 -83.9 61.3 Nil -255 NM -261 -394

636 -58.5 55.9 Nil -128 NM -113 -446

676 -306 79.2 Nil -920 NM -934 -1,399

1,098 -374 1,645 Nil -8,501 NM -8,738 -5,534

3,233 -62.5 5,542 Nil -56,494 NM -56,122 -23,966

Balance Sheet & Other Financial Data (Million $) Cash 568 Current Assets 1,075 Total Assets 1,704 Current Liabilities 351 Long Term Debt 267 Common Equity 909 Total Capital 1,176 Capital Expenditures 41.4 Cash Flow 77.5 Current Ratio 3.1 % Long Term Debt of Capitalization 22.7 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

685 1,108 1,670 310 325 861 1,186 54.7 -722 3.6 27.4 NM NM NM

874 1,429 2,906 445 427 1,817 2,267 51.7 123 3.2 18.8 NM NM NM

363 1,661 3,025 348 808 1,736 2,544 75.7 102 4.8 31.8 NM NM NM

365 1,805 3,065 422 900 1,584 2,484 67.2 -93.8 4.3 36.2 NM NM NM

511 1,588 2,080 240 467 1,335 1,802 35.8 -200 6.6 25.9 NM NM NM

328 1,866 2,422 350 465 1,571 2,063 66.4 -56.7 5.3 22.5 NM NM NM

242 1,515 2,138 423 Nil 1,671 1,699 47.2 -855 3.6 Nil NM NM NM

412 1,857 3,005 483 5.50 2,471 2,519 133 -7,093 3.8 0.2 NM NM NM

763 3,036 12,245 848 12.8 10,706 11,392 732 -50,580 3.6 0.1 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 430 North McCarthy Boulevard, Milpitas, CA 95035. Telephone: 408-546-5000. Email: [email protected] Website: http://www.jdsu.com

Chrmn: M.A. Kaplan Pres & CEO: T.H. Waechter Vice Chrmn: K.J. Kennedy Investor Contact: D. Vellequette (408-546-4445)

EVP & CFO: D. Vellequette Board Members: R. E. Belluzzo, H. L. Covert, Jr., B. D. Day, P. A. Herscher, M. Jabbar, M. A. Kaplan, K. J. Kennedy, R. T. Liebhaber, C. S. Skrzypczak, T. H. Waechter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Delaware Employees: 4,700

Stock Report | October 23, 2010 | NYS Symbol: JCI | JCI is in the S&P 500

Johnson Controls Inc. S&P Recommendation STRONG BUY

★★★★★

Price $34.18 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Auto Parts & Equipment

12-Mo. Target Price $42.00

Investment Style Large-Cap Blend

Summary This company supplies building controls and energy management systems, automotive seating, and batteries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.77– 23.62 Trailing 12-Month EPS $2.03 Trailing 12-Month P/E 16.8 $10K Invested 5 Yrs Ago $17,088

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.97 2.44 17.4 673.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.79 6 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of favorable growth prospects in the building controls markets that JCI serves and what we see as a strong management team and healthy balance sheet, offset by the challenges faced by its automotive operations.

40 30 20

3-for-1

10

$23.014 1.52 $0.52 78

Quantitative Evaluations Vol.

S&P Quality Ranking

101

Mil. 45 30 15 0 5

D

4

3

3

4

3

C

B-

A B

B+

A-

A

Relative Strength Rank

5

STRONG 88

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Efraim Levy, CFA on October 13, 2010, when the stock traded at $ 32.40. Highlights ➤

➤

➤

In 2010, we look for vehicle sales and production in the U.S. and outside Europe to increase; Europe is likely to be weaker in the absence of 2009's government stimulus programs. We believe revenues in FY 10 (Sep.) advanced at an upper teens pace, led by rebounding automotive and battery contributions. Total revenues in FY 11 should rise 10%. Over the long term, we see the building efficiency unit benefiting from new customers, as outsourcing trends persist and the backlog of orders for installed systems continues to rise. Auto interior sales should benefit from increased business with non-U.S. manufacturers and emerging market growth. We see operating margins improving in FY 11 on stronger domestic and foreign demand, benefits from restructuring activities, and a reduction in restructuring costs. Partly offsetting could be pricing pressures from customers, and increases in some raw material costs. From depressed levels of FY 09, we see a rebound in EPS in FY 10 to $1.97, and a further 24% advance to $2.44 in FY 11. We expect to see more acquisition activity during the next 12 months as well as an increase in the dividend payout ratio.

Investment Rationale/Risk ➤

➤

➤

We expect JCI's long-term sales and earnings growth to exceed that of peers, and for the company to show greater earnings stability, aided by its diversification in geography, products and customers. The stock's P/E multiple was recently above that of the S&P 500, based on our calendar 2010 estimates. We view the balance sheet as strong, with long-term debt generally at 20% to 36% of capitalization over the past decade. Risks to our recommendation and target price include lower-than-expected demand, especially for automotive parts, higherthan-anticipated raw material costs, and lessthan-expected acquisition synergies and restructuring savings. Applying a P/E multiple of 15.5X, toward the high end of its historical range, to our FY 11 EPS estimate of $2.44 results in a value of about $38. Our DCF model, which assumes a weighted average cost of capital of 9.5%, a compound annual growth rate of 17% over the next 15 years, and a terminal growth rate of 3.0%, leads to intrinsic value of about $46. Our 12-month target price of $42 is based on a weighted blend of these two metrics.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 8,408 8,317 2009 7,336 6,315 2008 9,484 9,406 2007 8,210 8,492 2006 7,528 8,167 2005 6,618 6,899

3Q 8,540 6,979 9,865 8,911 8,390 7,062

4Q -7,867 9,307 9,011 8,150 6,900

Year -28,497 38,062 34,624 32,235 27,479

Earnings Per Share ($) 2010 0.52 0.40 2009 -1.02 -0.32 2008 0.39 0.48 2007 0.28 0.44 2006 0.29 0.28 2005 0.28 0.09

0.61 0.26 0.73 0.66 0.57 0.44

E0.57 0.47 0.03 0.77 0.62 0.50

E1.97 -0.57 1.63 2.16 1.75 1.30

Fiscal year ended Sep. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.130 0.130 0.130 0.130

11/18 01/27 05/18 07/28

12/09 03/10 06/09 09/08

12/11 03/12 06/11 09/10

01/04/10 04/02/10 07/02/10 10/04/10

Dividends have been paid since 1887. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: JCI

Johnson Controls Inc. Business Summary October 13, 2010 CORPORATE OVERVIEW. Johnson Controls, founded in 1885, is a leading manufacturer of automotive interior systems, automotive batteries and automated building control systems. It also provides facility management services for commercial buildings. The automotive interior segment manufactures interior products and systems, including complete seats and seating components for North American and European car and light-truck manufacturers. The segment has grown rapidly in recent years, gaining contracts to produce seats formerly manufactured inhouse by automakers, and expanding in Europe. Seating accounted for 42% of sales in FY 09 (Sep.). The power solutions unit, the largest automotive battery operation in North America, makes lead-acid batteries primarily for the automotive replacement market and for OEMs. Batteries accounted for about 14% of FY 09 sales, and the unit is expanding operations in Europe.

buildings, which are used for temperature and energy management, and fire safety and security maintenance. The segment also includes custom engineering, installation and servicing of process control systems and a growing facilities management business. Building efficiency sales accounted for 44% of FY 09 revenues. As of March 2010, JCI had an unearned backlog of building systems and services contracts totaling $4.4 billion. Government building trends promoting facility management outsourcing and energy efficiency programs are creating additional opportunities, in our view. Ford, GM and Daimler were the company's three largest customers in FY 09. We expect the share of revenues from the three U.S.-based customers (Ford, GM and Chrysler) to shrink as the company grows its sales outside the U.S. and with non-domestic customers expanding in the U.S.

The building efficiency (formerly called controls) segment manufactures, installs and services controls and control systems, principally for nonresidential Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.77 0.68 -0.57 -0.50 0.52 NM 28.34 8.35 NM NM

2008 3.63 2.93 1.63 1.39 0.63 39% 36.52 13.65 22 8

2007 3.38 3.38 2.16 2.16 0.33 15% 44.46 28.09 21 13

2006 1.10 2.95 1.75 1.74 0.37 21% 30.00 22.12 17 13

2005 3.52 2.41 1.30 1.31 0.33 26% 25.07 17.52 19 13

2004 1.93 2.48 1.41 1.42 0.30 21% 21.33 16.52 15 12

2003 1.27 2.17 1.20 1.16 0.24 20% 19.37 11.96 16 10

2002 0.74 1.97 1.06 0.89 0.22 21% 15.53 11.52 15 11

2001 1.17 1.77 0.85 0.70 0.21 24% 13.78 8.66 16 10

2000 0.61 1.79 0.85 NA 0.19 22% 10.85 7.64 13 9

28,497 1,214 745 255 -318 NM -338 -293

38,062 2,744 783 270 1,324 24.2% 979 833

34,624 2,527 732 277 1,607 18.7% 1,295 1,292

32,235 2,184 705 248 1,138 5.54% 1,033 1,025

27,479 1,913 636 121 1,003 20.4% 757 764

26,553 1,918 617 111 1,212 26.0% 818 818

22,646 1,720 558 114 1,058 31.0% 683 650

20,103 1,639 517 122 1,006 34.6% 600 497

18,427 1,477 516 129 867 38.7% 478 385

17,155 1,427 462 128 856 39.6% 472 NA

Balance Sheet & Other Financial Data (Million $) Cash 761 Current Assets 9,826 Total Assets 23,983 Current Liabilities 8,716 Long Term Debt 3,168 Common Equity 9,121 Total Capital 12,490 Capital Expenditures 647 Cash Flow 407 Current Ratio 1.1 % Long Term Debt of Capitalization 25.2 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

384 10,676 25,318 9,810 3,201 9,411 12,890 807 1,762 1.1 24.8 2.6 4.0 10.7

674 10,872 24,105 9,920 3,255 8,907 11,290 828 2,027 1.1 28.8 3.7 5.6 15.9

293 9,264 21,921 8,146 4,166 7,355 11,650 711 1,738 1.1 35.8 3.2 5.4 15.4

171 7,139 16,144 6,841 1,578 6,058 7,831 664 1,394 1.0 20.1 2.8 4.9 13.4

170 6,377 15,091 6,602 1,631 5,206 7,106 862 1,434 1.0 22.9 3.1 5.8 17.4

136 5,620 13,127 5,584 1,777 4,164 6,260 664 1,234 1.0 28.4 3.0 5.6 17.9

262 4,946 11,165 4,806 1,827 3,396 5,515 496 1,110 1.0 33.1 3.0 5.7 18.9

375 4,544 9,912 4,580 1,395 2,862 4,588 622 985 1.0 30.4 2.6 4.9 17.7

276 4,277 9,428 4,510 1,315 2,447 3,891 547 924 0.9 33.8 2.8 5.2 20.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5757 N. Green Bay Avenue, Milwaukee, WI 53209-4408. Telephone: 414-524-1200. Website: http://www.johnsoncontrols.com Chrmn, Pres & CEO: S.A. Roell

EVP, CFO & Chief Acctg Officer: R.B. McDonald Treas: F.A. Voltolina Secy & General Counsel: J.D. Okarma Investor Contact: G.Z. Ponczak (414-524-1200)

Board Members: D. P. Abney, D. W. Archer, R. L. Barnett, N. A. Black, R. A. Cornog, R. Goodman, J. Joerres, W. H. Lacy, S. J. Morcott, E. C. Reyes-Retana, S. A. Roell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1900 Domicile: Wisconsin Employees: 130,000

Stock Report | October 23, 2010 | NYS Symbol: JNJ | JNJ is in the S&P 500

Johnson & Johnson S&P Recommendation HOLD

★★★★★

Price $63.81 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $65.00

Investment Style Large-Cap Growth

Summary This company is a leader in the pharmaceutical, medical device and consumer products industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $66.20– 56.86 Trailing 12-Month EPS $4.84 Trailing 12-Month P/E 13.2 $10K Invested 5 Yrs Ago $11,465

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.75 5.00 13.4 2,754.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$175.761 3.39 $2.16 63

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.56 5 AAA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our belief that JNJ has products that are largely immune from economic cycles, has modest reliance on any single product category or customer for sustained growth, and enjoys competitive advantages owing to its large financial resources, business scale and global sales capabilities.

80 70 60

50

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

90 60 30 0 5

D 5

4

4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Herman B. Saftlas on October 20, 2010, when the stock traded at $ 63.29. Highlights

➤

A+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

We expect revenues in 2011 to advance modestly from the $62 billion that we estimate for 2010. We see gains in the orthopedics, diabetes care, Ethicon and diagnostics lines, helped by new products and greater market penetration, especially in emerging markets. We also expect modest growth in the pharmaceutical sector, with projected gains in Simponi, Stelara and Prezista more than offsetting generic erosion in older lines. Impacted by recent OTC product recalls and plant shutdowns, we think consumer product sales in 2011 will rise, helped plant remediation measures. We look for gross margins to hold relatively steady in the 70% area that we project for 2010. Despite pressures from U.S. healthcare reform and austerity pricing in Europe, we expect operating margins to benefit from cost streamlining measures. The planned acquisition of Crucell is expected to dilute earnings by $0.03-$0.05 a share in 2011. After a projected effective tax rate similar to the 22% that we project for 2010, we forecast 2011 operating EPS of $5.00, up from the $4.75 that we estimate for 2010.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

57

1

➤

C

We believe JNJ's diversified sales base across drugs, medical devices and consumer products, along with its decentralized business model, has served it well in the past, and should continue to do so in the years ahead. In our view, JNJ's recent vaccine, aesthetics and biosurgical products acquisitions are part of a strategy to diversify into new long-term opportunities in the face of challenging prospects in drugs. The vaccines business should also be augmented with the planned acquisition of Crucell NV. Cost restructurings augur well for the future, in our opinion. We also see promise in the R&D pipeline. Risks to our recommendation and target price include faster-than-expected generic erosion in several drug lines, an inability to sustain growth in the device area, possible pipeline disappointments, and adverse foreign exchange. Our 12-month target price of $65 applies a P/E multiple of 13X to our 2011 EPS estimate, a valuation that is near JNJ's average multiple in recent years. Our DCF analysis also shows intrinsic value of $65, assuming a 9.6% WACC and 1% terminal growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 15,631 15,330 2009 15,026 15,239 2008 16,194 16,450 2007 15,037 15,131 2006 12,992 13,363 2005 12,832 12,762

3Q -15,081 15,921 14,970 13,287 12,310

4Q -16,551 15,182 15,957 13,682 12,610

Year -61,897 63,747 61,095 53,324 50,514

Earnings Per Share ($) 2010 1.62 1.23 2009 1.26 1.15 2008 1.26 1.17 2007 0.88 1.05 2006 1.10 0.95 2005 0.97 0.89

E1.23 1.20 1.17 0.88 0.94 0.87

E1.02 0.79 0.97 0.82 0.74 0.73

E4.75 4.40 4.57 3.63 3.73 3.46

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.490 0.540 0.540 0.540

01/04 04/22 07/19 10/21

02/19 05/27 08/27 11/26

02/23 06/01 08/31 11/30

03/09/10 06/15/10 09/14/10 12/14/10

Dividends have been paid since 1944. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: JNJ

Johnson & Johnson Business Summary October 20, 2010 CORPORATE OVERVIEW. Johnson & Johnson ranks as one of the largest and most diversified health care firms, with products spanning across the pharmaceutical and medical device industries. The company is also a major participant in the global consumer products business, and, in December 2006, purchased the consumer products unit of Pfizer for $16.6 billion. International sales accounted for about 50% of 2009 sales. The pharmaceutical segment (36% of 2009 sales) includes products in therapeutic areas including anti-infective, anti-psychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. Principal pharmaceutical products include Procrit/Eprex (sales of $2.2 billion in 2009), Remicade ($4.3 billion), Floxin/Levaquin ($1.6 billion), Aciphex/Pariet ($1.1 billion), and Concerta ($1.3 billion). The U.S. patent on Risperdal expired in June 2008, and the patent on Topamax expired in March 2009.

products, including Ethicon's wound care, surgical sports medicine and women's health care products; Cordis's circulatory disease management products; Lifescan's blood glucose monitoring products; Ortho-Clinical Diagnostic's professional diagnostic products; Depuy's orthopaedic joint reconstruction and spinal products; and Vistakon's disposable contact lenses. The consumer segment (26%) primarily sells personal care products, including nonprescription drugs, adult skin and hair care products, baby care products, oral care products, first aid products, women's health products, and nutritional products. Major brands include Band-Aid Brand Adhesive Bandages, Imodium A-D antidiarrheal, Johnson's Baby line of products, Neutrogena skin and hair care products, and Tylenol pain reliever.

The medical devices and diagnostics segment (38%) sells a wide range of Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.04 5.39 4.40 4.22 1.93 44% 65.41 46.25 15 11

2008 5.35 5.57 4.57 4.17 1.80 39% 72.76 52.06 16 11

2007 5.13 4.59 3.63 3.61 1.62 45% 68.75 59.72 19 16

2006 3.67 4.57 3.73 3.65 1.46 39% 69.41 56.65 19 15

2005 8.64 4.20 3.46 3.38 1.28 37% 69.99 59.76 20 17

2004 6.72 3.58 2.84 2.77 1.10 39% 64.25 49.25 23 17

2003 5.17 3.01 2.40 2.26 0.93 39% 59.08 48.05 25 20

2002 4.53 2.67 2.16 1.99 0.80 37% 65.89 41.40 31 19

2001 4.97 2.35 1.84 1.66 0.70 38% 60.97 40.25 33 22

2000 4.15 2.23 1.70 NA 0.62 36% 52.97 33.06 31 19

61,897 19,550 2,774 451 15,755 22.2% 12,266 11,779

63,747 19,001 2,832 582 16,929 23.5% 12,949 11,832

61,095 17,990 2,777 426 13,283 20.4% 10,576 10,534

53,324 15,886 2,177 63.0 14,587 24.2% 11,053 10,814

50,514 15,464 2,093 54.0 13,656 23.8% 10,411 10,161

47,348 14,987 2,124 187 12,838 33.7% 8,509 8,263

41,862 12,740 1,869 207 10,308 30.2% 7,197 6,785

36,298 11,340 1,662 160 9,291 29.0% 6,597 6,052

33,004 9,490 1,605 153 7,898 28.2% 5,668 5,090

29,139 7,992 1,515 146 6,622 27.5% 4,800 NA

Balance Sheet & Other Financial Data (Million $) Cash 19,425 Current Assets 39,541 Total Assets 94,682 Current Liabilities 21,731 Long Term Debt 8,223 Common Equity 50,588 Total Capital 60,235 Capital Expenditures 2,365 Cash Flow 15,040 Current Ratio 1.8 % Long Term Debt of Capitalization 13.7 % Net Income of Revenue 19.8 % Return on Assets 13.7 % Return on Equity 26.4

12,809 34,377 84,912 20,852 8,120 42,511 52,063 3,066 15,781 1.7 15.6 20.3 15.6 30.2

9,315 29,945 80,954 19,837 7,074 43,319 51,886 2,942 13,353 1.5 13.6 17.3 14.9 20.2

4,084 22,975 70,556 19,161 2,014 61,266 42,651 2,666 13,230 1.2 4.7 20.7 17.1 19.8

16,138 31,394 58,025 12,635 2,017 37,871 40,099 2,632 12,504 2.5 5.0 20.6 18.7 29.9

12,884 27,320 53,317 13,927 2,565 31,813 34,781 2,175 10,633 2.0 7.4 18.0 16.8 29.0

9,523 22,995 48,263 13,448 2,955 26,869 30,604 2,262 9,066 1.7 9.7 17.2 16.2 29.0

7,596 19,266 40,556 11,449 2,022 22,697 25,362 2,099 8,259 1.7 8.0 18.2 16.7 28.1

8,941 18,473 38,488 8,044 2,217 24,233 26,943 1,731 7,273 2.3 8.2 17.2 15.6 25.4

6,013 15,450 31,321 7,140 2,037 18,808 21,100 1,646 6,315 2.2 9.7 16.5 15.9 27.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Johnson & Johnson Plaza, New Brunswick, NJ 08933. Telephone: 732-524-0400. Website: http://www.jnj.com Chrmn & CEO: W.C. Weldon

COO: A. Shetty CFO: D.J. Caruso CSO: T.J. Torphy Chief Acctg Officer & Cntlr: S.J. Cosgrove

Investor Contact: L. Mehrotra (732-524-6491) Board Members: M. S. Coleman, J. G. Cullen, I. E. Davis, I. E. Davis, M. M. Johns, S. L. Lindquist, A. M. Mulcahy, L. F. Mullin, W. D. Perez, C. Prince, III, D. Satcher, W. C. Weldon

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1887 Domicile: New Jersey Employees: 114,000

Stock Report | October 23, 2010 | NYS Symbol: JPM | JPM is in the S&P 500

JPMorgan Chase & Co S&P Recommendation STRONG BUY

★★★★★

Price $37.70 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Other Diversified Financial Services

12-Mo. Target Price $47.00

Investment Style Large-Cap Value

Summary This leading global financial services company has assets of $2.1 trillion and operations in more than 50 countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.20– 35.16 Trailing 12-Month EPS $3.59 Trailing 12-Month P/E 10.5 $10K Invested 5 Yrs Ago $12,083

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.00 4.21 9.4 3,965.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

MEDIUM

HIGH

Quantitative Evaluations

Vol. 709

Mil.

S&P Quality Ranking

300 200 100 0

D 5

4

4

3

5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

21

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Erik Oja on October 19, 2010, when the stock traded at $ 37.71. Highlights Third-quarter investment banking and principal transactions results were better then we had expected, and were in line with the second quarter. Core fee income, excluding gains and losses, fell only 0.7% from strong second-quarter levels. However, for all of 2010, we expect core fee income of $44.9 billion, down from $47.3 billion in 2009, due to a fall-off in investment banking. For 2011, we forecast core fee income will rise 3.8%. We see net interest income of $51.5 billion in 2010, up slightly from $51.2 billion in 2009. We expect revenues to rise 0.2% in 2010, and 0.1% in 2011. Third-quarter net chargeoffs fell to $4.945 billion, from $5.714 billion in the second quarter, and $7.910 billion in the first, which was a record level for JPM. We expect 2010 net chargeoffs of $21.6 billion, down slightly from 2009's nearly $23 billion. Our loan loss provisioning forecast for 2010 is $17.1 billion, down sharply from 2009's $32.0 billion; for 2011, we see $15.1 billion. Declining loan loss provisions will be the major drivers of earnings growth for JPM in 2010 and 2011, in our view. We estimate EPS of $4.00 for 2010 and $4.21 for 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects our view of the company's well-reserved balance sheet, diversified lines of business and strong capital ratios. We believe JPM's diversity in its geographic presence and product offerings provides significant protection from a local or regional downturn.

30

➤

1.13 25 A+

Below Avg.

40

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

50

5

$149.487 0.53 $0.20 73

JPM's strong third-quarter revenue and credit results were overshadowed, in our view, by a developing industry-wide issue of hastily completed foreclosures, which we believe could, at worst, completely halt most foreclosures. Though JPM is currently free from the allegations of fraud and incomplete paperwork seen at a major peer, and is carefully reviewing all 115,000 foreclosures in progress, we think there is a possibility that this issue may widen. However, we believe that this is unlikely, and that JPM's rapid pace of credit quality improvements, combined with a potential for net interest income growth once loan demand picks up, should more than offset the foreclosure issue. Risks to our recommendation and target price include legal and regulatory risk, unexpected further turmoil in the credit markets, and a slower-than-expected economic recovery. Our 12-month target price of $47 is based on a premium-to-peers 1.65X our $28.50 projection of JPM's year-end tangible book value per share, reflecting our view that JPM's credit quality and balance sheet are stronger than large banking peers. Our target price equals a peerequivalent 11.2X our 2011 EPS estimate of $4.21.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 30,806 28,133 2009 29,584 29,502 2008 26,763 26,634 2007 29,486 30,082 2006 23,477 24,175 2005 19,054 18,691

3Q 26,928 30,145 23,069 16,112 24,957 21,048

Earnings Per Share ($) 2010 0.74 1.09 2009 0.40 0.28 2008 0.68 0.54 2007 1.34 1.20 2006 0.86 0.98 2005 0.63 0.28

1.01 0.80 -0.06 0.97 0.90 0.71

4Q Year --26,401 115,632 25,025 101,491 28,104 116,353 26,693 99,302 21,109 79,902

E1.08 0.74 -0.28 0.86 1.26 0.76

E4.00 2.24 0.84 4.38 3.82 2.38

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

12/08 03/16 05/18 09/21

01/04 04/01 07/01 10/04

01/06 04/06 07/06 10/06

01/31/10 04/30/10 07/31/10 10/31/10

Dividends have been paid since 1827. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: JPM

JPMorgan Chase & Co Business Summary October 19, 2010 CORPORATE OVERVIEW. JPMorgan Chase's operations are divided into six major business lines: Investment Banking, Retail Financial Services (RFS), Card Services (CS), Commercial Banking (CB), Treasury & Securities Services (TSS), and Asset Management (AM), as well as a Corporate/Private Equity segment. JPM is one of the world's leading investment banks, with clients consisting of corporations, financial institutions, governments, and institutional investors worldwide. Its products and services include advising on corporate strategy and structure, equity and debt capital raising, sophisticated risk management, research, market making in cash securities and derivative instruments and prime brokerage and research. RFS includes Home Finance, Consumer & Small Business Banking, Auto & Education Finance and Insurance. At year-end 2009, RFS had over 5,100 bank branches and 15,400 ATMs.

needs of its card members, including cards issued on behalf of many wellknown partners, such as major airlines, hotels, universities, retailers, and other financial institutions. CB provides lending, treasury services, investment banking and investment management services to corporations, municipalities, financial institutions and not-for-profit entities. TSS offers transaction, investment and information services to support the needs of corporations, issuers and institutional investors worldwide. TSS reported assets under custody of $14.9 trillion in 2009, up 13% from 2008. AM provides investment management to retail and institutional investors, financial intermediaries and high-net-worth families and individuals globally. Assets under management rose by 10% in 2009 to $1.25 trillion.

CS had over 145 million cards in circulation and $163 billion in managed loans as of December 31, 2009. CS offers a wide variety of products to satisfy the Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 26.45 2.24 2.28 0.53 24% 47.47 14.96 21 7

2008 19.27 0.84 0.67 1.52 NM 50.63 19.69 60 23

2007 18.77 4.38 4.44 1.44 33% 53.25 40.15 12 9

2006 16.11 3.82 3.88 1.36 34% 49.00 37.88 12 9

2005 15.88 2.38 2.76 1.36 57% 40.56 32.92 17 14

2004 14.77 1.55 2.25 1.36 88% 43.84 34.62 28 22

2003 14.77 3.24 3.12 1.36 42% 38.26 20.13 12 6

2002 15.82 0.80 0.65 1.36 170% 39.68 15.26 50 19

2001 12.54 0.81 0.34 1.34 165% 57.33 29.04 71 36

2000 12.95 2.86 NA 1.23 43% 67.17 32.38 23 11

51,152 330 49,282 32,015 52.1% 16,067 27.5% 11,652 3.12 8,861

38,779 579 28,937 20,979 60.0% 2,773 NM 3,699 2.87 2,409

26,406 377 44,802 6,864 58.6% 22,805 32.6% 15,365 2.39 15,563

21,242 NA 17,959 3,270 97.7% 19,886 31.4% 13,649 2.16 13,852

19,831 269 34,702 3,483 66.5% 12,215 30.6% 8,483 2.19 9,802

16,761 NA 26,336 NA 85.6% 6,194 27.9% 4,466 2.27 6,456

12,337 NA 19,473 NA 73.0% 10,028 33.0% 6,719 2.10 6,439

11,526 NA 16,525 4,331 81.2% 2,519 34.0% 1,663 2.09 1,290

10,802 NA 17,382 3,185 82.7% 2,566 33.0% 1,719 1.99 698

9,512 NA 23,193 1,377 69.8% 8,733 34.4% 5,727 1.87 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 606,532 Investment Securities 480,020 Commercial Loans 204,175 Other Loans 429,283 Total Assets 2,031,989 Demand Deposits 204,003 Time Deposits 734,364 Long Term Debt 266,318 Common Equity 157,213 % Return on Assets 0.6 % Return on Equity 8.0 % Loan Loss Reserve 5.0 % Loans/Deposits 67.5 % Equity to Assets 6.9

713,098 329,943 111,654 610,080 2,175,052 210,899 790,681 270,683 134,945 0.2 2.9 3.1 73.8 6.9

662,306 169,634 238,210 281,164 1,562,147 135,748 604,980 197,878 123,221 1.1 12.9 1.8 72.6 8.2

506,262 172,022 188,372 294,755 1,351,520 140,443 498,345 117,358 115,790 1.1 12.2 1.5 75.6 8.7

432,358 128,578 150,111 269,037 1,198,942 143,075 411,916 119,886 107,072 0.7 8.0 1.7 75.5 9.0

390,168 149,675 135,067 267,047 1,157,248 136,188 385,268 105,718 105,314 0.5 5.9 1.8 77.1 7.8

329,739 109,328 83,097 136,421 770,912 79,465 247,027 54,782 45,145 0.9 15.4 2.1 67.2 5.7

314,110 126,834 91,548 124,816 758,800 82,029 222,724 45,190 41,297 0.2 4.0 2.5 71.0 5.6

265,875 105,537 104,864 112,580 693,575 76,974 216,676 44,172 40,090 0.2 4.1 2.1 74.0 5.7

293,429 117,494 119,460 96,590 715,348 62,713 216,652 47,788 40,818 0.8 15.2 1.7 77.3 5.4

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 270 Park Ave, New York, NY 10017-2070. Telephone: 212-270-6000. Website: http://www.jpmorganchase.com Chrmn & CEO: J. Dimon

Pres: C. Berquo Vice Chrmn: S.D. Black Vice Chrmn: M. Breuer COO & CTO: P. Cherasia

Investor Contact: J. Bates (212-270-7318) Founded: 1823 Board Members: S. D. Black, C. C. Bowles, M. Domicile: Delaware Breuer, S. B. Burke, D. M. Cote, J. S. Crown, J. Employees: 222,316 Dimon, E. Futter, W. H. Gray, III, L. P. Jackson, Jr., D. C. Novak, L. R. Raymond, A. Wallace, W. C. Weldon

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JNPR | JNPR is in the S&P 500

Juniper Networks Inc S&P Recommendation HOLD

★★★★★

Price $31.94 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $32.00

Investment Style Large-Cap Blend

Summary This company provides Internet Protocol networking products and services, with an emphasis on telecom routing solutions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.84– 22.25 Trailing 12-Month EPS $0.75 Trailing 12-Month P/E 42.6 $10K Invested 5 Yrs Ago $13,726

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.04 1.20 30.7 519.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$16.606 Nil Nil 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.48 17 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly competitive nature of the telecommunications equipment industry and execution risks related to the company's expansion into the enterprise market.

40 30

20 15

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

90 60 30 0 5

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

77 3

3

LOWEST = 1

3

2

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Ari Bensinger on October 20, 2010, when the stock traded at $ 32.18. Highlights ➤

➤

➤

Following an estimated 21% increase in 2010, we see sales advancing 15% in 2011, on continued strong demand for carrier network infrastructure products, as well as increased market penetration in the enterprise sector. We are optimistic about recent portfolio enhancements and new product introductions, specifically the new MX3D edge router. We foresee 2011 gross margins narrowing modestly, to 67%, as a favorable product mix shift is outweighed by industry pricing pressure. Despite aggressive R&D investment, in part to support new data center and wireless packet transport projects, we believe JNPR will manage 2011 costs prudently, and we expect operating expenses to rise at a slower pace than sales. We see 2011 operating margins at the 24% level. After interest income and an effective tax rate of 31%, we look for 2011 operating EPS of $1.20, up from the $1.04 that we forecast for 2010. Our estimates include projected stock option expense of $0.23 and $0.24 for 2010 and 2011, respectively.

Investment Rationale/Risk ➤

➤

Revenue/Earnings Data

2010

We are encouraged by the company's increased customer traction in the newly entered enterprise market, and we believe new product upgrades will help boost carrier sales. We see the continued rapid increase in IP traffic acting as a strong underlying growth driver for the networking industry. Even so, we think the shares, recently trading above peers on P/E and price-to-sales metrics, adequately reflect the solid growth opportunity we see for JNPR. Risks to our recommendation and target price include a prolonged decline in carrier spending, routing market share losses, and slowerthan-expected sales traction in the enterprise sector.

Revenue (Million $) 1Q 2Q 2010 912.6 978.3 2009 764.2 786.4 2008 822.9 879.0 2007 626.9 664.9 2006 566.7 567.5 2005 449.1 493.0

3Q -823.9 947.0 735.1 573.6 546.4

4Q -941.5 923.5 809.2 595.8 575.5

Year -3,316 3,572 2,836 2,304 2,064

Earnings Per Share ($) 2010 0.30 0.24 2009 -0.01 0.03 2008 0.20 0.22 2007 0.11 0.15 2006 0.13 -2.13 2005 0.13 0.15

E0.26 0.16 0.27 0.15 0.10 0.14

E0.30 0.24 0.25 0.22 0.12 0.17

E1.04 0.42 0.93 0.62 -1.76 0.59

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤

Our 12-month target price of $32 represents a multiple of 27X our 2011 EPS estimate of $1.20 and 4X our 2011 sales forecast of $4.6 billion, valuation metrics that are above peers, warranted, we believe, by JNPR's strong position in the fast-growing IP networking sector. Using our three-year earnings growth estimate of 17%, our target price represents a forward P/ E-to-growth (PEG) ratio of 1.6X, in line with the industry average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JNPR

Juniper Networks Inc Business Summary October 20, 2010 CORPORATE OVERVIEW. Juniper Networks, founded in 1996, makes secure Internet Protocol (IP) networking solutions that are designed to address the needs at the core and at the edge of the network, and for wireless access. The company's core product is IP backbone routers for service providers. The acquisition of NetScreen in 2004 added a broad family of network security solutions aimed at enterprises, service providers, and government entities. The service provider sector remains the core market for JNPR, accounting for 66% of total revenue in 2009, versus 72% in the prior year. However, the enterprise market is becoming an increasingly important growth market for the company, representing 34% of 2009 sales, up from 28% in the prior year. JNPR enjoys good customer diversification, having sold its products to all of the 100 largest service providers in the world. AT&T accounted for 10% of sales during 2009. During 2009, international revenue represented 49% of total sales, down from 51% and 53% in 2008 and 2007, respectively. Operations are organized into three operating segments: infrastructure, service layer technologies (SLT), and service.

and direct network traffic from the core, through the edge, aggregation and the customer premise equipment level. The company has experienced an increased demand for infrastructure products due to the adoption and expansion of IP networks as a result of peer-to-peer interaction, increased broadband usage, video, and IP television. Infrastructure products include the M-series and T-series routers, geared to service providers, offering carrier class reliability and scalability. The Mseries can be deployed at the edge of operator networks, in small and medium core networks. The MX-Series addresses the Carrier Ethernet market. The Tseries and TX Matrix are primarily designed for core IP infrastructures. Other product platforms include E-series and J-series (wireless routers, developed through JNPR's joint venture with Ericsson). The EX-series, introduced in early 2008, extends JNPR's product portfolio for routers to the Ethernet switches. Products run on JNPR's JUNOS Internet software, and are differentiated from their competition in that they also feature the company's high-performance, ASIC-based packet forwarding technology.

PRIMARY BUSINESS DYNAMICS. The infrastructure segment (74% of total sales in 2009) primarily offers scalable router products that are used to control Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.14 0.50 0.42 0.45 Nil Nil 28.74 12.43 68 30

2008 4.26 1.23 0.93 0.96 Nil Nil 33.30 3.29 36 14

2007 3.09 0.96 0.62 0.60 Nil Nil 37.95 17.21 61 28

2006 4.08 -1.46 -1.76 -0.27 Nil Nil 22.63 12.09 NM NM

2005 3.04 0.82 0.59 0.26 Nil Nil 27.65 19.65 47 33

2004 2.89 0.52 0.25 0.12 Nil Nil 31.25 18.75 NM NM

2003 1.48 0.27 0.10 -0.06 Nil Nil 19.38 6.88 NM NM

2002 1.18 -0.16 -0.34 -0.51 Nil Nil 23.01 4.15 NM NM

2001 2.36 0.42 -0.04 -0.38 Nil Nil 145.00 8.90 NM NM

2000 1.87 0.53 0.43 NA Nil Nil 244.50 48.83 NM NM

3,316 661 148 NA 481 53.6% 225 239

3,572 876 167 2.90 729 29.8% 512 527

2,836 610 193 1.70 511 29.3% 361 353

2,304 496 173 3.59 -897 NM -1,001 -156

2,064 595 139 3.93 502 29.5% 354 156

1,336 376 145 5.38 219 38.0% 136 65.9

701 141 70.0 39.1 59.0 33.6% 39.2 -25.6

547 42.2 63.0 55.6 -115 NM -120 -180

887 205 148 61.4 16.5 NM -13.4 -122

674 249 34.8 52.7 230 35.8% 148 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,175 Current Assets 2,879 Total Assets 7,530 Current Liabilities 1,376 Long Term Debt NA Common Equity 5,930 Total Capital 5,933 Capital Expenditures 153 Cash Flow 265 Current Ratio 2.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 6.8 % Return on Assets 3.1 % Return on Equity 3.8

2,192 2,816 7,187 1,057 Nil 5,901 5,901 165 679 2.7 Nil 14.3 7.3 9.1

1,956 2,555 6,885 1,380 Nil 5,354 5,354 147 554 1.9 Nil 12.7 5.1 6.3

1,596 2,522 7,368 763 400 6,115 6,515 102 -828 3.3 6.1 NM NM NM

918 1,818 8,027 627 400 6,900 7,300 98.2 493 2.9 5.5 17.2 4.7 5.5

713 1,414 7,000 503 Nil 5,993 5,993 63.2 281 2.8 Nil 10.2 2.9 3.6

396 691 2,411 291 558 1,562 2,120 19.4 109 2.4 26.3 5.6 1.6 2.6

194 681 2,615 242 942 1,431 2,373 36.1 -56.6 2.8 39.7 NM NM NM

607 1,126 2,390 242 1,150 997 2,147 241 134 4.6 53.6 NM NM NM

563 1,349 2,103 216 1,120 730 1,850 35.0 183 6.2 60.5 22.0 11.3 24.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1194 North Mathilda Avenue, Sunnyvale, CA 94089-1206. Telephone: 408-745-2000. Email: [email protected] Website: http://www.juniper.net

Chrmn & Pres: S.G. Kriens Vice Chrmn & CTO: P. Sindhu CEO: K.R. Johnson COO: M.J. Rose

EVP & CFO: R.M. Denholm Founded: 1996 Board Members: B. Calderoni, M. B. Cranston, K. R. Domicile: Delaware Johnson, S. G. Kriens, J. M. Lawrie, W. F. Meehan, Employees: 7,231 III, D. Schlotterbeck, S. Sclavos, P. Sindhu, B. Stensrud

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: K | K is in the S&P 500

Kellogg Co S&P Recommendation HOLD

★★★★★

Price $49.55 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $53.00

Investment Style Large-Cap Growth

Summary Kellogg is a leading producer of ready-to-eat cereal, and also sells convenience foods such as cookies, crackers, cereal bars, fruit snacks, and frozen waffles.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.00– 47.28 Trailing 12-Month EPS $3.27 Trailing 12-Month P/E 15.2 $10K Invested 5 Yrs Ago $12,281

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.29 3.65 15.1 377.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.47 7 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Kellogg Company reflects the relatively stable nature of the company's end markets, what we consider its strong balance sheet and cash flow, and corporate governance practices that we think are favorable versus peers.

60

45 40 35

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 15 10 5 0 5

$18.718 3.27 $1.62 81

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank 4

4

3

4

3

WEAK

24

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Highlights ➤

The STARS recommendation for K has recently been changed to 3 (hold) from 4 (buy) and the 12-month target price has recently been changed to $53.00 from $55.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on K from MarketScope, see below.

➤

10/21/10 12:03 pm ET ... S&P LOWERS OPINION ON SHARES OF KELLOGG CO. TO HOLD FROM BUY (K 50.27***): After disappointing sales and profit guidance, we expect K to report, on Nov. 2, Q3 EPS of $0.90 (lowered from our previous estimate of $0.93), vs. year-ago $0.94. In cereal category, we expect more sales softness, and margin pressure from promotional activity than we had anticipated. We see earlier cereal recall by the company hurting. We are reducing our '10 EPS estimate to $3.29 from $3.40, and '11's projection to $3.65 from $3.77. We are lowering our 12-month target price to $53 from $55, which reflects our view that the shares should trade closer to a peer group target P/E. / TGraves-CFA

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,318 3,062 2009 3,169 3,229 2008 3,258 3,343 2007 2,963 3,015 2006 2,727 2,774 2005 2,572 2,587

3Q -3,277 3,288 3,004 2,822 2,623

4Q -2,900 2,933 2,794 2,584 2,394

Year -12,575 12,822 11,776 10,907 10,177

Earnings Per Share ($) 2010 1.09 0.79 2009 0.84 0.92 2008 0.81 0.82 2007 0.80 0.75 2006 0.68 0.67 2005 0.61 0.62

E0.90 0.94 0.89 0.76 0.70 0.66

E0.51 0.46 0.47 0.44 0.45 0.47

E3.29 3.16 2.98 2.76 2.51 2.36

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.375 0.375 0.375 0.405

02/19 04/23 04/23 07/23

02/26 05/27 05/27 08/30

03/02 06/01 06/01 09/01

03/15/10 06/15/10 06/15/10 09/15/10

Dividends have been paid since 1923. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: K

Kellogg Co Business Summary August 19, 2010 CORPORATE OVERVIEW. Kellogg Co., incorporated in 1922, is a leading producer of ready-to-eat cereal. The company has expanded its operations to include convenience food products such as Pop-Tarts toaster pastries, Eggo frozen waffles, Nutri-Grain cereal bars, and Rice Krispies Treats squares. With the 2001 acquisition of the Keebler Foods Co., the company also markets cookies, crackers and other convenience food products under brand names such as Keebler, Cheez-It, Murray and Famous Amos, and manufactures private label cookies, crackers and other products. Sales contributions by geographic region in 2009 were: North America 68%, Europe 19%, Latin America 8%, and Asia Pacific 6%.

sales categories included North American retail snacks (32%), North American frozen and specialty channels (11%), and international convenience foods (6%). In 2009, Kellogg's top five customers accounted for about 34% of net sales collectively, and about 44% of U.S. net sales. Kellogg's largest customer, WalMart Stores, Inc., and its affiliates, accounted for about 21% of consolidated net sales during 2009. Kellogg's expenditures for research and development were about $181 million in both 2009 and 2008.

In 2009, cereal sold through North American retail channels represented 24% of total net sales, while international cereal sales represented 26%. Other Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 4.16 3.16 3.08 1.43 45% 54.10 35.64 17 11

2008 NM 3.96 2.98 2.48 1.30 44% 58.51 40.32 20 14

2007 NM 3.69 2.76 2.74 1.49 54% 56.89 48.68 21 18

2006 NM 3.39 2.51 2.62 1.14 45% 50.95 42.41 20 17

2005 NM 3.30 2.36 2.29 1.06 45% 46.99 42.35 20 18

2004 NM 3.15 2.14 2.10 1.01 47% 45.32 37.00 21 17

2003 NM 2.83 1.92 1.86 1.01 53% 38.57 27.85 20 15

2002 NM 2.60 1.75 1.24 1.01 58% 37.00 29.02 21 17

2001 NM 2.26 1.18 0.77 1.01 86% 34.00 24.25 29 21

2000 1.21 2.16 1.45 NA 1.00 69% 32.00 20.75 22 14

12,575 2,542 384 295 1,684 28.3% 1,212 1,182

12,822 2,431 375 314 1,633 29.7% 1,148 955

11,776 2,347 372 324 1,547 28.7% 1,103 1,093

10,907 2,119 353 307 1,471 31.7% 1,004 1,047

10,177 2,142 392 300 1,425 31.2% 980 953

9,614 2,091 410 309 1,366 34.8% 891 875

8,812 1,917 373 371 1,170 32.7% 787 763

8,304 1,857 348 391 1,144 37.0% 721 510

8,853 1,640 439 352 804 40.1% 482 312

6,955 1,367 291 138 868 32.3% 588 NA

Balance Sheet & Other Financial Data (Million $) Cash 334 Current Assets 2,558 Total Assets 11,200 Current Liabilities 2,288 Long Term Debt 4,835 Common Equity 2,272 Total Capital 7,111 Capital Expenditures 377 Cash Flow 1,596 Current Ratio 1.1 % Long Term Debt of Capitalization 68.0 % Net Income of Revenue 9.6 % Return on Assets 11.0 % Return on Equity 65.2

255 2,521 10,946 3,552 4,068 1,448 5,816 461 1,523 0.7 69.9 9.0 10.3 57.8

524 2,717 11,397 4,044 3,276 2,526 6,443 472 1,475 0.7 50.9 9.4 10.0 48.0

411 2,427 10,714 4,020 3,053 2,069 5,122 453 1,357 0.6 59.6 9.2 9.4 46.1

219 2,197 10,575 3,163 3,703 2,284 5,986 374 1,372 0.7 61.9 9.6 9.3 43.2

417 2,122 10,790 2,846 3,893 2,257 6,150 279 1,301 0.7 63.3 9.3 8.5 48.1

141 1,797 10,231 2,766 4,265 1,443 5,709 247 1,160 0.6 74.7 8.9 7.7 67.3

101 1,763 10,219 3,015 4,519 895 5,415 254 1,069 0.6 83.5 8.7 7.0 81.6

2,318 1,902 10,369 2,208 5,619 871 6,491 277 921 0.9 86.6 5.4 6.3 54.5

204 1,607 4,896 2,493 709 898 1,607 231 878 0.6 44.1 8.5 12.1 68.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Kellogg Sq, Battle Creek, MI, USA 49016-3599. Telephone: 269-961-2000. Website: http://www.kelloggcompany.com Chrmn: J.M. Jenness

Pres & CEO: A.D. MacKay COO & EVP: J.A. Bryant SVP & CFO: R. Dissinger SVP & CIO: B.S. Rice

Investor Contact: J. Wittenberg (269-961-9089) Board Members: J. A. Bryant, B. S. Carson, J. T. Dillon, G. Gund, J. M. Jenness, D. A. Johnson, D. R. Knauss, A. M. Korologos, A. D. MacKay, R. M. Rebolledo, S. K. Speirn, R. A. Steele, J. L. Zabriskie

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1906 Domicile: Delaware Employees: 30,949

Stock Report | October 23, 2010 | NYS Symbol: KEY | KEY is in the S&P 500

KeyCorp S&P Recommendation BUY

★★★★★

Price $8.30 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $10.00

Investment Style Large-Cap Value

Summary Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of $94.2 billion as of June 30, 2010.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.84– 5.29 $-0.89 NM $3,135

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.28 0.61 29.6 880.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.306 0.48 $0.04 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.64 NM BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is medium, on our positive view of recent improvements to KEY's credit quality and capital levels.

40

20

Quantitative Evaluations 8

S&P Quality Ranking

B-

4

D

C

B-

B

B+

A-

A

A+

Vol. 329

Mil.

Relative Strength Rank

200

90 60 30 0 5

MODERATE

49 LOWEST = 1 4

3

3

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Erik Oja on July 26, 2010, when the stock traded at $ 8.34. Highlights ➤

➤

➤

We forecast that KEY's total loan portfolio will contract 10.5% in 2010, following a 23.2% decline in 2009, reflecting net chargeoffs, weak loan demand, and the exit portfolio. We expect total interest-earning assets to fall by a lesser amount in both years, due to KEY's purchases of investment securities. Due to Q2 and expected Q3 run-offs of higher-cost CD's, we look for a year-end 2010 net interest margin of 3.20% in 2010, versus 3.00 in the fourth quarter of 2009. We expect net interest income to rise 2.1% in 2010, and 1.1% in 2011. Our estimate is for a modest increase in core fee income in 2010, reflecting a pickup in fee-driven businesses. Our 2010 core revenue growth forecast is 1.5%. New nonperforming loans totaled only $73 million in the second quarter, the lowest level in years, likely signaling a longer-term trend of credit quality improvements. Also, loan loss allowances are well above peers, at 130.3% of June 30 nonperforming loans. On the above, and our expectations for credit quality improvements, we forecast loan loss provisions of $865 million for 2010 and $390 million for 2011, down from $3.2 billion from 2009. We estimate EPS of $0.13 for 2010 and $0.40 for 2011.

Investment Rationale/Risk ➤

➤

➤

KEY's commercial lending credit quality improved across the board in the second quarter. Our view that much of the nonperforming, or borderline nonperforming assets have been recognized and charged-off or sold off, leads to our expectation that KEY's net chargeoffs will decline in each of the foreseeable quarters. Also, KEY's higher than peers allowance should lead to meaningful declines of provisions. Also, we expect a near-term driver of earnings from a higher net interest margin, due to large runoffs of higher priced CD's. An intermediateterm boost to earnings may come from additional improvements in KEY's non-interest expenses, which are still among the highest of major U.S. banks. Finally, we see KEY as relatively inexpensive, trading at only 0.97X June 30 tangible book value per share of $8.10. Risks to our recommendation and target price include a weaker-than-expected economic recovery. Our 12-month target price of $10 is based on a below-peers multiple of 1.15X our year-end 2010 tangible book value per share estimate of $8.60. This equates to 25X our 2011 EPS estimate of $0.40, a higher than peers multiple.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,342 1,353 2009 1,524 1,709 2008 1,882 1,435 2007 2,022 2,044 2006 1,732 1,872 2005 1,565 1,602

3Q -1,322 1,620 1,872 1,932 1,705

4Q -1,402 1,562 1,935 1,971 1,823

Year -5,798 6,434 7,621 7,507 6,695

Earnings Per Share ($) 2010 -0.11 0.06 2009 -1.09 -0.69 2008 0.55 -2.70 2007 0.89 0.85 2006 0.66 0.75 2005 0.64 0.70

E0.19 -0.50 -0.07 0.57 0.74 0.67

E0.15 -0.29 -1.12 0.06 0.76 0.72

E0.28 -2.27 -3.35 2.38 2.91 2.73

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

11/19 01/14 05/20 07/16

11/27 02/26 05/27 08/27

12/01 03/02 06/01 08/31

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1963. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: KEY

KeyCorp Business Summary July 26, 2010 CORPORATE OVERVIEW. KEY owns KeyBank, located in Ohio, New York, Washington, Oregon, Maine, Colorado, Indiana, Utah, Idaho, Vermont, Alaska, Michigan, Florida and Kentucky. The company has two business groups: Community Banking and National Banking. The Community Banking segment, which generated 57% of total revenues in the final quarter of 2009, houses Regional Banking and Commercial Banking. National Banking generated about 43% of total revenues in the last quarter of 2009, and houses Real Estate Capital and Corporate Banking Services, Equipment Finance, Institutional and Capital Markets, and Consumer Finance. In October 2008, KEY's Consumer Finance unit discontinued retail and floor-plan financing of marine and recreational vehicles. In September 2009, this unit discontinued education lending, which had accounted for about 5% of loans outstanding.

branches, $22.1 billion of deposits, and a deposit market share of about 9.4%, ranking fourth. In New York, KEY had 228 branches, $15.7 billion of deposits, and a deposit market share of about 1.9%, ranking 11th. In Washington State, KEY had 151 branches, $9.7 billion of deposits, and a deposit market share of about 8.6%, ranking second. In Oregon, KEY had 66 branches, $3.7 billion of deposits, and a deposit market share of about 7.0%, ranking sixth. In Maine, KEY had 61 branches, $2.8 billion of deposits, and a deposit market share of 6.0%, ranking second. In Indiana, KEY had 64 branches, $2.9 billion of deposits, and a deposit market share of about 3.1%, ranking eighth. In Colorado, KEY had 51 branches, $2.6 billion of deposits, and a deposit market share of about 3.0%, which ranks sixth. In addition, KEY had a number three ranking in Idaho, a number four market ranking in Vermont, and a number three ranking in Alaska. Finally, KEY had offices in Utah and Michigan, with a small presence in Kentucky, Florida and Connecticut.

MARKET PROFILE. As of June 30, 2009 (latest available FDIC data), KEY had 996 branches and $67.4 billion in deposits, with about 56% of its deposits and 46% of its branches concentrated in Ohio and New York. In Ohio, KEY had 233 Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.84 -2.27 -2.14 0.09 NM 9.82 4.40 NM NM

2008 11.87 -3.35 -2.54 1.00 NM 27.23 4.99 NM NM

2007 16.39 2.38 2.12 1.46 61% 39.90 21.04 17 9

2006 15.99 2.91 2.93 1.38 47% 38.63 32.90 13 11

2005 15.05 2.73 2.72 1.30 48% 35.00 30.10 13 11

2004 13.91 2.30 2.41 1.24 54% 34.50 28.23 15 12

2003 13.87 2.12 2.12 1.22 58% 29.41 22.31 14 11

2002 13.34 2.27 2.10 1.20 53% 29.40 20.98 13 9

2001 11.85 0.37 0.43 1.18 NM 29.25 20.49 79 55

2000 12.39 2.30 NA 1.12 49% 28.50 15.56 12 7

2,380 26.0 2,003 3,159 81.1% -2,298 NM -1,287 2.83 -1,497

2,409 436 1,805 1,835 68.2% -1,134 NM -1,468 2.16 -1,143

2,769 99.0 2,264 529 64.5% 1,221 22.9% 941 3.46 840

2,815 103 2,126 150 62.4% 1,643 27.4% 1,193 3.67 1,198

2,790 121 2,077 143 64.5% 1,588 28.9% 1,129 3.69 1,125

2,637 94.0 1,742 185 62.8% 1,388 31.3% 954 3.64 1,006

2,725 71.0 1,749 501 60.3% 1,242 27.3% 903 3.80 898

2,749 120 1,763 553 57.3% 1,312 25.6% 976 3.97 896

2,825 45.0 1,690 1,350 64.5% 259 39.4% 157 3.81 179

2,730 28.0 2,222 490 58.6% 1,517 33.9% 1,002 3.69 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 1,209 Investment Securities 18,153 Commercial Loans 41,409 Other Loans 17,361 Total Assets 93,287 Demand Deposits 38,756 Time Deposits 26,815 Long Term Debt 11,558 Common Equity 7,942 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 4.3 % Loans/Deposits 89.6 % Equity to Assets 7.8

1,280 9,988 54,835 21,669 104,531 35,676 29,584 14,995 7,408 NM NM 2.5 112.2 7.4

1,056 7,860 52,705 18,118 99,983 38,663 24,436 11,957 7,746 1.0 12.2 1.7 111.8 8.0

Nil NA 48,306 17,520 92,337 13,553 45,563 14,533 7,703 1.3 15.6 1.4 117.5 8.3

Nil NA 39,291 20,078 93,126 13,335 45,430 13,939 7,598 1.2 15.3 1.4 118.9 8.0

NA NA 43,276 25,188 90,739 11,581 39,683 14,846 7,117 1.1 13.5 1.7 118.4 8.0

NA NA 36,189 26,522 84,487 11,175 39,683 15,294 6,969 1.1 13.1 2.2 123.3 8.1

NA NA 36,612 25,845 85,202 10,630 38,716 16,865 6,835 1.2 15.0 2.3 126.6 7.8

NA NA 38,063 25,246 80,938 23,128 21,667 15,842 6,155 0.2 2.5 2.7 138.0 7.6

NA NA 39,610 27,295 87,270 9,076 39,573 15,404 6,623 1.2 15.4 1.5 137.5 7.6

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 127 Public Square, Cleveland, OH 44114-1306. Telephone: 216-689-6300. Website: http://www.key.com Chrmn, Pres & CEO: H. Meyer, III

Vice Chrmn & Chief Admin Officer: T.C. Stevens EVP & CFO: J.B. Weeden EVP & Chief Acctg Officer: R.L. Morris EVP & Treas: J.M. Vayda

Board Members: W. G. Bares, E. P. Campbell, J. A. Founded: 1849 Carrabba, C. Cartwright, A. M. Cutler, H. J. Dallas, B. R. Domicile: Ohio Gile, R. A. Gillis, K. L. Manos, L. E. Martin, E. R. Employees: 16,698 Menasce, H. Meyer, III, B. R. Sanford, B. R. Snyder, E. W. Stack, T. C. Stevens

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: KMB | KMB is in the S&P 500

Kimberly-Clark Corp S&P Recommendation HOLD

★★★★★

Price $66.56 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Household Products

12-Mo. Target Price $67.00

Investment Style Large-Cap Blend

Summary This leading consumer products company's global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, and Scott.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $67.24– 58.25 Trailing 12-Month EPS $4.69 Trailing 12-Month P/E 14.2 $10K Invested 5 Yrs Ago $14,058

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.82 5.15 13.8 409.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$27.244 3.97 $2.64 73

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.43 8 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the generally static demand for household and personal care products, which is usually not affected by changes in the economy or geopolitical factors.

70

55 50

Quantitative Evaluations

45

S&P Quality Ranking Vol.

D

C

B-

A B

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

MODERATE

44 LOWEST = 1 4

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Mark S. Basham on July 27, 2010, when the stock traded at $ 64.64. Highlights ➤

➤

➤

For 2010, we forecast a sales gain of 4% to 5%, with currency providing a small positive contribution and 1% coming from acquisitions made in 2009. We look for higher growth from developing and emerging markets than developed markets, and we forecast that the slowestgrowing segment will be Consumer Tissue. Excluding expenses associated with cost reduction programs, we look for the operating margin in 2010 to be about 50 basis points lower. We think benefits from earlier restructuring programs will be outweighed by higher commodity costs and marketing spending. Cost savings under the FORCE program were somewhat larger than anticipated in the first half, and pension expense has been lower than in 2009. Our 2010 operating EPS estimate is $4.82. EPS was $4.74 in 2009, excluding costs from the June 2009 plan to streamline the organization. For 2011, we see revenues rising about 4%, again with higher growth in developing markets. On flat operating margins, but lower net interest expense and a slightly lower tax rate, we estimate EPS will rise to $5.15 in 2011.

Investment Rationale/Risk ➤

➤

➤

We think continuing intense competition in developed countries and in consumer tissue and personal care categories will somewhat offset KMB's efforts to support sales growth by expanding in non-traditional categories for the company and focusing on certain developing markets. Also, while we saw substantial moderation of commodity cost pressures in mid-2009, some costs, particularly pulp, have begun to rise again. However, we have started to see more benefits from the strategic cost reduction program begun in late 2005 and other cost containment programs. Risks to our recommendation and target price include increased promotional activity in the consumer paper category, higher commodity costs, a lack of product innovation, unfavorable foreign currency shifts, and decreased consumer acceptance of KMB's products. Our 12-month target price of $67 is based on a blend of our historical and relative analyses. Our historical analysis suggests a value of $68, using a P/E toward the low end of the 10-year range applied to our 2010 operating EPS forecast. Our peer analysis applies a discount to the group average, implying a value of $66.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 4,835 4,857 2009 4,493 4,727 2008 4,813 5,006 2007 4,385 4,502 2006 4,068 4,161 2005 3,906 3,987

3Q -4,913 4,998 4,621 4,210 4,001

4Q -4,982 4,598 4,758 4,307 4,009

Year -19,115 19,415 18,266 16,747 15,903

Earnings Per Share ($) 2010 0.92 1.20 2009 0.98 0.97 2008 1.04 1.01 2007 0.98 1.00 2006 0.60 0.82 2005 0.93 0.88

E1.23 1.40 0.99 1.04 0.79 0.68

E1.25 1.17 1.01 1.07 1.05 0.82

E4.82 4.52 4.06 4.09 3.25 3.31

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.600 0.660 0.660 0.660

11/18 02/23 04/29 08/02

12/02 03/03 06/02 09/08

12/04 03/05 06/04 09/10

01/05/10 04/05/10 07/02/10 10/04/10

Dividends have been paid since 1935. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: KMB

Kimberly-Clark Corp Business Summary July 27, 2010 CORPORATE OVERVIEW. Kimberly-Clark, best known for brands such as Kleenex, Scott, Huggies and Kotex, sells consumer and other products in more than 150 countries. After operating as a broadly diversified enterprise, KMB made a major transition since the early 1990s, transforming itself into a global consumer products company. The company further developed its health care business through the acquisitions of Technol Medical Products, Ballard Medical Products, and Safeskin Corp. Reflecting more than 30 strategic acquisitions and 20 strategic divestitures since 1992, KMB has become a leading global manufacturer of tissue, personal care and health care products, manufactured in 38 countries. In 2004, KMB distributed to its shareholders all of the outstanding shares of Neenah Paper, Inc., which was formed in 2004 to facilitate the spin-off of KMB's U.S. fine paper and technical paper businesses and its Canadian pulp mills. KMB classifies its business into four reportable global segments: Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. In 2009, Personal Care contributed 44% of sales and 55% of segment operating profits; Consumer Tissue 33% and 23%; K-C Professional & Other 16% and 14%; and Health Care 7% and 8%.

and Asia, Latin America and other 30%. Wal-Mart Stores, Inc. is KMB's single largest customer, accounting for about 13% of net sales in 2009, following 14% of net sales in 2008 and in 2007 and about 13% in 2006. CORPORATE STRATEGY. In mid-2003, KMB introduced a new strategic plan called the Global Business Plan (GBP), which involves prioritizing growth opportunities and applying greater financial discipline to KMB's global operations. The annual goals established by the GBP are: top-line growth of 3%-5%; EPS growth in the mid- to high single digits; an operating margin improvement of 40 to 50 basis points; capital spending of 5%-6% of net sales; an ROIC improvement of 40 to 50 basis points; and dividend increases in the high single digits to the low double digits. On average, in the 2004 through 2007 period, we believe KMB met or exceeded all these goals but an operating margin improvement, which was adversely affected by unusually high inflationary cost pressures. Also, under the GBP, capital allocation focused on more targeted expansion activity and an increased emphasis on innovation and cost reduction.

In 2009, sales by geographic region were: U.S. 51%; Canada 3%; Europe 16%; Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.40 6.40 4.52 4.81 2.40 53% 67.03 43.05 15 10

2008 2.45 5.91 4.06 3.57 2.32 57% 69.69 50.27 17 12

2007 5.92 5.90 4.09 4.09 2.12 52% 72.79 63.79 18 16

2006 7.10 5.34 3.25 3.32 1.96 60% 68.58 56.59 21 17

2005 6.22 5.08 3.31 3.32 1.80 54% 68.29 55.60 21 17

2004 8.13 5.32 3.55 3.56 1.60 45% 69.00 56.19 19 16

2003 8.21 4.80 3.33 3.35 1.36 41% 59.30 42.92 18 13

2002 6.65 4.60 3.24 2.74 1.20 37% 66.79 45.30 21 14

2001 7.10 1.39 3.02 2.49 1.12 37% 72.19 52.06 24 17

2000 7.04 4.55 3.34 NA 1.08 32% 73.25 42.00 22 13

19,115 3,846 783 275 2,740 27.2% 1,884 2,004

19,415 3,414 775 318 2,455 25.2% 1,698 1,497

18,266 3,553 806 283 2,488 21.6% 1,823 1,820

16,747 3,034 933 220 2,064 22.7% 1,500 1,533

15,903 3,155 844 190 2,106 20.8% 1,581 1,581

15,083 3,358 800 163 2,328 20.8% 1,770 1,777

14,348 3,158 746 168 2,153 23.9% 1,694 1,708

13,566 3,170 707 182 2,411 27.7% 1,686 1,424

14,524 3,162 740 192 2,319 27.8% 1,610 1,329

13,982 3,203 673 222 2,622 28.9% 1,801 NA

Balance Sheet & Other Financial Data (Million $) Cash 798 Current Assets 5,864 Total Assets 19,182 Current Liabilities 4,923 Long Term Debt 5,844 Common Equity 5,696 Total Capital 11,540 Capital Expenditures 848 Cash Flow 2,667 Current Ratio 1.2 % Long Term Debt of Capitalization 50.6 % Net Income of Revenue 9.9 % Return on Assets 10.1 % Return on Equity 39.4

364 5,813 18,074 4,752 4,882 3,878 10,852 906 2,473 1.2 44.9 8.8 9.3 37.3

762 6,097 18,440 4,929 4,394 5,224 11,476 989 2,629 1.2 38.3 10.0 10.3 32.2

361 5,270 17,067 5,016 3,069 6,097 9,981 972 2,432 1.1 30.8 9.0 9.0 25.7

364 4,783 16,303 4,643 3,352 5,558 9,878 710 2,425 1.0 33.9 9.9 9.5 25.9

594 4,962 17,018 4,537 3,021 6,630 10,859 535 2,571 1.1 27.8 11.7 10.5 26.4

291 4,438 16,780 3,919 3,301 6,766 10,366 878 2,440 1.1 31.8 11.8 10.5 27.3

495 4,274 15,586 4,038 3,398 5,650 10,158 871 2,393 1.1 33.4 12.4 11.0 29.8

405 3,922 15,008 4,168 2,962 5,647 9,923 1,100 740 0.9 29.9 11.1 10.9 28.2

207 3,790 14,480 4,574 Nil 5,767 7,036 1,170 2,474 0.8 Nil 12.9 13.2 33.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: P.O. Box 619100, Dallas, TX 75261-9100. Telephone: 972-281-1200. Website: http://www.kimberly-clark.com Chrmn, Pres & CEO: T.J. Falk

SVP & CFO: M.A. Buthman Chief Acctg Officer & Cntlr: M.T. Azbell Secy: J.W. Wesley Investor Contact: M.D. Masseth (972-281-1478)

Board Members: J. R. Alm, D. Beresford, J. F. Bergstrom, A. E. Bru, R. W. Decherd, T. J. Falk, M. C. Jemison, J. M. Jenness, N. J. Karch, I. C. Read, L. J. Rice, M. J. Shapiro, G. C. Sullivan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1872 Domicile: Delaware Employees: 56,000

Stock Report | October 23, 2010 | NYS Symbol: KIM | KIM is in the S&P 500

Kimco Realty Corp S&P Recommendation HOLD

★★★★★

Price $17.33 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Retail REITS

12-Mo. Target Price $17.00

Investment Style Large-Cap Blend

Summary This real estate investment trust is one of the largest U.S. owners and operators of neighborhood and community shopping centers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.49– 11.54 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $7,751

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

1.15 1.22 15.1 405.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.033 3.69 $0.64 86

Beta 1.82 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -13 S&P Credit Rating BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of KIM's strong fundamentals, healthy credit quality, and diversified customer base. We also believe KIM's diversity in its geographic presence helps provide significant protection from a local or regional downturn.

40 30 20

10

Quantitative Evaluations Vol.

S&P Quality Ranking

142

Mil. 45 30 15 0 5

D

C

B-

AB

B+

A-

A

Relative Strength Rank 4

3

4

STRONG 79

3

2

A+

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Robert McMillan on July 29, 2010, when the stock traded at $ 15.14. Highlights ➤

We expect the trust to continue to benefit from what we view as a successful strategy of operating neighborhood and community shopping centers in North America and expanding into high-growth international markets via joint ventures. After rising 3.7% in 2009, total revenues should advance 8.4% in 2010, by our analysis, on higher rents at established properties as well as acquisition activity.

Investment Rationale/Risk ➤

➤ ➤

➤

Operating trends appear to be stabilizing. The lease rate in KIM's total U.S portfolio rose to 92.8% at the end of the 2010 second quarter, from about 92.3% a year earlier. We believe that improving retailer sentiment will generate increased demand for new as well as existing space, which, on top of limited new construction will help results in 2010. Rents on new and renewal leases in the U.S. declined 1.6% during the second quarter. We also see continued growth in Canada and Latin America (driven in part by Walt-Mart's continued expansion) as well as acquisitions helping KIM's long-term growth. We project FFO per share of $1.15 for 2010 and $1.22 in 2011.

➤

We believe that KIM, one of the largest owners and operators of neighborhood and community shopping centers in the U.S. with a broad array of established relationships, will generate above-average rent growth in the long term. Near term, though, we think an expected drop in development stemming from the weak economy and credit crunch will restrict the shares. Risks to our recommendation and target price include slower-than-expected growth in retailer expansion and rental rates, higherthan-expected retailer bankruptcies, and a sharp drop in development activities. The shares recently traded at about 12.1X trailing 12-month FFO per share. Our 12-month target price of $17 is equal to 15.0X our forward 12-month FFO estimate of $1.13. We believe the stock has been volatile over the past year due, in part, to concerns about the effect of a soft economy on KIM's business. We think the valuation multiple will expand over time as KIM shows that its core portfolio, anchored by longterm leases, continues to grow. KIM's December 2009 equity offering, although dilutive, eased our concerns about the trust's liquidity.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/FFO Data Revenue (Million $) 1Q 2Q 2010 239.5 227.7 2009 208.0 203.3 2008 190.5 199.9 2007 158.3 170.8 2006 138.1 147.9 2005 129.3 126.7

3Q -205.5 208.6 210.3 150.7 129.6

4Q -227.3 213.6 179.7 157.3 137.0

Year -844.3 824.7 750.6 653.0 580.6

FFO Per Share ($) 2010 0.31 2009 0.43 2008 0.64 2007 0.78 2006 0.53 2005 0.53

E0.24 0.30 0.37 0.57 0.56 0.56

E0.27 0.75 0.04 0.53 0.58 0.55

E1.15 0.82 2.02 2.59 2.21 2.00

0.26 0.31 0.66 0.71 0.54 0.54

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.160 0.160 0.160 0.160

11/04 07/27 02/03 05/05

12/30 01/01 03/31 06/29

01/04 10/05 04/05 07/01

01/15/10 10/15/10 04/15/10 07/15/10

Dividends have been paid since 1992. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: KIM

Kimco Realty Corp Business Summary July 29, 2010 Kimco Realty specializes in the acquisition, development and management of shopping centers that it believes are well located and have strong growth potential. At the end of 2009, KIM had interests in 1,915 properties, totaling approximately 176.9 million square feet of gross leasable area (GLA) located in 45 states, Canada, Mexico, Puerto Rico, Brazil, Chile and Peru. The trust's ownership interests in real estate consist of its consolidated portfolio and portfolios in which it owns an economic interest, such as properties in its investment management programs, where it partners with institutional investors and also retains management. The trust's investment objective has been to increase cash flow, current income, and, consequently, the value of its existing portfolio of properties, and to seek continued growth through the strategic re-tenanting, renovation and expansion of its existing centers, and through the selective acquisition of established income-producing real estate properties and properties requiring significant re-tenanting and redevelopment. These properties are mainly located in neighborhood and community shopping centers in geographic regions in which KIM currently operates.

the financial health and growth of its retail tenants are among the most important factors affecting the success of its portfolio. KIM's neighborhood and community shopping center properties are designed to attract local area customers and typically are anchored by a discount department store, a supermarket or a drugstore tenant offering day-to-day necessities rather than highpriced luxury items. The trust seeks to reduce operating and leasing risks through diversification achieved by the geographic distribution of its properties and a large tenant base. As of December 31, 2009, no single neighborhood and community shopping center accounted for more than 1.2% of the trust's annualized base rental revenues or more than 1.0% of its total shopping center GLA; the five largest tenants were The Home Depot (3.3% of KIM's annualized base rental revenues, including the proportionate share of base rental revenues from properties in which KIM has less than a 100% economic interest), TX Companies (2.6%), Sears Holdings (2.5%), Walt-Mart (2.2%) and Kohl's (2.0%).

For KIM as well as other retail-oriented REITs, we believe that location and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.96 -0.15 -0.15 0.72 NM 20.90 6.33 NM NM

2008 14.66 0.69 0.69 0.24 35% 47.80 9.56 69 14

2007 15.40 1.33 1.33 1.52 114% 53.60 33.74 40 25

2006 13.24 1.36 1.36 1.38 101% 47.13 32.02 35 24

2005 9.70 1.40 1.40 1.27 91% 33.35 25.90 24 18

2004 9.17 1.19 1.18 1.16 97% 29.64 19.77 25 17

2003 8.87 1.04 1.03 1.10 105% 22.93 15.13 22 14

2002 8.04 1.10 1.08 1.05 96% 16.94 12.98 15 12

2001 7.95 1.08 1.07 0.98 91% 17.03 13.58 16 13

2000 7.26 0.96 NA 0.91 95% 14.92 10.92 16 11

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

787 Nil 787 111 210 Nil 228 -4.05 -51.3

759 Nil 825 118 213 Nil 204 225 178

682 14.2 751 104 214 Nil 190 362 342

594 18.8 653 164 173 Nil 141 343 333

523 NA 581 128 128 Nil 106 334 322

517 NA 517 111 108 Nil 102 282 268

480 NA 480 104 103 Nil 86.2 247 222

451 NA 451 9.15 86.9 Nil 76.7 249 227

469 NA 469 89.7 89.4 Nil 74.2 237 209

459 NA 466 138 92.1 Nil 71.1 205 NA

Balance Sheet & Other Financial Data (Million $) Cash 122 Total Assets 10,162 Real Estate Investment 8,882 Loss Reserve Nil Net Investment 7,539 Short Term Debt 380 Capitalization:Debt 4,054 Capitalization:Equity 4,852 Capitalization:Total 9,172 % Earnings & Depreciation/Assets 2.3 Price Times Book Value:High 1.7 Price Times Book Value:Low 0.5

136 9,397 7,819 Nil 6,659 186 4,371 3,974 8,691 4.6 3.3 0.7

87.5 9,098 7,325 Nil 6,348 281 3,936 3,894 8,279 6.5 3.5 2.2

1,616 7,869 6,002 Nil 5,195 209 3,378 3,366 7,170 7.2 3.6 2.4

1,018 5,535 4,560 Nil 3,820 NA 2,397 2,387 4,907 8.5 3.4 2.7

757 4,747 4,877 Nil 4,242 NA 1,860 2,236 4,203 8.2 3.2 2.2

581 4,604 4,137 Nil 3,569 570 1,585 2,135 3,820 8.0 2.6 1.7

36.0 3,757 3,399 Nil 2,882 147 1,430 1,906 3,431 9.1 2.1 1.6

93.8 3,385 3,201 Nil 2,748 123 1,205 1,889 3,103 9.5 2.1 1.7

19.1 3,171 3,112 Nil 2,720 4.60 1,321 1,703 3,039 8.9 2.1 1.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3333 New Hyde Park Road, New Hyde Park, NY 11042-0020. Telephone: 800-285-4626. Email: [email protected] Website: http://www.kimcorealty.com

Chrmn: M. Cooper Pres, Vice Chrmn & CEO: D.B. Henry COO & EVP: M.V. Pappagallo EVP, CFO & Treas: G.G. Cohen

EVP & Chief Admin Officer: B.M. Pooley Investor Contact: B. Pooley (866-831-4297) Board Members: M. Cooper, P. E. Coviello, R. G. Dooley, J. Grills, D. B. Henry, F. P. Hughes, F. Lourenso, R. B. Saltzman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1966 Domicile: Maryland Employees: 640

Stock Report | October 23, 2010 | NYS Symbol: KG | KG is in the S&P 500

King Pharmaceuticals Inc. S&P Recommendation HOLD

★★★★★

Price $14.16 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary In mid-October 2011, Pfizer entered into a definitive agreement to acquire the company for some $3.6 billion in cash, equal to $14.25 per KG common share.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$14.18– 7.18 $0.35 40.5 $9,472

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.68 0.75 20.8 249.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.535 Nil Nil 92

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.80 5 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects King Pharmaceuticals' reliance on in-licensing drugs from other companies and on aggressive marketing for its sales growth. KG recently lost patent protection on its key Skelaxin drug, and faces increased competitive pressures in other lines. We think the purchase of Alpharma made strategic sense, but we see KG facing further execution risk in integrating that acquisition.

20 16 12 8

Vol. 388

Mil.

Quantitative Evaluations

30 20 10 0 5

S&P Quality Ranking 3

D

3

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ STRONG 97

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Herman B. Saftlas on October 14, 2010, when the stock traded at $ 14.16. Highlights ➤

➤

We see revenues declining about 16% in 2010, primarily reflecting projected generic erosion in Skelaxin, and increased competitive pressures in the Thrombin JMI, Levoxyl and Avinza lines. However, we see strong growth in newer pain products that came with the Alpharma acquisition, such as Embeda abuse-deterrent morphine pain drug, and animal health sales. Sales in the Flector pain patch and Meridian autoinjector device lines will likely be modestly higher, in our opinion. We look for gross margins close to 2009's 67%, with benefits from manufacturing efficiencies and other merger synergies roughly offsetting the projected lower volume. However, we expect the SG&A and R&D cost ratios to rise sharply, on higher new product costs. Depreciation should be relatively flat, but interest costs are expected to decline, by our analysis.

Investment Rationale/Risk ➤

➤

On October 12, 2010, global pharmaceutical leader Pfizer (PFE 17.7****) announced that it had entered into a definitive agreement with King to acquire all of KG's outstanding common shares for $14.25 in cash, equal to a total acquisition cost of $3.6 billion. We view this as an attractive price for KG holders, representing a 40% premium from KG's closing price on October 11, and a 46% premium to the one-month average closing price as of the same date. Directors of both firms have approved the combination. The merger, which is subject to customary terms, is expected to be completed late in the fourth quarter of 2010, or early in the first quarter of 2011. Risks to our opinion and target price include the failure to complete the planned merger with Pfizer. Business risks for KG also include possible R&D setbacks.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 380.9 370.9 2009 429.1 445.0 2008 432.0 396.9 2007 516.0 542.7 2006 484.2 499.7 2005 368.6 462.9

3Q -463.4 388.5 544.9 491.7 518.0

4Q -439.1 347.7 533.3 512.9 423.3

Year -1,777 1,565 2,137 1,989 1,773

Earnings Per Share ($) 2010 0.02 0.07 2009 -0.04 0.15 2008 0.36 0.18 2007 0.48 0.26 2006 0.21 0.46 2005 0.28 0.08

E0.20 0.17 0.35 -0.17 0.37 0.50

E0.17 0.09 -2.25 0.18 0.15 -0.39

E0.68 0.37 -1.37 0.75 1.19 0.48

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤

After a projected effective tax rate of about 39%, up from 2009's 37.1%, we forecast cash EPS of $0.68 for 2010, down from $1.10 in 2009, excluding goodwill amortization. We project an improvement in EPS, to $0.75 in 2011.

➤

Our 12-month target price of $14 closely approximates the $14.25 per share cash acquisition bid that Pfizer has offered for the shares. We expect the merger to be consummated as planned either in late 2010, or early 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: KG

King Pharmaceuticals Inc. Business Summary October 14, 2010 CORPORATE OVERVIEW. King Pharmaceuticals is a vertically integrated branded drug company. A key part of its business strategy consists of the acquisition of drugs being divested by large global pharmaceutical companies. To date, King has successfully acquired and commercialized more than 35 branded products, and has introduced several product line extensions. In late December 2008, KG completed the acquisition of Alpharma Inc. for $1.6 billion in cash. Revenues from King's branded pharmaceuticals accounted for about 63% of total revenues in 2009; Meridian Medical Technologies (a maker of autoinjectors) 14%; animal health products 20%, and royalties from licensed drugs, contract manufacturing and other 3%. King's largest selling drug is Skelaxin (sales of $401 million in 2009), a muscle relaxant indicated for the relief of discomforts associated with acute, painful musculoskeletal conditions. Other key neuroscience products include Avinza ($131 million), a once-daily, extended-release formulation of morphine sulfate for severe pain; and Flector Patch ($139 million), a topical non-steroidal, antiinflammatory patch for the treatment of acute pain due to minor strains, sprains and contusions.

lion), a drug used to control minor bleeding during surgery; Altace ($36 million), an off-patent heart drug used to treat hypertension and congestive heart failure; and Levoxyl ($71 million), a treatment for thyroid disorders. Other drugs include Sonata anti-insomnia agent, Bicillin anti-infective, Synercid injectable antibiotic; and Intall multi-dose inhaler asthma treatment. Impacted by generic erosion, sales of Altace fell 79% in 2009. Sales of Levoxyl declined 28%. The Meridian Medical Technologies division markets auto-injectors, which are pre-filled, pen-like devices that allow patients or caregivers to automatically inject precise drug dosages. KG markets its branded drugs to general/family practitioners, internal medicine physicians, cardiologists, and hospitals across the U.S. Pursuant to a major cost restructuring put in place in 2007, the company terminated about 20% of its total work force, primarily through a reduction in sales personnel. About 61% of sales in 2009 were derived from three key drug wholesalers: McKesson Corp. (20%), Cardinal/Bindley (27%), and AmerisourceBergen Corp. (14%).

Other important pharmaceutical products consist of Thrombin-JMI ($183 milCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.46 1.23 0.37 0.38 Nil Nil 12.45 5.86 34 16

2008 3.22 -0.76 -1.37 -1.35 Nil Nil 12.60 6.98 NM NM

2007 6.51 1.43 0.75 0.78 Nil Nil 22.25 9.75 30 13

2006 5.41 1.79 1.19 1.31 Nil Nil 20.00 15.15 17 13

2005 3.66 1.09 0.48 0.47 Nil Nil 17.99 7.50 37 16

2004 7.67 0.46 -0.21 -0.06 Nil Nil 20.62 10.01 NM NM

2003 0.68 0.95 0.44 0.41 Nil Nil 18.13 9.46 41 22

2002 2.90 0.98 0.74 0.71 Nil Nil 42.13 15.00 57 20

2001 3.47 1.20 0.99 0.94 Nil Nil 46.05 24.79 47 25

2000 0.85 0.66 0.47 NA Nil Nil 41.63 14.81 88 31

1,777 513 214 88.2 151 38.9% 92.0 93.9

1,565 584 148 8.51 -202 NM -333 -328

2,137 834 167 8.10 251 27.0% 183 191

1,989 700 148 9.86 424 32.0% 289 318

1,773 551 147 11.9 178 34.5% 117 115

1,304 272 162 12.6 -58.0 NM -50.6 -13.1

1,521 403 125 13.4 177 40.2% 106 98.4

1,128 426 59.3 12.4 268 31.8% 183 175

872 429 48.0 12.7 371 37.2% 233 222

620 326 41.9 37.0 192 45.4% 105 NA

Balance Sheet & Other Financial Data (Million $) Cash 577 Current Assets 1,130 Total Assets 3,329 Current Liabilities 497 Long Term Debt 339 Common Equity 2,369 Total Capital 2,794 Capital Expenditures 38.8 Cash Flow 306 Current Ratio 2.3 % Long Term Debt of Capitalization 12.1 % Net Income of Revenue 5.2 % Return on Assets 2.4 % Return on Equity 4.0

947 1,669 4,258 1,007 963 2,177 3,580 57.5 -185 1.7 26.9 NM NM NM

1,366 1,820 3,427 453 400 2,511 2,911 49.6 350 4.0 13.7 8.6 5.4 7.6

114 1,673 3,330 618 400 2,289 2,689 45.8 436 2.7 14.9 14.5 9.2 13.5

48.5 1,248 2,965 971 Nil 1,973 1,973 53.3 264 1.3 Nil 6.6 4.0 6.1

359 1,127 2,924 689 345 1,849 2,194 55.1 111 1.6 15.7 NM NM NM

146 946 3,178 669 345 2,042 2,387 51.2 230 1.4 14.5 7.0 3.6 5.3

815 1,262 2,751 370 345 1,931 2,310 73.6 242 3.4 14.9 16.2 6.9 9.5

924 1,238 2,507 151 346 1,908 2,292 40.2 281 8.2 15.1 26.7 12.3 16.1

76.4 317 1,282 105 99.0 988 1,104 25.1 147 3.0 9.0 16.9 8.5 14.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: . Chrmn, Pres & CEO: B.A. Markison Investor Contact: J.J. Howarth CFO & Chief Acctg Officer: J. Squicciarino

Board Members: K. S. Crutchfield, E. W. Deavenport, Jr., E. M. Greetham, P. Incarnati, G. D. Jordan, B. A. Markison, R. Moyer, D. G. Rooker, D. L. Schaffer, T. G. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1993 Domicile: Tennessee Employees: 2,600

Stock Report | October 23, 2010 | NNM Symbol: KLAC | KLAC is in the S&P 500

KLA Tencor Corp S&P Recommendation SELL

★★★★★

Price $35.99 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductor Equipment

12-Mo. Target Price $28.00

Investment Style Large-Cap Growth

Summary This company is the world's leading manufacturer of yield monitoring and process control systems for the semiconductor industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.49– 26.69 Trailing 12-Month EPS $1.23 Trailing 12-Month P/E 29.3 $10K Invested 5 Yrs Ago $8,168

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.52 3.67 10.2 167.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.040 2.78 $1.00 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.77 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to the cyclicality of the semiconductor equipment industry and changes in relevant technologies, only partially offset by limited pricing pressure and our view of KLAC's strong market position, size, and financial condition.

60 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 30 20 10 0 5

D

B-

B

B+

A-

A

Relative Strength Rank

5 3

C

B-

4

3

3

2

1

A+ STRONG

83 LOWEST = 1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Angelo Zino on August 31, 2010, when the stock traded at $ 28.01. Highlights ➤

➤

➤

We estimate sales will rise 42% in FY 11 (Jun.) and 1.4% in FY 12 after a 20% increase in FY 10. Although we think some leading-edge customers are moving ahead with capital investment plans, we expect KLAC's orders to slow following a significant ramp by customers in recent quarters. We think growth in its core semiconductor business continues to outpace the industry through share gain, and we see opportunities in areas such as alternative energy. We expect yield monitoring and process control systems products to fare better than other types of semiconductor equipment. We see annual gross margins of 63% in FY 11 and 64% in FY 12, compared to 55% in FY 10. We view KLAC's yield management and process control systems as only moderately susceptible to pricing pressure due to the critical value they add to semiconductor customers. We project gross and operating margins eventually surpassing previous peak levels. We estimate operating EPS of $3.52 for FY 11 and $3.67 for FY 12, versus $1.55 in FY 10, which excludes $0.32 of non-recurring charges. We view positively KLAC's leading market share position in its respective markets.

Investment Rationale/Risk ➤

➤

➤

Our sell recommendation reflects our expectation that customers have rebuilt inventories to more normalized levels as well as uncertain end-demand visibility. We believe monthly bookings are nearing a top and we see orders beginning to slow, as elevated customers utilization rates are likely at unsustainable levels. We view KLAC's competitive position in both inspection and metrology as strong, and we see long-term growth in yield management and process control. Long term, we think the transition to lower nanometer nodes will cause yield and defectivity challenges, which we believe will stimulate customers to increase spending. Risks to our recommendation and target price include stronger-than-projected industry sales, less competition pressuring KLAC's market share position, and a faster-than-expected global economic recovery. Our 12-month target price of $28 is based on a blend of a peer-average P/E and price-to-sales (P/S) ratio within its five-year moving average. We apply a P/E of 7.5X to our 2011 calendar year EPS estimate to obtain a $27 price. We derive a $30 price using a P/S of 2.0X our 2011 calendar year sales per share estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 342.7 440.4 2009 532.5 396.6 2008 693.0 635.8 2007 629.4 649.3 2006 484.3 487.7 2005 518.8 532.9

3Q 478.3 309.6 602.2 716.2 519.7 541.6

4Q 559.4 281.5 590.7 736.4 579.0 491.9

Year 1,821 1,520 2,522 2,731 2,071 2,085

Earnings Per Share ($) 2010 0.12 0.13 2009 0.11 -2.57 2008 0.46 0.45 2007 0.67 0.44 2006 0.37 0.38 2005 0.58 0.61

0.33 -0.49 0.61 0.76 0.47 0.61

0.66 -0.15 0.43 0.75 0.65 0.52

1.23 -3.07 1.95 2.61 1.86 2.32

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.250

11/04 02/04 05/06 08/05

11/12 02/11 05/13 08/12

11/16 02/16 05/17 08/16

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: KLAC

KLA Tencor Corp Business Summary August 31, 2010 CORPORATE OVERVIEW. KLA-Tencor (KLAC) is the world's leading manufacturer of yield management and process monitoring systems for the semiconductor industry. Its products are also used in other industries, including the high brightness light emitting diode, data storage and photovoltaic industries. Maximizing yields, or the number of good die (chips) per wafer, is a key goal in manufacturing integrated circuits (ICs). Higher yields increase revenues obtained for each semiconductor wafer processed. As IC line widths decrease, yields become more sensitive to microscopic-sized defects. KLAC's systems are used to improve yields by identifying defects, analyzing them to determine process problems and patterns, and facilitate corrective actions. These systems monitor subsequent results to ensure that problems have been contained. With in-line systems, corrections can be made while the wafer is still in the production line, rather than waiting for end-of-process testing and feedback. KLAC offers a broad range of inspection and yield management. The company's wafer inspection systems include unpatterned and patterned wafer inspection tools used to find, count and characterize particles and pattern defects on wafers both in engineering applications and in-line at various stages during the semiconductor manufacturing process. KLAC's brightfield inspection systems are extremely sensitive to small defects and capture a large

range of defect types, which is critical as customers move to 32nm and smaller production. Reticle inspection systems look for defects on the quartz plates used in copying circuit designs onto an IC during the photolithography process. Film measurement products measure a variety of optical and electrical properties of thin films. Scanning electron beam microscopes (SEMs) can measure the critical dimensions (CDs) of tiny semiconductor features. For chip manufacturing below 90nm, e-beam inspection is becoming increasingly important, not only during the research and development phase, where the highest levels of sensitivity are needed to highlight and eradicate potential design problems, but also in production, where dedicated high-speed e-beam inspection systems. At the end of FY 10 (Jun.), KLAC's revenues by geographic region were divided as follows: United States 19% (24% in FY 10), Europe & Israel 6% (11%), Japan 13% (29%), Taiwan 38% (12%), Korea 8% (12%), and Rest of Asia 16% (12%). In FY 10, Taiwan Semiconductor Manufacturing and Intel both accounted for more than 10% of total sales.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 10.72 1.73 1.23 1.22 0.60 49% 37.41 26.69 30 22

2009 10.00 2.34 -3.07 -1.48 0.60 NM 37.71 15.28 NM NM

2008 11.96 2.58 1.95 2.05 0.60 31% 48.35 14.81 25 8

2007 16.00 3.15 2.61 2.64 0.48 18% 62.67 46.59 24 18

2006 17.56 2.20 1.86 1.89 0.48 26% 55.03 38.38 30 21

2005 15.49 2.67 2.32 1.88 0.12 5% 55.00 37.39 24 16

2004 13.34 1.62 1.21 0.77 Nil Nil 62.82 35.02 52 29

2003 11.56 1.07 0.70 0.12 Nil Nil 61.25 31.20 88 45

2002 10.70 1.45 1.10 0.49 Nil Nil 70.58 25.16 64 23

2001 9.38 2.22 1.93 1.45 Nil Nil 61.00 28.61 32 15

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,821 423 87.4 54.5 291 NA 212 212

1,520 -7.00 124 55.3 -603 NM -523 -251

2,522 708 116 10.8 560 35.9% 359 379

2,731 699 109 Nil 680 22.1% 528 535

2,071 379 69.4 Nil 378 NM 380 386

2,085 653 70.9 Nil 627 25.0% 467 377

1,497 380 82.9 Nil 325 24.9% 244 156

1,323 201 71.4 0.39 181 24.0% 137 22.4

1,637 314 69.6 Nil 287 24.8% 216 96.5

2,104 512 55.6 Nil 513 27.2% 373 281

Balance Sheet & Other Financial Data (Million $) Cash 1,534 Current Assets 2,835 Total Assets 3,907 Current Liabilities 772 Long Term Debt 746 Common Equity 2,247 Total Capital 2,992 Capital Expenditures 30.2 Cash Flow 300 Current Ratio 3.7 % Long Term Debt of Capitalization 24.9 % Net Income of Revenue 11.7 % Return on Assets 5.7 % Return on Equity 9.6

1,330 2,399 3,610 564 745 2,184 2,930 22.2 -399 4.3 25.4 NM NM NM

1,579 3,036 4,848 950 745 2,982 3,726 57.3 475 3.2 20.0 14.2 7.6 11.0

1,711 3,253 4,623 1,073 Nil 3,550 3,550 83.8 637 3.0 Nil 19.3 11.5 14.8

2,326 3,543 4,576 1,002 Nil 3,568 3,573 73.8 450 3.5 Nil 18.4 8.8 11.4

2,195 3,203 3,986 932 Nil 3,045 3,055 59.7 538 3.4 Nil 22.4 12.4 16.5

1,876 2,192 3,539 912 Nil 2,628 2,628 55.5 327 2.4 Nil 16.3 7.6 10.1

1,488 1,806 2,867 651 Nil 2,216 2,216 134 209 2.8 Nil 10.4 4.9 6.5

1,334 1,619 2,718 687 Nil 2,030 2,030 68.7 286 2.4 Nil 13.2 7.9 11.4

697 1,897 2,745 984 Nil 1,760 1,760 162 429 1.9 Nil 17.7 15.1 21.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Technology Dr, Milpitas, CA 95035-7916. Telephone: 408-875-3000. Website: http://www.tencor.com Chrmn: E. Barnholt

Pres & CEO: R.P. Wallace EVP & CFO: M.P. Dentinger SVP & Chief Acctg Officer: V.A. Kirloskar SVP, Secy & General Counsel: B.M. Martin

Investor Contact: W. Lin (408-875-3000) Founded: 1975 Board Members: R. P. Akins, E. Barnholt, R. T. Bond, B. Domicile: Delaware Calderoni, J. Dickson, S. P. Kaufman, K. J. Kennedy, K. Employees: 5,000 M. Patel, R. P. Wallace, D. C. Wang

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: KSS | KSS is in the S&P 500

Kohl's Corp S&P Recommendation BUY

★★★★★

Price $52.89 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Department Stores

12-Mo. Target Price $58.00

Investment Style Large-Cap Growth

Summary This company operates over 1,060 specialty department stores in 49 states, featuring moderately priced apparel, shoes, accessories, and products for the home.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $60.42– 44.07 Trailing 12-Month EPS $3.52 Trailing 12-Month P/E 15.0 $10K Invested 5 Yrs Ago $11,215

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.70 4.30 14.3 308.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$16.290 Nil Nil 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.95 15 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of KSS's improving sales, increasing market share in the moderate department store sector, and healthy balance sheet and cash flow, offset by uncertainty over consumer discretionary spending in light of economic conditions and debt levels.

80 60

40 30

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 4

3

3

4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Jason N. Asaeda on August 16, 2010, when the stock traded at $ 44.50. Highlights We expect net sales to reach $18.5 billion in FY 11 (Jan.). KSS opened 56 stores in FY 10 and plans to open 30 new stores in FY 11. We project same-store sales to rise approximately 5% in FY 11 versus the flat showing of FY 10, supported by the company's continuing efforts to inject newness into its basics-focused apparel assortments and to flow receipts more frequently in season. We also anticipate a lift in sales from 85 planned store remodels (up from 51 completed in FY 10) and size optimization, which improves apparel in-stock positions by ensuring that individual stores have inventory in the correct sizes, colors and styles. KSS plans to make e-commerce infrastructure investments and to increase fall marketing spending in support of growth. The company also expects to incur incremental expenses in the second half of FY 11 to notify Kohl's Charge customers of changes in late fees resulting from new credit card legislation. However, we see operating margins widening on increased penetration of private and exclusive brands as well as inventory and cost controls. Assuming no share buyback activity, we estimate EPS of $3.70 in FY 11.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B+ B

57 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

Our buy recommendation on the shares is based on valuation. KSS remains one of the fastest-growing department store chains, with the highest operating margin within its peer group. Over the past three years, the company's focus on more exclusive, higher-quality brands and products, lifestyle merchandising, and efforts to better tailor assortments to reflect regional market preferences have supported improving sales and margins. Despite a challenging retail environment, we believe KSS is gaining market share on the strength of its value pricing strategy, off-mall shopping convenience, targeted expansion, and a growing ecommerce business. Risks to our recommendation and target price include sales shortfalls due to unforeseen shifts in fashion trends and further weakening of consumer spending levels. We also see a risk of increasingly cost-conscious consumers trading down to discounters such as Wal-Mart Stores (WMT 50, Strong Buy). Our 12-month target price of $58 is based on a forward P/E multiple of 15.7X, KSS's five-year historical average, applied to our FY 11 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 4,035 4,100 2010 3,638 3,806 2009 3,624 3,725 2008 3,572 3,589 2007 3,185 3,291 2006 2,743 2,888

3Q -4,051 3,804 3,825 3,637 3,119

4Q -5,682 5,235 5,487 5,431 4,652

Year -17,178 16,389 16,474 15,544 13,402

Earnings Per Share ($) 2011 0.64 0.84 2010 0.45 0.75 2009 0.49 0.77 2008 0.64 0.77 2007 0.48 0.69 2006 0.36 0.54

E0.63 0.63 0.52 0.61 0.68 0.45

E1.59 1.40 1.10 1.31 1.48 1.08

E3.70 3.23 2.88 3.39 3.31 2.43

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: KSS

Kohl's Corp Business Summary August 16, 2010 CORPORATE OVERVIEW. Kohl's (KSS), with its "Expect Great Things" line, has positioned itself as a preferred shopping destination for busy women. Its traditional customers are married women aged 25 to 54. The company's stores feature easy-to-shop layouts and emphasize moderately priced exclusive and national brand family apparel and shoes, accessories, cosmetics, home furnishings, and housewares. KSS uses a "nine-box grid" merchandising strategy. Product assortments fall into three categories, "good," "better," and "best," differentiated by price and quality, and also reflect three distinct customer styles: the "classic" customer who wants a coordinated look without bending the rules; the "updated" customer who likes classic styles with a twist; and the more fashion-forward "contemporary" customer. PRIMARY BUSINESS DYNAMICS. KSS is one of the fastest-growing retail chains in the U.S. From FY 05 through FY 10, the company increased its selling square footage at a compound annual growth rate (CAGR) of 9.7% as it expanded its store count from 637 to 1,058. KSS opened nine stores this spring and plans to open an additional 21 stores this fall, for a total of 30 new stores in FY 11.

From a merchandising standpoint, we believe KSS fell behind competitors such as J.C. Penney and Macy's in delivering newness and better quality merchandise sought by its customers in FY 04. Since then, however, we have seen the company prove itself capable of creating a more compelling sales mix by investing in new contemporary brands such as Candie's in juniors and young girls, and by entering the beauty business. KSS also responded successfully, in our view, to dress clothing trends in FY 06 with the launch of Chaps (by Ralph Lauren) in men's career casual sportswear. In FY 07, the company filled out its contemporary apparel offerings, and expanded its most popular brands into additional product categories (e.g., Chaps into women's and boys), creating true lifestyle brands. We think these rollouts complemented KSS's ongoing efforts to capture more share of wallet among empty nesters aged 45 to 54 and single women aged 25 to 34.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 24.92 5.17 3.23 3.23 NA Nil 2009 60.89 32.50 19 10

2009 21.41 4.65 2.88 2.89 Nil Nil 2008 56.00 24.28 19 8

2008 21.77 4.80 3.39 3.39 Nil Nil 2007 79.55 44.16 23 13

2007 18.32 4.47 3.31 3.31 Nil Nil 2006 75.54 42.78 23 13

2006 16.62 3.42 2.43 2.43 Nil Nil 2005 58.90 43.63 24 18

2005 13.78 2.95 2.12 2.04 Nil Nil 2004 54.10 39.59 26 19

2004 11.60 2.43 1.72 1.62 Nil Nil 2003 65.44 42.40 38 25

2003 9.85 2.41 1.87 1.78 Nil Nil 2002 78.83 44.00 42 24

2002 7.78 1.93 1.35 1.38 Nil Nil 2001 72.24 41.95 54 31

2001 6.21 1.48 1.10 1.04 Nil Nil 2000 66.50 33.50 60 30

17,178 2,302 590 134 1,588 37.6% 991 991

16,389 2,077 541 140 1,425 37.9% 885 885

16,474 2,257 452 98.7 1,742 37.8% 1,084 1,084

15,544 2,202 388 74.4 1,774 37.5% 1,109 1,109

13,402 1,755 339 72.1 1,346 37.4% 842 842

11,701 1,525 288 64.1 1,174 37.8% 730 703

10,282 1,260 237 75.2 950 37.8% 591 557

9,120 1,282 191 59.4 1,034 37.8% 643 608

7,489 1,002 152 57.4 800 38.0% 496 471

6,152 779 128 Nil 605 38.5% 372 349

Balance Sheet & Other Financial Data (Million $) Cash 2,267 Current Assets 5,485 Total Assets 13,160 Current Liabilities 2,390 Long Term Debt 2,052 Common Equity 7,853 Total Capital 9,905 Capital Expenditures 666 Cash Flow 1,581 Current Ratio 2.3 % Long Term Debt of Capitalization 20.7 % Net Income of Revenue 5.8 % Return on Assets 8.1 % Return on Equity 13.6

676 3,700 11,334 1,815 2,053 6,739 9,112 1,014 1,426 2.0 22.5 5.4 8.1 13.8

664 3,724 10,560 1,771 2,052 6,102 8,416 1,542 1,536 2.1 24.4 6.6 11.1 18.5

620 3,401 9,041 1,919 1,040 5,603 6,887 1,142 1,496 1.8 15.7 7.1 12.2 19.2

127 4,266 9,153 1,746 1,046 5,957 7,221 799 1,181 2.4 14.5 6.3 9.8 15.3

117 3,643 7,979 1,456 1,103 4,967 6,367 890 1,019 2.5 17.3 6.2 10.0 16.0

113 3,025 6,698 1,122 1,076 4,191 5,504 832 828 2.7 19.5 5.7 9.1 15.3

90.1 3,284 6,316 1,508 1,059 3,512 4,743 716 835 2.2 22.3 7.1 11.4 20.4

107 2,464 4,930 880 1,095 2,791 4,001 662 648 2.8 27.4 6.6 11.3 19.9

124 1,922 3,855 723 803 2,203 3,090 481 500 2.7 26.0 6.0 10.9 19.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: N56W17000 Ridgewood Dr, Menomonee Falls, WI 53051-5660. Telephone: 262-703-7000. Website: http://www.kohls.com Chrmn, Pres & CEO: K. Mansell

Investor Contact: W.S. McDonald (262-703-1893) EVP, CFO & Chief Acctg Officer: W.S. McDonald EVP, Secy & General Counsel: R.D. Schepp

Board Members: P. Boneparth, S. A. Burd, J. F. Herma, D. E. Jones, W. S. Kellogg, K. Mansell, F. V. Sica, P. M. Sommerhauser, S. A. Streeter, N. G. Vaca, S. E. Watson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1986 Domicile: Wisconsin Employees: 133,000

Stock Report | October 23, 2010 | NYS Symbol: KFT | KFT is in the S&P 500

Kraft Foods Inc. S&P Recommendation HOLD

★★★★★

Price $31.90 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $32.00

Investment Style Large-Cap Blend

Summary Kraft Foods is one of the world's largest branded food and beverage companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.18– 26.31 Trailing 12-Month EPS $2.74 Trailing 12-Month P/E 11.6 $10K Invested 5 Yrs Ago $13,547

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.02 2.30 15.8 1,744.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

24

MEDIUM

HIGH

Quantitative Evaluations

Vol. 331

Mil.

S&P Quality Ranking

90 60 30 0

D 5

4

3

2

2008

2009

Analysis prepared by Tom Graves, CFA on October 04, 2010, when the stock traded at $ 31.15.

In the first half of 2010, KFT acquired ownership of British confectionery company Cadbury plc in a transaction valued at $18.5 billion. This included paying about $11 billion in cash (based on a February 2010 currency exchange rate) and issuing about 262 million KFT common shares, which increased the number of KFT shares outstanding by about 18%. KFT acquired control of Cadbury in February 2010, and owned all of Cadbury's shares as of early June. From February 2 through June 30, 2010, Cadbury provided net revenues of $3.9 billion to KFT. In September 2010, KFT estimated that the Cadbury acquisition would provide $1 billion of revenue synergies plus $750 million of cost synergies by 2013. We anticipate that total costs of the integration program will be about $1.5 billion, with roughly half in 2010. We look for KFT to have revenue of about $49 billion in 2010, including Cadbury for about 10 months. Before special items, but including some expected dilution from the Cadbury acquisition, we estimate 2010 EPS from continuing operations of $2.02. For 2011, we estimate EPS of $2.30.

Investment Rationale/Risk ➤

➤

➤

AB

B+

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

56

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

Relative Strength Rank

3

1

➤

LOW

Our risk assessment reflects the risks that we see KFT facing from competitive conditions, and other factors such as commodity costs and currency exchange rates. This is offset by the relatively stable nature of the company's end markets, by our expectation of relatively good company cash flow, and by KFT's leading market share positions.

28

➤

0.57 9 BBB

Below Avg.

32

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

36

5

$55.635 3.64 $1.16 74

We see the acquisition of Cadbury offering strategic value for KFT, including the opportunity to boost its presence in developing international markets and to accelerate overall growth prospects somewhat. Various integration and acquisition-related costs are excluded from our EPS estimates. In 2009, under IFRS accounting, Cadbury had net revenues of 5.975 billion pounds (about $9.3 billion at a recent exchange rate), most of which we believe was from outside of North America. KFT's divested North American pizza business ($1.6 billion of 2009 net revenues) is being treated as a discontinued operation. Risks to our recommendation and target price include a worse than anticipated outcome to KFT's acquisition of Cadbury, more unfavorable than expected commodity costs and currency exchange rates, and market share declines. Our 12-month target price of $32 reflects our view that the stock should trade at a P/E multiple similar to what we expect from a group of other packaged food companies. KFT shares recently had an indicated dividend yield of 3.7%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 11,318 12,253 2009 9,396 10,162 2008 10,372 11,176 2007 8,586 9,205 2006 8,123 8,619 2005 8,059 8,334

3Q -9,803 10,462 9,054 8,243 8,057

4Q -11,025 10,767 10,396 9,371 9,663

Year -40,386 42,201 37,241 34,356 34,113

Earnings Per Share ($) 2010 0.15 0.53 2009 0.45 0.56 2008 0.42 0.48 2007 0.43 0.44 2006 0.61 0.41 2005 0.41 0.45

E0.45 0.55 0.36 0.38 0.45 0.40

E0.48 0.48 0.06 0.38 0.38 0.46

E2.02 2.03 1.23 1.63 1.85 1.72

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.290 0.290 0.290 0.290

12/17 03/17 05/18 08/17

12/28 03/29 06/28 09/28

12/30 03/31 06/30 09/30

01/13/10 04/14/10 07/14/10 10/14/10

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: KFT

Kraft Foods Inc. Business Summary October 04, 2010 CORPORATE OVERVIEW. Kraft Foods is one of the world's largest branded food and beverage companies. In 2009, North American business segments accounted for $23.7 billion, or approximately 59%, of total company net revenues from continuing operations. Kraft International had net revenues of $16.7 billion (41%). Business segments include U.S. Beverages (7.6% of 2009 net revenues), U.S. Cheese (8.9%), U.S. Convenient Meals (11%), U.S. Grocery (8.6%), U.S. Snacks (12%), Canada and North America Foodservice (10%), Kraft Foods Europe (22%), and Kraft Foods Developing Markets (20%). Also, Wal-Mart Stores, Inc., and affiliates accounted for about 16% of KFT's net revenues in 2009. At year-end 2009, Kraft had nine brands with annual revenue of at least about $1 billion each. These include Kraft cheeses, dinners and dressings; Oscar Mayer meats; Philadelphia cream cheese; Maxwell House coffee; Jacobs coffee; Nabisco cookies and crackers and its Oreo brand; Milka chocolates; and LU biscuits. IMPACT OF MAJOR DEVELOPMENTS. In the first quarter of 2010, KFT acquired control of British confectionery company Cadbury plc for cash and stock that we value at roughly $18.5 billion. In the transaction, KFT paid about $11 billion (based on a February 2010 currency exchange rate) and issued about 262 common shares, increasing the number of shares outstanding by

about 18%. From February 2 through June 30, 2010, Cadbury provided net revenues of $3.9 billion to KFT. Also, KFT has announced agreements to divest Cadbury-related businesses in Poland and Romania. In September 2010, KFT estimated that the Cadbury acquisition would provide $1 billion of revenue synergies plus $750 million of cost synergies by 2013. We anticipate that total costs of the integration program will be about $1.5 billion, with roughly half in 2010. In March 2010, KFT sold assets of its North American Frozen Pizza business to Nestle USA, Inc., for total consideration of about $3.7 billion. At year-end 2009, the Frozen Pizza business did not meet criteria to be considered held-for-sale. Beginning with the first quarter of 2010, the results of the Frozen Pizza business were presented as a discontinued operation by KFT. In 2009, this business had net revenues of $1.6 billion. Other divestitures by KFT have included its Post cereal business in 2008; hot cereal assets and trademarks, which were sold in the first quarter of 2007; and its pet snacks brand and assets, which were sold in the third quarter of 2006.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.66 2.03 2.08 1.16 57% 29.84 20.81 15 10

2008 NM 1.88 1.23 1.04 1.12 91% 34.97 24.75 28 20

2007 NM 2.18 1.63 1.65 1.04 64% 37.20 29.95 23 18

2006 NM 2.39 1.85 1.80 0.96 52% 36.67 27.44 20 15

2005 NM 2.27 1.72 1.74 0.87 51% 35.65 27.88 21 16

2004 NM 2.07 1.55 1.53 0.77 50% 36.06 29.45 23 19

2003 NM 2.48 2.01 1.93 0.66 33% 39.40 26.35 20 13

2002 NM 2.37 1.96 1.65 0.56 29% 43.95 32.50 22 17

2001 NM 2.19 1.17 0.81 0.26 22% 35.57 29.50 30 25

2000 NM 2.02 1.03 NA NA NA NA NA NA NA

40,386 6,503 931 1,260 4,287 29.4% 3,021 3,103

42,201 6,116 986 1,272 2,577 28.3% 1,849 1,580

37,241 5,794 886 701 3,730 30.5% 2,590 2,640

34,356 6,065 898 510 4,016 23.7% 3,060 2,963

34,113 6,002 879 636 4,116 29.4% 2,904 2,930

32,168 6,108 879 666 3,946 32.3% 2,669 2,632

31,010 6,786 813 678 5,346 34.9% 3,476 3,337

29,723 6,892 716 854 5,267 35.5% 3,394 2,861

33,875 6,526 1,642 1,437 3,447 45.4% 1,882 1,308

34,679 6,284 1,722 NA 3,214 44.4% 1,787 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,254 Current Assets 12,454 Total Assets 66,714 Current Liabilities 11,491 Long Term Debt 18,024 Common Equity 25,876 Total Capital 44,509 Capital Expenditures 1,330 Cash Flow 3,952 Current Ratio 1.1 % Long Term Debt of Capitalization 40.5 % Net Income of Revenue 7.5 % Return on Assets 4.7 % Return on Equity 12.6

1,244 11,366 63,078 11,044 18,589 22,200 41,554 1,367 2,835 1.0 44.7 4.4 2.8 7.5

567 10,737 67,993 17,086 12,902 27,295 45,073 1,241 3,476 0.6 28.6 7.0 4.2 9.3

239 8,254 55,574 10,473 7,081 28,555 39,566 1,169 3,958 0.8 17.9 8.9 5.4 10.5

316 8,153 57,628 8,724 8,475 29,593 44,135 1,171 3,783 0.9 19.2 8.5 4.9 9.8

282 9,722 59,928 9,078 9,723 29,911 45,484 1,006 3,548 1.1 21.4 8.3 4.5 9.1

514 8,124 59,285 7,861 11,591 28,530 45,977 1,085 4,289 1.0 25.2 11.2 6.0 12.8

215 7,456 57,100 7,169 10,416 25,832 41,676 1,184 4,110 1.0 25.0 11.4 6.0 13.8

162 7,006 55,798 8,875 13,134 23,478 41,643 1,101 3,524 0.8 31.5 5.6 3.5 10.0

191 7,152 52,071 7,590 15,677 22,755 38,432 1,151 3,509 0.9 40.8 5.2 4.9 14.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Three Lakes Drive, Northfield, IL 60093. Telephone: 847-646-2000. Website: http://www.kraft.com Chrmn & CEO: I. Rosenfeld

COO: D. Brearton EVP & CFO: T.R. McLevish EVP & General Counsel: M.S. Firestone SVP & Treas: B. Brasier

Board Members: A. Banga, M. M. Hart, L. D. Juliber, M. Founded: 2000 D. Ketchum, R. A. Lerner, M. J. Mcdonald, J. C. Pope, F. Domicile: Virginia G. Reynolds, I. Rosenfeld, D. C. Wright, F. G. Zarb, J. M. Employees: 97,000 van Boxmeer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: KR | KR is in the S&P 500

Kroger Co. (The) S&P Recommendation HOLD

★★★★★

Price $21.80 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Food Retail

12-Mo. Target Price $23.00

Investment Style Large-Cap Blend

Summary This supermarket operator, with about 2,500 stores in 31 states, also operates convenience stores, jewelry stores, supermarket fuel centers, and food processing plants.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.12– 19.08 Trailing 12-Month EPS $0.02 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $11,716

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.80 2.05 12.1 637.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.37 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's diversification through multiple format offerings, strong market share positions, and potential opportunities from industry consolidation.

32 28 24

Quantitative Evaluations

20

S&P Quality Ranking

Vol. Mil.

140

D

45 30 15 0 5

$13.903 1.93 $0.42 81

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE

45 4

3

3

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Joseph Agnese on September 16, 2010, when the stock traded at $ 21.62. Highlights ➤

➤

➤

Investment Rationale/Risk

We see sales of $82.2 billion in FY 11 (Jan.), up 7.1% from $76.7 billion in FY 10, reflecting 2.0% square footage growth, 3.0% identical-store sales gains (excluding fuel) and increased gas sales. We see the company achieving significant market share gains with a competitive pricing strategy. However, we expect sales growth to be hindered by deflationary food pressures throughout much of the year.

➤

We believe EBITDA margins will narrow as the company's pursuit of a price reduction strategy and the lack of product cost inflation offset benefits from increased sales leverage (excluding fuel), a more stable promotional spending budget, and cost-saving opportunities that we forecast in areas such as administration, labor, shrinkage and transportation. In addition, we believe merchandising, such as increased private label sales, will help the company compete against lower-priced mass merchants.

➤

After benefits from fewer shares outstanding due to an active repurchase program, we expect FY 11 EPS to increase 5.9%, to $1.80, from operating EPS of $1.70 in FY 10 (excluding $1.09 of goodwill and asset impairment charges).

➤

Revenue/Earnings Data

2010

We believe the company is well positioned to benefit from market share gained in a weak economic environment as consumers begin to trade back up to higher-priced and wider-margin goods. We think the company will continue to gain market share due to its position as a low-priced food retailer and its strategy of boosting sales through targeted marketing, price reductions and improved service levels. Risks to our recommendation and target price include potential weakness in the economy that would cause consumers to become more price conscious, and increased price competition. Our 12-month target price of $23 is based on our P/E analysis and is supported by our EV/ EBITDA valuation. Reflecting benefits we see as consumers trade up and negative impacts we see from food deflation and intensifying pricing competition, we think the shares should trade at about 11.1X our FY 12 EPS estimate of $2.05, in line with its 23% average discount to the P/E multiple of the S&P 500, leading to a projected value of $23. Our target price is supported by applying a 5.3X multiple, slightly ahead of KR's closest peers' average of 5.2X, to our FY 12 EBITDA estimate of $4.2 billion.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 24,764 18,796 2010 22,789 17,728 2009 23,107 18,053 2008 20,726 16,139 2007 19,415 15,138 2006 17,948 13,865

3Q -17,662 17,580 16,135 14,999 14,021

4Q -18,554 17,260 17,235 16,859 14,720

Year -76,733 76,000 70,235 66,111 60,553

Earnings Per Share ($) 2011 0.58 0.41 2010 0.66 0.39 2009 0.58 0.42 2008 0.47 0.42 2007 0.42 0.29 2006 0.40 0.27

E0.32 -1.35 0.36 0.37 0.30 0.25

E0.49 0.39 0.53 0.48 0.54 0.39

E1.80 0.11 1.90 1.69 1.54 1.31

Fiscal year ended Jan. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.095 0.095 0.095 0.105

01/22 03/11 06/24 09/16

02/10 05/12 08/12 11/10

02/12 05/14 08/16 11/15

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: KR

Kroger Co. (The) Business Summary September 16, 2010 CORPORATE OVERVIEW. Kroger is one of the largest U.S. supermarket chains, with 2,470 supermarkets as of September 2010. The company's principal operating format is combination food and drug stores (combo stores). In addition to combo stores, KR also operates multi-department stores, marketplace stores, price-impact warehouses, convenience stores, fuel centers, jewelry stores, and food processing plants. Total food store square footage was approximately 147 million as of January 31, 2009. Retail food stores are operated under three formats: combo stores, multidepartment stores, and price-impact warehouse stores. Combo stores are considered neighborhood stores, and include many specialty departments, such as whole health sections, pharmacies, general merchandise, pet centers, and perishables, such as fresh seafood and organic produce. Combo banners include Kroger, Ralphs, King Soopers, City Market, Dillons, Smith's, Fry's, QFC, Hilander, Owen's, Jay C, Baker's, Pay Less and Gerbes.

Multi-department stores offer one-stop shopping, are significantly larger in size than combo stores, and sell a wider selection of general merchandise items, including apparel, home fashion and furnishings, electronics, automotive, toys, and fine jewelry. Multi-department formats include Fred Meyer, Fry's Marketplace, Smith's Marketplace and Kroger Marketplace. Many combination and multi-department stores include a fuel center. Price-impact warehouse stores offer everyday low prices, plus promotions for a wide selection of grocery and health and beauty care items. Price-impact warehouse stores include Food 4 Less and Foods Co.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 5.72 2.45 0.11 1.67 0.37 NM 2009 26.94 19.39 NM NM

2009 4.48 4.08 1.90 1.74 0.35 18% 2008 30.99 22.30 16 12

2008 7.07 3.64 1.69 1.70 0.20 12% 2007 31.94 22.94 19 14

2007 5.61 3.30 1.54 1.59 Nil Nil 2006 24.48 18.05 16 12

2006 3.04 3.04 1.31 1.27 Nil Nil 2005 20.88 15.15 16 12

2005 1.85 1.57 -0.14 0.99 Nil Nil 2004 19.67 14.65 NM NM

2004 1.18 2.02 0.42 0.98 Nil Nil 2003 19.70 12.05 47 29

2003 0.36 2.93 1.56 1.40 Nil Nil 2002 23.81 11.00 15 7

2002 NM 2.44 1.26 1.12 Nil Nil 2001 27.66 19.60 22 16

2001 NM 2.11 1.04 0.96 Nil Nil 2000 27.94 14.06 27 14

76,733 3,777 1,525 502 589 90.4% 70.0 1,093

76,000 3,918 1,442 485 1,966 36.5% 1,249 1,140

70,235 3,657 1,356 474 1,827 35.4% 1,181 1,193

66,111 3,508 1,272 488 1,748 36.2% 1,115 1,155

60,553 3,300 1,265 510 1,525 37.2% 958 928

56,434 3,003 1,256 557 290 NM -100 720

53,791 3,147 1,209 604 770 59.1% 315 745

51,760 3,676 1,087 600 1,973 37.5% 1,233 1,105

50,098 3,567 973 648 1,711 39.0% 1,043 914

49,000 3,397 907 675 1,508 41.6% 880 816

Balance Sheet & Other Financial Data (Million $) Cash 424 Current Assets 7,450 Total Assets 23,093 Current Liabilities 7,714 Long Term Debt 7,477 Common Equity 4,906 Total Capital 12,963 Capital Expenditures 2,297 Cash Flow 1,595 Current Ratio 1.0 % Long Term Debt of Capitalization 57.7 % Net Income of Revenue 0.1 % Return on Assets 0.3 % Return on Equity 1.4

263 7,206 23,211 7,629 7,505 5,176 12,913 2,149 2,691 1.0 58.1 1.6 5.5 24.8

918 7,114 22,299 8,689 6,529 4,914 11,810 2,126 2,537 0.8 55.3 1.7 5.4 24.0

803 6,755 21,215 7,581 6,154 4,923 11,799 1,683 2,387 0.9 55.6 1.7 5.4 24.0

210 6,466 20,482 6,715 6,678 4,390 11,911 1,306 2,223 1.0 56.1 1.6 4.7 23.9

144 6,406 20,491 6,316 7,900 3,540 12,379 1,634 1,156 1.0 63.8 NM NM NM

159 5,619 20,184 5,586 8,116 4,011 13,117 2,000 1,524 1.0 61.9 0.6 1.6 8.0

171 5,566 20,102 5,608 8,222 3,850 12,072 1,891 2,320 1.0 68.1 2.4 6.3 33.5

161 5,512 19,087 5,485 8,412 3,502 11,914 2,139 2,016 1.0 70.6 2.1 5.6 31.6

161 5,416 18,190 5,591 8,210 3,089 11,299 1,623 1,787 1.0 72.7 1.8 4.9 30.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1014 Vine Street, Cincinnati, OH 45202-1100. Telephone: 513-762-4000. Email: [email protected] Website: http://www.kroger.com

Chrmn & CEO: D.B. Dillon Pres & COO: W.R. McMullen EVP, Secy & General Counsel: P.W. Heldman SVP & CFO: J.M. Schlotman

SVP & CIO: C. Hjelm Founded: 1883 Investor Contact: C. Fike (513-762-4969) Domicile: Ohio Board Members: R. V. Anderson, R. D. Beyer, D. B. Employees: 334,000 Dillon, S. J. Kropf, J. T. Lamacchia, D. B. Lewis, W. R. McMullen, J. P. Montoya, C. R. Moore, S. M. Phillips, S. Rogel, J. A. Runde, R. Sargent, B. S. Shackouls

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LH | LH is in the S&P 500

Laboratory Corporation of America Holdings S&P Recommendation BUY

★★★★★

Price $79.16 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Services

12-Mo. Target Price $94.00

Investment Style Large-Cap Growth

Summary This clinical laboratory organization offers a broad range of clinical tests through a national network of laboratories.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $83.00– 68.48 Trailing 12-Month EPS $5.22 Trailing 12-Month P/E 15.2 $10K Invested 5 Yrs Ago $16,050

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.54 6.15 14.3 102.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.138 Nil Nil 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.48 13 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects LH's leadership position in a large, mature industry, its broad geographic service area with clients in all 50 states, and our view of its diverse and balanced payer mix.

90 80 70 60

Quantitative Evaluations S&P Quality Ranking

Vol. Mil. 9 6 3 0

D

C

B-

B+ B

B+

A-

Relative Strength Rank

A

A+

MODERATE

50

5

4

5

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Jeffrey Loo, CFA on July 27, 2010, when the stock traded at $ 74.02. Highlights ➤

➤

➤

We expect 2010 sales to rise 4%, to $4.89 billion, on solid growth in esoteric testing, partially offset by the adverse impact of the termination in late 2009 of two large government contracts. However, we now expect drugs-of-abuse testing volume to rebound from a soft 2009, but note it is a low-margin business. We also believe the expansion of the Empire Blue Cross Blue Shield contract in New York will aid sales growth in the second half of 2010. We expect 2010 gross margins to improve 60 basis points (bps) and operating margins to expand 90 bps on leverage and tight cost controls and improved bad debt expense. Pursuant to LH's deal with UnitedHealthcare (UNH 38, Buy), transition payments ended in 2009. LH recently received its final invoice; the final amount was approximately $120 million. LH continues to buy back shares, with 2.9 million repurchased year-to-date, following 3.9 million shares repurchased in 2009. Since 2006, LH has repurchased over $2 billion worth of stock. As of June 2010, LH had $100 million remaining on its repurchase program. We forecast EPS of $5.44 in 2010.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

Despite a challenging economic environment, higher unemployment levels and slower volume growth, we believe LH's core lab testing business is fundamentally sound. Although we see softness in physician office visits continuing throughout 2010, we believe LH will be able to continue to increase its esoteric testing business and will be able to supplement internal growth with acquisitions. We think the shares, recently trading at 13.7X and 12.0X our 2010 and 2011 EPS forecasts, respectively, well below historical levels, are undervalued. We also think LH will be able to maintain industry-leading margins by cutting costs and through leverage.

➤

Risks to our recommendation and target price include greater-than-expected pricing pressure, increased competition from potential physician in-sourcing for certain tests, and a significant slowdown in doctor visits.

➤

Our 12-month target price of $94 is based on a P/E-to-growth (PEG) ratio of about 1.3X, in line with peers, applied to our 2010 EPS estimate and utilizing a three-year EPS growth rate of 13%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,194 1,238 2009 1,156 1,189 2008 1,103 1,148 2007 998.7 1,043 2006 878.6 903.7 2005 799.1 853.3

3Q -1,185 1,135 1,021 909.9 852.9

4Q -1,165 1,119 1,006 898.6 822.3

Year -4,695 4,505 4,068 3,591 3,328

Earnings Per Share ($) 2010 1.25 1.46 2009 1.22 1.24 2008 1.14 0.92 2007 0.98 1.05 2006 0.76 0.87 2005 0.67 0.74

E1.39 1.21 1.00 0.92 0.81 0.66

E1.37 1.33 1.08 0.98 0.81 0.64

E5.54 4.98 4.16 3.93 3.24 2.71

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: LH

Laboratory Corporation of America Holdings Business Summary July 27, 2010 CORPORATE OVERVIEW. Laboratory Corporation of America Holdings is the second largest independent U.S. clinical laboratory. Clinical laboratory tests are used by medical professionals in routine testing, patient diagnosis, and in the monitoring and treatment of disease. As of December 2009, LH had 38 primary testing facilities and more than 1,500 service sites consisting of branches, patient service centers, and STAT laboratories that have the ability to perform certain routine tests quickly and report results to the physician immediately. The company's laboratory services involve the testing of both bodily fluids and human tissues. LH offers more than 4,400 different tests, consisting of routine tests and specialty and niche testing (esoteric). The most frequently administered routine tests include blood chemistry analyses, urinalysis, blood cell counts, pap tests, HIV tests, microbiology cultures and procedures, and alcohol and other substance abuse tests. The company's esoteric tests include testing for infectious diseases, allergies, diagnostic genetics, identity, and oncology. An average of 440,000 specimens were being processed daily as of December 2009, with routine testing results generally available within 24 hours.

client accounted for over 4% of net sales. Most testing services are billed to a party other than the physician or other authorized person who ordered the test. Payers other than the direct patient include insurance companies, managed care organizations, Medicare and Medicaid. Client-billed accounted for 27% of revenue in 2009 (28% in 2008), and generated an average of $34.69 ($33.65 in 2008) in revenue per requisition; patients-billed 8% (9% in 2008) and $161.76 ($165.00 in 2008); managed care clients 45% (44% in 2008) and $37.23 ($35.80 in 2008); and Medicare, Medicaid and Insurance 20% (19% in 2008) and $45.63 ($42.40 in 2008). In August 2009, LH acquired Monogram Biosciences, a provider of molecular diagnostic tests. In February 2008, LH acquired NWT, Inc., a provider of drug of abuse testing. In July 2007, LH acquired DSI Labs, expanding its operations in southwest Florida. In May 2005, the company acquired Esoterix, Inc., a provider of specialty reference testing. In February 2005, LH bought US Labs, located in Irvine, CA. In March 2004, LH purchased laboratory operations in Poughkeepsie, NY, and Atlanta, GA, from MDS Diagnostic Services.

The company provides testing services to a broad range of health care providers, including independent physicians, hospitals, HMOs and other managed care groups, and governmental and other institutions. During 2009, no Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 6.45 4.98 5.00 Nil Nil 76.74 53.25 15 11

2008 NM 5.75 4.16 4.04 Nil Nil 80.77 52.93 19 13

2007 NM 5.26 3.93 3.89 Nil Nil 82.32 65.13 21 17

2006 NM 4.80 3.24 3.21 Nil Nil 74.30 52.58 23 16

2005 NM 4.24 2.71 2.53 Nil Nil 55.00 44.63 20 16

2004 1.04 3.33 2.45 2.25 Nil Nil 50.03 36.70 20 15

2003 0.27 3.18 2.22 2.04 Nil Nil 37.72 22.21 17 10

2002 2.67 2.47 1.77 1.56 Nil Nil 52.38 18.51 30 10

2001 0.83 2.03 1.29 1.15 Nil Nil 45.68 24.88 35 19

2000 0.09 1.74 0.81 NA Nil Nil 45.75 7.81 57 10

4,695 1,118 62.6 62.9 885 37.2% 543 546

4,505 1,070 178 72.0 786 39.2% 465 451

4,068 989 161 56.6 802 40.6% 477 472

3,591 853 155 47.8 721 40.1% 432 428

3,328 785 150 34.4 641 39.7% 386 368

3,085 736 139 36.1 615 41.0% 363 339

2,939 671 136 40.9 540 40.6% 321 295

2,508 554 102 19.2 432 41.1% 255 226

2,200 472 104 27.0 332 45.0% 183 162

1,919 340 89.6 38.5 208 46.0% 112 NA

Balance Sheet & Other Financial Data (Million $) Cash 149 Current Assets 936 Total Assets 4,860 Current Liabilities 1,018 Long Term Debt 1,394 Common Equity 2,106 Total Capital 3,642 Capital Expenditures 115 Cash Flow 704 Current Ratio 0.9 % Long Term Debt of Capitalization 38.3 % Net Income of Revenue 11.6 % Return on Assets 11.4 % Return on Equity 28.6

220 1,033 4,670 547 1,601 1,688 3,460 157 642 1.9 46.2 10.3 10.3 27.2

166 938 4,368 968 1,078 1,725 3,310 143 638 1.0 32.6 11.7 11.4 25.8

51.5 887 4,001 931 603 1,977 2,989 116 587 1.0 20.2 12.0 11.0 22.3

45.4 702 3,876 888 604 1,886 2,899 93.6 536 0.8 20.9 11.6 10.3 19.9

187 740 3,601 301 892 1,999 3,213 95.0 502 2.5 27.8 11.8 10.3 18.6

123 658 3,415 758 361 1,896 2,530 83.6 457 0.9 14.3 10.9 10.7 18.3

56.4 597 2,612 229 522 1,612 2,133 74.3 356 2.6 24.4 10.2 11.2 18.9

149 624 1,930 201 509 1,085 1,594 88.1 287 3.1 31.9 8.3 10.2 18.6

48.8 512 1,667 312 354 877 1,231 55.5 167 1.6 28.7 5.8 6.9 14.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 358 South Main Street, Burlington, NC 27215. Telephone: 336-229-1127. Website: http://www.labcorp.com Chrmn, Pres & CEO: D.P. King

COO & EVP: J.T. Boyle, Jr. EVP, CFO, Chief Acctg Officer & Treas: W.B. Hayes EVP & CSO: A. Conrad SVP, Secy & General Counsel: F.S. Eberts, III

Investor Contact: S. Fleming (336-436-4879) Board Members: K. B. Anderson, J. Belingard, D. P. King, W. E. Lane, T. P. MacMahon, R. E. Mittelstaedt, Jr., A. H. Rubenstein, M. K. Weikel, R. S. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1971 Domicile: Delaware Employees: 28,000

Stock Report | October 23, 2010 | NYS Symbol: EL | EL is in the S&P 500

Estee Lauder Companies Inc. (The) S&P Recommendation HOLD

★★★★★

Price $66.26 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Personal Products

12-Mo. Target Price $63.00

Investment Style Large-Cap Growth

Summary This company is one of the world's leading manufacturers and marketers of skin care, makeup and fragrance products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $71.29– 39.98 Trailing 12-Month EPS $2.38 Trailing 12-Month P/E 27.8 $10K Invested 5 Yrs Ago $20,997

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.03 NA 21.9 196.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.23 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of EL's market share advantage, leading brands, scale leverage, and strong balance sheet. This is partly offset by its exposure to short-term factors such as changes in the retail industry, geopolitical events, and consumer spending.

60

40 30

20

Quantitative Evaluations

Vol.

S&P Quality Ranking

26

Mil. 12 8 4 0 5

$7.935 0.83 $0.55 92

D 5

4

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

A+ STRONG

71

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Esther Y. Kwon, CFA on August 16, 2010, when the stock traded at $ 57.03. Highlights ➤

➤

➤

In February 2009, EL outlined a four-year strategy that builds on its strengths as a brand builder and innovator and more sharply focuses on its execution capabilities and lowering its cost bases. Elements of the plan include expanding market share; increasing non-U.S. sales; improving operating margins; cutting costs; and writing off restructuring and other one-time costs. EL shut down the global wholesale distribution of its Prescriptives Brand in January 2010. We look for sales to rise about 5% in FY 11 (Jun.), reflecting improvement in underlying sales and a 2% to 3% negative impact from foreign exchange. We expect international markets and the hair care and skin categories to lead growth. We also expect to a continued recovery in the segmental operating margin, despite our relatively modest sales growth forecast and increase in marketing and advertising expense. We look for most of the margin improvement to come from the restructuring and right-sizing efforts and sales mix shift (e.g., toward skin care).

Investment Rationale/Risk ➤

➤

➤

Our hold recommendation reflects our view that EL's long-term growth prospects are appropriately reflected in the stock price. We are encouraged by some signs of consumer spending recovery seen since late 2009, but are concerned about how sustainable and widespread it might be. Also, EL has historically exhibited much more quarterly earnings volatility than many of the companies in our universe. Risks to our recommendation and target price include a prolonged decline in the economies in EL's major country markets, slow consumer acceptance of new products, and unfavorable foreign exchange translation. We also have concerns about corporate governance practices given the majority voting power of insiders. Our 12-month target price of $63 blends our historical and peer analyses. Our historical analysis suggests a $74 value, using a P/E at a small premium to the 10-year average applied to our calendar 2011 EPS estimate of $3.13. Our peer analysis applies a P/E of 16.4X, a premium to the peer average, valuing the stock at $51.

Our FY 11 EPS estimate is $3.03, versus FY 10's $2.76, excluding restructuring charges.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,833 2,262 2009 1,904 2,041 2008 1,710 2,309 2007 1,594 1,991 2006 1,497 1,784 2005 1,504 1,750

3Q 1,860 1,697 1,880 1,691 1,578 1,538

4Q 1,840 1,683 2,012 1,762 1,605 1,544

Year 7,796 7,324 7,911 7,038 6,464 6,336

Earnings Per Share ($) 2010 0.71 1.28 2009 0.26 0.80 2008 0.20 1.14 2007 0.27 0.99 2006 0.28 0.70 2005 0.41 0.60

0.28 0.14 0.46 0.45 0.28 0.46

0.12 -0.09 0.61 0.45 0.23 0.30

2.38 1.10 2.40 2.16 1.49 1.78

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.550

11/13

11/25

11/30

12/16/09

Dividends have been paid since 1996. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: EL

Estee Lauder Companies Inc. (The) Business Summary August 16, 2010 CORPORATE OVERVIEW. The Estee Lauder Companies was founded in 1946 by Estee and Joseph Lauder. EL has grown into one of the world's largest manufacturers and marketers of skin care, makeup and fragrance products, sold in more than 140 countries and territories worldwide. EL has historically been a dominant player in the high-end fragrance and cosmetic categories, with brand names such as Estee Lauder, Clinique, Aramis, Prescriptives, Origins, M.A.C, Bobbi Brown, La Mer, Aveda, Stila, Jo Malone, and Bumble and Bumble. EL is also the global licensee for fragrances and cosmetics sold under the Tommy Hilfiger, Donna Karan, Michael Kors and Sean Jean brands. Each brand is distinctly positioned within the cosmetics market, according to the company. EL reports sales and operating income by three regions. The Americas accounted for 47% of sales and 23% of profits in FY 09 (Jun.), Europe, the Middle East and Africa 35% of sales and 45% of profits, and Asia/Pacific 18% and 32%, respectively.

The fragrance division (16%) offers a variety of fragrance products, including eau de parfum sprays and colognes, as well as lotions, powders, creams and soaps that are based on a particular fragrance. The products of the hair care division (5%) are offered mainly in salons and in freestanding retail stores and include styling products, shampoos, conditioners and finishing sprays. Other is less than 1%. As is customary in the cosmetics industry, EL accepts returns of its products from retailers under certain conditions. In recognition of this practice and in according with generally accepted accounting principals, EL reports sales on a net basis, which is computed by deducting the amount of actual returns received and an amount established for anticipated returns from gross sales. As a percentage of gross sales, returns were 4.4% in FY 09 and in FY 08, 4.2% in FY 07 and 5.0% in FY 06. In FY 09, Macy's, Inc. accounted for 11% of EL's accounts receivable and 12% of consolidated net sales.

The skin care division (39% of FY 09 net sales) addresses various skin care needs of women and men. Products include moisturizers, creams, lotions, cleansers, sun screens and self-tanning products. The makeup division (39%) manufactures, markets and sells a full array of makeup products, including lipsticks, mascaras, foundations, eye shadows, nail polishes and powders. Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 5.49 3.70 2.38 2.57 0.55 23% 71.29 47.65 30 20

2009 3.71 2.39 1.10 1.01 0.55 50% 50.57 19.81 46 18

2008 3.86 3.66 2.40 2.28 0.55 23% 54.75 24.24 23 10

2007 2.23 3.16 2.16 2.18 0.50 23% 52.31 38.41 24 18

2006 4.29 2.41 1.49 1.52 0.40 27% 43.60 32.79 29 22

2005 6.79 2.64 1.78 1.69 0.40 22% 47.50 29.98 27 17

2004 4.35 2.45 1.62 1.51 0.30 19% 49.34 37.55 30 23

2003 2.92 2.01 1.26 1.17 0.20 16% 40.20 25.73 32 20

2002 3.20 1.46 0.78 0.70 0.20 26% 38.80 25.20 50 32

2001 2.64 1.82 1.17 1.01 0.20 17% 44.35 29.25 38 25

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,796 1,170 264 102 688 NA 478 516

7,324 812 254 75.7 343 33.8% 218 200

7,911 1,059 248 66.8 744 34.9% 474 450

7,038 958 207 38.9 711 35.9% 449 453

6,464 910 198 23.8 596 43.6% 325 332

6,336 917 197 13.9 707 41.2% 406 390

5,790 836 192 27.1 617 37.7% 375 351

5,118 712 175 8.10 474 33.9% 320 274

4,744 614 162 9.80 332 34.5% 213 171

4,608 706 156 12.3 483 36.0% 307 245

Balance Sheet & Other Financial Data (Million $) Cash 1,121 Current Assets 3,121 Total Assets 5,336 Current Liabilities 1,572 Long Term Debt 1,205 Common Equity 1,965 Total Capital 3,170 Capital Expenditures 271 Cash Flow 742 Current Ratio 2.0 % Long Term Debt of Capitalization 38.0 % Net Income of Revenue 6.1 % Return on Assets 9.1 % Return on Equity 26.5

864 2,913 5,177 1,459 1,388 1,640 3,052 280 472 2.0 45.5 3.0 4.3 13.3

402 2,787 5,011 1,699 1,078 1,653 2,758 358 722 1.6 39.1 6.0 10.4 33.2

254 2,239 4,126 1,501 1,028 1,199 2,248 312 656 1.5 45.7 6.4 11.3 31.8

369 2,177 3,784 1,438 432 1,622 2,079 261 523 1.5 20.8 5.0 8.5 19.6

553 2,303 3,886 1,498 451 1,693 2,160 230 603 1.5 20.9 6.4 10.7 23.7

612 2,199 3,708 1,322 462 1,733 2,211 207 567 1.7 20.9 6.5 10.6 23.8

364 1,845 3,350 1,054 284 1,424 2,080 163 471 1.8 13.6 6.2 9.5 20.5

547 1,928 3,417 960 404 1,462 2,226 203 351 2.0 18.1 4.5 6.4 13.4

347 1,739 3,219 857 411 1,352 2,123 192 440 2.0 19.4 6.7 9.8 22.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 767 5th Avenue, New York, NY 10153-0023. Telephone: 212-572-4200. Email: [email protected] Website: http://www.elcompanies.com

Chrmn: W.P. Lauder Pres & CEO: F. Freda EVP, CFO & Chief Acctg Officer: R.W. Kunes EVP & General Counsel: S.E. Moss

SVP & Secy: S.G. Smul Founded: 1946 Investor Contact: D. D'Andrea (212-572-4384) Domicile: Delaware Board Members: C. Barshefsky, R. M. Bravo, F. Employees: 31,200 Freda, P. J. Fribourg, M. Hobson, I. O. Hockaday, Jr., A. Lauder, J. Lauder, L. A. Lauder, W. P. Lauder, R. D. Parsons, B. S. Sternlicht, R. F. Zannino, L. F. de Rothschild

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LEG | LEG is in the S&P 500

Leggett & Platt Inc S&P Recommendation SELL

★★★★★

Price $21.01 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Home Furnishings

12-Mo. Target Price $18.00

Investment Style Large-Cap Blend

Summary This company makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.15– 17.89 Trailing 12-Month EPS $1.20 Trailing 12-Month P/E 17.5 $10K Invested 5 Yrs Ago $13,904

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.22 1.10 17.2 146.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.077 5.14 $1.08 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 15 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of LEG's long history of profitability and strong free cash flow, offset by the steep cyclicality of its addressable markets.

24 20 16 12

Quantitative Evaluations S&P Quality Ranking

Vol.

D

C

B-

B B

B+

A-

A

A+

29

Mil. 12 8 4 0

Relative Strength Rank

WEAK

17 LOWEST = 1

5

3

2

3

2

HIGHEST = 99

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, Ph

Highlights ➤

The STARS recommendation for LEG has recently been changed to 2 (sell) from 3 (hold) and the 12-month target price has recently been changed to $18.00 from $25.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on LEG from MarketScope, see below.

➤

10/22/10 10:36 am ET ... S&P LOWERS OPINION ON SHARES OF LEGGETT & PLATT TO SELL FROM HOLD (LEG 20.96**): LEG posts Q3 EPS of $0.31, vs. $0.34, and below our $0.32 estimate. Sales increased 7% over last year but declined 0.9% sequentially. LEG cautions that key markets were notably weaker in Q3 and the unit pace of growth has notably subsided. We believe demand for residential furnishings has subsided after the expiration of tax purchase incentives, and we don't expect a meaningful improvement until mid-'11. We cut our '10 and '11 EPS estimates to $1.22 and $1.10, from $1.25 and $1.32, respectively. We lower our target price to $18 from $25 on updated peer comparisons. /EKolb

Revenue (Million $) 1Q 2Q 2010 816.4 874.3 2009 718.1 757.4 2008 998.3 1,063 2007 1,064 1,316 2006 1,378 1,403 2005 1,301 1,310

3Q -809.9 1,132 1,325 1,415 1,349

4Q -769.7 882.5 1,054 1,311 1,340

Year -3,055 4,076 4,306 5,505 5,299

Earnings Per Share ($) 2010 0.30 0.34 2009 0.02 0.12 2008 0.23 0.25 2007 0.31 0.30 2006 0.33 0.45 2005 0.37 0.41

E0.31 0.34 0.29 0.36 0.45 0.28

E0.26 0.26 -0.05 -0.71 0.38 0.24

E1.22 0.74 0.73 0.28 1.61 1.30

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.260 0.260 0.260 0.270

11/05 02/25 05/13 08/04

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1939. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LEG

Leggett & Platt Inc Business Summary July 29, 2010 CORPORATE OVERVIEW. Leggett & Platt, founded in 1883, is a diversified manufacturer that conceives, designs and produces a wide range of engineered components and products that can be found in most homes, offices, retail stores and automobiles. LEG's business is organized into five business segments. Residential Furnishings (54% of 2009 sales; 52% in 2008) consists of Bedding, Home Furniture & Consumer Products, and Fabric and Carpet Underlay. The Commercial Fixturing & Components segment (16%; 17%) consists of Fixture & Display and Office Furniture Components. Industrial Materials (15%; 16%) consists of Wire and Tubing, while Specialized Products (15%; 15%) consists of Automotive, Machinery and Commercial Vehicles. PRIMARY BUSINESS DYNAMICS. In the past 20 years, about two-thirds of LEG's sales growth has come from acquisitions. Over the past 10 years, the average acquisition target had revenues of $15 million to $20 million, which the company believes serves to minimize the risk of any single acquisition. In 2009, LEG generated $565 million in cash from operations, down from 2007's $614 million but up from $436 million in 2008. LEG expects to use much of the excess cash to repurchase shares.

In 2007, LEG acquired three businesses in the Commercial Fixturing & Components ($20 million annual sales), Industrial Materials ($50 million) and Specialized Products ($30 million) segments. In Industrial Materials, LEG bought a maker of coated wire products, including racks for dishwashers. In Specialized Products, LEG bought a company that designs and assembles docking stations that secure computer and other electronic equipment in vehicles. In Commercial Fixturing & Components, LEG bought a company located in China that makes office furniture components. In 2006, LEG acquired five businesses representing $75 million in annualized sales, all within the Residential Furnishings segment. The largest acquisition was a maker of rubber carpet underlay, a product type that accounts for 6% of LEG's overall revenue. In addition, the company divested five businesses in 2006 with annualized sales of about $45 million.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.06 1.55 0.74 0.75 1.02 138% 21.44 10.03 29 14

2008 3.72 1.42 0.73 0.60 1.00 137% 24.60 12.03 34 16

2007 5.73 1.16 0.28 0.90 0.78 NM 24.73 17.14 88 61

2006 5.72 2.67 1.61 1.57 0.84 52% 27.04 21.93 17 14

2005 5.55 2.18 1.30 1.27 0.63 48% 29.61 18.19 23 14

2004 6.38 2.35 1.45 1.38 0.58 40% 30.68 21.19 21 15

2003 5.62 1.89 1.05 1.02 0.54 51% 23.69 17.16 23 16

2002 5.36 1.99 1.17 1.11 0.50 43% 27.40 18.60 23 16

2001 4.81 1.92 0.94 0.85 0.48 51% 24.45 16.85 26 18

2000 4.61 2.18 1.32 NA 0.42 32% 22.56 14.19 17 11

3,055 377 130 37.4 198 39.0% 118 118

4,076 371 116 48.4 188 34.6% 123 102

4,306 492 157 58.6 128 60.3% 51.0 161

5,505 666 175 56.2 435 30.9% 300 291

5,299 605 171 46.7 356 29.4% 251 245

5,086 622 177 45.9 423 32.5% 285 272

4,388 520 167 46.9 315 34.7% 206 202

4,272 582 165 42.1 364 35.9% 233 221

4,114 558 197 58.8 297 36.9% 188 169

4,276 660 173 66.3 419 36.9% 264 NA

Balance Sheet & Other Financial Data (Million $) Cash 261 Current Assets 1,214 Total Assets 3,061 Current Liabilities 535 Long Term Debt 789 Common Equity 1,576 Total Capital 2,375 Capital Expenditures 83.0 Cash Flow 248 Current Ratio 2.3 % Long Term Debt of Capitalization 33.2 % Net Income of Revenue 3.9 % Return on Assets 3.8 % Return on Equity 7.3

165 1,307 3,162 524 851 1,653 2,539 118 239 2.5 33.5 3.0 3.4 6.5

205 1,834 4,073 800 1,001 2,133 3,176 149 208 2.3 31.5 1.2 1.2 2.3

132 1,894 4,265 691 1,060 2,351 3,478 166 476 2.7 30.5 5.5 7.2 13.1

64.9 1,763 4,053 738 922 2,249 3,230 164 422 2.4 28.5 4.7 6.1 11.0

491 2,065 4,197 960 779 2,313 3,178 157 463 2.2 24.5 5.6 7.1 12.9

444 1,819 3,890 626 1,012 2,114 3,221 137 373 2.9 31.4 4.7 5.6 10.1

225 1,488 3,501 598 809 1,977 2,865 124 398 2.5 28.2 5.5 6.7 12.1

187 1,422 3,413 457 978 1,867 2,909 128 384 3.1 33.6 4.6 5.5 10.3

37.3 1,405 3,373 477 988 1,794 2,854 170 437 2.9 34.6 6.2 8.3 15.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: No. 1 Leggett Road, Carthage, MO 64836-9649. Telephone: 417-358-8131. Email: [email protected] Website: http://www.leggett.com

Chrmn: R.T. Fisher Pres & CEO: D.S. Haffner COO & EVP: K.G. Glassman SVP & CFO: M.C. Flanigan

Chief Acctg Officer & Cntlr: W.S. Weil Investor Contact: D.M. DeSonier (417-358-8131) Board Members: R. E. Brunner, R. Clark, R. T. Enloe, III, R. T. Fisher, M. C. Flanigan, K. G. Glassman, R. A. Griffith, D. S. Haffner, J. W. McClanathan, J. C. Odom, M. E. Purnell, Jr., P. A. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1883 Domicile: Missouri Employees: 18,500

Stock Report | October 23, 2010 | NYS Symbol: LM | LM is in the S&P 500

Legg Mason Inc S&P Recommendation HOLD

★★★★★

Price $31.18 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $32.00

Investment Style Large-Cap Growth

Summary This diversified investment manager serves individual and institutional investors through offices around the United States.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.83– 24.00 Trailing 12-Month EPS $1.27 Trailing 12-Month P/E 24.6 $10K Invested 5 Yrs Ago $3,177

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.60 2.37 19.5 154.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.822 0.51 $0.16 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.96 25 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong market share and restructured balance sheet, offset by weak relative long-term investment performance and industry cyclicality.

80

40

20

Quantitative Evaluations

10

S&P Quality Ranking

Vol.

D

C

B-

B+ B

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

MODERATE 61

LOWEST = 1 4

3

3

3

2

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Matthew Albrecht on July 28, 2010, when the stock traded at $ 29.07. Highlights ➤

➤

➤

We think assets under management should benefit in FY 11 (Mar.) from market appreciation, though net flows remain inconsistent. Although recent relative fund performance may be improving, particularly for some of its deep value offerings, longer-term fund track records remain challenged, and will likely prove a headwind to significant sales gains. An unfavorable asset mix favoring fixed income and money market products will likely continue to pressure the average management fee rate. LM is expanding its distribution network around the globe, but we do not anticipate a return to consistently positive flows until fund performance improves. We expect operating revenues to grow only modestly in FY 11 and then about 9% in FY 12. The distribution expense ratio remains slightly below historical levels because of poor fund sales, but will likely narrow as net flow trends improve. Head count reductions and other cost controls should help the pretax margin expand, albeit remaining below historical levels in FY 11 and FY 12.

Investment Rationale/Risk ➤

We think some of Legg Mason's flagship funds, previously hurt by a number of high-profile investments gone sour, have seen improved relative performance since equity markets bottomed in March 2009. Still, longer-term track records compare unfavorably with peers and benchmarks, although we think sales trends are improving. We believe, however, that the sale of SIV exposures has improved the outlook for LM's balance sheet and eliminated a significant overhang weighing on the stock. We think the company's outlook has improved, supported by aggressive capital management, and its discounted valuation to peers should narrow.

Revenue (Million $) 1Q 2Q 2011 674.2 -2010 613.1 659.9 2009 1,054 966.1 2008 1,206 1,172 2007 1,038 1,031 2006 437.7 466.4

3Q -690.5 720.0 1,187 1,133 689.0

4Q -671.4 617.2 1,069 1,142 1,052

Year -2,635 3,357 4,634 4,344 2,645

Earnings Per Share ($) 2011 0.30 E0.35 2010 0.35 0.30 2009 -0.22 -0.74 2008 1.32 1.23 2007 1.08 1.00 2006 0.93 0.75

E0.48 0.28 -10.55 1.07 1.21 0.77

E0.47 0.39 -2.29 -1.81 1.19 1.04

E1.60 1.32 -13.85 1.86 4.48 3.30

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) ➤

➤

Risks to our recommendation and target price include stock market declines, a deterioration in relative investment performance, and a rise in customer redemptions. The shares recently traded at 18.3X our FY 11 EPS estimate, in line with their historical multiples. Our 12-month target price of $32 is derived by applying a multiple of 17.9X to our forward 12-month earnings estimate of $1.79, in line with comparable peer multiples.

We forecast EPS of $1.60 in FY 11 and $2.37 in FY 12, helped by share repurchases.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.030 0.030 0.040 0.040

10/27 01/26 04/27 07/26

12/14 03/09 06/11 10/05

12/16 03/11 06/15 10/07

01/11/10 04/12/10 07/12/10 10/25/10

Dividends have been paid since 1983. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: LM

Legg Mason Inc Business Summary July 28, 2010 CORPORATE OVERVIEW. Legg Mason is a holding company which, through subsidiaries, is principally engaged in providing asset management and other related financial services to individuals, institutions, corporations, governments, and government agencies. At the end of FY 10 (Mar.), total assets under management were about $685 billion, up from about $632 billion a year earlier. The company operates out of offices in the U.S., the U.K. and a number of other countries worldwide. At the end of FY 10, fixed income assets represented 53% of total assets under management, equity assets 25%, and liquidity assets 22%. Legg Mason operates through two divisions: Americas and International. Within each division, the firm provides services through individual asset managers. They each generally market their own products and services under their own brand names, and in many cases distribute retail products and services through a centralized retail distribution network. Each subsidiary primarily earns revenues by charging fees for the management of assets for clients. Fees are typically calculated as a percentage of average assets under management, and can vary with the type of account, the asset manager, and the type of client. They may also earn performance fees from certain accounts if benchmarks are met or exceeded for the particular measurement

period. Increases in assets under management can result from inflows of new assets from new and existing clients, and from appreciation of asset values. Decreases can also occur due to client redemptions and declines in the value of client assets. The firm does business primarily through its 16 asset managers. We think LM has a diverse collection of asset management subsidiaries, which include Western Asset, Legg Mason Capital Management, Brandywine, and Permal, among others. LM's Asset Management business provides asset management services to institutional and individual clients and investment advisory services to company-sponsored investment funds. Investment products include proprietary mutual funds ranging from money market and fixed income funds to equity funds managed in a wide variety of investing styles, non-U.S. funds, and a number of unregistered, alternative investment products. LM's mutual funds group sponsors domestic and international equity, fixed income and money market mutual funds, closed-end funds, and other proprietary funds

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.84 2.05 1.32 1.32 0.12 9% 2009 33.70 10.35 26 8

2009 NM -12.86 -13.85 -8.12 0.96 NM 2008 75.33 11.09 NM NM

2008 NM 2.84 1.86 1.86 0.81 44% 2007 110.17 68.35 59 37

2007 NM 5.95 4.48 4.48 0.69 15% 2006 140.00 81.01 31 18

2006 NM 3.90 3.30 3.25 0.40 12% 2005 129.00 68.10 39 21

2005 11.66 3.83 3.53 3.41 0.37 11% 2004 73.70 48.95 21 14

2004 6.50 2.62 2.64 2.57 0.29 11% 2003 56.77 29.47 22 11

2003 3.32 1.85 1.85 1.63 0.29 15% 2002 38.10 24.74 21 13

2002 1.52 1.49 1.49 1.35 0.23 16% 2001 37.99 22.83 25 15

2001 8.25 1.53 1.53 1.44 0.20 13% 2000 40.17 20.46 26 13

NA NA 2,635 NA 330 36.0% 204 204

Nil 56.3 3,357 150 -3,156 NM -1,948 -1,142

Nil 77.0 4,634 83.0 444 39.7% 268 268

Nil 58.9 4,344 71.5 1,044 38.1% 646 646

Nil 48.0 2,645 52.6 703 39.2% 434 421

358 119 2,490 80.8 659 38.0% 408 394

344 84.3 2,004 63.2 472 38.5% 291 283

317 109 1,615 87.1 308 38.1% 191 168

331 168 1,579 127 253 39.6% 153 138

359 282 1,536 175 266 41.2% 156 146

Balance Sheet & Other Financial Data (Million $) Total Assets 8,614 Cash Items 1,880 Receivables NA Securities Owned NA Securities Borrowed NA Due Brokers & Customers NA Other Liabilities NA Capitalization:Debt NA Capitalization:Equity 5,842 Capitalization:Total NA % Return on Revenue 7.8 % Return on Assets NA % Return on Equity NA

9,321 1,421 1,204 336 Nil Nil NA 2,965 4,454 7,679 NM NM NM

11,830 2,557 764 489 Nil Nil 1,216 1,826 6,621 8,802 5.8 2.5 4.1

9,604 1,184 852 273 Nil Nil 1,079 1,108 6,678 8,229 14.9 6.8 10.2

9,302 1,023 850 142 Nil Nil 1,633 1,166 5,850 7,016 16.4 5.0 10.7

8,219 3,554 1,564 1,298 588 3,419 1,108 811 2,293 3,104 19.2 5.3 21.2

7,263 3,744 1,458 870 488 3,657 764 794 1,560 2,354 17.5 4.4 20.7

6,067 3,274 1,155 419 220 75.0 462 787 1,248 2,035 14.7 3.2 16.4

5,940 2,970 1,230 458 280 35.0 410 877 1,075 1,952 12.3 2.9 15.4

4,688 2,498 1,333 374 253 2,955 328 219 917 1,136 13.3 3.3 18.7

Income Statement Analysis (Million $) Commissions Interest Income Total Revenue Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 International Drive, Baltimore, MD 21202-1099. Telephone: 410-539-0000. Website: http://www.leggmason.com Chrmn, Pres & CEO: M.R. Fetting

EVP & Chief Admin Officer: J.A. Sullivan SVP & General Counsel: T.P. Lemke CFO: T.J. Murphy Secy: T.C. Merchant

Investor Contact: A. Magleby (410-454-5246) Founded: 1899 Board Members: H. L. Adams, R. E. Angelica, D. Domicile: Maryland Beresford, J. T. Cahill, M. R. Fetting, B. Huff, J. Koerner, Employees: 3,550 III, C. G. Krongard, S. C. Nuttall, N. Peltz, W. A. Reed, M. M. Richardson, K. L. Schmoke, N. J. St. George

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LEN | LEN is in the S&P 500

Lennar Corp S&P Recommendation STRONG BUY

★★★★★

Price $14.82 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Homebuilding

12-Mo. Target Price $19.00

Investment Style Large-Cap Blend

Summary Lennar, one of the largest, most geographically diversified U.S. home builders, concentrates on moderately priced homes.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $21.79– 11.56 Trailing 12-Month EPS $0.53 Trailing 12-Month P/E 28.0 $10K Invested 5 Yrs Ago $2,937

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.55 1.00 26.9 185.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.277 1.08 $0.16 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.66 20 B+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Lennar's exposure to the uncertainties of the housing market, where the confidence and job security of buyers is still weak and credit guidelines have tightened, partly offset by record low mortgage rates.

40 20

8

Quantitative Evaluations

4

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0

C

B-

BB

B+

A-

A

Relative Strength Rank LOWEST = 1

3

2

WEAK

29

5

5

A+

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Kenneth M. Leon, CPA on September 20, 2010, when the stock traded at $ 15.26. Highlights ➤

➤

➤

Following an estimated revenue decline of 3% in FY 10 (Nov.), we project that revenues will rebound 10% in FY 11, reflecting a slow but steady recovery of the U.S. housing market. We forecast home deliveries and average selling prices will begin to stabilize from sharp declines during the housing downturn. With steady improvement in demand, we believe contract backlog will rebound in FY 11. LEN's newly formed Rialto Investments unit recently acquired a 40% equity interest in two portfolios of real estate loans in partnership with the FDIC for $243 million. The portfolios, with a $3 billion unpaid principal balance, consist of more than 5,500 distressed real estate loans with an initial fair value of $1.2 billion. In the third quarter, Rialto generated a $18.5 million operating profit on $38 million of revenue. We assume lower market risk exposure to asset impairments which should lead to sustained profitability in coming years, in our opinion. With wider margins, the company is projecting a return to profitability some time in FY 10. We estimate EPS of $0.55 for FY 10 and $1.00 for FY 11.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We believe Lennar can achieve profitability with reduced sales incentives and lower construction costs on new scaled-down homes coming to market. In our opinion, the company can also be opportunistic in new land purchases or option land contracts with abundant land coming to market from banks that took possession of distressed or bankrupt private homebuilders. As of August 31, 2010, the company had $865 million of cash to support its working capital and debt obligations, as well as new land acquisitions. Risks to our recommendation and target price include prolonged housing weakness that further impairs new home purchases, higher mortgage rates, and weaker than expected demand from first-time homebuyers after the federal tax credit expiration. Rialto Investments remains a business risk with respect to market conditions and credit trends. Our estimated book value of $12.95 per share includes a federal tax refund. Applying a forward price-to-book value multiple of just under 1.5X, near the mid-range of other large homebuilders, our 12-month target price is $19.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 574.4 814.5 2009 593.1 891.9 2008 1,063 1,128 2007 2,792 2,876 2006 3,241 4,578 2005 2,406 2,933

3Q 825.0 720.7 1,107 2,342 4,182 3,498

4Q -913.7 1,278 2,177 4,266 5,030

Year -3,119 4,575 10,187 16,267 13,867

Earnings Per Share ($) 2010 -0.04 0.21 2009 -0.98 -0.76 2008 -0.56 -0.76 2007 0.43 -1.55 2006 1.58 2.00 2005 1.17 1.55

0.16 -0.97 -0.56 -3.25 1.30 2.06

E0.20 -0.19 -5.12 -7.92 -1.24 3.54

E0.55 -2.45 -7.00 -12.31 3.69 8.17

Fiscal year ended Nov. 30. Next earnings report expected: Early January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040 0.040 0.040

01/12 04/14 06/28 09/30

01/22 05/03 07/19 10/12

01/26 05/05 07/21 10/14

02/12/10 05/20/10 08/05/10 10/28/10

Dividends have been paid since 1978. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: LEN

Lennar Corp Business Summary September 20, 2010 CORPORATE OVERVIEW. Lennar Corp., one of the largest homebuilders in the U.S. (based on FY 09 (Nov.) U.S. home closings), constructs homes for firsttime, move-up and active adult buyers, and also provides various financial services. It takes part in all phases of planning and building, and subcontracts nearly all development and construction work. LEN sells homes primarily from models it has designed and constructed. During FY 09, these homes had an average sales price of $234,000 compared to $270,000 in FY 08. Sales incentives were down slightly to $44,800 per home for FY 09.

deliveries of about 2,000 homes) in 2002.

The financial services division provides mortgage financing, title insurance, closing services and insurance agency services for LEN homebuyers and others, and sells the loans it originates in the secondary mortgage market.

The company had an order backlog value of $1.4 billion at the end of FY 07, which was 65% lower than the $3.98 billion a year earlier. Its backlog value was $456 million as of November 30, 2008, but rose to $545 million at May 31, 2009, and $647 million at August 31, 2009. The company ended FY 09 with a contract backlog value of $479 million, which rose to $656 million at May 31, 2010 and fell to $569 million at August 31, 2010 with the now expired tax credit easing demand.

CORPORATE STRATEGY. Lennar greatly expanded its operations through the May 2000 purchase of U.S. Home Corp. (UH), and maintained an active acquisition program for several years. The company entered the North Carolina and South Carolina markets, and extended its positions in Colorado and Arizona, through the acquisition of various operations of Fortress Group in two separate transactions in late 2001 and mid-2002. It expanded its California business by acquiring Pacific Century Homes and Cambridge Homes (combined annual

In 2005, the company entered the metropolitan New York City and Boston markets by acquiring rights to develop a portfolio of properties in New Jersey facing mid-town Manhattan and waterfront properties near Boston. It also entered the Reno, NV, market through the acquisition of Barker Coleman. In addition, LEN expanded its presence in Jacksonville through the acquisition of Admiral Homes that same year.

Company Financials Fiscal Year Ended Nov. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.03 -2.33 -2.45 -2.45 0.16 NM 17.66 5.54 NM NM

2008 16.12 -6.69 -7.00 -7.44 0.52 NM 22.73 3.42 NM NM

2007 25.67 -11.95 -12.31 -12.36 0.64 NM 56.54 14.00 NM NM

2006 34.42 4.03 3.69 3.62 0.64 17% 66.44 38.66 18 10

2005 32.09 8.60 8.17 8.10 0.57 7% 68.86 50.30 8 6

2004 24.05 5.98 5.70 5.63 0.39 7% 57.20 40.30 10 7

2003 20.68 5.11 4.65 4.61 0.14 3% 50.90 24.10 11 5

2002 15.71 4.32 3.86 3.83 0.03 1% 31.99 21.60 8 6

2001 12.14 3.45 3.01 2.90 0.03 1% 24.94 15.52 8 5

2000 8.92 2.23 1.82 NA 0.03 1% 19.69 7.63 11 4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,119 -66.8 19.9 70.9 -760 41.3% -417 -417

4,575 -353 49.8 148 -566 NM -1,109 -1,178

10,187 -2,626 57.0 Nil -3,081 NM -1,942 -1,948

16,267 941 56.5 Nil 956 36.5% 594 582

13,867 2,124 79.6 Nil 2,205 37.0% 1,344 1,331

10,505 1,426 55.6 Nil 1,519 37.8% 946 934

8,908 1,158 54.5 141 1,207 37.8% 751 744

7,320 1,094 72.4 146 876 37.8% 545 541

6,029 868 68.7 120 679 38.5% 418 404

4,707 533 58.5 98.6 376 39.0% 229 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,331 Current Assets 6,373 Total Assets 7,315 Current Liabilities 852 Long Term Debt 2,297 Common Equity 2,443 Total Capital 5,349 Capital Expenditures NA Cash Flow -397 Current Ratio 7.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue NM % Return on Assets NA % Return on Equity NA

1,091 6,471 7,425 900 2,117 2,623 4,906 1.40 -1,059 7.2 43.2 NM NM NM

642 7,132 9,103 1,300 2,295 3,822 6,146 Nil -1,885 5.5 37.3 NM NM NM

778 10,108 12,408 2,330 2,614 5,702 8,283 26.8 650 4.3 31.2 3.7 4.8 10.8

910 10,483 12,541 1,765 2,565 5,251 7,895 21.7 1,424 5.9 32.5 9.7 12.4 28.9

1,322 7,713 9,165 2,554 2,918 4,053 6,971 27.4 1,001 3.0 41.9 9.0 11.9 25.8

1,201 5,799 6,775 1,787 1,552 3,264 4,816 29.6 806 3.3 32.2 8.4 12.0 27.4

731 4,996 5,756 1,722 1,521 2,229 3,751 4.09 618 2.9 40.6 7.4 10.4 28.0

824 4,055 4,714 1,117 1,488 1,659 3,147 13.1 487 3.6 47.3 6.9 9.8 28.9

288 3,129 3,778 1,222 1,240 1,229 2,468 16.0 288 2.5 50.2 4.9 7.9 21.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 700 NW 107th Ave, Miami, FL 33172. Telephone: 305-559-4000. Website: http://www.lennar.com Pres & CEO: S. Miller

COO: J.M. Jaffe CFO: B.E. Gross Chief Acctg Officer & Cntlr: D.M. Collins Treas: D.J. Bessette

Investor Contact: M.H. Ames (800-741-4663) Founded: 1954 Board Members: I. Bolotin, S. L. Gerard, T. I. Gilliam, S. Domicile: Delaware W. Hudson, D. J. Kaiserman, R. K. Landon, S. Employees: 3,835 Lapidus, S. Miller, D. E. Shalala, J. Sonnenfeld

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LUK | LUK is in the S&P 500

Leucadia National Corp S&P Recommendation HOLD

★★★★★

Price $25.10 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Multi-Sector Holdings

12-Mo. Target Price $24.00

Investment Style Large-Cap Growth

Summary This diversified holding company has subsidiaries engaged in manufacturing, real estate, medical product development, gaming entertainment, mining, and energy.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.37– 18.80 Trailing 12-Month EPS $0.97 Trailing 12-Month P/E 25.9 $10K Invested 5 Yrs Ago $12,455

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.00 1.50 12.6 243.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.107 Nil Nil 61

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.72 5 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the broad diversity of the company's investments and what we view as a strong management team, offset by exposure to certain development-stage businesses.

60

30 20

Quantitative Evaluations 10

S&P Quality Ranking

Vol.

D

Mil.

23

C

B-

C B

B+

A-

A

A+

23

9 6 3 0

Relative Strength Rank

STRONG 75

LOWEST = 1

5

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Stuart J. Benway, CFA on August 12, 2010, when the stock traded at $ 21.23. Highlights ➤

➤

➤

We see revenues increasing about 30% in 2010. Sales are expected to benefit from a recovering economy, which should provide a modest boost to demand for plastics and timber. Significant interest income from an Australian mining investment is also expected to boost revenues. A weak housing market will likely hurt real estate development, and the telecommunications unit is also projected to see lower demand. Leucadia has scaled back its investments in financial entities and is working to conserve cash during this weak environment. We believe its investments in mining, auto finance and investment banking will continue to appreciate in 2010, although at a much slower pace than in 2009. Spending on medical product and energy project development should increase this year and next. Our forecast is for operating earnings of $2.00 a share in 2010, following $2.10 per share in 2009. We expect LUK to have a very uneven earnings pattern due to frequent changes in the number and types of businesses it operates, as well as changes in the value of its investments. For 2011, we project EPS of $1.50.

Investment Rationale/Risk ➤

➤

➤

Leucadia has a strong long-term record of increasing its book value, due, in our view, to its success in finding assets that are out of favor or are troubled, and therefore selling at a discount to their inherent value. However, this trend was disrupted in recent years due to the broad-based decline in equity markets. We expect gradual additional recovery in the company's investments in coming quarters, and LUK could accelerate acquisition activity. Risks to our recommendation and target price include reliance on the company's two top executives for most of its investment decisions, and the potential for further volatility in the value of the company's holdings due to the impact of economic uncertainty. Book value per share at Leucadia rose at a compound annual growth rate of 10.6% from 2000 through 2009, despite a sharp drop in 2008 due to the decline in the stock market. Our 12-month target price of $24 is calculated by applying a 1.30X multiple, below historical levels due to the uncertain investment environment, to our 2010 book value per share estimate of $18.65.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 374.4 412.5 2009 250.3 284.3 2008 324.9 337.6 2007 197.2 344.0 2006 291.6 224.4 2005 121.3 258.7

3Q -280.8 251.6 331.2 170.2 343.3

4Q -303.5 166.6 282.6 176.4 317.9

Year -1,098 1,081 1,155 862.7 1,041

Earnings Per Share ($) 2010 0.78 -1.01 2009 -0.59 1.67 2008 -0.43 -0.76 2007 0.04 0.12 2006 0.37 0.17 2005 -0.03 5.23

E1.25 1.40 0.37 0.01 0.02 0.22

E1.00 -0.38 -11.72 1.87 0.03 -0.10

E2.00 2.14 -11.19 2.09 0.60 5.36

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2007.

Stock Report | October 23, 2010 | NYS Symbol: LUK

Leucadia National Corp Business Summary August 12, 2010 CORPORATE OVERVIEW. Leucadia is a diversified holding company engaged in a variety of businesses, including manufacturing, telecommunications, land-based contract oil and gas drilling, property management and services, gaming entertainment, real estate activities, medical product development, and winery operations. It also has significant investments in the common stock of two public companies that are accounted for at fair value, one of which is a full service investment bank and the other an independent auto finance company. Additionally, Leucadia owns equity interests in operating businesses and investment partnerships which are accounted for under the equity method of accounting, including a broker-dealer engaged in making markets and trading high-yield and special situation securities, an operating copper mine in Spain, a major iron ore project in Australia, and gasification projects in the United States. Revenues by major business segment in 2009 were as follows: telecommunications 38%; Idaho Timber 13%; Conwed Plastics 7%; property management and services 10%; and gaming 9%.

of its existing operations and investigates possible acquisitions of new businesses. In identifying possible acquisitions, Leucadia tends to seek assets and companies that are out of favor or troubled and, as a result, are selling substantially below the values it believes to be present. The worldwide recession, turmoil in public securities markets and lack of liquidity in the credit markets have put a strain on many businesses and caused great uncertainty about asset values in nearly all industry sectors. If these economic and market conditions continue for some time, Leucadia expects that some extraordinary investment opportunities will be available. The company has available liquidity on its balance sheet and could dispose of existing businesses or investments if additional internal liquidity is needed to take advantage of investment opportunities. We expect the composition of Leucadia's assets to change continuously as certain businesses are divested and others are acquired.

CORPORATE STRATEGY. Leucadia's approach to its investments is to focus on return on investment and cash flow to build long-term shareholder value. Additionally, the company continuously evaluates the retention and disposition Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.62 2.46 2.14 2.07 Nil Nil 26.47 10.26 12 5

2008 10.87 -10.91 -11.19 -11.27 Nil Nil 56.90 12.19 NM NM

2007 24.66 2.26 2.09 2.06 0.25 12% 52.67 26.52 25 13

2006 17.72 0.75 0.60 NA 0.25 42% 32.62 23.26 54 39

2005 16.87 6.11 5.36 4.69 0.13 2% 24.64 16.20 5 3

2004 17.32 1.71 0.70 0.05 0.13 18% 23.50 15.02 34 21

2003 10.04 0.81 0.46 0.42 0.08 18% 15.40 10.86 34 24

2002 8.78 1.02 0.91 1.05 0.08 9% 13.42 9.21 15 10

2001 7.05 0.49 0.39 0.27 0.08 21% 11.90 8.77 31 22

2000 7.26 0.82 0.69 NA 0.08 12% 12.50 6.88 18 10

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,098 -46.3 86.4 129 529 1.35% 524 504

1,081 -156 65.4 145 -906 NM -2,579 -2,598

1,155 58.1 49.8 112 -79.0 708.9% 481 473

863 222 43.6 79.4 172 24.4% 130 -9.43

1,041 396 190 68.4 93.0 NM 1,224 1,071

2,262 366 233 96.8 132 NM 152 5.47

556 75.2 65.7 43.6 42.9 NM 84.4 77.7

242 10.7 18.7 33.5 13.2 NM 153 177

375 151 17.5 55.2 53.7 NM 64.8 45.7

715 243 21.4 57.7 193 37.6% 115 NA

Balance Sheet & Other Financial Data (Million $) Cash 239 Current Assets 551 Total Assets 6,762 Current Liabilities 625 Long Term Debt 1,660 Common Equity 4,362 Total Capital 6,347 Capital Expenditures 23.6 Cash Flow 610 Current Ratio 0.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 47.7 % Return on Assets NA % Return on Equity NA

604 867 5,198 563 1,833 2,677 4,777 76.1 -2,514 1.5 38.4 NM NM NM

1,440 1,720 8,127 460 2,004 5,570 7,596 135 531 3.7 26.4 41.6 77.2 10.2

3,430 1,366 5,304 327 975 3,893 4,887 111 173 4.2 19.9 15.7 2.5 3.4

3,063 2,229 5,261 474 987 3,662 4,665 136 1,414 4.7 20.8 117.6 24.3 41.4

2,781 2,060 4,800 659 1,484 2,259 3,760 97.4 385 3.1 38.8 6.8 3.3 6.9

2,033 1,350 4,397 657 1,155 2,134 3,307 84.7 150 2.1 34.7 15.2 2.4 4.7

1,044 1,002 2,542 119 328 1,487 1,893 NA 171 8.4 17.5 63.1 6.0 11.4

1,183 1,263 2,577 227 424 1,195 1,666 NA 82.3 5.6 25.7 16.2 2.3 5.4

1,613 1,775 3,144 391 412 1,204 1,631 NA 136 4.5 24.4 16.8 3.7 9.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 315 Park Ave S, New York, NY 10010. Telephone: 212-460-1900. Chrmn: I.M. Cumming Pres & CEO: J.S. Steinberg

CFO: J.A. Orlando Chief Acctg Officer & Cntlr: B.L. Lowenthal Treas: R.J. Nittoli Investor Contact: L.E. Ulbrandt (212-460-1900)

Board Members: I. M. Cumming, P. M. Dougan, A. J. Founded: 1854 Hirschfield, J. E. Jordan, J. C. Keil, J. C. Nichols, III, M. Domicile: New York Sorkin, J. S. Steinberg Employees: 3,340

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LXK | LXK is in the S&P 500

Lexmark International Inc. S&P Recommendation BUY

★★★★★

Price $46.92 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Storage & Peripherals

12-Mo. Target Price $48.00

Investment Style Large-Cap Growth

Summary Lexmark develops, manufactures and supplies laser and inkjet printers and associated consumable supplies for the office and home markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.35– 24.46 Trailing 12-Month EPS $3.17 Trailing 12-Month P/E 14.8 $10K Invested 5 Yrs Ago $11,069

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.65 5.00 10.1 78.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.684 Nil Nil NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.11 19 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as a difficult competitive pricing environment in the printer market, offset by our view of LXK's strides in improving its product portfolio and cost position.

60 40 30 20

Quantitative Evaluations S&P Quality Ranking

Vol. 38

Mil.

35

D

12 8 4 0 5

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

4

3

3

4

4

A+ STRONG 89

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Thomas W. Smith, CFA on August 16, 2010, when the stock traded at $ 36.33. Highlights ➤

➤

We expect revenues to increase 9% in 2010 and 4% in 2011, following a 14% decline in 2009, as we project improvement in global economic conditions and a cyclical upturn for the printer industry. We see new products aiding sales in the context of very competitive printer markets. We look for operating margins to widen in 2010, based on higher volumes, a better product mix, and the benefits of ongoing restructuring plans. During the second quarter of 2010, the company closed its acquisition of Kansas-based Perceptive Software for about $280 million in cash, which adds expertise in enterprise content management software and should expand offerings of document workflow solutions aimed at particular industries, such as healthcare, education and government.

Investment Rationale/Risk ➤

➤

➤ ➤

We expect modest effective tax rates, reflecting shifts in the siting of operations, to aid results. We estimate operating EPS, excluding restructuring charges, of $4.65 for 2010 and $5.00 for 2011. We expect few share buybacks until the printer industry is operating on a robust level.

Revenue/Earnings Data

2010

We view LXK as attractively valued in light of new product introductions and potential cost reductions that could help earnings as a recovery in printer industry demand unfolds following a deep downturn in 2009. We think that LXK owns some important intellectual property, and should be able to expand its branded products and laser printer businesses as the economy picks up. Risks to our recommendation and target price include the possibility that competition from Hewlett-Packard (HPQ 40, Buy) and other rivals will be more than we anticipate, that savings from restructuring will come in below our estimates, and that penetration of high-growth segments will be slower than we project. Our 12-month target price of $48 is based on our P/E analysis. We apply a target multiple of 11X, which is toward the low end of a historical range for LXK to reflect the slow revenue environment we foresee, to our 12-month forward operating EPS estimate of $4.39.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,043 1,033 2009 944.1 904.6 2008 1,175 1,139 2007 1,261 1,208 2006 1,275 1,229 2005 1,358 1,283

3Q -958.0 1,131 1,195 1,235 1,216

4Q -1,073 1,084 1,310 1,369 1,365

Year -3,880 4,528 4,974 5,108 5,222

Earnings Per Share ($) 2010 1.21 1.07 2009 0.75 0.22 2008 1.07 0.89 2007 0.95 0.67 2006 0.78 0.74 2005 0.96 0.64

E0.98 0.13 0.42 0.48 0.85 0.59

E1.08 0.76 0.23 1.04 0.91 0.71

E4.65 1.86 2.69 3.14 3.27 2.91

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: LXK

Lexmark International Inc. Business Summary August 16, 2010 CORPORATE OVERVIEW. Lexmark shook up the printer industry with the introduction of the first desktop color printer priced under $100 with its November 1997 launch of the $99 color inkjet printer, aimed at building brand awareness and an installed base. We think LXK's competitive advantage in the past was its low cost structure and its ability to price aggressively. However, in recent years, it has been on the defensive, in our view, as peers have undercut its prices and LXK's product mix was not focused on some of the more compelling printer areas. Going forward, LXK management believes that its commitment to R&D should bear fruit and help revive unit growth and subsequently high-margin supplies sales, but we view this as a multi-year process. Starting in autumn 2008, the company began to introduce an extensive series of new laser products. Following through in 2009, some 33 new product models were introduced.

ments decreased 21% in 2009, following a 7% decrease in 2008. Imaging Solutions offers mainly inkjet products and represented 32% of 2009 sales (34% of 2008 sales). ISD suffered a 19% revenue decline, compared to a 22% decrease in 2008. Inkjet hardware unit shipments fell 37% in 2009 and 45% in 2008, partly because of a planned transition to a more favorable printer product mix that could potentially boost usage of associated consumable products. Lexmark distributes to business customers via many channels, including the company's network of authorized distributors. The company distributes to consumers through retail outlets worldwide. The company also sells through alliances and OEM arrangements. One customer, Dell, accounted for 13% of revenues in 2009, the same as in 2008, and down from 14% in 2007.

The company operates mainly in two segments -- the Printing Solutions and Services division (PSSD) and the Imaging Solutions division (ISD). Printing Solutions and Services offers mainly laser products and represented 68% of sales in 2009 (66% of 2008 sales). PSSD saw a revenue decline of 12% in 2009 compared to a decline of just 1% in 2008. Laser printer hardware unit shipCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.98 4.58 1.86 2.00 Nil Nil 29.16 14.23 16 8

2008 10.45 4.97 2.69 2.44 Nil Nil 37.88 22.13 14 8

2007 15.76 5.13 3.14 3.10 Nil Nil 73.20 32.35 23 10

2006 10.67 5.21 3.27 3.28 Nil Nil 74.68 44.09 23 13

2005 12.77 4.21 2.91 2.52 Nil Nil 86.62 39.33 30 14

2004 NM 5.29 4.28 3.94 Nil Nil 97.50 76.00 23 18

2003 17.46 4.48 3.34 3.04 Nil Nil 79.65 56.57 24 17

2002 NM 3.84 2.79 2.27 Nil Nil 69.50 41.94 25 15

2001 8.25 2.98 2.05 1.57 Nil Nil 70.75 40.81 35 20

2000 6.11 2.80 2.13 NA Nil Nil 135.88 28.75 64 13

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,880 573 214 39.3 187 22.0% 146 157

4,528 573 203 28.9 276 12.9% 240 218

4,974 564 191 13.0 350 13.9% 301 297

5,108 715 201 12.1 459 26.3% 338 340

5,222 692 159 11.2 554 35.7% 356 308

5,314 867 135 12.3 746 23.8% 569 524

4,755 743 149 12.5 594 26.0% 439 399

4,356 643 138 9.00 496 26.0% 367 298

4,143 525 126 14.8 318 13.9% 274 210

3,807 548 91.2 12.8 396 28.0% 285 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,133 Current Assets 2,141 Total Assets 3,354 Current Liabilities 1,192 Long Term Debt 649 Common Equity 1,014 Total Capital 1,663 Capital Expenditures 242 Cash Flow 360 Current Ratio 1.8 % Long Term Debt of Capitalization 39.0 % Net Income of Revenue 3.8 % Return on Assets 4.4 % Return on Equity 16.0

973 2,063 3,265 1,258 649 812 1,461 218 443 1.6 44.4 5.3 7.5 23.0

796 2,067 3,121 1,497 Nil 1,278 1,278 183 492 1.4 Nil 6.1 10.1 26.0

551 1,830 2,849 1,324 150 1,035 1,185 200 539 1.4 12.6 6.6 11.0 27.5

889 2,170 3,330 1,234 150 1,429 1,578 201 515 1.8 9.5 6.8 9.6 20.3

1,567 3,001 4,124 1,468 150 2,083 2,232 198 704 2.0 6.7 10.7 15.0 30.5

1,196 2,444 3,450 1,183 149 1,643 1,792 93.8 588 2.1 8.3 9.2 14.0 32.2

498 1,799 2,808 1,099 149 1,082 1,231 112 505 1.6 12.1 8.4 13.9 34.0

90.7 1,493 2,450 931 149 1,076 1,225 214 399 1.6 12.2 6.6 12.1 29.5

68.5 1,244 2,073 979 149 777 926 297 377 1.3 16.1 7.5 15.1 39.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 740 West New Circle Rd, Lexington, KY 40550. Telephone: 859-232-2000. Website: http://www.lexmark.com Chrmn & CEO: P.J. Curlander

EVP, CFO & Chief Acctg Officer: J.W. Gamble, Jr. Treas: B. Frost Secy & General Counsel: R.J. Patton Investor Contact: J. Morgan (859-232-5568)

Board Members: T. Beck, J. L. Cohon, J. E. Coleman, P. Founded: 1990 J. Curlander, W. R. Fields, R. E. Gomory, S. R. Hardis, R. Domicile: Delaware Holland, Jr., M. J. Maples, J. L. Montupet, K. P. Seifert Employees: 11,900

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: LIFE | LIFE is in the S&P 500

Life Technologies Corp S&P Recommendation STRONG BUY

★★★★★

Price $47.15 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Life Sciences Tools & Services

12-Mo. Target Price $68.00

Investment Style Large-Cap Growth

Summary This company develops and manufactures research products and instruments for biotechnology and biopharmaceutical researchers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.19– 41.10 Trailing 12-Month EPS $1.56 Trailing 12-Month P/E 30.2 $10K Invested 5 Yrs Ago $13,310

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.45 3.92 13.7 183.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.644 Nil Nil 96

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.75 14 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects LIFE's diverse product portfolio and broad geographic client base. The life sciences industry is highly competitive, and companies need to develop new innovative products to remain viable, as technology is rapidly changing. Although life sciences is LIFE's main market, the company also sells products to the environmental, food safety, and industrial markets.

60

40 30

2-for-1 20

Vol. 39

Mil.

Quantitative Evaluations

15 10 5 0 5

S&P Quality Ranking 4

4

5

5

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

BB

B+

A-

Relative Strength Rank

A

A+

MODERATE

39 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Jeffrey Loo, CFA on August 11, 2010, when the stock traded at $ 43.47. Highlights ➤

➤

➤

We expect sales, with a 1% adverse foreign exchange impact, to rise 9% in 2010 to $3.58 billion, and 8% in 2011 to $3.88 billion. For 2010, we look for organic sales in molecular diagnostics, driven by robust demand for genomic assays, to increase 11%; genetic systems, aided by strong sales of its SOLiD system and next-generation sequencing, to grow 6%; and Cell System sales on robust primary stem cell sales, to rise 9%. We see a rise in gross margins of 140 basis points (bps) and a 260 bps improvement in operating margins from cost savings synergies and leverage. Further, increased usage of LIFE's eCommerce platform, which currently processes 52% of transactions, should boost margins. In February, LIFE completed the sale of its ownership stake in its mass spectrometry unit, to Danaher Corporation (DHR 38, Buy), for $450 million. This unit was a joint venture with MDS Inc., with sales and income accounted for under the equity method, and provided $46 million in income in 2009. LIFE used the sales proceeds to pay down debt. We see EPS of $3.45 in 2010 and $3.92 in 2011.

Investment Rationale/Risk ➤

➤

➤

We think the shares, recently trading at 13.0X our 2010 EPS forecast and at a 0.93X P/ E-to-growth ratio, well below historical levels, are undervalued. We believe LIFE is well positioned within its end-markets with a solid platform for expansion in high-growth markets within genomics, proteomics, and cell biology. We see continued robust growth for its nextgeneration sequencer, the SOLiD system, and expect it to help drive consumable sales in 2010 and 2011. We think the recently introduced SOLiD 4 with a higher throughput and lower price will gain market share and we believe the market is expanding, leading to further opportunities. LIFE also expects to release an upgrade in the second half that should further increase throughput and lower prices, in our view. Risks to our recommendation and target price include a slowdown in pharmaceutical and biotech R&D spending. Our 12-month target price of $68 is based on a 1.4X P/E-to-growth ratio, in line with peers, based on our 2010 EPS estimate and a projected growth rate of 14%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 884.9 903.7 2009 775.7 832.8 2008 350.2 367.8 2007 308.7 321.7 2006 309.0 313.6 2005 277.1 306.5

3Q -800.7 361.4 315.0 311.0 289.6

4Q -871.1 540.6 336.5 329.8 325.3

Year -3,280 1,620 1,282 1,263 1,198

Earnings Per Share ($) 2010 0.48 0.58 2009 0.09 0.22 2008 0.60 0.55 2007 0.31 0.31 2006 0.18 0.18 2005 0.41 0.11

E0.78 0.22 0.26 0.32 -1.27 0.21

E0.89 0.26 -0.89 0.41 -1.04 0.44

E3.45 0.80 0.29 1.35 -1.86 1.17

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: LIFE

Life Technologies Corp Business Summary August 11, 2010 CORPORATE OVERVIEW. Life Technologies Inc. (LIFE) was formed through Invitrogen Corporation's (IVGN) $5.1 billion acquisition of Applied Biosystems Inc. (ABI) in November 2008. Prior to the transaction, IVGN had annual sales of about $1.3 billion and ABI had annual sales of about $2.2 billion. IVGN develops, manufactures and markets a broad line of tool kits and reagents, and provides other products and services, including informatics software and contract research services, used in life sciences research and the commercial manufacture of biopharmaceutical products. IVGN's revenue consisted of about 99% consumables and services and 1% instrument reagent systems. ABI develops and manufactures instrument-based systems, consumables and reagents, and software and related services for the life sciences industry, as well as for the food safety, environmental and other industrial end-markets. ABI's revenue consisted of 19% Mass Spectrometry instrument sales, 21% Instrument Reagent Systems, and 60% Consumable and Services. LIFE is now one of the largest companies within the life sciences industry based on annual revenue. LIFE's 2009 revenue breakdown was 48% molecular biology systems, 24% genetic systems, and 28% cell systems. In February 2010, LIFE sold its ownership stake in its mass spectrometry unit, to Danaher Corporation for $450 million. This unit was a joint venture with MDS Inc., with sales and income accounted for under the equity method, and provided $46 million in income in 2009.

LIFE has an extensive product portfolio offering end-to-end workflow solutions. Products primarily from IVGN's portfolio are used for sample preparation and sample processing, while ABI's instrumentation is used for detection and analysis and data interpretation. IVGN has two main units -- BioDiscovery and Cell Culture Systems. The BioDiscovery segment serves governmental and academic laboratories as well as biotechnology and pharmaceutical firms engaged in research of biological and genetic substances. The Cell Culture Systems segment primarily serves companies that are engaged in the commercialization of such substances; these concerns typically require large amounts of biologic or genetic materials or the growth media used in their manufacture. The company produces cell culture products under the GIBCO brand. These products include a variety of sera, culture media and reagents. Some of these substances are used in the manufacture of genetically engineered products, and are produced in large-scale commercial production facilities.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.07 0.80 0.83 Nil Nil 52.97 22.76 66 28

2008 NM 1.57 0.29 0.26 Nil Nil 49.00 19.56 NM NM

2007 NM 2.74 1.35 1.35 Nil Nil 49.58 27.96 37 21

2006 NM -0.28 -1.86 0.70 Nil Nil 38.33 27.35 NM NM

2005 NM 2.44 1.17 0.86 Nil Nil 44.25 30.07 38 26

2004 0.47 1.95 0.82 0.49 Nil Nil 41.00 23.10 50 28

2003 3.49 1.66 0.58 0.27 Nil Nil 35.47 14.02 61 24

2002 5.31 1.28 0.45 0.15 Nil Nil 31.35 12.62 70 28

2001 4.62 1.33 -1.41 -1.75 Nil Nil 42.97 19.25 NM NM

2000 2.94 0.62 -0.90 NA Nil Nil 49.75 18.00 NM NM

3,280 975 398 193 195 25.7% 145 151

1,620 431 133 43.0 154 80.6% 30.0 27.0

1,282 320 136 28.0 179 27.1% 130 131

1,263 286 162 32.4 -163 NM -191 71.4

1,198 305 160 34.2 174 24.0% 132 94.7

1,024 284 147 32.2 121 26.8% 88.8 52.8

778 203 111 28.6 85.1 28.6% 60.1 28.1

649 172 87.7 24.1 71.2 31.2% 47.7 15.4

629 148 287 11.3 -137 NM -148 -183

246 35.0 91.8 8.94 -54.5 NM -54.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 607 Current Assets 1,796 Total Assets 9,116 Current Liabilities 1,386 Long Term Debt 2,620 Common Equity 4,027 Total Capital 7,128 Capital Expenditures 181 Cash Flow 556 Current Ratio 1.3 % Long Term Debt of Capitalization 36.8 % Net Income of Revenue 4.4 % Return on Assets 1.6 % Return on Equity 3.9

336 1,612 8,914 1,007 3,504 3,400 7,542 81.9 163 1.6 46.5 1.9 0.5 1.2

671 1,090 3,330 234 1,151 1,765 3,019 78.3 266 4.7 38.1 10.2 4.0 7.7

367 798 3,183 248 1,152 1,630 2,883 61.1 -29.3 3.2 40.0 NM NM NM

435 1,151 3,877 512 1,152 2,042 3,335 71.8 292 2.3 34.5 11.0 3.5 6.7

198 1,332 3,614 196 1,300 1,913 3,367 39.1 236 6.8 38.6 8.7 2.6 4.8

589 1,287 3,166 126 1,055 1,807 3,023 32.2 171 10.2 34.9 7.7 2.1 3.5

547 968 2,615 141 672 1,643 2,427 51.5 135 6.9 27.7 7.3 1.8 2.9

995 1,204 2,667 127 676 1,683 2,525 44.2 139 9.5 26.8 NM NM NM

431 672 2,369 153 179 1,778 2,194 22.7 37.5 4.4 8.2 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5791 Van Allen Way, Carlsbad, CA 92008-7321. Telephone: 760-603-7200. Website: http://www.lifetechnologies.com Chrmn & CEO: G.T. Lucier

Pres & COO: M.P. Stevenson CFO: D.F. Hoffmeister CSO: B. Pollok Chief Acctg Officer: K.A. Richard

Investor Contact: A. Clardy (760-603-7200) Founded: 1987 Board Members: G. F. Adam, Jr., R. V. Dittamore, D. W. Domicile: Delaware Grimm, B. S. Iyer, A. J. Levine, W. H. Longfield, B. G. Employees: 9,000 Lorimier, G. T. Lucier, R. A. Matricaria, P. A. Peterson, W. A. Reynolds, D. C. U'Prichard

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LLY | LLY is in the S&P 500

Eli Lilly and Co S&P Recommendation HOLD

★★★★★

Price $35.40 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary This leading producer of prescription drugs offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.08– 32.02 Trailing 12-Month EPS $4.04 Trailing 12-Month P/E 8.8 $10K Invested 5 Yrs Ago $8,598

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.68 4.45 7.6 1,103.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.79 0 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects generic challenges to the company's branded patents, and drug development and regulatory risks. This is offset by our view of LLY's diverse drug portfolio, limited patent expiration exposure, and robust pipeline.

60 50 40

30

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

$39.074 5.54 $1.96 79

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ WEAK

26 4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for LLY has recently been changed to $38.00 from $40.00. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on LLY from MarketScope, see below.

➤

10/21/10 10:42 am ET ... S&P REITERATES HOLD OPINION ON SHARES OF ELI LILLY (LLY 35.6***): Q3 non-GAAP EPS rose 1%, to $1.21, $0.09 above our est (largely on aggressive cost cutting). Sales rose 2%. Despite recent negative R&D news on Bydureon and teplizumab diabetes drugs, and impending patent losses, we still see positives to the LLY story, with 10 promising compounds in Phase 3 or registration, and strong sales growth projected for Japan and emerging markets. We also view LLY as a possible merger candidate. However, we are reducing our target price by $2 to $38, based on revised forward P/E and DCF assumptions. The dividend yields 5.5%. /H.Saftlas

Revenue (Million $) 1Q 2Q 2010 5,486 5,749 2009 5,047 5,293 2008 4,808 5,150 2007 4,226 4,631 2006 3,715 3,867 2005 3,497 3,668

3Q -5,562 5,210 4,587 3,864 3,601

4Q -5,934 5,211 5,190 4,245 3,879

Year -21,836 20,378 18,634 15,691 14,645

Earnings Per Share ($) 2010 1.13 1.22 2009 1.20 1.06 2008 0.97 0.88 2007 0.47 0.61 2006 0.77 0.76 2005 0.68 -0.23

E1.12 0.86 -0.43 0.85 0.80 0.73

E1.05 0.83 -3.31 0.78 0.12 0.66

E4.68 3.94 -1.89 2.71 2.45 1.83

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.490 0.490 0.490 0.490

12/14 04/19 06/21 10/18

02/10 05/12 08/11 11/10

02/12 05/14 08/13 11/15

03/10/10 06/10/10 09/10/10 12/10/10

Dividends have been paid since 1885. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LLY

Eli Lilly and Co Business Summary August 04, 2010 CORPORATE OVERVIEW. Eli Lilly and Co. is a leading maker of prescription drugs, offering a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. Animal health products are also sold. Foreign sales accounted for about 44% of total revenues in 2009. LLY's largest selling drug is Zyprexa, a treatment for schizophrenia and bipolar disorder that offers clinical advantages over older antipsychotic drugs. Sales of Zyprexa totaled $4.9 billion in 2009, up from $4.7 billion in 2008. LLY also offers Symbyax, a combination of Zyprexa and Prozac, to treat bipolar depression. In August 2004, the company launched Cymbalta, a potent antidepressant. Cymbalta works on two body chemicals involved in depression -- serotonin and norepinephrine -- while most conventional antidepressants affect only serotonin. Sales of Cymbalta climbed to $3.1 billion in 2009, from $2.7 billion in 2008, reflecting greater market penetration and expanded indications.

rapid-acting injectable human insulin analog; Iletin, an animal-source insulin; Actos, an oral agent for Type 2 diabetes that is manufactured by Takeda Chemical Industries of Japan and co-marketed by Lilly and Takeda; and Byetta, a treatment for Type 2 diabetes. Lilly shares in the profits from Byetta with Amylin Pharmaceuticals, co-developer of the drug. This group also includes Evista ($1.0 billion) and Forteo ($817 million) treatments for osteoporosis; and Humatrope, a recombinant human growth hormone. Other important drugs are Gemzar, a treatment for lung cancer and pancreatic cancer (sales of $1.4 billion); Cialis, a treatment for erectile dysfunction ($1.6 billion); and Alimta, a treatment for lung cancer ($1.7 billion). Animal health products ($1.2 billion) include cattle feed additives, antibiotics and related items.

Endocrinology products (sales of $5.7 billion in 2009) include Humulin, a human insulin produced through recombinant DNA technology; Humalog, a Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.30 5.12 3.94 4.03 1.96 50% 40.78 27.21 10 7

2008 2.45 -1.05 -1.89 -1.38 1.88 NM 57.52 28.62 NM NM

2007 10.64 3.49 2.71 2.78 1.70 63% 61.00 49.09 23 18

2006 9.70 3.06 2.45 2.90 1.60 65% 59.24 50.19 24 20

2005 9.55 2.41 1.83 1.85 1.52 83% 60.98 49.47 33 27

2004 9.51 2.21 1.66 1.42 1.42 86% 76.95 50.34 46 30

2003 8.69 2.87 2.37 2.09 1.34 57% 73.89 52.77 31 22

2002 7.37 2.85 2.50 1.96 1.24 50% 81.09 43.75 32 17

2001 6.32 2.91 2.58 2.17 1.12 43% 95.00 70.01 37 27

2000 5.37 3.18 2.79 NA 1.04 37% 109.00 54.00 39 19

21,836 7,668 1,298 261 5,358 19.2% 4,329 4,421

20,378 6,525 925 277 -1,308 NM -2,072 -1,523

18,634 5,658 855 324 3,877 23.8% 2,953 3,028

15,691 4,927 802 Nil 3,418 22.1% 2,663 3,153

14,645 4,375 726 105 2,718 26.3% 2,002 2,016

13,858 4,256 598 274 2,942 38.5% 1,810 1,558

12,583 4,050 548 61.0 3,262 21.5% 2,561 2,261

11,078 3,821 493 79.7 3,458 21.7% 2,708 2,128

11,543 4,185 455 147 3,552 20.9% 2,809 2,359

10,862 3,996 436 182 3,859 20.8% 3,058 NA

Balance Sheet & Other Financial Data (Million $) Cash 4,498 Current Assets 12,487 Total Assets 27,461 Current Liabilities 6,568 Long Term Debt 6,609 Common Equity 9,524 Total Capital 16,141 Capital Expenditures 765 Cash Flow 5,627 Current Ratio 1.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 19.8 % Return on Assets NA % Return on Equity NA

5,926 12,453 29,213 13,110 4,616 6,735 11,771 947 -1,147 1.0 39.2 NM NM NM

4,831 12,257 26,788 5,268 4,594 13,664 18,545 1,082 3,808 2.3 24.8 15.9 12.1 24.0

3,109 9,694 21,955 5,086 3,494 11,081 14,638 1,078 3,465 1.9 23.9 17.0 11.4 24.2

3,007 10,796 24,581 5,716 5,764 11,000 17,459 1,298 2,728 1.9 33.0 13.7 8.1 18.1

5,365 12,836 24,867 7,594 4,492 10,920 16,032 1,898 2,408 1.7 28.0 13.1 7.8 17.5

2,756 8,759 21,678 5,551 4,688 9,765 14,453 1,707 3,109 1.6 32.4 20.4 12.6 28.4

1,946 7,804 19,042 5,064 4,358 8,274 12,632 1,131 3,201 1.5 34.5 24.4 15.3 35.2

2,702 6,939 16,434 5,203 3,132 7,104 10,236 884 3,264 1.3 30.6 24.3 18.1 42.7

4,115 7,943 14,691 4,961 2,634 8,682 11,407 678 3,494 1.6 23.1 28.2 22.2 44.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Lilly Corporate Center, Indianapolis, IN 46285. Telephone: 317-276-2000. Website: http://www.lilly.com Chrmn, Pres & CEO: J. Lechleiter

EVP & CFO: D.W. Rice SVP & Treas: T.W. Grein SVP & General Counsel: R.A. Armitage SVP & Cntlr: E. O'Farrell

Investor Contact: P. Johnson (317-277-0001) Board Members: R. Alvarez, W. Bischoff, M. L. Eskew, M. Feldstein, J. E. Fyrwald, A. G. Gilman, R. D. Hoover, K. N. Horn, J. Lechleiter, E. R. Marram, D. R. Oberhelman, F. G. Prendergast, K. P. Seifert

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1876 Domicile: Indiana Employees: 39,337

Stock Report | October 23, 2010 | NYS Symbol: LTD | LTD is in the S&P 500

Limited Brands Inc. S&P Recommendation HOLD

★★★★★

Price $29.06 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel Retail

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary This specialty retailer of women's apparel, lingerie, and personal care and beauty products operates about 3,000 specialty stores.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.95– 16.28 Trailing 12-Month EPS $2.00 Trailing 12-Month P/E 14.5 $10K Invested 5 Yrs Ago $18,599

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.78 2.00 16.3 322.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.380 2.06 $0.60 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.71 8 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects LTD's strong cash flow, offset by execution risk given the company's attempt to re-position its Victoria's Secret brand in an increasingly competitive marketplace.

30 20 15 10

Quantitative Evaluations S&P Quality Ranking

Vol.

D

C

B-

B+ B

B+

A-

A

A+

Mil. 45 30 15 0 5

Relative Strength Rank

STRONG 77

LOWEST = 1

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on August 24, 2010, when the stock traded at $ 24.84. Highlights ➤

➤

➤

We see LTD's ability to execute the retail fundamentals of 'read and react' to consumer demand, disciplined inventory and cost management along with its leading intimate apparel and personal care brands driving sales and profit gains in FY 11(Jan.) and FY 12. These strategies support improved full price selling and maintained merchandise margins. Longterm growth opportunities include potential line extensions, sub-brands, and global expansion for Victoria's Secret, Pink, and Bath & Body Works. LTD reported FY 10 (Jan.) sales of $8.63 billion, down 5% while same store sales decreased 4%. We see a 9% sales gain in FY 11 on fewer stores, a 5% comp gain and international sales. For FY 12, we look 6% sales growth. We see 220 basis points of operating margin expansion in FY 11 to 12.1%, driven by improved gross margins and modest SG&A expense leverage. We expect continued inventory management and improved merchandise margins although sourcing costs should escalate in FY 12 with higher cotton prices. We see another 20 bps in FY 12 and note LTD achieved a 200 bps EBIT margin expansion in FY 10.

Investment Rationale/Risk ➤

➤

➤

LTD entered the second half of FY 11 increasing August comp sales guidance to 5% to 8% from 1 to 3%, a testament to the growing brand momentum at Victoria's Secret and Pink, where comps rose 12% in the first half, despite shorter sales periods and shallower promotions. We see continued focus on cost controls while developing new concepts. La Senza (acquired in FY 08) launched LTD into the international intimate apparel market, providing a platform for further global expansion, which we believe will be important given the relative maturity of LTD's domestic retail concepts. Risks to our recommendation and target price include fashion and inventory risk, consumer spending trends, and weak same-store sales trends. With an estimated 60%+ of LTD's profits earned in the fiscal fourth quarter, we think earnings risk is heightened. We derive our $30 target price by applying LTD's historical five-year forward P/E multiple of 15X to our FY 12 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,932 2,242 2010 1,725 2,067 2009 1,925 2,284 2008 2,311 2,624 2007 2,077 2,454 2006 1,975 2,291

3Q -1,777 1,843 1,923 2,115 1,892

4Q -3,063 2,991 3,276 4,025 3,542

Year -8,632 9,043 10,134 10,671 9,699

Earnings Per Share ($) 2011 0.34 0.54 2010 -0.01 0.23 2009 0.28 0.30 2008 0.13 0.30 2007 0.25 0.28 2006 0.16 0.20

E0.06 -0.05 0.01 -0.03 0.06 Nil

E1.12 1.08 0.05 1.10 1.08 1.28

E1.78 1.37 0.65 1.89 1.68 1.62

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 1.0 Spl. 0.150 0.150

02/04 03/15 05/28 08/16

02/24 03/31 06/02 08/25

02/26 04/05 06/04 08/27

03/12/10 04/19/10 06/15/10 09/10/10

Dividends have been paid since 1970. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: LTD

Limited Brands Inc. Business Summary August 24, 2010 CORPORATE OVERVIEW. Limited Brands (formerly The Limited) is a specialty retailer that conducts its business in two primary segments: Victoria's Secret, a women's intimate apparel, personal care products and accessories retail brand; and Bath & Body Works, a personal care and home fragrance products retail brand. At January 31, 2010, the store base consisted of 1,027 Victoria's Secret, 258 La Senza, 17 Pink, 1,655 Bath & Body Works, 11 Henri Bendel and three C.O. Bigelow locations. Victoria's Secret (VS) is the leading specialty retailer of women's intimate apparel and beauty products, with FY 10 sales of $5.3 billion, which includes $1.4 billion at Victoria's Secret Direct, a catalog and e-commerce retailer of women's intimate and other apparel and beauty products and $424 million at La Senza. Bath & Body Works (BBW) is a specialty retailer of personal care and home fragrance products. FY 10 sales were $2.4 billion, including White Barn Candle Company.

MARKET PROFILE. The mature and fragmented U.S. women's apparel market generated about $104 billion at retail in 2009, according to NPD Fashionworld consumer estimated data. S&P forecasts that apparel sales will increase about 2% in 2010 following a 5% drop in 2009, a 4% decline in 2008 and 4% gains in 2006 and 2007, based on NPD data. For 2010, we see weak demand reflecting a weak economy with increased unemployment and deflationary pricing driving reduced apparel spending. The domestic personal care market is mature as well, with the demand function reflecting population trends in addition to the development of new categories.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 0.46 2.57 1.37 1.34 0.60 49% 2009 20.08 5.98 15 4

2009 NM 1.77 0.65 0.86 0.60 44% 2008 22.16 6.90 34 11

2008 NM 2.82 1.89 1.47 0.79 42% 2007 30.03 16.50 16 9

2007 2.34 2.46 1.68 1.68 0.60 36% 2006 32.60 21.62 19 13

2006 1.69 2.45 1.62 1.57 0.48 30% 2005 25.50 18.81 16 12

2005 1.31 2.17 1.47 1.27 0.40 27% 2004 27.89 17.35 19 12

2004 6.78 1.90 1.36 1.03 0.40 29% 2003 18.46 10.88 14 8

2003 5.93 1.48 0.95 0.94 0.30 32% 2002 22.34 12.53 24 13

2002 6.40 1.83 0.94 0.80 0.30 32% 2001 21.29 9.00 23 10

2001 5.43 1.58 0.96 0.91 0.30 31% 2000 27.88 14.44 29 15

8,632 1,255 393 237 641 37.3% 402 436

9,043 1,095 377 181 450 51.9% 220 291

10,134 1,232 352 149 1,107 37.1% 718 561

10,671 1,492 316 102 1,097 38.5% 675 675

9,699 1,285 299 94.0 960 30.3% 669 638

9,408 1,360 333 58.0 1,116 36.8% 705 609

8,934 1,246 28.3 62.0 1,166 38.5% 717 540

8,445 1,148 276 30.0 843 40.5% 496 492

9,363 1,025 277 34.0 968 39.8% 519 352

10,105 1,148 272 58.0 828 40.0% 428 406

Balance Sheet & Other Financial Data (Million $) Cash 1,804 Current Assets 3,250 Total Assets 7,173 Current Liabilities 1,322 Long Term Debt 2,772 Common Equity 2,183 Total Capital 4,958 Capital Expenditures 202 Cash Flow 841 Current Ratio 2.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 4.7 % Return on Assets NA % Return on Equity NA

1,173 2,867 6,972 1,255 2,897 1,874 4,985 479 597 2.3 58.1 2.4 3.1 10.8

1,018 2,919 7,437 1,374 2,905 2,219 5,354 749 1,070 2.1 54.3 7.1 9.9 27.8

500 2,771 7,093 1,709 1,665 2,955 4,864 548 991 1.6 35.5 6.3 10.1 24.9

1,208 2,784 6,346 1,575 1,669 2,471 4,319 480 968 1.8 38.6 6.9 10.8 27.9

1,161 2,684 6,089 1,451 1,646 2,335 4,191 431 1,038 1.8 39.3 7.5 10.1 18.6

3,129 4,433 7,873 1,392 648 5,266 6,048 293 1,000 3.2 10.7 8.0 9.5 14.2

2,262 3,606 7,246 1,259 547 4,860 5,532 306 772 2.9 9.9 5.9 8.0 13.0

1,375 2,682 4,719 1,319 250 2,744 3,171 337 796 2.0 7.9 5.5 11.8 20.5

563 2,068 4,088 1,000 400 2,317 2,860 446 700 2.1 14.0 4.2 10.4 19.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Three Limited Parkway, PO Box 16000, Columbus, OH 43216. Telephone: 614-415-7000. Website: http://www.limitedbrands.com Chrmn & CEO: L.H. Wexner

EVP & CFO: S.B. Burgdoerfer EVP & Chief Admin Officer: M.R. Redgrave SVP & Secy: S.P. Fried SVP & General Counsel: D.L. Williams

Investor Contact: T.J. Faber () Board Members: D. S. Hersch, J. L. Heskett, D. A. James, D. T. Kollat, W. R. Loomis, Jr., J. H. Miro, A. R. Tessler, A. S. Wexner, L. H. Wexner, R. Zimmerman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Delaware Employees: 92,100

Stock Report | October 23, 2010 | NYS Symbol: LNC | LNC is in the S&P 500

Lincoln National Corp

★★★★★

S&P Recommendation BUY

Price $26.01 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $33.00

Investment Style Large-Cap Value

Summary This company offers annuities, life insurance, defined contribution plans, and related advisory services to affluent individuals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.55– 20.65 Trailing 12-Month EPS $1.92 Trailing 12-Month P/E 13.6 $10K Invested 5 Yrs Ago $5,952

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.56 4.00 7.3 316.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.54 11 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

MEDIUM

HIGH

Our risk assessment reflects LNC's significant exposure to the equity markets and potential for elevated investment losses. We also believe the company's financial flexibility is limited relative to peers. However, we think LNC's capital position has improved substantially following equity and debt issuances, and the rebound in the financial markets. We are also encouraged that LNC repaid the government's TARP preferred investment sooner than we anticipated.

40 20 10 5

Vol. 123

Mil.

LOW

Below Avg.

80

45 30 15 0 5

$8.238 0.15 $0.04 80

Quantitative Evaluations 4

3

2

3

S&P Quality Ranking

4

D

C

B-

B B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

MODERATE

2010 Options: ASE, CBOE, P, Ph

62 LOWEST = 1

HIGHEST = 99

Analysis prepared by Bret Howlett on August 12, 2010, when the stock traded at $ 22.97. Highlights ➤

➤

➤

We see operating earnings in Life Insurance increasing 6%-7% in 2010, led by solid sales of traditional life insurance and the new Moneyguard product, and higher investment income. We expect earnings in Annuities to benefit from strong sales and flows of variable annuities, as well as higher fee income. However, we forecast a sharp drop in fixed annuity sales due to the low interest rate environment. We believe product and distribution enhancements should drive modest earnings growth in Defined Contribution, although the weak macroenvironment is likely to weigh on sales. We remain cautious in our earnings outlook for the Group Protection since high unemployment should pressure enrollment levels and increase product loss ratios. However, we see strong life and dental product sales in the unit. We forecast underwriting spreads to improve in the second half of the year as mortality normalizes. We expect higher reinsurance costs and limited financing solutions to remain a headwind for the Insurance division. We forecast operating EPS of $3.56 for 2010 and $4.00 for 2011. Our estimates exclude realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

Our buy recommendation is based on our belief that LNC's valuation is attractive, with the stock recently trading at a sizable discount to the group. We believe the rebound in the financial markets, the substantial amount of capital LNC raised though debt and equity offerings, and lower impairments and unrealized investment losses, have strengthened the company's financial position considerably. With over 40% of LNC's earnings derived from the equity markets, we believe the appreciation in the stock market from last year's lows has restored the core earnings power of the franchise. We expect LNC's top-line trends to improve, driven by the strength of its internal sales force, product enhancements, and partnerships with thirdparty distribution channels. Risks to our opinion and target price include a significant decline in equity markets, narrowerthan-expected product spreads, deterioration in life insurance and annuity sales, instability in the credit markets, and investment impairments. Our 12-month target price of $33 is 0.9X LNC's projected 2010 book value (excluding FAS-115), below the historical multiple.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,527 2,605 2009 2,132 1,882 2008 2,592 2,582 2007 2,670 2,740 2006 1,417 2,496 2005 1,313 1,373

3Q -20,082 2,436 2,681 2,487 1,413

4Q -2,403 2,273 2,606 2,658 1,388

Year -8,499 9,883 10,594 9,063 5,488

Earnings Per Share ($) 2010 0.76 0.32 2009 -2.30 -0.03 2008 1.12 0.48 2007 1.42 1.37 2006 1.24 1.23 2005 1.01 1.13

E0.86 0.21 0.58 1.21 1.29 1.30

E0.96 0.26 -1.98 0.89 1.36 1.28

E3.56 -1.60 0.24 4.82 5.13 4.72

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

11/05 02/23 05/28 08/12

01/07 04/07 07/07 10/06

01/11 04/09 07/09 10/08

02/01/10 05/01/10 08/01/10 11/01/10

Dividends have been paid since 1920. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: LNC

Lincoln National Corp Business Summary August 12, 2010 CORPORATE OVERVIEW. Lincoln National is a holding company with subsidiaries that operate multiple insurance and investment management businesses. Primary operating subsidiaries include The Lincoln National Life Insurance Company, First Penn-Pacific Life Insurance Company, Lincoln Life & Annuity Company of New York, Lincoln Financial Advisors (LFA), a retail distribution unit, and Lincoln Financial Distributors (LFD), a wholesale distribution unit.

anteed withdrawal benefit (GWB), and a guaranteed income benefit (GIB). The Defined Contribution segment provides employers tax-deferred retirement savings plans for their employees mainly through 403 (b) and 401 (k) plans. LNC offers a number of savings products including individual and group variable annuities, group fixed annuities and mutual funds. In addition, the company provides a variety of plan services including record keeping, compliance testing and participant education.

Following the acquisition of Jefferson-Pilot in April 2006, LNC's segments were restructured. In 2008, LNC's businesses were realigned again, and operations were divided into five business segments. However, following the sale of Lincoln U.K. and Delaware Management in 2009, LNC now has three operating segments: Retirement Solutions (33% of 2009 operating revenue), Insurance Solutions (62%), and Other Operations (5.5%).

The Insurance Solutions segment provides products through its Life Insurance (44%) and Group Protection businesses (18%). The life insurance business targets the affluent market, and underwrites and sells universal life, variable universal life, interest-sensitive whole life, corporate-owned life insurance (COLI), term life insurance, and linked products such as universal life linked with long-term care benefits. The Group Protection business offers group non-medical insurance products to the employer marketplace.

The Retirement Solutions segment offers products through two segments: Annuities (which accounted for 24% of operating revenues in 2009) and Defined Contribution (9.5%). LNC offers guaranteed benefit riders on some of its variable annuity products including the guaranteed death benefit (GDB), a guarCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.40 NA -1.60 3.85 0.24 NM 28.10 4.90 NM NM

2008 15.13 NA 0.24 1.83 1.66 NM 59.99 4.76 NM NM

2007 15.20 NA 4.82 4.78 1.58 31% 74.72 54.40 15 11

2006 27.92 NA 5.13 5.05 1.52 30% 66.72 52.00 13 10

2005 22.47 NA 4.72 4.71 1.46 31% 54.41 41.59 12 9

2004 22.25 NA 4.09 3.78 1.40 34% 50.38 39.98 12 10

2003 18.74 NA 2.85 4.36 1.34 47% 41.32 24.73 14 9

2002 15.62 2.56 0.49 1.16 1.28 NM 53.65 25.11 NM NM

2001 14.10 3.56 3.13 3.10 1.22 39% 52.75 38.00 17 12

2000 11.06 3.27 3.19 NA 1.16 36% 56.38 22.63 18 7

802,900 3,909 1,077 4,178 8,499 -521 NA -415 1,074

781,400 4,271 1,054 4,208 9,883 -25.6 NA 61.8 475

748,200 4,258 941 4,384 10,594 1,874 NA 1,321 1,311

702,600 3,354 656 3,981 9,063 1,811 NA 1,316 1,298

339,100 2,069 1.30 2,702 5,488 1,075 NA 831 831

325,700 1,882 3.52 2,704 5,371 1,036 NA 732 675

307,800 1,694 3.98 2,639 5,284 1,048 NA 767 782

873,595 1,730 20.3 2,608 4,635 1.62 474 91.6 215

651,900 2,907 341 2,680 6,381 764 689 606 600

637,100 3,064 410 2,747 6,852 836 639 621 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 4,914 Premiums Due 321 Investment Assets:Bonds 60,818 Investment Assets:Stocks 278 Investment Assets:Loans 10,250 Investment Assets:Total 75,918 Deferred Policy Costs 9,510 Total Assets 177,433 Debt 5,050 Common Equity 10,894 % Return on Revenue NM % Return on Assets NM % Return on Equity NM % Investment Yield 5.9

6,758 481 48,935 288 10,639 67,341 11,936 163,136 6,758 7,976 0.6 0.0 0.6 6.2

2,508 401 56,276 518 10,258 71,922 9,580 191,435 5,168 11,718 12.5 0.7 11.1 6.1

2,487 356 55,853 701 10,144 71,488 8,420 178,494 4,116 71,017 14.5 0.1 2.3 6.8

2,838 343 33,443 3,391 5,525 43,168 4,092 124,788 1,333 6,384 15.1 0.1 13.2 6.1

2,187 233 34,701 3,399 5,728 44,507 3,445 116,219 1,083 6,175 13.6 0.1 12.2 6.8

2,234 352 32,769 3,319 6,119 42,778 3,192 106,745 1,459 5,811 14.5 0.1 13.8 7.1

2,227 213 32,767 337 6,151 40,000 2,971 93,133 1,512 5,296 2.0 0.1 1.7 6.9

3,659 400 28,346 471 6,475 36,113 2,885 98,001 1,336 5,263 9.5 0.6 11.9 7.5

2,474 297 27,450 550 6,624 35,369 3,071 99,844 1,457 4,953 9.1 0.6 13.5 7.7

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 150 N Radnor Chester Rd Ste A305, Radnor, PA 19087-5238. Telephone: 484-583-1400. Email: [email protected] Website: http://www.lfg.com

Chrmn: W.H. Cunningham Pres & CEO: D.R. Glass SVP & General Counsel: N.S. Jones CFO: F.J. Crawford

Chief Acctg Officer & Cntlr: D.N. Miller Founded: 1905 Board Members: W. J. Avery, W. H. Cunningham, D. R. Domicile: Indiana Glass, G. W. Henderson, III, E. G. Johnson, G. C. Employees: 8,208 Kelly, M. L. Lachman, M. F. Mee, W. Payne, P. S. Pittard, D. A. Stonecipher, I. Tidwell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: LLTC | LLTC is in the S&P 500

Linear Technology Corp S&P Recommendation HOLD

★★★★★

Price $30.91 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $31.00

Investment Style Large-Cap Growth

Summary This company manufactures high-performance linear integrated circuits.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.06– 25.56 Trailing 12-Month EPS $1.91 Trailing 12-Month P/E 16.2 $10K Invested 5 Yrs Ago $9,777

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.33 2.46 13.3 224.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.938 2.98 $0.92 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.07 25 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to the sales cycles of the semiconductor industry. This is offset by stabilizing factors such as a high level of proprietary circuit design content, a varied customer base, diverse end markets, and wider margins than most competitors.

40

30 25 20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 5 3

4

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Clyde Montevirgen on October 14, 2010, when the stock traded at $ 30.69. Highlights We think revenues will rise 30% in FY 11 (Jun.) , versus a 21% rise for FY 10. Although we anticipate slower orders over the near-term as customers adjust inventory and orders to LLTC's lower leadtimes, we believe that sales will be supported by strength in its industrial, automotive, computer and communications businesses. Generally, we think that the proliferation of semiconductors in electronic devices throughout all end markets, market share gains, and new product cycles, such as tablet computers, will aid revenue advances. We look for the gross margin to widen to 78% for FY 11 from 77% for FY 10, due largely to a more favorable sales mix and other efficiencies. However, we think capacity expansion will add business risks, and could lead to wider margin variability if revenues shift. We believe expenses will advance at a slower rate than sales, and expect the operating margin to expand to 50% from 48% during the same time frame. Our EPS projections assume an effective tax rate of around 28%, and include over $0.20 per share of stock-based compensation.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

AB

42 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

Our hold opinion reflects our view of the company's solid and profitable business model, balanced by fair valuations. One of the better-run semiconductor companies, in our view, with relatively high margins, LLTC has been able to grow sales at an above industry pace through penetrating a broader range of markets, all while maintaining above-peer profitability. We believe LLTC generally offers less business risk than peers, and has more than enough cash and healthy free cash flows to reduce financial risks related to its leverage. However, with our view that operations are already highly efficient and will offer relatively less operating leverage moving forward, we see earnings growth trailing the industry's in calendar 2011. Risks to our recommendation and target price include increasing competition, higherthan-anticipated operating expenses, and worse-than-expected economic conditions. Our 12-month target price of $31 is based on a price-to-earnings multiple of around 14X, above the industry average to account for LLTC's relative growth, return on equity, and risk, applied to our calendar 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 388.6 -2010 236.1 256.4 2009 310.4 249.2 2008 281.5 288.7 2007 292.1 267.9 2006 256.0 265.2

3Q -311.3 200.9 297.9 255.0 278.9

4Q -366.2 208.0 307.1 268.1 292.9

Year -1,170 968.5 1,175 1,083 1,093

Earnings Per Share ($) 2011 0.59 E0.57 2010 0.27 0.33 2009 0.48 0.43 2008 0.40 0.41 2007 0.37 0.34 2006 0.31 0.33

E0.57 0.44 0.25 0.44 0.32 0.35

E0.57 0.54 0.25 0.46 0.36 0.37

E2.33 1.58 1.41 1.71 1.39 1.37

Fiscal year ended Jun. 30. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.230 0.230 0.230 0.230

01/12 04/13 07/20 10/12

02/10 05/12 08/11 11/09

02/12 05/14 08/13 11/12

02/24/10 05/26/10 08/25/10 11/24/10

Dividends have been paid since 1992. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: LLTC

Linear Technology Corp Business Summary October 14, 2010 CORPORATE OVERVIEW. Linear Technology Corp. (LLTC) designs, makes and markets a broad line of high-performance standard linear integrated circuits (ICs) that address a wide range of real-world signal processing applications. Its principal product lines include operational and high-speed amplifiers, voltage regulators, voltage references, data converters, interface circuits, and other linear circuits, including buffers, battery monitors, comparators, drivers and filters. LLTC's products are used in a wide variety of applications, including wireless and wireline telecommunications, networking, satellite systems, notebook and desk-top PCs, computer peripherals, video/multimedia, industrial instrumentation, medical devices, and high-end consumer products such as digital cameras and MP3 players. The company has consistently expanded its customer base throughout its history. LLTC initially served primarily an industrial customer base, with a high percentage of revenues from the military market. Since the late 1980s, new products led to growth in the PC and hand-held device markets, and commu-

nication and networking markets contributed to growth significantly in recent years. The company now sells its products to more than 15,000 original equipment manufacturers directly or through a sales distributor channel. Its largest customer in FY 09 (Jun.) was the distributor Arrow Electronics, which accounted for 12% of total revenue. No other single company comprised over 10% of sales. Linear has fabrication plants in Camas, WA, and Milpitas, CA. The company currently produces semiconductors on six-inch diameter (150 millimeter) wafers. Processed wafers are then shipped to its assembly plant in Penang, Malaysia, or other independent assembly contractors for "back-end" functions such as separating and packaging. The chips are then sent to its Singapore facility for final testing and inspection. The process from manufacturing to final testing can take up to 16 weeks.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 0.11 1.78 1.58 1.58 0.90 57% 33.06 25.87 21 16

2009 NM 1.63 1.41 1.41 0.86 61% 31.07 20.26 22 14

2008 NM 1.93 1.71 1.71 0.78 46% 37.77 17.69 22 10

2007 NM 1.56 1.39 1.39 0.66 47% 38.84 29.62 28 21

2006 6.94 1.53 1.37 1.37 0.50 36% 39.35 27.80 29 20

2005 6.55 1.53 1.38 0.99 0.36 26% 41.67 32.83 30 24

2004 5.87 1.17 1.02 0.79 0.28 27% 45.09 34.01 44 33

2003 5.80 0.88 0.74 0.50 0.21 28% 44.80 24.76 61 33

2002 5.63 0.74 0.60 0.40 0.17 28% 47.50 18.92 79 32

2001 5.59 1.39 1.29 1.10 0.13 10% 65.13 29.45 50 23

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,170 609 45.5 75.4 490 NA 361 361

968 464 48.0 52.3 407 23.0% 314 314

1,175 617 48.1 57.8 541 28.4% 388 388

1,083 575 50.7 12.1 570 27.8% 412 412

1,093 613 49.3 Nil 617 30.5% 429 429

1,050 638 48.8 Nil 620 30.0% 434 311

807 485 48.7 Nil 462 29.0% 328 253

607 340 45.9 Nil 333 29.0% 237 161

512 271 46.3 Nil 278 29.0% 198 132

973 582 35.8 Nil 611 30.0% 427 366

Balance Sheet & Other Financial Data (Million $) Cash 958 Current Assets 1,264 Total Assets 1,591 Current Liabilities 583 Long Term Debt 767 Common Equity 39.8 Total Capital 1,200 Capital Expenditures 38.3 Cash Flow 407 Current Ratio 2.2 % Long Term Debt of Capitalization 63.9 % Net Income of Revenue 30.9 % Return on Assets 24.0 % Return on Equity NM

869 1,089 1,422 125 1,406 -267 1,202 39.1 362 8.7 116.9 32.4 20.9 NM

967 1,246 1,584 175 1,700 -434 1,308 35.3 436 7.1 130.0 33.0 27.7 NM

156 861 1,219 180 1,700 -708 1,005 62.0 462 4.8 169.2 38.0 22.8 59.0

541 2,077 2,391 237 Nil 2,104 2,104 69.4 478 8.8 Nil 39.2 18.3 20.9

323 2,007 2,286 208 Nil 2,007 2,007 62.1 483 9.7 Nil 41.3 19.8 22.7

204 1,832 2,088 203 Nil 1,811 1,811 20.7 377 9.0 Nil 40.7 15.8 18.1

136 1,776 2,057 162 Nil 1,815 1,815 6.61 282 11.0 Nil 39.0 11.7 13.2

212 1,728 1,988 169 Nil 1,781 1,819 17.9 244 10.2 Nil 38.6 9.9 11.1

321 1,728 2,017 202 Nil 1,782 1,815 128 463 8.5 Nil 43.9 24.3 27.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1630 McCarthy Boulevard, Milpitas, CA 95035-7487. Telephone: 408-432-1900. Website: http://www.linear.com Chrmn: R.H. Swanson, Jr.

CEO: L. Maier COO: A.R. McCann Investor Contact: P. Coghlan (408-432-1900) CFO, Chief Acctg Officer & Secy: P. Coghlan

Board Members: A. C. Agnos, J. Gordon, D. S. Lee, L. Maier, R. M. Moley, R. H. Swanson, Jr., T. S. Volpe

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1981 Domicile: Delaware Employees: 4,191

Stock Report | October 23, 2010 | NYS Symbol: LMT | LMT is in the S&P 500

Lockheed Martin Corp S&P Recommendation HOLD

★★★★★

Price $71.78 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $75.00

Investment Style Large-Cap Growth

Summary This company, the world's largest military weapons manufacturer, is also a significant supplier to NASA and other non-defense government agencies. LMT receives about 93% of its revenues from global defense sales.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $87.19– 67.39 Trailing 12-Month EPS $7.90 Trailing 12-Month P/E 9.1 $10K Invested 5 Yrs Ago $13,175

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.89 7.00 10.4 362.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$26.020 4.18 $3.00 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.04 2 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's leading position in military markets and our view of a relatively health balance sheet, with $5 billion of long-term debt as of June 2010, but $3.6 billion of cash and equivalents. However, our risk evaluation also factors Lockheed's dependence on government funding, which can change with political and economic priorities.

120 100 80

60

Vol.

Quantitative Evaluations

Mil. 24 16 8 0

S&P Quality Ranking D 4

5

3

2

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE

31

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

➤

The 12-month target price for LMT has recently been changed to $75.00 from $82.00. The Highlights section of this Stock Report will be updated accordingly.

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

A+

3

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on LMT from MarketScope, see below.

➤

10/19/10 01:13 pm ET ... S&P REITERATES HOLD OPINION ON SHARES OF LOCKHEED MARTIN (LMT 69.0***): Q3 EPS of $1.72, vs. $2.04, was $0.13 above our view, excluding a net $0.17 charge for a voluntary executive separation program. We see LMT taking aggressive steps (including the VESP) to re-align itself for the "new reality" of tight federal spending. We are reducing our '10 EPS est by $0.41 to $6.89, on VESP charge and discontinuation of PAE and EIG businesses, and '11's by $0.85 to $7.00, to reflect defense budget pressure. We also reduce our target price by $7 to $75. However, with valuations well below historical averages and a 3.7% dividend yield, our opinion is hold. / R.Tortoriello

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 10,637 11,442 2009 10,373 11,236 2008 9,983 11,039 2007 9,275 10,651 2006 9,214 9,961 2005 8,488 9,295

3Q -11,056 10,577 11,095 9,605 9,201

4Q -12,524 11,132 10,841 10,840 10,229

Year -45,189 42,731 41,862 39,620 37,213

Earnings Per Share ($) 2010 1.45 1.96 2009 1.68 1.88 2008 1.75 2.15 2007 1.60 1.82 2006 1.34 1.34 2005 0.83 1.02

E1.55 2.07 1.92 1.80 1.46 0.96

E2.00 2.17 2.05 1.89 1.68 1.29

E6.89 7.78 7.86 7.10 5.80 4.10

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.630 0.630 0.630 0.750

01/28 04/22 06/24 09/23

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

03/26/10 06/25/10 09/24/10 12/31/10

Dividends have been paid since 1995. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LMT

Lockheed Martin Corp Business Summary July 30, 2010 CORPORATE OVERVIEW. Lockheed Martin is the world's largest military weapons maker. In 2009, the company derived 85% of its net sales from the U.S. government, including the Department of Defense (DoD) as well as nonDoD agencies. Sales to foreign governments contributed 13% of net sales, with 2% of net sales to commercial and other customers. Lockheed Martin conducts business through four operating segments: The Aeronautics segment (27% of revenues and 30% of operating profits in 2009) primarily makes fighter jets and military transport planes. Major development and production programs include the F-35 Lightning II, the F-22 Raptor, the F-16 Fighting Falcon, and the C-130J Super Hercules transport. F-22 production will be completed in 2012. In addition, LMT's "Skunk Works" research & development laboratory is well known for its advanced R&D efforts. It is currently focused on unmanned military aircraft and long-range bombers, among other initiatives.

About 39% of the segment's 2009 sales came from maritime systems & sensors, with another 39% from missiles & fire control products. Major current programs include the Terminal High-Altitude Area Defense System (THAAD), the Patriot Advanced Capability (PAC-3) missile, the AEGIS Ballistic Missile Defense system, and the Littoral Combat Ship. Space Systems (19% and 19%) mostly makes satellites, strategic and defensive missile systems and space transportation systems. Satellites include both government and commercial products. Space transportation systems include NASA's next-generation space flight systems, including the Orion crew exploration vehicle. Satellites accounted for 67% of segment sales in 2009. LMT is the prime contractor for the Space-Based Infrared System (SBIRS) missile detection program and the Advanced Extremely High Frequency (AEHF) communications system. LMT's 50/50 joint venture with Boeing, the United Launch Alliance, provides satellite launch services to the U.S. government.

Electronic Systems (27% and 31%) primarily makes land-, sea- and air-based missiles and missile defense systems. Other offerings include various electronic surveillance, reconnaissance, and command and control systems. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 9.97 7.78 8.23 2.34 30% 87.06 57.41 11 7

2008 NM 9.92 7.86 4.07 1.83 23% 120.30 67.38 15 9

2007 NM 9.02 7.10 6.65 1.47 21% 113.74 88.86 16 13

2006 NM 7.55 5.80 5.70 1.25 22% 93.24 62.52 16 11

2005 NM 5.68 4.10 4.11 1.05 26% 65.46 52.54 16 13

2004 NM 4.39 2.83 3.23 0.91 32% 61.77 43.10 22 15

2003 NM 3.69 2.34 2.20 0.58 25% 58.95 40.64 25 17

2002 NM 2.40 1.18 -0.78 0.44 37% 71.52 45.85 61 39

2001 NM 2.08 0.18 -2.29 0.44 NM 52.98 31.00 NM NM

2000 NM 1.36 -1.05 NA 0.44 NM 37.58 16.50 NM NM

45,189 5,062 859 305 4,284 29.4% 3,024 3,198

42,731 5,494 845 341 4,702 31.6% 3,217 1,666

41,862 5,032 819 352 4,368 30.6% 3,033 2,844

39,620 4,198 764 361 3,592 29.6% 2,529 2,486

37,213 3,242 705 370 2,616 30.2% 1,825 1,830

35,526 2,624 656 425 1,664 23.9% 1,266 1,448

31,824 2,585 609 487 1,532 31.3% 1,053 994

26,578 2,507 558 581 577 7.63% 533 -353

23,990 2,366 823 700 188 58.0% 79.0 -989

25,329 2,582 968 919 286 NM -424 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,391 Current Assets 12,477 Total Assets 35,105 Current Liabilities 10,703 Long Term Debt 5,052 Common Equity 4,129 Total Capital 9,181 Capital Expenditures 852 Cash Flow 3,878 Current Ratio 1.2 % Long Term Debt of Capitalization 55.0 % Net Income of Revenue 6.7 % Return on Assets 8.8 % Return on Equity 86.5

2,229 10,683 33,434 10,542 3,563 2,865 6,428 926 4,062 1.0 55.4 7.5 10.3 50.8

2,981 10,940 28,926 9,871 4,303 9,805 14,108 940 3,852 1.1 30.5 7.3 10.6 36.4

1,912 10,164 28,231 9,553 4,405 6,884 11,289 893 3,293 1.1 39.0 6.4 9.0 34.3

2,244 10,529 27,744 9,428 4,784 7,867 12,651 865 2,530 1.1 37.8 4.9 6.8 24.5

1,060 8,953 25,554 8,566 5,104 7,021 12,125 769 1,922 1.0 42.1 3.6 4.9 18.4

1,010 9,401 26,175 8,893 6,072 6,756 12,828 687 1,662 1.1 47.3 3.3 4.0 16.7

2,738 10,626 25,758 9,821 6,217 5,865 12,082 662 1,091 1.1 51.5 2.0 2.0 8.7

912 10,778 27,654 9,689 7,422 6,443 14,857 619 902 1.1 50.0 0.3 0.3 1.2

1,505 11,259 30,349 10,175 9,065 7,160 16,961 500 544 1.1 53.4 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6801 Rockledge Drive, Bethesda, MD 20817. Telephone: 301-897-6000. Website: http://www.lockheedmartin.com Chrmn & CEO: B. Stevens

Pres & COO: C.E. Kubasik EVP & CFO: B.L. Tanner SVP & CTO: R.O. Johnson SVP & General Counsel: M.R. Lavan

Board Members: E. Aldridge, Jr., N. D. Archibald, D. Founded: 1909 Burritt, J. O. Ellis, Jr., T. J. Falk, G. S. King, J. M. Loy, D. Domicile: Maryland H. McCorkindale, J. W. Ralston, A. Stevens, B. Stevens Employees: 140,000

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: L | L is in the S&P 500

Loews Corp S&P Recommendation BUY

★★★★★

Price $39.70 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Multi-line Insurance

12-Mo. Target Price $42.00

Investment Style Large-Cap Value

Summary This conglomerate includes holdings in property/casualty insurance, offshore drilling, hotels, and natural gas pipelines.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.30– 30.22 Trailing 12-Month EPS $3.88 Trailing 12-Month P/E 10.2 $10K Invested 5 Yrs Ago $13,706

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.75 4.20 10.6 418.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$16.605 0.63 $0.25 59

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 46 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Loews reflects exposure to investment losses from its CNA Financial subsidiary, regulatory risks, litigation risk, volatility in energy prices, and catastrophe losses. This is offset by its diversified group of holdings and substantial free cash flow.

60

40 30

20

Quantitative Evaluations Vol.

S&P Quality Ranking

80

Mil. 24 16 8 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

4

MODERATE

4

3

A+

66 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Bret Howlett on August 10, 2010, when the stock traded at $ 37.95. Highlights ➤

➤

Investment Rationale/Risk

We see operating revenues declining 2% to 3% in 2010 at L's principal subsidiary, CNA Financial (CNA 28, Hold), on lower new business production, the continued soft P&C rate environment, but partially offset by higher investment income. We view positively CNA's solid track record of favorable reserve releases, which we believe reflects underwriting discipline. We expect the six-month moratorium on deepwater drilling in the U.S. to adversely impact Diamond Offshore (DO 65, Hold), although its robust backlog and low capital spending needs should provide solid earnings visibility. We forecast a sharp rebound in earnings at Boardwalk Pipeline, as pipeline maintenance issues are resolved and natural gas storage capacity expands.

➤

We believe better credit trends and removal of its asbestos liabilities will allow CNA to pay back L's preferred stock investment in 2010. We forecast a sizable decline in earnings at HighMount due to decreased production volumes and lower natural gas prices. We forecast a more than 10% rise in revenues at L's Hotels on higher average room rates.

➤

➤ ➤

We forecast EPS of $3.75 for 2010 and EPS of $4.20 for 2011.

Our buy recommendation is based on our forecast for improved fundamentals in most of L's subsidiaries. We believe L is undervalued based on our calculation of the net asset values of its public and private holdings. We believe a strengthening in the credit markets has considerably reduced risks related to L's investment portfolio and CNA's capital position, and we expect L to deploy excess cash by repurchasing its shares, undertaking new business ventures, and investing in the debt markets. We see the operating environment improving for CNA, and we believe the down-phase in the P&C underwriting pricing cycle should stabilize. We see L's energy subsidiaries benefiting from higher oil prices, partially offset by declining natural gas prices. Risks to our recommendation and target price include a decline in the level of oil and gas production at Diamond Offshore; higherthan-projected catastrophe losses; greaterthan-expected losses in the investment portfolio; and, a slowdown in consumer spending affecting Loews Hotels. Our 12-month target price of $42 is 10.0X our 2011 EPS estimate, below historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,713 3,486 2009 3,023 3,534 2008 3,612 3,922 2007 4,660 4,637 2006 4,245 4,277 2005 3,741 4,031

3Q -3,738 2,970 4,653 4,507 4,138

4Q -3,822 2,743 4,567 4,882 4,108

Year -14,117 13,247 18,380 17,911 16,018

Earnings Per Share ($) 2010 0.99 0.87 2009 -1.49 0.78 2008 0.77 1.00 2007 1.19 0.96 2006 0.86 0.85 2005 0.53 0.68

E0.93 1.08 -0.33 0.76 0.93 0.42

E0.96 0.94 -2.20 0.71 1.15 0.07

E3.75 1.31 -0.82 3.64 3.80 1.69

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.063 0.063 0.063 0.063

11/10 02/09 05/11 08/10

11/25 02/25 05/27 08/30

11/30 03/01 06/01 09/01

12/11/09 03/12/10 06/14/10 09/14/10

Dividends have been paid since 1967. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: L

Loews Corp Business Summary August 10, 2010 CORPORATE OVERVIEW. Loews Corp. is a holding company with interests in property/casualty insurance (CNA Financial Corp., 90% stake), hotels (Loews Hotels Holding Corp.), offshore oil and gas drilling (Diamond Offshore Drilling, Inc., 50%), exploration, production and marketing of natural gas and natural gas liquids (HighMount Exploration & Production LLC), and interstate natural gas pipelines (Boardwalk Pipeline Partners, LP, 67%). CNA Financial Corp. (NYSE: CNA; 60% of consolidated total revenues in 2009) is an insurance holding company with subsidiaries that primarily consist of property and casualty insurance companies. The company serves small, medium and large businesses as well as associations, professionals and groups. CNA's The Loews Hotels division (2.0%) owns and/or operates 18 hotels in the U.S. and Canada. Diamond Offshore (NYSE: DO; 26%) operates 64

offshore drilling rigs that are chartered on a contract basis for fixed terms by energy exploration companies. Boardwalk Pipeline Partners (NYSE: BWP; 6.4%) owns and operates three interstate natural gas pipeline systems, Gulf Crossing Pipeline Company, Gulf South Pipeline and Texas Gas Transmission. HighMount Exploration & Production LLC (4.4%) is involved in the exploration, production and marketing of natural gas, NGLs (predominantly ethane and propane) and oil. Other activities reported consolidated revenues of $174 million in 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Relative Payout Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 40.30 NA 1.31 2.39 0.25 19% 36.84 17.40 28 13

2008 27.93 NA -0.82 1.57 0.25 NM 51.51 19.39 NM NM

2007 25.44 NA 3.64 3.76 0.25 7% 53.46 40.21 15 11

2006 NM NA 3.80 3.65 0.18 5% 42.18 30.42 11 8

2005 NM NA 1.69 1.49 0.20 12% 32.90 22.35 19 13

2004 21.35 NA 1.88 2.17 0.20 11% 23.67 16.36 13 9

2003 NM NA -1.30 -2.00 0.20 NM 16.49 12.75 NM NM

2002 19.88 1.71 1.50 2.63 0.20 13% 20.77 12.50 14 8

2001 16.23 -2.27 -0.92 -2.47 0.19 NM 24.17 13.68 NM NM

2000 18.28 1.90 3.15 NA 0.17 5% 34.98 12.75 11 4

NA 594 6,127 2,499 14,117 1,730 NA 566 1,035

NA 611 6,539 1,581 13,247 587 NA -182 749

14,090 618 6,866 2,891 18,380 4,575 NA 2,481 2,014

15,652 641 6,962 2,915 17,911 1,237 NA 760 2,024

20,548 704 6,865 2,099 16,018 1,016 NA 623 831

56,645 901 7,304 1,869 15,242 1,822 NA 1,231 1,205

388,968 2,275 6,935 1,732 16,461 -751 NA -468 -1,112

437,751 3,382 6,828 1,867 17,495 1,647 1,099 983 1,594

497,732 4,351 5,010 2,145 19,417 -813 -1,328 -536 -1,447

534,781 4,549 6,923 2,388 21,338 3,206 1,134 1,877 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 2,920 Premiums Due 10,212 Investment Assets:Bonds 35,816 Investment Assets:Stocks 1,007 Investment Assets:Loans Nil Investment Assets:Total 46,034 Deferred Policy Costs 1,108 Total Assets 74,070 Debt 9,475 Common Equity 16,899 Combined Loss-Expense Ratio 105.1 % Return on Revenue 4.0 % Return on Equity 3.8 % Investment Yield 5.2

2,030 11,672 29,451 1,185 Nil 38,450 1,125 69,857 8,187 13,126 109.0 NM NM 3.7

141 11,677 34,663 1,347 Nil 47,923 1,161 76,079 6,900 17,591 110.1 13.5 15.0 5.8

132 12,423 37,570 1,309 Nil 52,020 1,190 75,325 1,230 15,580 109.1 4.2 14.2 6.1

151 15,314 33,381 1,107 Nil 43,547 1,197 69,548 1,627 -201 120.3 3.9 2.6 2.6

220 18,807 33,502 664 Nil 44,299 1,268 73,750 5,980 45,428 105.9 8.1 2.8 4.3

181 20,468 28,781 888 Nil 42,515 2,533 77,881 2,032 -729 146.6 14.2 NM 4.2

185 16,601 27,434 1,121 NA 40,137 2,551 70,520 5,652 11,235 110.3 5.6 8.1 4.6

181 19,453 31,191 1,646 NA 41,159 2,424 75,251 5,920 9,649 158.6 NM NM 5.2

195 15,302 27,244 2,683 NA 40,396 2,418 70,877 6,040 11,191 113.6 8.8 4.9 5.9

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life A & H Premium Income:Casualty/Property. Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 667 Madison Ave, New York, NY 10065-8087. Telephone: 212-521-2000. Website: http://www.loews.com Co-Chrmn: J.M. Tisch

Co-Chrmn: A. Tisch Pres & CEO: J.S. Tisch SVP & CFO: P.W. Keegan SVP, Secy & General Counsel: G.W. Garson

Investor Contact: D. Daugherty (212-521-2788) Board Members: A. E. Berman, J. L. Bower, C. M. Diker, J. A. Frenkel, P. J. Fribourg, W. L. Harris, P. A. Laskawy, K. Miller, G. R. Scott, A. Tisch, J. S. Tisch, J. M. Tisch

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1954 Domicile: Delaware Employees: 18,500

Stock Report | October 25, 2010 | NYS Symbol: LO | LO is in the S&P 500

Lorillard Inc S&P Recommendation BUY

★★★★★

Price $85.14 (as of Oct 25, 2010)

GICS Sector Consumer Staples Sub-Industry Tobacco

12-Mo. Target Price $94.00

Investment Style Large-Cap Blend

Summary Lorillard is the third largest U.S. tobacco company and the leading manufacturer and marketer of menthol cigarettes.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $87.47– 70.24 Trailing 12-Month EPS $6.18 Trailing 12-Month P/E 13.8 $10K Invested 5 Yrs Ago $23,794

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.74 7.24 12.6 151.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.917 5.29 $4.50 97

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.47 9 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relatively stable revenue and income streams enjoyed by the tobacco industry, offset by significant ongoing litigation.

90 80 70

Quantitative Evaluations

60

S&P Quality Ranking Vol.

D

C

B-

NR B

B+

A-

A

A+

55

Mil. 12 8 4 0

Relative Strength Rank

STRONG 71

LOWEST = 1

5

3

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Esther Y. Kwon, CFA on October 25, 2010, when the stock traded at $ 85.78. Highlights ➤

➤

➤

Lorillard, formerly a division of Loews Corp., was spun off in June 2008. Its operating performance had previously been followed as a tracking stock (Loews Corp. - Carolina Group; CG). In 2010 and 2011, we forecast a mid-single digit percentage increase in sales from the $3.8 billion reported for 2009. We think discount brand volumes, which rose 37% in 2009, will post strong growth through 2011, offsetting some of the expansion we forecast in gross margins. While we see marketing and legal expenses rising, we look for only a modest increase in selling, general and administrative expenses on disciplined cost control. We expect operating margins to expand in 2010 and 2011. On higher interest expense, a reduced number of shares outstanding and an effective tax rate similar to 2009, we estimate 2010 EPS of $6.74, up from 2009 EPS of $5.76. For 2011, we forecast EPS of $7.24. In August 2010, LO's directors approved an additional share repurchase program for up to $1 billion of its common stock. As of September 30, 2010, the program had $909 million remaining.

Investment Rationale/Risk ➤

➤

➤

We view positively LO's continued market share gains for its leading brand, Newport, in both the menthol and premium categories. We believe efforts to increase its investment in this brand will result in long-term volume growth ahead of peers, less promotional activity, and higher average prices. Although we think FDA review of menthol could be an overhang on the shares, we see strong free cash flow generation as supporting the dividend, as well as share repurchase activity. Risks to our recommendation and target price include increasing menthol competition in the premium and deep discount segments, a slowdown in industry volume trends, and a worsening of the litigation environment. Applying a below recent average P/E multiple of 13X to our 2011 estimate, we arrive at our 12-month target price of $94. Our target P/E multiple is in line with the average of cigarette manufacturing peers. While we are concerned about relatively high geographic concentration and see more limited margin expansion potential, we think LO is attractive given its leadership position in the higher growth menthol cigarette market.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 923.0 1,038 2009 767.0 1,033 2008 932.0 886.0 2007 947.3 1,055 2006 880.8 998.6 2005 ---

3Q -953.0 936.0 1,044 1,016 --

4Q -932.0 912.0 957.0 936.7 916.0

Year -3,686 3,492 3,281 3,866 3,640

Earnings Per Share ($) 2010 1.50 1.73 2009 1.09 1.71 2008 1.00 1.25 2007 1.08 1.30 2006 0.86 1.09 2005 0.68 0.82

E1.66 1.44 1.38 1.34 1.17 0.99

E1.71 1.52 1.53 1.18 1.26 1.11

E6.74 5.76 5.15 5.16 4.46 3.62

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

1.000 1.000 1.125

02/12 05/20 08/20

02/25 05/27 08/30

03/01 06/01 09/01

03/11/10 06/11/10 09/10/10

Dividends have been paid since 2002. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: LO

Lorillard Inc Business Summary October 25, 2010 CORPORATE OVERVIEW. The company produces and markets cigarettes primarily in the U.S. The tobacco used in Lorillard cigarettes includes burley leaf, flue-cured tobacco grown in the U.S. and abroad, and aromatic tobacco grown primarily in Turkey and other Near Eastern countries. Through Alliance One International, Inc., Lorillard directs the purchase of more than 80% of its U.S. leaf tobacco needs. The company stores the various types and grades of its tobacco in 29 warehouses at its Danville, VA, facility. Its sole manufacturing plant, located in Greensboro, NC, has an annual production capacity of about 43 billion cigarettes, or approximately 185 million cigarettes per day. Lorillard, formerly a division of Loews Corp., was spun off in June 2008. The company primarily sells its cigarettes to distributors that resell them to chain store organizations and government agencies. As of December 31, 2009, Lorillard had approximately 500 direct buying customers servicing more than 400,000 retail accounts. Lorillard does not sell cigarettes directly to consumers. During 2009, 2008 and 2007, sales to McLane Company, Inc. comprised 26%, 26% and 24%, respectively, of Lorillard's revenues. No other customer accounted for more than 10% of sales in any of those years.

er things, the publication of health warnings on cigarette packaging, advertising and sales of tobacco products, restrictions on smoking in public places, and fire safety standards. The U.S. cigarette industry faces a number of issues that have affected and may continue to affect its operations, including substantial litigation that seeks billions of dollars of damages. As of February 22, 2010, Lorillard was a defendant in about 10,275 cases facing the industry, including approximately 7,600 Engle progeny cases. MARKET PROFILE. According to Lorillard, industrywide cigarette shipments declined at a compound annual rate of approximately 3% from 1999 to 2009, with shipments dropping an estimated 8.6% in 2009, 3.3% in 2008, 5.0% in 2007, and 1.5% in 2006. Standard & Poor's attributes 2009's above trend decline to the significant hike in the federal excise tax on cigarettes to $1.0066 per pack from $0.6166 per pack effective April 1, 2009, to finance health insurance for children. On price increases, rising excise taxes and regulations, health concerns and proliferation of smoking bans, we expect shipments to decline at a mid-single digit rate over the next several years.

LEGAL/REGULATORY ISSUES. Lorillard's business operations are subject to a variety of federal, state and local laws and regulations governing, among othCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.56 5.95 5.76 5.81 3.84 67% 81.76 52.50 14 9

2008 3.76 5.34 5.15 4.91 2.75 53% 89.21 53.30 17 10

2007 6.34 NA 5.16 5.31 1.82 35% 92.79 64.00 18 12

2006 NM NA 4.46 4.46 1.82 41% 64.83 43.83 15 10

2005 NM NA 3.62 3.63 1.82 50% 46.06 28.47 13 8

2004 NM NA 3.15 3.13 1.82 58% 30.00 22.49 10 7

2003 NM 8.08 2.76 3.31 1.81 66% 28.10 17.18 10 6

2002 NM NA 3.50 2.92 1.34 38% 34.05 16.80 10 5

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

3,686 1,671 32.0 27.0 1,519 37.6% 948 956

3,492 1,465 32.0 NA 1,434 38.2% 887 845

3,281 1,392 40.0 74.0 1,318 35.1% 855 577

3,866 1,352 47.0 116 1,237 38.5% 760 417

3,640 1,156 48.0 141 1,016 38.6% 623 252

3,388 1,041 40.0 158 884 38.2% 546 184

3,288 934 NA 183 751 37.7% 468 138

3,798 NA NA 178 1,121 39.2% 682 117

3,868 NA NA 0.70 1,105 39.0% 673 672

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 1,384 Current Assets 2,181 Total Assets 2,575 Current Liabilities 1,337 Long Term Debt 722 Common Equity 87.0 Total Capital 809 Capital Expenditures 51.0 Cash Flow 980 Current Ratio 1.6 % Long Term Debt of Capitalization 89.3 % Net Income of Revenue 25.7 % Return on Assets 38.7 % Return on Equity 264.1

1,191 1,962 2,322 1,273 Nil 635 631 44.0 919 1.5 Nil 25.4 36.0 107.7

2.00 2,103 2,702 1,188 424 685 1,109 51.0 NA 1.8 38.2 26.1 30.7 203.4

1.50 2,115 2,861 1,151 1,230 0.16 1,230 29.7 NA 1.8 100.0 19.7 26.4 5.4

2.50 2,069 2,897 1,240 1,627 -201 1,426 31.2 NA 1.7 114.1 17.1 22.0 NM

36.0 NA 2,278 NA 1,871 -502 1,369 50.8 NA NA 136.7 16.1 19.8 NM

1.90 NA 2,725 NA 2,032 -729 1,303 56.4 NA NA 156.0 14.2 16.6 NM

2.20 NA 2,927 NA 2,438 -884 1,555 51.7 NA NA 156.8 17.9 23.9 348.6

1.70 NA 2,769 NA Nil 1,275 1,275 41.2 NA NA Nil 17.4 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Prior to June 11, 2008, data and historical prices reflect the former Loews Corp-Carolina Group. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 714 Green Valley Rd, Greensboro, NC 27408-7018. Telephone: 339-335-7000. Email: [email protected] Website: http://www.lorillard.com

Chrmn: M.L. Orlowsky Pres & CEO: M.S. Kessler EVP & CFO: D.H. Taylor SVP, Chief Acctg Officer & Treas: T.R. Staab

SVP, Secy & General Counsel: R.S. Milstein Investor Contact: P.W. Keegan (212-521-2000) Board Members: R. C. Almon, V. W. Colbert, D. E. Dangoor, K. D. Dietz, M. S. Kessler, M. L. Orlowsky, R. W. Roedel, D. H. Taylor, N. Travis

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1969 Domicile: Delaware Employees: 2,700

Stock Report | October 23, 2010 | NYS Symbol: LOW | LOW is in the S&P 500

Lowe's Companies Inc. S&P Recommendation HOLD

★★★★★

Price $22.00 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Home Improvement Retail

12-Mo. Target Price $24.00

Investment Style Large-Cap Growth

Summary This company retails building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.54– 19.15 Trailing 12-Month EPS $1.28 Trailing 12-Month P/E 17.2 $10K Invested 5 Yrs Ago $7,672

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.41 1.60 15.6 1,403.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$30.872 2.00 $0.44 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.00 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the home improvement retail industry, which is reliant on economic growth, offset by our view of ample opportunities for retail growth both domestically and abroad, and an S&P Quality Ranking of A-, reflecting LOW's long-term record of earnings and dividends.

40 30

20 15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

90 60 30 0 5

D 4

4

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Michael Souers on August 18, 2010, when the stock traded at $ 20.55. Highlights We forecast a sales increase of 4.2% in FY 11 (Jan.), following a 2.1% decline in FY 10. We expect this rise to be driven by an estimated 40-45 net new store openings, representing a 2%-3% increase in total square footage, along with a 2% advance in same-store sales. We believe the housing market will remain under pressure throughout much of 2010, and we continue to project weak consumer spending, particularly on big-ticket home remodeling projects. We expect FY 11 operating margins to increase modestly, as lower sourcing costs, a rational pricing environment and improving product mix shift are only partially offset by increasing payroll expenses. We look for a slight leveraging of fixed expenses due to modest same-store sales growth. We project a slight increase in interest expense, an effective tax rate of 37.6%, and a 3% decline in the diluted share count, driven by share repurchases. We forecast FY 11 EPS of $1.41, a 13% increase from the $1.25 the company earned in FY 10, excluding $0.03 of charges related to the canceling of certain future store openings and an unrelated tax benefit. We see FY 12 EPS of $1.60.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

AB

41 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

We think the aging of homes and relatively high home ownership rates are powerful long-term demographic drivers that will help mitigate the continued weakness in housing turnover we see for 2010. However, with home refinancings and home equity loans likely to be somewhat sparse in the near to medium term, we expect home remodeling activity, particularly on big projects, to remain weak. While housing turnover appears to be nearing a bottom, we do not anticipate a significant recovery in 2010. With our view of a strong balance sheet and impressive free cash flow generation, we think the shares are fairly valued despite trading at a slight premium to the S&P 500. Risks to our recommendation and target price include a slowdown in the economy, a spurt in long-term interest rates, and failure by LOW to execute its metro market expansion strategy. At about 13X our FY 12 EPS estimate, LOW shares recently traded at a slight discount to key peer Home Depot (HD 29, Hold). Our 12-month target price of $24 is derived from our discounted cash flow analysis, which assumes a weighted average cost of capital of 9.3% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 12,388 14,361 2010 11,832 13,844 2009 12,009 14,509 2008 12,172 14,167 2007 11,921 13,389 2006 9,913 11,929

3Q -11,375 11,728 11,565 11,211 10,592

4Q -10,168 9,984 10,379 10,406 10,808

Year -47,220 48,230 48,283 46,927 43,243

Earnings Per Share ($) 2011 0.34 0.58 2010 0.32 0.51 2009 0.41 0.64 2008 0.48 0.64 2007 0.53 0.60 2006 0.37 0.52

E0.31 0.23 0.33 0.43 0.46 0.41

E0.17 0.14 0.11 0.28 0.40 0.44

E1.41 1.21 1.49 1.86 1.99 1.73

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.090 0.090 0.110 0.110

11/16 03/22 05/28 08/20

01/15 04/19 07/19 10/18

01/20 04/21 07/21 10/20

02/03/10 05/05/10 08/04/10 11/03/10

Dividends have been paid since 1961. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: LOW

Lowe's Companies Inc. Business Summary August 18, 2010 CORPORATE OVERVIEW. Lowe's Companies is the world's second largest home improvement retailer, with $47 billion in revenues generated in FY 10 (Jan.). It focuses on retail do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers who utilize LOW's installation services, and commercial business customers. Lowe's offers a complete line of products and services for home decorating, maintenance, repair, remodeling, and the maintenance of commercial buildings. As of January 29, 2010, LOW operated 1,710 stores in 50 states and Canada, representing approximately 193 million sq. ft. of selling space. The company has three primary prototype stores--117,000-square-foot and 103,000-square-foot stores for larger markets and a 94,000-square-foot store format used primarily to serve smaller markets. Both prototypes include a lawn and garden center, averaging an additional 31,000 square feet for larger stores and 26,000 square feet for smaller stores. Of the total stores operating at January 29, 2010, approximately 88% were owned, including stores on leased land, while the remaining 12% were leased from unaffiliated third parties. Typical LOW stores stock more than 40,000 items, with hundreds of thou-

sands of items available through the company's special order system. CORPORATE STRATEGY. LOW is focusing much of its future expansion on metropolitan markets with populations of 500,000 or more. The company expected that the majority of its FY 11 expansion would be comprised of the 103,000 square-foot stores in larger markets (in place of 117,000 square-foot formats in an effort to be more cost-efficient), but it also planned to open 94,000 square-foot stores in smaller to mid-sized markets. Lowe's opened five new stores in Canada in 2009, bringing its Canadian store count to 16, and planned to continue its expansion in FY 11. Additionally, LOW plans on expanding into Mexico, with stores expected to open in Monterrey in 2010.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 13.07 2.40 1.21 1.21 0.36 30% 2009 24.50 13.00 20 11

2009 12.28 2.54 1.49 1.50 0.34 22% 2008 28.49 15.76 19 11

2008 11.04 2.77 1.86 1.86 0.18 10% 2007 35.74 21.01 19 11

2007 10.31 2.73 1.99 1.99 0.11 6% 2006 34.83 26.15 17 13

2006 9.15 2.44 1.73 1.73 0.08 4% 2005 34.85 25.36 20 15

2005 7.45 1.92 1.36 1.33 0.06 4% 2004 30.27 22.95 22 17

2004 6.55 1.68 1.16 1.13 0.06 5% 2003 30.21 16.69 26 14

2003 5.31 1.32 0.93 0.87 0.04 5% 2002 25.00 16.25 27 18

2002 4.30 0.98 0.65 0.61 0.04 0% 2001 24.44 10.94 38 17

2001 3.59 0.79 0.52 0.50 0.04 7% 2000 16.81 8.56 32 16

47,220 4,959 1,733 287 2,825 36.9% 1,783 1,765

48,230 5,333 1,539 356 3,506 37.4% 2,195 2,204

48,283 6,071 1,366 304 4,511 37.7% 2,809 2,809

46,927 6,314 1,162 238 4,998 37.9% 3,105 3,105

43,243 5,715 1,051 158 4,506 38.5% 2,771 2,763

36,464 4,878 920 176 3,536 38.5% 2,176 2,134

30,838 3,959 781 180 2,998 37.9% 1,862 1,801

26,491 3,186 645 203 2,359 37.6% 1,471 1,386

22,111 2,332 534 199 1,624 37.0% 1,023 968

18,779 1,811 409 146 1,283 36.9% 810 773

Balance Sheet & Other Financial Data (Million $) Cash 1,057 Current Assets 9,732 Total Assets 33,005 Current Liabilities 7,355 Long Term Debt 4,528 Common Equity 19,069 Total Capital 24,149 Capital Expenditures 1,799 Cash Flow 3,516 Current Ratio 1.3 % Long Term Debt of Capitalization 18.8 % Net Income of Revenue 3.8 % Return on Assets 5.4 % Return on Equity 9.6

661 9,251 32,686 8,022 5,039 18,055 23,754 3,322 3,734 1.2 21.2 4.6 6.9 12.9

530 8,686 30,869 7,751 5,576 16,098 22,344 4,010 4,175 1.1 25.0 5.8 9.6 17.7

796 8,314 27,767 6,539 4,325 15,725 20,785 3,916 4,267 1.3 21.6 6.6 11.9 20.7

423 7,831 24,682 5,832 3,499 14,339 18,573 3,379 3,822 1.3 18.8 6.4 12.1 21.4

813 6,974 21,209 5,719 3,060 11,535 15,331 2,927 3,096 1.2 20.0 6.0 10.9 20.0

1,624 6,687 19,042 4,368 3,678 10,309 14,644 2,444 2,643 1.5 25.1 6.0 10.6 20.0

1,126 5,568 16,109 3,578 3,736 8,302 12,516 2,362 2,116 1.6 29.8 5.6 9.9 19.6

799 4,920 13,736 3,017 3,734 6,675 10,713 2,199 1,557 1.6 34.9 4.6 8.2 16.8

456 4,175 11,376 2,929 2,698 5,494 8,443 2,332 1,219 1.4 32.0 4.3 7.9 15.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1000 Lowes Blvd, Mooresville, NC 28117-8520. Telephone: 704-758-1000. Website: http://www.lowes.com Chrmn & CEO: R.A. Niblock

Pres & COO: L.D. Stone EVP & CFO: R.F. Hull, Jr. SVP & Chief Acctg Officer: M.V. Hollifield SVP, Secy & General Counsel: G.M. Keener, Jr.

Investor Contact: P. Taaffe (704-758-2033) Founded: 1952 Board Members: R. Alvarez, D. W. Bernauer, L. L. Domicile: North Carolina Berry, P. C. Browning, D. E. Hudson, R. A. Ingram, R. L. Employees: 239,000 Johnson, M. O. Larsen, R. K. Lochridge, R. A. Niblock, S. F. Page, O. T. Sloan, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LLL | LLL is in the S&P 500

L-3 Communications Holdings Inc S&P Recommendation HOLD

★★★★★

Price $69.80 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $82.00

Investment Style Large-Cap Blend

Summary This company is a provider of intelligence, surveillance, and reconnaissance systems; secure communications systems; aircraft modernization, training, and government services; and, other defense, intelligence, and security products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $97.81– 66.11 Trailing 12-Month EPS $7.87 Trailing 12-Month P/E 8.9 $10K Invested 5 Yrs Ago $9,300

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

8.15 8.60 8.6 114.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.94 5 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of LLL's strong historical record of earnings growth, offset by our view of moderately high financial leverage, and risks inherent in its dependence on government spending.

120 100 80

Quantitative Evaluations

60

S&P Quality Ranking

Vol. Mil.

D

6 4 2 0 5

$7.990 2.29 $1.60 83

C

B-

A B

B+

A-

A

Relative Strength Rank

A+ WEAK

22 4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Richard Tortoriello on August 06, 2010, when the stock traded at $ 73.61. Highlights ➤

➤

➤

Investment Rationale/Risk

We project 3% revenue growth for 2010. We see this being driven primarily by C3ISR, where we are modeling an 11% increase, due to our view of high government demand for intelligence, surveillance, and reconnaissance products. We also project 4% growth for Electronic Systems (formerly called Specialized Products), on a variety of military products and systems. We expect about a 1% decline in Aircraft Modernization & Maintenance and a 3% decline in Government Services. We project a 4% revenue increase for 2011.

➤

We project operating margins of 11.0% for the year, up modestly from 10.6% operating margins in 2009. L-3 expects a significantly lower pension expense in 2010 versus 2009, but sees this more than offset by higher income tax expense. We project 10.9% margins in 2011.

➤

We forecast EPS of $8.15 for 2010, up about 9% from 2009's level, and project about 6% growth in 2011, to $8.60. We expect free cash flow (cash flow from operations less capital expenditures) per share of almost $11.00 in 2010.

➤

Revenue/Earnings Data

2010

Although we think L-3's mix of defense electronics and specialized military products and government services are well matched with current military priorities, we see a pull-out of U.S. troops from Iraq (L-3 currently has significant revenue from Iraq) and our overall view of no real growth in the U.S. defense budget going forward, as preventing the shares from outperforming. We see L-3's ISR and Electronics businesses performing well, but expect continued pressure in the services areas of the business, due to tight government budgets. Risks to our recommendation and target price include the potential for delays and/or cuts in military budgets and failure to perform well on existing contracts or to win new business. Our 12-month target price of $82 is based on an enterprise value to estimated 2011 EBITDA multiple of about 6X, below the average historical multiple of 11X, but in line with multiples we are using to value other defense contractors. We believe the ongoing U.S. exit from Iraq and slower-than-historical growth at LLL warrant this multiple.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 3,624 3,966 2009 3,636 3,929 2008 3,506 3,722 2007 3,300 3,408 2006 2,904 3,083 2005 1,963 2,076

3Q -3,842 3,662 3,448 3,105 2,506

4Q -4,208 4,011 3,806 3,385 2,900

Year -15,615 14,901 13,961 12,477 9,445

Earnings Per Share ($) 2010 1.87 1.95 2009 1.66 1.90 2008 1.54 2.24 2007 1.29 1.49 2006 1.13 0.40 2005 0.86 0.99

E1.95 2.12 1.73 1.56 1.31 1.11

E2.38 1.93 2.21 1.63 1.37 1.24

E8.15 7.61 7.72 5.98 4.22 4.20

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.350 0.400 0.400 0.400

10/06 02/02 04/27 07/13

11/13 02/25 05/13 08/13

11/17 03/01 05/17 08/17

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: LLL

L-3 Communications Holdings Inc Business Summary August 06, 2010 CORPORATE OVERVIEW. L-3 Communications (LLL), with $16 billion in estimated 2010 revenues, is an acquisitive maker of military and homeland security electronics, and conducts business through four operating segments. The Command, Control, Communications, Intelligence, Surveillance, and Reconnaissance (C3ISR) business segment (20% of sales and 21% of operating income in 2009), specializes in signals intelligence (SIGINT) and communications intelligence (COMINT) products. These products provide troops the ability to collect and analyze unknown electronic signals from command centers, communications nodes and air defense systems for real-time situation awareness and response. C3ISR also provides C3 systems, networked communications systems, and secure communications products for military and other U.S. government agencies and foreign governments. The Government Services segment (27% of sales and 24% of operating profits) provides a wide range of engineering, technical, analytical, information technology, advisory, training, logistics, and support services to the Department of Defense (DoD), Dept. of State, Dept. of Justice, U.S. Government intelligence agencies, and allied foreign governments. Major services include communication software support; high-end engineering and information systems support for command, control, communications and ISR architectures; developing and managing programs in the U.S. and internationally that focus on teaching,

training and education, logistics, strategic planning, leadership development, etc.; human intelligence support; command and control systems for maritime and expeditionary warfare; intelligence, analysis and solutions support to the DoD and U.S. government intelligence agencies; and conventional high-end enterprise IT support, systems, and services to the DoD and U.S. federal agencies. The Aircraft Modernization & Maintenance segment (18% of sales and 15% of operating profits) provides modernization, upgrades and sustainment, maintenance and logistics support services for military and various government aircraft and other platforms. Services are sold primarily to the U.S. DoD, the Canadian Department of National Defense, and other allied foreign governments. Major products and services include aircraft and vehicle modernization, including engineering, modification, maintenance, logistics, and upgrades; aviation life-cycle management services for various military fixed and rotary wing aircraft; and aerospace and other technical services related to large fleet support.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 9.46 7.61 8.04 1.40 18% 89.23 57.12 12 8

2008 NM 9.16 7.72 6.24 1.20 16% 115.33 58.49 15 8

2007 NM 7.53 5.98 5.68 1.00 17% 115.29 79.26 19 13

2006 NM 5.30 4.22 4.93 0.75 18% 88.50 66.50 21 16

2005 NM 5.46 4.20 4.07 0.50 12% 84.84 64.66 20 15

2004 NM 4.27 3.33 3.22 0.40 12% 77.26 49.31 23 15

2003 NM 3.52 2.71 2.66 Nil Nil 51.83 34.22 19 13

2002 NM 2.96 2.29 1.87 Nil Nil 66.78 40.60 29 18

2001 NM 2.37 1.48 1.08 Nil Nil 49.04 30.35 33 21

2000 NM 2.25 1.18 NA Nil Nil 39.66 17.84 33 15

15,615 1,866 218 279 1,386 34.3% 901 944

14,901 1,771 197 271 1,462 34.3% 949 768

13,961 1,645 196 296 1,183 35.3% 756 719

12,477 1,376 136 296 835 35.7% 526 615

9,445 1,150 153 204 798 35.1% 509 493

6,897 868 119 145 606 35.5% 382 370

5,062 676 95.4 133 437 35.7% 278 274

4,011 530 75.9 122 336 35.0% 212 171

2,347 362 87.0 86.4 191 37.1% 115 82.0

1,910 297 74.3 93.0 134 38.3% 82.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,016 Current Assets 5,151 Total Assets 14,763 Current Liabilities 2,482 Long Term Debt 4,112 Common Equity 6,565 Total Capital 10,770 Capital Expenditures 186 Cash Flow 1,111 Current Ratio 2.1 % Long Term Debt of Capitalization 38.2 % Net Income of Revenue 5.8 % Return on Assets 6.2 % Return on Equity 14.5

867 4,961 14,630 2,707 4,548 5,836 10,462 218 1,126 1.8 43.4 6.4 6.5 16.1

780 4,763 14,391 2,582 4,547 5,989 10,857 157 952 1.9 41.8 5.4 5.5 13.4

348 3,930 13,287 2,376 4,535 5,306 10,069 156 662 1.7 45.0 4.2 4.2 10.7

394 3,644 11,909 1,854 4,634 4,491 9,325 120 661 2.0 49.7 5.4 5.2 12.3

653 2,808 7,781 1,176 2,190 3,800 6,067 80.5 501 2.4 36.1 5.5 5.3 12.0

135 1,938 6,493 924 2,457 2,574 5,108 82.9 373 2.1 48.1 5.5 4.7 11.6

135 1,639 5,242 697 1,848 2,202 4,123 62.1 288 2.4 44.8 5.3 5.0 12.4

361 1,239 3,335 524 1,315 1,214 2,599 48.1 202 2.4 50.6 4.9 4.0 12.1

32.7 830 2,464 469 1,095 693 1,788 33.6 157 1.8 61.3 4.3 4.0 13.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 600 Third Avenue, 34th Floor, New York, NY 10016. Telephone: 212-697-1111. Website: http://www.l-3com.com Chrmn, Pres & CEO: M.T. Strianese

COO: D.T. Butler, III SVP, Secy & General Counsel: S. Post CFO: R.G. D'Ambrosio Chief Admin Officer: S.M. Sheridan

Investor Contact: E. Boyriven (212-850-5600) Board Members: C. R. Canizares, T. A. Corcoran, L. Kramer, R. B. Millard, J. M. Shalikashvili, A. L. Simon, M. T. Strianese, A. H. Washkowitz, J. P. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1997 Domicile: Delaware Employees: 67,000

Stock Report | October 23, 2010 | NYS Symbol: LSI | LSI is in the S&P 500

LSI Corp S&P Recommendation HOLD

★★★★★

Price $4.69 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $4.50

Investment Style Large-Cap Blend

Summary This company is a leading provider of silicon, systems and software technologies for the storage and networking markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$6.73– 3.89 $0.23 20.4 $5,610

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.36 0.40 13.0 641.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.010 Nil Nil 83

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.59 20 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

LSI is subject to the sales cycles of the semiconductor industry and consumer electronics and data storage end markets. The company faces competition from makers of programmable logic devices as well as from many custom logic chip makers.

10 8 6 4

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 90 60 30 0

D

C

B-

C B

B+

A-

Relative Strength Rank

5

3

2

4

3

4

A

A+

MODERATE

51

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on August 02, 2010, when the stock traded at $ 4.24. Highlights ➤

➤

We project that revenues will advance 16% in 2010 and 5% in 2011. Although we believe that near-term orders will be negatively impacted by excessive inventory, we generally think that IT spending and the wireless infrastructure buildout will support longer-term growth. Also, the company is winning more designs with marketleading customers, which we see leading to market share gains and supporting top-line results as customers launch new products. We see non-GAAP gross margins of around 48% over the next several quarters as highermargin semiconductor balance storage system sales. The company has a leaner and more flexible cost structure following a recent restructuring, and we believe LSI will be more profitable at lower sales levels. We see costs and expenses growing at a slower pace than sales, and anticipate the adjusted operating margin expanding from 9% in 2010 to 10% in 2011.

Investment Rationale/Risk ➤

➤

➤ ➤

Our 2011 earnings forecast includes around $0.10 per share in stock based compensation and assumes a 12% effective tax rate.

Our hold recommendation reflects our view of improving fundamentals and fair valuations. We believe that LSI will manage expenses tightly as healthy demand and market share gains support sales growth. With a relatively flexible business model, LSI's free cash flow generation should improve as well, in our view, and add to the company's healthy balance sheet. We think LSI's adjusted return on equity will expand to the mid-to-high teens range, better than results in recent years. However, the anticipated growth and return metrics will still lag the industry's, in our view, and we believe LSI's stock warrants below-industry average multiples. Risks to our recommendation and target price include a slower ramp of new product sales, disruptions in the supply chain, and higherthan-expected operating expenses. Our 12-month target price of $4.50 is based on a multiple of around 11X our 2011 EPS estimate, below the industry average to reflect our view of relative earnings growth, return metrics, and business risk.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 637.2 639.4 2009 482.3 520.7 2008 660.8 692.1 2007 465.4 669.9 2006 475.9 489.6 2005 450.0 481.3

3Q -578.4 714.3 727.4 493.0 481.7

4Q -637.8 610.0 740.9 523.7 506.2

Year -2,219 2,677 2,604 1,982 1,919

Earnings Per Share ($) 2010 0.03 0.01 2009 -0.16 -0.09 2008 -0.02 -0.02 2007 0.07 -0.50 2006 0.03 0.13 2005 0.01 0.06

E0.08 0.08 0.02 -0.20 0.11 -0.19

E0.09 E0.16 -0.94 -2.88 0.14 0.09

E0.36 -0.07 -0.96 -3.87 0.42 -0.01

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: LSI

LSI Corp Business Summary August 02, 2010 CORPORATE OVERVIEW. LSI Corporation makes high-performance storage and networking semiconductors and storage systems that are used in endproducts that create, store, consume and transport digital information. Such products include hard disk drives, solid state drives, high-speed communications systems, computer servers, storage systems and personal computers. The company operates in two segments -- semiconductors and storage systems. LSI's semiconductor segment is focused on providing integrated circuits (ICs) for storage and networking applications, and it also generates revenues by licensing intellectual property to other entities. LSI has taken several major actions to maintain this focus, including merging with Agere Systems in 2007 to strengthen its position in storage and networking markets, divesting in businesses in which it did not benefit from scale advantages, acquiring small companies focused on its target end-markets, and selling its manufacturing operations to preserve capital and focus on product development.

The company's storage system segment sells enterprise storage systems and storage software applications that enable storage area networks. Its products are geared toward leading original equipment manufacturers (OEMs) and storage companies rather than end-users. In 2009, the storage system segment accounted for approximately 64% of revenues, and semiconductors 36%. By market, external storage comprised around 29% of 2009's total revenues, server and storage connectivity 25%, hard disk drive and solid state drive 26%, networking 17%, and intellectual property 3%. The company believes that the served available market sizes for each can grow at compound average growth rates in the low to mid-teens.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.82 0.34 -0.07 -0.06 Nil Nil 6.14 2.39 NM NM

2008 0.44 -0.50 -0.96 -0.68 Nil Nil 7.97 2.36 NM NM

2007 1.12 -3.48 -3.87 -1.80 Nil Nil 10.68 5.06 NM NM

2006 2.24 0.62 0.42 0.35 Nil Nil 11.81 7.41 28 18

2005 1.66 0.36 -0.01 -0.20 Nil Nil 10.75 4.92 NM NM

2004 1.38 -0.75 -1.21 -1.51 Nil Nil 11.50 4.01 NM NM

2003 2.39 -0.12 -0.82 -1.33 Nil Nil 12.90 3.78 NM NM

2002 2.80 0.15 -0.79 -1.36 Nil Nil 18.60 3.97 NM NM

2001 3.15 -1.32 -2.84 -3.47 Nil Nil 26.10 9.70 NM NM

2000 5.96 1.81 0.70 NA Nil Nil 90.38 16.30 NM NM

2,219 181 268 21.9 -131 63.5% -47.7 -45.9

2,677 287 298 34.9 -595 NM -622 -449

2,604 168 253 31.0 -2,475 NM -2,487 -1,157

1,982 236 82.3 24.3 185 8.46% 170 140

1,919 283 146 25.3 20.9 NM -5.62 -80.0

1,700 172 177 25.3 -439 NM -464 -582

1,693 171 263 30.7 -284 NM -309 -505

1,817 155 349 52.0 -291 NM -292 -507

1,785 -157 533 44.6 -1,030 NM -992 -1,214

2,738 815 404 41.6 380 37.6% 237 NA

Balance Sheet & Other Financial Data (Million $) Cash 962 Current Assets 1,585 Total Assets 2,968 Current Liabilities 854 Long Term Debt NA Common Equity 1,461 Total Capital 1,811 Capital Expenditures 90.0 Cash Flow 220 Current Ratio 1.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,119 1,799 3,344 798 350 1,441 2,036 135 -324 2.3 17.2 NM NM NM

1,398 2,193 4,396 762 718 2,485 3,388 103 -2,234 2.9 21.2 NM NM NM

328 1,636 2,852 527 350 1,896 2,246 58.7 252 3.1 15.6 8.6 6.0 9.6

265 1,620 2,796 743 350 1,628 1,978 48.1 141 2.2 17.7 NM NM NM

219 1,365 2,874 396 782 1,618 2,400 52.8 -287 3.4 32.6 NM NM NM

270 1,390 3,448 391 866 2,042 2,916 78.2 -45.8 3.6 29.7 NM NM NM

449 1,626 4,143 398 1,241 2,300 3,665 39.0 57.0 4.1 33.8 NM NM NM

757 1,769 4,626 510 1,336 2,480 3,995 224 -459 3.5 33.4 NM NM NM

236 2,072 4,197 627 846 2,498 3,481 277 641 3.3 24.3 8.6 6.4 10.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1621 Barber Lane, Milpitas, CA 95035. Telephone: 408-433-8000. Email: [email protected] Website: http://www.lsi.com

Chrmn: G. Reyes Pres & CEO: A.Y. Talwalkar COO: H. Thomas EVP, CFO, Chief Admin Officer & Chief Acctg Officer: B. Look

EVP, Secy & General Counsel: J.F. Rankin Founded: 1980 Investor Contact: S. Shah (610-712-5471) Domicile: Delaware Board Members: C. A. Haggerty, R. Hill, J. H. Miner, A. Employees: 5,397 Netravali, M. J. O'Rourke, G. Reyes, M. G. Strachan, A. Y. Talwalkar, S. M. Whitney

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: M | M is in the S&P 500

Macy's Inc S&P Recommendation BUY

★★★★★

Price $22.18 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Department Stores

12-Mo. Target Price $25.00

Investment Style Large-Cap Blend

Summary This company operates about 850 department stores under the Macy's and Bloomingdale's names.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.26– 15.34 Trailing 12-Month EPS $1.41 Trailing 12-Month P/E 15.7 $10K Invested 5 Yrs Ago $7,798

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.90 2.25 11.7 422.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.375 0.90 $0.20 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.83 23 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects merchandise localization challenges and an uncertain outlook for consumer discretionary spending, partly offset by our view of M's strong brand and geographical presence in a consolidating industry.

40

20

10

Quantitative Evaluations

5

S&P Quality Ranking

Vol. Mil.

D

90 60 30 0 5

C

B-

BB

B+

A-

A

Relative Strength Rank

A+

MODERATE

41 3

2

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Jason N. Asaeda on August 12, 2010, when the stock traded at $ 20.52. Highlights ➤

➤

➤

We project net sales will reach $24.7 billion in FY 11 (Jan.). In February 2009, M announced plans to expand nationwide "My Macy's," an initiative aimed at accelerating same-store sales growth through custom-tailoring of merchandise assortments, size ranges, marketing programs and shopping experiences to the needs of core customers surrounding each Macy's store. On expected pay off of My Macy's and other merchandising initiatives, we project same-store sales to increase about 4% in FY 11, versus FY 10's 5.3% decline. We anticipate modest square footage growth based on the company's plan to open one new Bloomingdale's store, two new Macy's stores, and to enter the off-price channel with four new Bloomingdale's Outlet stores.

Investment Rationale/Risk ➤

➤

We expect operating margin expansion on sales growth in private label merchandise, disciplined inventory management, and projected cost savings of $400 million from FY 10 restructuring activity. Assuming no share buybacks, we see EPS of $1.90 in FY 11, up from $1.41 in FY 10, excluding division consolidation and store closing costs of $0.41 and asset impairment charges of $0.17.

➤

Revenue/Earnings Data

2010

Our buy recommendation is based on valuation. In the first half of FY 11, same-store sales rose 5.2%, representing a significant improvement over the 9.3% decline in the comparable FY 10 period. We believe M's sales recovery is being supported by favorable customer response to new private/exclusive label offerings, a stronger value message in marketing, and growth in the macys.com and bloomingdales.com online businesses. We see these positive factors, coupled with increased investment in associate training, enabling the company to maintain its positive same-store sales trend in the second half of FY 11, despite tougher comparisons. Risks to our recommendation and target price include a loss of business due to lackluster merchandising or uncompetitive pricing. Our corporate governance concerns include the non-disclosure of specific hurdle rates for performance-based equity awards and of stock ownership by executives. Our 12-month target price of $25 is based on a peer-median forward P/E multiple of 12.9X, above M's 10-year historical median, applied to our FY 11 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 5,574 5,537 2010 5,199 5,164 2009 5,747 5,718 2008 5,921 5,892 2007 5,930 5,995 2006 3,641 3,623

3Q -5,277 5,493 5,906 5,886 5,785

4Q -7,849 7,934 8,594 9,159 9,571

Year -23,489 24,892 26,313 26,970 22,390

Earnings Per Share ($) 2011 0.05 0.35 2010 -0.21 0.02 2009 -0.14 0.17 2008 0.11 0.17 2007 -0.13 0.51 2006 0.36 0.84

E-0.01 -0.08 -0.10 0.08 0.03 0.89

E1.51 1.10 -11.33 1.73 1.45 1.23

E1.90 0.83 -11.40 2.01 1.80 3.16

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

02/19 05/14 08/20 10/22

03/11 06/11 09/13 12/13

03/15 06/15 09/15 12/15

04/01/10 07/01/10 10/01/10 01/03/11

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: M

Macy's Inc Business Summary August 12, 2010 CORPORATE OVERVIEW. In February 2005, Macy's Inc. (formerly Federated Department Stores, Inc.) and The May Department Stores Co. announced merger plans. At that time, May was in need of new leadership to revive its business, and M was in the midst of a successful turnaround and on the lookout for acquisitions that would expand its presence in underserved markets. Both companies viewed the merger as a win-win proposition, as M would roll out its profit-driving merchandising, pricing, and service initiatives to May's stores, and May would extend M's presence into 15 new states. As a result of the $17 billion May merger, which closed in August 2005, M is now the second largest U.S. department store operator in annual revenues under the Macy's and Bloomingdale's names.

proving customer perceptions of fair value in less discounted prices; and enriching the overall shopping experience. With its merger with May, the company also expanded its core Macy's brand nationwide. Going forward, M sees an opportunity to accelerate the sales performance in about 400 former May locations that were rebranded Macy's on September 9, 2006. As part of its efforts to increase public awareness of Macy's, which contributes about 90% of the company's revenues, M changed its corporate name to Macy's, Inc. from Federated Department Stores, Inc. on June 1, 2007. On that date, the company's shares began trading under the ticker symbol "M" (replacing "FD") on the New York Stock Exchange.

CORPORATE STRATEGY. Since 2005, M has focused on three key priorities to better position its business for long-term growth: growing "better" and "affordable luxury" assortments, with an emphasis on private label merchandise; imCompany Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 0.67 3.69 0.83 0.86 0.20 24% 2009 20.84 6.27 25 8

2009 0.44 -8.37 -11.40 -3.23 0.53 NM 2008 28.47 5.07 NM NM

2008 NM 4.90 2.01 1.90 0.51 25% 2007 46.70 24.70 23 12

2007 5.56 4.11 1.80 1.62 0.45 25% 2006 45.01 32.38 25 18

2006 5.34 4.29 3.16 2.21 0.26 8% 2005 39.03 27.10 12 9

2005 16.55 4.09 1.93 1.83 0.19 10% 2004 29.08 21.40 15 11

2004 NM 3.92 1.86 1.69 Nil Nil 2003 25.30 11.76 14 6

2003 13.47 3.31 1.61 1.24 Nil Nil 2002 22.13 11.80 14 7

2002 12.16 2.94 1.30 0.91 Nil Nil 2001 24.95 13.03 19 10

2001 12.47 1.32 -0.45 0.25 Nil Nil 2000 26.94 10.50 NM NM

23,489 2,664 1,210 562 507 31.0% 350 362

24,892 2,680 1,278 599 -4,938 NM -48,003 -1,366

26,313 3,167 1,304 588 1,320 31.1% 909 860

26,970 2,910 1,265 520 1,446 31.7% 988 888

22,390 3,087 974 422 2,044 32.8% 1,373 967

15,630 2,143 743 299 1,116 38.3% 689 655

15,264 2,047 706 266 1,084 36.1% 693 628

15,435 2,019 676 311 1,048 39.1% 638 490

15,651 1,923 657 331 780 33.6% 518 364

18,407 2,239 727 444 113 NM -184 102

Balance Sheet & Other Financial Data (Million $) Cash 1,686 Current Assets 6,882 Total Assets 21,300 Current Liabilities 4,454 Long Term Debt 8,456 Common Equity 4,701 Total Capital 13,399 Capital Expenditures 355 Cash Flow 1,560 Current Ratio 1.6 % Long Term Debt of Capitalization 63.1 % Net Income of Revenue 1.5 % Return on Assets 1.6 % Return on Equity 7.5

1,306 6,740 22,145 5,126 8,733 4,646 14,498 761 -3,525 1.3 60.2 NM NM NM

583 6,324 27,789 5,360 9,087 9,907 20,440 994 2,213 1.2 44.5 3.5 3.2 8.2

1,211 7,422 29,550 6,359 7,847 12,254 21,829 1,317 2,253 1.2 39.0 3.7 3.2 7.7

248 10,145 33,168 7,590 8,860 13,519 24,083 568 2,347 1.3 36.8 6.1 5.7 13.9

868 7,510 14,885 4,301 2,637 6,167 10,003 467 1,432 1.7 26.4 4.4 4.7 11.4

925 7,452 14,550 3,883 3,151 5,940 10,089 508 1,399 1.9 31.2 4.5 4.8 11.8

716 7,154 14,441 3,601 3,408 5,762 10,168 568 1,314 2.0 33.5 4.1 4.2 11.3

636 7,280 15,044 3,714 3,859 5,564 10,768 615 1,175 2.0 35.8 3.3 3.4 9.1

322 8,700 17,012 4,869 4,374 5,822 11,589 742 543 1.8 37.7 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7 W Seventh St, Cincinnati, OH 45202. Telephone: 513-579-7000. Website: http://www.fds.com Chrmn, Pres & CEO: T.J. Lundgren

Vice Chrmn: R.J. Borneo Investor Contact: K.M. Hoguet (212-494-1602) EVP & CFO: K.M. Hoguet EVP, Chief Acctg Officer & Cntlr: J.A. Belsky

Board Members: S. F. Bollenbach, D. Connelly, M. Feldberg, S. Levinson, T. J. Lundgren, J. Neubauer, J. A. Pichler, J. M. Roche, C. E. Weatherup, M. C. Whittington

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1858 Domicile: Delaware Employees: 188,000

Stock Report | October 23, 2010 | NYS Symbol: MRO | MRO is in the S&P 500

Marathon Oil Corp S&P Recommendation HOLD

★★★★★

Price $35.61 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $39.00

Investment Style Large-Cap Blend

Summary As one of the largest integrated oil companies in the U.S., Marathon also has international oil and gas exploration and production operations, and domestic refining, marketing, and transportation operations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.00– 27.64 Trailing 12-Month EPS $2.72 Trailing 12-Month P/E 13.1 $10K Invested 5 Yrs Ago $14,043

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.40 4.83 10.5 709.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$25.271 2.81 $1.00 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.19 54 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's diversified and solid business profile in volatile and cyclical segments of the energy industry. We consider MRO's earnings stability to be good, and its corporate governance practices sound.

60

40 30 20 2-for-1

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

5

4

3

4

A+ STRONG

71

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tina J. Vital on August 10, 2010, when the stock traded at $ 34.11. Highlights ➤

➤

➤

We expect a modest rise in oil and gas production in 2010, of about 1.6% to 409,000 boe per day, reflecting higher costs, turnaround activity, and asset sales. For the long term, we project MRO's oil and gas production to expand about 4% per annum between 2009 and 2013 on new international developments and emerging U.S. onshore shale plays. MRO released the Paul Romano drilling rig early at its Innsbruck prospect in the Gulf of Mexico, but the company sees little impact from the drilling moratorium on its production in 2010 or 2011. For downstream, second quarter 2010 refinery throughputs rose 20% to 1.393 million b/d on contributions from the Garyville Major Expansion start-up. With signs of improved fuel demand, as of July 2010, we project U.S. Gulf Coast 3-2-1 refining crack spreads to widen about 9% in 2010 and 3% in 2011. First half 2010 operating EPS excluded net gains of $0.08 related to asset sales, but included net gains of $0.05 related to derivatives. We expect after-tax operating earnings to rise 123% in 2010 and 42% in 2011 reflecting improved demand and cost initiatives.

Investment Rationale/Risk ➤

➤

➤

MRO has increased its exposure to exploration & production projects in new international regions and U.S. onshore shale plays. About 7% of its production is located in the Gulf of Mexico, but most is globally diversified (32% U.S., 40% Africa, 28% Europe). In 2008, MRO evaluated the potential separation of its E&P and refining & marketing units into two independent companies, but in 2009, MRO concluded that it was in the best interest of its shareholders to remain integrated. While we see earnings stability as an integrated business, we look for reduced contributions from refining over the next five years. Risks to our recommendation and target price include adverse economic, industry and operating conditions (including geopolitical, regulatory and environmental problems), and difficulty replacing reserves. Blending our discounted cash flow ($36 per share, assuming a WACC of 9.1% and terminal growth of 3%) and relative market valuations, our 12-month target price is $39, representing an expected enterprise value of 3.6X our 2011 EBITDA estimate, a discount to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 14,657 18,574 2009 10,176 13,039 2008 18,100 20,617 2007 12,869 16,736 2006 16,418 18,179 2005 12,932 16,019

3Q -14,362 21,841 16,762 16,492 17,248

4Q -15,893 13,064 18,185 13,807 17,314

Year -54,139 72,128 64,552 64,896 63,673

Earnings Per Share ($) 2010 0.64 1.00 2009 0.40 0.48 2008 1.02 1.08 2007 1.04 2.24 2006 1.07 2.04 2005 0.47 0.96

E0.91 0.55 2.90 1.49 2.26 1.04

E0.94 0.28 -0.06 0.94 1.53 1.74

E3.40 1.67 4.95 5.68 6.87 4.25

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.240 0.240 0.250 0.250

10/28 02/01 04/28 07/28

11/16 02/12 05/17 08/16

11/18 02/17 05/19 08/18

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1991. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MRO

Marathon Oil Corp Business Summary August 10, 2010 CORPORATE OVERVIEW. As one of the largest integrated oil companies in the U.S., Marathon Oil (MRO; formerly USX-Marathon Group, a part of USX Corp.) is engaged in four operating segments: Exploration and Production (E&P; 15% of 2009 revenues; 67% of 2009 segment income); Oil Sands Mining (OSM; 1%; 2%), Refining, Marketing and Transportation (RM&T; 84%; 26%); and Integrated Gas (IG; less than 1%; 5%). MRO conducts exploration in the U.S., Angola, Norway and Indonesia, and production activities in the U.S., the U.K., Norway, Ireland, Equatorial Guinea and Libya. Including synthetic crude oil (SCO), proved oil and gas reserves rose 41% to 1.68 billion barrel oil equivalent (boe; 71% developed; 73% liquids and SCO) in 2009. Conventional oil and gas net sales rose 8.4% to 400,000 boe per day (boe/d; 55% liquids; 32% U.S., 40% Africa, and 28% Europe) in 2009. Net sales of SCO production remained level at 32,000 barrels per day (b/d) in 2009. Using John S. Herold data, we estimate MRO's three-year (2006-08) finding and development costs at $35.37 per boe, above the peer average; its three-year proved acquisition costs at $13.72 per boe, above the peer average; its three-year reserve replacement costs at $22.96 per boe, above the peer average; and its three-year reserve replacement rate at 183%, in line with the peer average. Excluding oil sands, we estimate MRO's 2009 organic

reserve replacement at 48% (overall 48%). The RM&T segment owned and operated seven refineries (436,000 b/d Garyville, LA; 212,000 b/d Catlettsburg, KY; 206,000 b/d Robinson, IL; 106,000 b/d Detroit, MI; 78,000 b/d Canton, OH; 76,000 b/d Texas City, TX; and 74,000 b/d St. Paul Park, MN) for a total throughput capacity of 1,188,000 b/d of crude oil, as of year-end 2009. MRO sourced about 78% of its refinery crude feedstock from North America, 16% from the Middle East and Africa, and 6% from other regions in 2009. MRO terminals supplied petroleum products to private-brand marketers, as well as about 4,600 Marathon-branded retail outlets in 2009. Retail sales of gasoline and convenience store merchandise are also made through its wholly-owned subsidiary, Speedway SuperAmerica LLC (SSA), which had 1,603 retail outlets at the end of 2009 (primarily under the Speedway and SuperAmerica brand names).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 28.89 5.35 1.67 1.54 0.96 57% 35.71 20.18 21 12

2008 28.16 8.00 4.95 5.77 0.96 19% 63.22 19.34 13 4

2007 22.59 7.91 5.68 5.69 0.92 16% 67.04 41.50 12 7

2006 18.72 9.30 6.87 6.85 0.77 11% 49.37 31.01 7 5

2005 13.90 6.14 4.25 4.20 0.61 14% 36.34 17.76 9 4

2004 11.17 3.57 1.86 1.91 0.52 28% 21.30 15.15 11 8

2003 9.20 3.53 1.63 1.63 0.48 29% 16.81 9.93 10 6

2002 7.57 2.80 0.86 0.69 0.46 53% 15.15 9.41 18 11

2001 7.99 4.12 2.13 2.21 0.46 75% 16.87 12.48 28 20

2000 7.77 2.69 0.70 NA 0.44 63% 15.19 10.34 22 15

48,546 NA 2,623 149 3,441 65.6% 1,184 1,092

72,128 9,237 2,178 50.0 6,973 49.4% 3,528 4,112

64,552 7,598 1,613 290 6,846 42.4% 3,948 3,953

64,896 9,932 1,518 108 8,969 44.8% 4,957 4,949

63,673 6,660 1,358 145 5,157 33.5% 3,051 3,013

49,598 8,379 1,217 161 2,509 29.0% 1,257 1,290

40,963 2,988 1,175 238 1,898 30.8% 1,012 1,014

31,464 2,253 1,201 288 1,098 35.4% 536 428

33,019 4,215 1,236 196 2,781 27.3% 1,318 1,367

34,487 3,521 1,245 260 1,412 34.1% 432 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,057 Current Assets 10,637 Total Assets 47,052 Current Liabilities 9,057 Long Term Debt 8,436 Common Equity 21,910 Total Capital 30,442 Capital Expenditures 6,231 Cash Flow 3,807 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Return on Assets 2.6 % Return on Equity NA

1,285 8,403 42,686 7,753 7,087 21,409 31,826 7,146 5,706 1.1 22.3 8.3 17.4

1,199 10,587 42,746 11,260 6,084 19,223 28,696 4,466 5,500 0.9 21.2 10.7 23.3

2,585 10,096 30,831 8,061 3,061 14,607 20,083 3,433 6,475 1.3 15.2 16.7 37.7

2,617 9,383 28,498 8,154 3,698 11,705 17,868 2,890 4,409 1.2 20.7 11.8 30.8

3,369 8,867 23,423 5,253 4,057 8,111 16,411 2,237 2,474 1.7 24.7 5.9 17.7

1,396 6,040 19,482 4,207 4,085 6,075 12,171 1,892 2,187 1.4 33.6 5.4 18.1

488 4,479 17,812 3,659 4,410 5,082 12,908 1,574 1,737 1.2 34.2 3.2 10.7

657 4,411 16,129 3,468 3,432 4,940 11,632 1,639 2,546 1.3 29.5 7.9 22.4

340 4,985 15,232 4,012 4,196 4,845 12,235 1,669 1,677 1.2 34.3 2.8 9.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5555 San Felipe St Bsmt, Houston, TX 77056-2701. Telephone: 713-629-6600. Website: http://www.marathon.com Chrmn: T.J. Usher

Pres & CEO: C.P. Cazalot, Jr. EVP & CFO: J.F. Clark Chief Acctg Officer & Cntlr: M.K. Stewart Treas: P.C. Reinbolt

Investor Contact: H. Thill (713-296-4140) Board Members: G. H. Boyce, C. P. Cazalot, Jr., D. A. Daberko, W. L. Davis, S. A. Jackson, P. Lader, C. R. Lee, M. E. Phelps, D. H. Reilley, S. E. Schofield, J. W. Snow, T. J. Usher

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1901 Domicile: Delaware Employees: 28,855

Stock Report | October 23, 2010 | NYS Symbol: MAR | MAR is in the S&P 500

Marriott International Inc. S&P Recommendation SELL

★★★★★

Price $37.29 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Hotels, Resorts & Cruise Lines

12-Mo. Target Price $29.00

Investment Style Large-Cap Growth

Summary Marriott's lodging brands include nearly 3,500 properties, most of which are managed by the company or are operated by others through franchise relationships.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.15– 24.39 Trailing 12-Month EPS $1.05 Trailing 12-Month P/E 35.5 $10K Invested 5 Yrs Ago $12,764

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.10 1.25 33.9 364.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.54 NM BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

20

10

0.379% 0.341% sto stk 0.37% stoc

Mil.

MEDIUM

HIGH

Our risk assessment reflects our view that MAR is subject not only to improving cyclical economic factors, but also to lagging weakness in industry fundamentals, with the latter outweighing the former, so that a material increase in earnings to pre-recession levels is unlikely for some time. While we expect internal cash flow to be sufficient to finance future minimum capital needs, outside capital, particularly to finance timeshare receivables, is likely to be more costly.

30

Vol.

LOW

Below Avg.

40

30 20 10 0 5

$13.583 0.43 $0.16 63

Quantitative Evaluations 4

3

S&P Quality Ranking 3

2

2

1

D

C

B-

AB

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

MODERATE

2010 Options: ASE, CBOE, P, Ph

70 LOWEST = 1

HIGHEST = 99

Analysis prepared by Esther Y. Kwon, CFA on October 18, 2010, when the stock traded at $ 35.60. Highlights ➤

Global systemwide comparable RevPAR rose 8.5% in constant currencies in the third quarter of 2010 from a year earlier, due primarily to easy comparisons against a weak quarter in 2009. Comparable North American companyoperated RevPAR rose 7.2% (1.9% drop in Q1 and up 7.5% in Q2), while the same measure on an international basis increased 8.5% (1.5% and 8.2%) using constant currencies.

Investment Rationale/Risk ➤

➤ ➤

➤

For 2010, we project that franchise fees, management fees, and revenues from owned hotels, all combined, will increase about 5%, due to system expansion, particularly in Asia, and 5.4% in 2011. We estimate profits from owned and operated hotels will rise approximately 40% in both 2010 and 2011. We believe timeshare operations, net of expenses and loan loss provisions, will show a $224 million profit on significant restructuring savings in 2010 and rise to $256 million in 2011. We estimate EBITDA of $1.04 billion and EPS of $1.10 in 2010. For 2011, we expect hotel operating profit to improve further, but see modest deterioration in timeshare profits. We estimate EBITDA will increase to $1.05 billion with EPS of $1.25.

➤

Revenue/Earnings Data

Our sell opinion reflects our view that global hotel industry fundamentals are likely to remain materially below pre-recession levels through at least 2012. We believe MAR's growth strategy could increase financing risks and stress its capital structure. We also think the financial health of MAR's hotel owner and franchise partners poses potential risks.

Revenue (Million $) 1Q 2Q 2010 2,630 2,771 2009 2,495 2,562 2008 2,947 3,185 2007 2,836 3,122 2006 2,705 2,891 2005 2,534 2,661

3Q 2,648 2,471 2,963 2,943 2,703 2,714

4Q -3,380 3,784 4,089 3,861 3,641

Year -10,908 12,879 12,990 12,160 11,550

Risks to our recommendation and target price include the prospects for a shorter and milder global economic downturn than we currently expect, raising the possibility of an earlier industry rebound. Property development could slow dramatically during this period of global financial distress, which would generally be a long-term positive.

Earnings Per Share ($) 2010 0.22 0.31 2009 -0.06 0.10 2008 0.33 0.41 2007 0.40 0.43 2006 0.38 0.43 2005 0.30 0.29

0.22 -1.31 0.26 0.31 0.33 0.32

E0.35 0.28 -0.03 0.61 0.51 0.53

E1.10 -0.97 0.97 1.73 1.65 1.43

Our 12-month target price of $29 is based on an enterprise value of about 11X our forecast of 2011 EBITDA of approximately $1.15 billion, reflecting an EV/EBITDA discount to large market peers and the lodging group average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Fiscal year ended Dec. 31. Next earnings report expected: Mid February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Stk. 0.040 0.040 0.040

11/05 02/04 05/07 08/05

11/17 02/17 05/19 08/17

11/19 02/19 05/21 08/19

12/03/09 04/09/10 06/25/10 09/17/10

Dividends have been paid since 1998. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MAR

Marriott International Inc. Business Summary October 18, 2010 CORPORATE OVERVIEW. Marriott International's lodging and timeshare businesses included 3,420 properties with 595,461 rooms or suites as of January 1, 2010. This compared with 3,178 properties with 560,681 rooms or suites as of January 2, 2009. Of the 3,420 properties, approximately 2,950 were located in the U.S. At year-end 2009, there were 1,098 properties (280,130 rooms or suites) that MAR operated under long-term management agreements, 35 properties (9,277 rooms) that were leased and managed by MAR, and eight properties (1,785) that the company owned. With its management agreements, the company typically earns a base fee, and may receive an incentive management fee that is based on hotel profits. MAR also had 2,279 franchised properties, with 304,259 rooms, that were franchised and operated by other parties. By brand (including franchises) as of year-end 2009, MAR's business included 545 Marriott Hotels & Resorts, Marriott Conference Centers or JW Marriott Hotels & Resorts properties; 74 Ritz-Carlton hotels; 143 Renaissance hotels; 858 Courtyard hotels; 629 Fairfield Inn properties; 256 SpringHill Suites properties, 592 Residence Inn hotels; 184 TownPlace Suites properties; two Bulgari Hotel & Resorts properties; 69 timeshare properties; and 52 residential and apartment units. Two brands for which the first properties are in planning or development are Nickelodeon Resorts by Marriott, and Edition, a global boutique hotel brand for which the company has partnered with hotelier Ian

Schrager. In 2009, MAR's North American full-service lodging segment, which included Marriott full-service and Renaissance businesses, accounted for approximately 44% of total revenues, while North American limited service accounted for 18%. In addition, international accounted for 10%, luxury 13%, and timeshare and other 14%. The company's international presence as of year-end 2009 included: 108 properties (26,010 rooms or suites) in continental Europe, 61 in the British Isles (12,015), 114 properties (38,663) in Asia, 35 (10,433) in the Middle East or Africa, 125 (29,048) in the Americas ex-U.S., and eight (2,353) in Australia. CORPORATE STRATEGY. In the third quarter of 2009, MAR determined that in response to difficult business conditions and a lack of consumer confidence, it would alter its timeshare strategy to stimulate sales, accelerate cash flow, and minimize future investment spending. These changes included price reductions and a cessation of most future development, and resulted in pretax charges of $752 million during the quarter.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM -0.45 -0.97 -0.92 0.08 NM 28.40 12.09 NM NM

2008 NM 1.48 0.97 0.98 0.33 34% 37.48 11.75 39 12

2007 1.40 2.23 1.73 1.76 0.28 16% 51.44 31.00 30 18

2006 2.85 2.30 1.65 1.55 0.24 14% 47.79 31.97 29 19

2005 4.47 1.82 1.43 1.24 0.20 14% 35.01 28.69 24 20

2004 5.79 1.66 1.22 0.99 0.16 13% 31.65 20.10 26 16

2003 5.11 1.28 0.96 0.67 0.15 15% 23.34 14.12 24 15

2002 4.52 1.21 0.86 0.76 0.14 16% 22.97 12.98 27 15

2001 3.52 0.88 0.46 0.35 0.13 28% 24.98 13.50 55 30

2000 2.77 1.31 0.93 NA 0.12 12% 21.51 12.92 23 14

10,908 155 185 118 -418 15.6% -346 -327

12,879 1,120 190 218 694 50.4% 359 364

12,990 1,385 197 184 1,137 39.0% 697 711

12,160 1,199 188 124 997 28.7% 717 680

11,550 739 184 106 717 13.1% 668 579

10,099 643 166 99.0 654 15.3% 594 484

9,014 537 160 110 488 NM 476 330

8,441 634 187 86.0 471 6.79% 439 381

10,152 779 222 109 370 36.2% 236 180

10,017 997 195 100 757 36.7% 479 NA

Balance Sheet & Other Financial Data (Million $) Cash 115 Current Assets 2,851 Total Assets 7,933 Current Liabilities 2,287 Long Term Debt 2,234 Common Equity 1,142 Total Capital 3,440 Capital Expenditures 147 Cash Flow -161 Current Ratio 1.3 % Long Term Debt of Capitalization 64.9 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

134 3,368 8,903 2,533 2,975 1,380 4,366 357 549 1.3 68.1 2.8 4.0 25.6

332 3,572 8,942 2,876 2,790 1,429 4,219 671 894 1.2 66.1 5.3 7.9 34.4

193 3,314 8,588 2,522 1,818 2,618 4,436 529 905 1.3 41.0 5.9 8.4 24.4

203 2,010 8,530 1,992 1,681 3,252 4,944 780 852 1.0 34.0 5.8 7.8 18.2

770 1,946 8,668 2,356 836 4,081 4,929 181 760 0.8 16.9 5.9 7.1 15.0

229 1,235 8,177 1,770 1,391 3,838 5,398 210 636 0.7 25.7 5.3 5.8 12.8

198 1,744 8,296 2,207 1,553 3,573 5,232 292 626 0.8 29.7 5.2 5.0 12.5

817 2,130 9,107 1,802 2,815 3,478 6,293 560 458 1.2 44.7 2.3 2.7 7.0

334 1,415 8,237 1,917 2,016 3,267 5,283 1,095 674 0.7 38.2 4.8 6.2 15.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 10400 Fernwood Road, Bethesda, MD 20817. Telephone: 301-380-3000. Website: http://www.marriott.com Chrmn & CEO: J.W. Marriott, Jr.

Pres & COO: A.M. Sorenson Vice Chrmn: J.W. Marriott, III Vice Chrmn: W.J. Shaw EVP, CFO & Chief Acctg Officer: C.T. Berquist

Investor Contact: T. Marder (301-380-2553) Founded: 1971 Board Members: M. K. Bush, L. W. Kellner, D. L. Lee, J. Domicile: Delaware W. Marriott, III, J. W. Marriott, Jr., G. Munoz, H. J. Employees: 137,000 Pearce, S. S. Reinemund, W. M. Romney, W. J. Shaw, L. M. Small

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MI | MI is in the S&P 500

Marshall & Ilsley Corp S&P Recommendation HOLD

★★★★★

Price $6.18 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $8.00

Investment Style Large-Cap Blend

Summary This Milwaukee-based financial services company operates throughout Wisconsin, as well as in Arizona and several other states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$10.66– 4.97 $-1.73 NM $2,141

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-1.07 0.12 NM 527.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.46 NM A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's large-cap valuation and its history of profitability, offset by the risk that credit quality may suffer further from weakness in the Sunbelt and Midwest.

40 20

8 4

Quantitative Evaluations S&P Quality Ranking

Vol. 202

Mil.

D

60 40 20 0 5

$3.258 0.65 $0.04 74

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

9 4 2

3

4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for MI has recently been changed to $8.00 from $10.00. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on MI from MarketScope, see below.

➤

10/20/10 03:43 pm ET ... S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF MARSHALL & ILSLEY CORP (MI 6.25***): Q3 loss per share of $0.32, vs. a $0.68 loss, is wider than our estimate of a $0.26 loss, on a higher than expected loan loss provision, and lower than expected net interest income, partly offset by gains on securities. On Q3 results, we are widening our '10 loss per share estimate to $1.07 loss from $0.98. Though we see credit quality as stable, we were hoping for improvements. We are therefore cutting our target price by $3.00 to $8.00, and basing it on a discount to peers 1.0X our $7.85 per share yearend estimate of tangible book value. /E. Oja

Revenue (Million $) 1Q 2Q 2010 797.2 732.3 2009 820.5 895.7 2008 1,090 1,002 2007 1,386 1,438 2006 1,139 1,290 2005 895.1 975.8

3Q -830.9 982.5 1,474 1,381 1,014

4Q -773.4 951.5 3,873 1,317 1,076

Year -3,383 4,169 4,398 5,128 3,963

Earnings Per Share ($) 2010 -0.27 -0.33 2009 -0.44 -0.83 2008 0.56 -1.52 2007 0.83 0.83 2006 0.72 0.74 2005 0.73 0.81

E-0.32 -0.68 0.32 0.85 0.92 0.78

E-0.15 -0.54 -7.25 -0.09 0.79 0.78

E-1.07 -2.46 -7.92 1.87 3.17 3.10

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

02/18 04/27 08/19 10/21

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

03/12/10 06/11/10 09/10/10 12/10/10

Dividends have been paid since 1938. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MI

Marshall & Ilsley Corp Business Summary July 21, 2010 CORPORATE OVERVIEW. Marshall & Ilsley Corp. owns banking subsidiaries with operations in Wisconsin and the metropolitan areas of Phoenix and Tucson, AZ, Minneapolis/St. Paul, MN, St. Louis, MO, Las Vegas, NV, and Naples and Bonita Springs, FL. MI also owns nonbanking subsidiaries that are related or incidental to banking. The company also has other business operations that include trust services, residential mortgage banking, capital markets, brokerage and insurance, commercial leasing, commercial mortgage banking and community development investments. PRIMARY BUSINESS DYNAMICS. In 2007, MI separated MI and Metavante Corporation into two separate publicly held companies. Warburg Pincus, a global private equity investor, invested $625 million to acquire an equity stake of 25% in Metavante Corp, while MI shareholders owned the remaining 75% of Metavante. By the terms of the deal, each share of the "old" MI was entitled to receive one share of "new" Marshall & Ilsley Corp., plus one-third of a share of Metavante Corp. MI received a cash infusion of about $1.665 billion, which may be invested, used to improve MI's capital ratios, buy back shares or increase the dividend.

Starting in the 1990s, the company made several sizable bank acquisitions, mostly in Wisconsin. Beginning in 2000, it shifted its bank acquisition focus outside Wisconsin. Between 1994 and 1998, the company acquired six Wisconsin banks, with assets totaling $9.3 billion, for $2.0 billion. In 2001 and 2002, MI acquired three banks in Minnesota and one bank in Missouri, with combined assets of $4.3 billion, for a total of $994 million. On April 3, 2006, MI closed its acquisition of Gold Banc Corp. in Kansas, with assets of $4.1 billion, for $715 million. On March 1, 2006, the company completed its acquisition of Trustcorp Financial in Missouri, with assets of $705 million, for $181 million. On December 4, 2006, MI announced the pending acquisition of United Heritage Bank of Orlando, for $217 million; this deal closed on April 2, 2007. On February 12, 2007, MI announced the acquisition of Excel Bank Corp. for $101 million, and this transaction closed July 2, 2007. MI's most recent acquisition was First Indiana Corp., for $538 million cash, on January 3, 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.86 -2.46 -2.46 0.04 NM 13.98 2.98 NM NM

2008 20.71 -7.92 -2.06 1.27 NM 29.07 10.90 NM NM

2007 19.82 1.87 1.87 1.20 64% 51.48 26.04 28 14

2006 11.51 3.17 3.17 1.05 33% 49.10 40.83 15 13

2005 9.02 3.10 2.99 0.93 30% 47.40 40.05 15 13

2004 7.76 2.77 2.66 0.81 29% 44.70 35.67 16 13

2003 9.96 2.38 2.28 0.70 29% 38.46 24.60 16 10

2002 8.61 2.16 2.07 0.55 25% 32.12 23.11 15 11

2001 9.00 1.54 1.49 0.57 37% 32.12 23.54 21 15

2000 9.06 1.45 NA 0.52 36% 31.13 19.13 22 13

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

1,583 25.0 816 2,315 65.8% -1,396 NM -759 2.85 -858

1,781 27.8 733 2,038 117.8% -2,503 NM -2,043 3.12 -533

1,616 28.2 729 320 56.1% 711 30.1% 497 3.14 496

1,490 NA 1,906 50.6 63.6% 1,196 32.4% 808 3.27 808

1,233 33.3 1,704 44.8 62.2% 1,090 33.3% 727 3.31 705

1,132 NA 1,411 38.0 62.7% 945 33.6% 627 3.52 605

1,057 NA 1,194 63.0 64.5% 758 28.3% 544 3.65 519

1,006 32.2 1,089 74.4 61.9% 719 33.2% 480 3.96 453

843 31.2 1,020 54.1 68.1% 501 32.6% 338 3.67 319

673 31.0 978 30.4 65.4% 470 32.5% 317 2.81 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 1,448 Investment Securities 7,177 Commercial Loans 12,950 Other Loans 31,268 Total Assets 57,210 Demand Deposits 7,833 Time Deposits 33,805 Long Term Debt 6,426 Common Equity 6,975 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 3.4 % Loans/Deposits 106.2 % Equity to Assets 12.2

749 7,669 14,880 35,105 63,824 6,880 34,143 9,614 7,748 NM NM 2.4 121.9 10.9

587 7,818 26,526 19,770 59,849 6,174 29,017 9,873 7,033 0.9 7.5 1.1 125.8 11.4

293 7,473 23,717 17,917 56,230 6,112 27,972 8,026 6,151 1.6 14.7 1.0 123.0 10.7

330 6,320 19,023 14,866 46,213 5,525 22,149 6,669 4,769 1.7 16.6 1.1 123.5 9.9

191 6,085 16,646 12,810 40,437 15,005 11,450 5,027 3,970 1.7 17.1 1.2 111.6 9.8

163 5,607 14,254 10,896 34,373 4,715 17,555 2,735 3,329 1.6 17.1 1.4 113.1 9.5

250 5,209 6,586 17,011 32,875 4,462 15,932 2,284 3,037 1.6 17.4 1.4 117.2 9.2

947 4,464 10,815 8,480 27,254 3,559 12,934 1,560 2,536 1.3 13.8 1.4 117.0 9.0

163 5,848 9,649 7,938 26,078 3,130 16,119 921 3,200 1.3 10.6 1.3 91.4 11.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 770 N Water St, Milwaukee, WI 53202. Telephone: 414-765-7801. Website: http://www.micorp.com Chrmn, Pres & CEO: M.F. Furlong

SVP & CFO: G.A. Smith SVP, Chief Admin Officer & General Counsel: R.J. Erickson SVP, Chief Acctg Officer & Cntlr: P.R. Justiliano SVP & Treas: M.C. Smith

Investor Contact: D.L. Urban (414-765-7853) Founded: 1959 Board Members: J. F. Chait, J. Daniels, Jr., M. F. Domicile: Wisconsin Furlong, T. D. Kellner, D. J. Kuester, D. J. Lubar, K. C. Employees: 9,410 Lyall, J. A. Mellowes, R. J. O'Toole, S. W. Orr, Jr., P. M. Platten, III, J. S. Shiely, G. E. Wardeberg, J. B. Wigdale

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MMC | MMC is in the S&P 500

Marsh & McLennan Companies Inc. S&P Recommendation HOLD

★★★★★

Price $25.19 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Insurance Brokers

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This global professional services concern provides risk and insurance services, investment management and consulting services through its operating companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.47– 20.21 Trailing 12-Month EPS $1.33 Trailing 12-Month P/E 18.9 $10K Invested 5 Yrs Ago $10,355

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.78 2.05 14.2 542.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.665 3.33 $0.84 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.69 13 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's leading market share position, diversified businesses and global scale, offset by regulatory scrutiny and business model changes as a result of contingent commissions, and potential impairment charges related to goodwill. We believe MMC is more exposed to the weak economy than peers due to its sizable consulting businesses.

35 30 25

20

Vol. Mil.

Quantitative Evaluations

30 20 10 0 5

S&P Quality Ranking 4

4

3

D

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 65

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Bret Howlett on August 18, 2010, when the stock traded at $ 23.74. Highlights ➤

➤

We anticipate organic revenue growth of 2%-3% in the risk and insurance segment in 2010, driven by solid new business production, better P&C pricing in some business lines, and the favorable impact of foreign currency. We forecast 8%-10% revenue growth at Guy Carpenter due to acquisitions, strong retention, and new business wins. We estimate that consulting revenues will increase 2%-3%, boosted by strong organic growth at Oliver Wyman. Expense reductions should keep consulting margins stable. We anticipate risk and insurance operating margins increasing to 21%-22%. We expect MMC to continue its aggressive expense management, and forecast at least $100 million of cost savings in 2010. We believe MMC's financial position is strong, and estimate that the company will have at least $1.5 billion in excess cash following the Alaska settlement. We believe the company is well positioned to capitalize on M&A opportunities. We expect fiduciary income to be weak as interest rates are likely to remain low.

Investment Rationale/Risk ➤

➤

➤ ➤

We forecast EPS of $1.78 for 2010 and $2.05 for 2011, excluding certain one-time items and discontinued operations.

While we believe MMC is making progress with its restructuring initiatives, and think it will benefit from an improved insurance pricing environment, we expect its economically sensitive consulting business to be a drag on earnings growth. MMC has been aggressively cutting costs at Mercer, Oliver Wyman and Kroll (sold in 2010), but its consulting businesses contribute nearly half of the company's revenues, and could present earnings challenges, in our view. Still, we view favorably MMC's organic growth outlook, new business production and improving customer retention rates despite a weak environment. We see considerable room for margin expansion given cost-cutting efforts, restructured operations, and top-line growth. Risks to our recommendation and target price include lower-than-expected revenue on rate increases; deteriorating client retention; lowerthan-projected cost savings from restructurings and layoffs; and unfavorable legal and regulatory developments. Our 12-month target price is $26, about 14.6X our estimate of 2010 EPS, below MMC's historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,795 2,606 2009 2,609 2,629 2008 3,047 3,048 2007 2,812 2,819 2006 3,016 2,970 2005 3,070 2,977

3Q -2,523 2,838 2,794 2,872 2,779

4Q -2,732 2,662 2,925 3,063 2,826

Year -10,493 11,587 11,350 11,921 11,652

Earnings Per Share ($) 2010 0.50 -0.06 2009 0.35 -0.32 2008 -0.41 0.11 2007 0.41 0.25 2006 0.43 0.31 2005 0.24 0.30

E0.40 0.40 0.03 0.15 0.32 0.11

E0.50 0.01 0.14 0.17 0.39 0.03

E1.78 0.43 -0.13 0.98 1.45 0.67

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.200 0.200 0.210

01/20 03/17 05/20 09/15

01/27 04/07 07/07 10/06

01/29 04/09 07/09 10/08

02/16/10 05/17/10 08/16/10 11/15/10

Dividends have been paid since 1923. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MMC

Marsh & McLennan Companies Inc. Business Summary August 18, 2010 CORPORATE OVERVIEW. Marsh & McLennan is one of the world's largest insurance brokers and provides advice and solutions in areas of risk, strategy and human capital. In 2009, total revenues exceeded $10.0 billion, with MMC providing its services in more than 100 countries. The insurance brokerage industry has suffered in recent years from probes into bid rigging and contingent commissions. We believe settlements and corporate restructurings have improved the outlook at MMC, but ongoing legal and regulatory proceedings and uncertainty regarding implementing a new business model remain risks. MMC operates in three main segments: risk and insurance services, risk consulting and technology, and consulting. Risk and insurance services (50% of operating segment revenues in 2009; 47% in 2008) includes insurance services, reinsurance services and risk capital holdings, risk management and consulting, insurance broking, and insurance program management. Reinsurance broking and catastrophe and financial modeling services are provided under the Guy Carpenter name. Risk consulting and technology (6% in 2009; 9% in 2008) is conducted under the Kroll name (sold in 2010). Consulting and

human resource outsourcing (44% in 2009; 45% in 2008) is offered under the Mercer and Oliver Wyman Group names. LEGAL/REGULATORY ISSUES. In June 2010, MMC announced that its Mercer consulting subsidiary had reached a settlement of litigation brought by the Alaska Retirement Management Board (ARMB). Mercer will pay $400 million (excluding the $100 million covered by insurance), while denying any liability. We believe the $400 million settlement is a positive for MMC since it is significantly below the $2.8 billion that was sought by ARMB, and removes the uncertainty surrounding a jury trial in Alaska. In the fourth quarter of 2009, MMC recorded a $205 million charge related to the securities and ERISA class action lawsuits filed in 2004. MMC did not admit to any liability or wrongdoing in connection with the settlement.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.13 0.43 0.79 0.80 186% 25.46 17.18 59 40

2008 NM 0.61 -0.13 -0.12 0.80 NM 36.82 20.96 NM NM

2007 0.13 1.80 0.98 0.86 0.76 71% 33.90 23.12 35 24

2006 NM 2.34 1.45 1.30 0.68 47% 32.73 24.00 23 17

2005 NM 1.58 0.67 0.38 0.68 101% 34.25 26.67 51 40

2004 NM 1.18 0.33 1.11 0.99 NM 49.69 22.75 NM NM

2003 NM 3.52 2.81 2.29 1.18 42% 54.97 38.27 19 14

2002 NM 3.10 2.45 1.60 1.09 44% 57.30 34.61 23 14

2001 NM 2.61 1.70 0.91 1.03 61% 59.03 39.50 35 23

2000 9.47 2.94 2.05 NA 0.95 46% 67.84 35.25 33 17

10,493 1,394 365 241 308 16.6% 242 410

11,587 1,561 382 220 79.0 173.4% -69.0 -57.9

11,350 1,586 442 267 847 34.8% 538 462

11,921 1,946 488 303 1,219 31.8% 818 732

11,652 1,386 490 332 571 33.6% 369 211

12,159 2,073 456 219 450 57.6% 176 590

11,588 2,887 391 185 2,335 33.0% 1,540 1,254

10,440 2,633 359 160 2,133 35.0% 1,365 890

9,943 2,283 520 196 1,590 37.7% 974 525

10,157 2,179 488 247 1,955 38.5% 1,181 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,777 Current Assets 4,931 Total Assets 15,322 Current Liabilities 3,703 Long Term Debt 3,034 Common Equity 5,878 Total Capital 9,470 Capital Expenditures 305 Cash Flow 592 Current Ratio 1.3 % Long Term Debt of Capitalization 32.0 % Net Income of Revenue 2.3 % Return on Assets 1.6 % Return on Equity 4.2

1,685 4,784 15,221 3,386 3,194 5,722 8,916 386 313 1.4 35.8 NM NM NM

2,133 5,454 17,359 3,493 3,604 7,822 11,426 378 980 1.6 31.5 4.7 3.0 7.9

2,089 5,834 18,137 5,549 3,860 5,819 9,679 307 1,306 1.1 39.9 6.9 4.5 14.6

2,020 5,262 17,892 4,351 5,044 5,360 10,404 345 859 1.2 48.5 3.2 2.0 7.1

1,396 4,887 18,337 4,735 4,691 5,056 9,747 376 632 1.0 48.1 1.4 1.1 3.4

665 3,901 15,053 4,089 2,910 5,451 8,361 436 1,931 1.0 34.8 13.3 10.7 29.4

546 3,664 13,855 3,863 2,891 5,018 7,909 423 1,724 0.9 36.6 13.1 10.1 26.8

537 3,792 13,293 3,938 2,334 5,173 7,507 433 1,494 1.0 31.1 9.8 7.2 18.7

240 3,639 13,769 4,119 2,347 5,228 7,575 472 1,669 0.9 31.0 11.6 8.8 25.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1166 Avenue of the Americas, New York, NY 10036-2774. Telephone: 212-345-5000. Email: [email protected] Website: http://www.mmc.com

Chrmn: S.R. Hardis Pres & CEO: B. Duperreault EVP & CFO: V.A. Wittman EVP & General Counsel: P.J. Beshar

SVP & Chief Admin Officer: M.A. Petrullo Investor Contact: M.B. Bartley (212-345-5000) Board Members: L. M. Baker, Jr., Z. W. Carter, B. Duperreault, O. Fanjul Martin, H. E. Hanway, S. R. Hardis, G. S. King, I. B. Lang, B. P. Nolop, M. D. Oken, M. Schapiro, A. Simmons

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1923 Domicile: Delaware Employees: 52,000

Stock Report | October 23, 2010 | NYS Symbol: MAS | MAS is in the S&P 500

Masco Corp S&P Recommendation BUY

★★★★★

Price $10.95 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Building Products

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary This company is one of the world's leading makers of faucets, cabinets, coatings, and other consumer brand-name home improvement and building products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$18.78– 9.94 $-0.47 NM $4,682

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.35 0.70 31.3 358.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.926 2.74 $0.30 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.06 53 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Masco reflects its generation of strong levels of free cash flow during most business cycles, and what we view as a good business model. However, it also operates in a very cyclical area, as evidenced by the recent major downturn in its operating performance.

30

15

8

4

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 4 2

4

3

2008

2009

Analysis prepared by Michael W. Jaffe on August 11, 2010, when the stock traded at $ 11.02.

➤

➤

We expect sales to rise 3% in 2010, followed by an 8% gain in 2011. Results have weakened sharply over the past three plus years, hurt by a very soft U.S. economy and housing market, much slower big-ticket consumer spending, and economic woes in Europe. Yet, with government stimulus finally seeming to bring stabilization to housing markets, we see a modest sales upturn in 2010 and a somewhat more robust recovery in 2011. We expect the strongest sales in coming periods will be in the plumbing and decorative architectural products areas, as we see home improvement being one of the first places for spending to pick up. We see margins improving in both 2010 and 2011, on our better sales outlook, incremental benefits from cost-cutting efforts, and some savings from MAS's early 2010 plans to integrate its cabinet businesses into one organization (eventually expected to bring $30 million of annual savings). We see these factors outweighing a likely increase in interest charges, as notes were issued in March 2010. Our 2011 EPS estimate compares with a forecast for 2010 that excludes $0.12 of first half charges. Operating EPS was $0.28 in 2009.

B+

A-

A

A+ WEAK

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

BB

22

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

Highlights

B-

Relative Strength Rank

1

1

2007

C

MAS has been hurt for an extended period by very soft U.S. housing and home improvement markets, and Europe's major economic downturn. Yet, we see MAS's business starting to revive over the next year, on an apparent economic recovery. We also think MAS was wise to sharply cut its dividend in early 2009, and its recent amendment of debt covenants puts MAS in better financial order, in our view. Our valuation model finds MAS shares undervalued. Risks to our recommendation and target price include a longer than expected U.S. housing downturn, and weaker than expected performance in foreign markets served by MAS. MAS recently traded at almost 16X our 2011 EPS forecast, in the bottom half of its valuation during its recovery from prior economic downturns. We think that valuation is too low, as we believe we are entering the early stages of a rebound in housing and home improvement markets, and that aggressive streamlining actions undertaken by MAS should eventually bring a strong earnings recovery. We set our 12-month target price at $14, 20X our 2011 EPS forecast and the higher end of its typical valuation early in business recoveries.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,852 2,048 2009 1,797 2,013 2008 2,446 2,640 2007 2,865 3,148 2006 3,167 3,370 2005 2,914 3,286

3Q -2,084 2,528 3,059 3,295 3,296

4Q -1,869 1,979 2,698 2,946 3,146

Year -7,792 9,600 11,770 12,778 12,642

Earnings Per Share ($) 2010 -0.02 0.01 2009 -0.24 0.19 2008 0.07 0.20 2007 0.37 0.50 2006 0.50 0.53 2005 0.47 0.62

E0.18 0.14 0.10 0.57 0.57 0.60

E0.06 -0.49 -1.45 -0.39 -0.48 0.34

E0.35 -0.41 -1.08 1.06 1.15 2.03

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.075 0.075 0.075 0.075

12/09 03/26 06/25 09/10

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

02/08/10 05/10/10 08/09/10 11/08/10

Dividends have been paid since 1944. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MAS

Masco Corp Business Summary August 11, 2010 CORPORATE OVERVIEW. Masco is one of the largest U.S. makers of brand name consumer products for home improvement and new construction markets; it derives most of its revenues from the sale of faucets, kitchen and bath cabinets, plumbing supplies and architectural coatings. Operations are focused on North America (79% of 2009 sales) and Europe (most of the rest). Home Depot contributed 26% of 2009 sales (21% in 2008). The plumbing products division (33% of 2009 sales) is a major global faucet maker. Masco revolutionized faucets in 1954 with the Delta line, and also offers the Peerless, Brizo and Newport Brass brands, among others. In addition, the division offers other bath products, including plumbing fittings and valves, bathtubs and shower enclosures, and spa items; brand names include Aqua Glass and HotSpring. The cabinets and related products division (21%) makes cabinetry for kitchen, bath, storage, home office and home entertainment applications, featuring the Kraftmaid, Tvilum-Scanbirk and Merillat brands.

and decorative bath and shower accessories. Trade names include Behr in paints and stains and Franklin Brass in bath and shower. It also supplies and installs insulation products and other building products (16%) such as gutters, fireplaces, garage doors and framing components, and sells other specialty products (7%), such as windows, patio doors and electric staple guns. MANAGEMENT. In July 2007, Richard Manoogian, Masco's chairman and CEO, gave up his CEO duties and moved into a new post as executive chairman. Based on Mr. Manoogian's recommendation, Timothy Wadhams, Masco's senior vice president and CFO since 2001, was appointed to the CEO role. In addition, Alan Barry, Masco's president, stepped down from his post at the end of 2007, when he reached normal retirement age, with Mr. Wadhams also assuming that title.

Masco sells decorative architectural items (22%), including paints and stains, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 0.32 -0.41 0.21 0.46 NM 15.50 3.64 NM NM

2008 NM -0.41 -1.08 0.23 0.93 NM 23.50 6.82 NM NM

2007 NM 1.71 1.06 1.56 0.91 86% 34.72 20.89 33 20

2006 0.54 1.76 1.15 2.17 0.86 75% 33.70 25.85 29 22

2005 0.88 2.66 2.03 2.17 0.78 38% 38.43 27.15 19 13

2004 1.54 2.56 2.04 2.25 0.66 32% 37.02 25.88 18 13

2003 1.36 2.00 1.51 1.67 0.58 38% 28.44 16.59 19 11

2002 1.31 1.85 1.33 1.52 0.55 41% 29.43 17.25 22 13

2001 1.30 1.02 0.42 1.12 0.52 125% 26.94 17.76 64 42

2000 2.78 1.84 1.31 NA 0.49 37% 27.00 14.50 21 11

7,792 571 254 225 -151 32.5% -140 78.1

9,600 780 236 228 -211 NM -382 80.1

11,770 1,419 241 258 770 43.6% 397 582

12,778 1,700 244 240 900 45.8% 461 866

12,642 1,881 241 247 1,412 36.7% 872 936

12,074 1,944 237 217 1,518 37.5% 930 1,027

10,936 1,738 244 262 1,216 38.1% 740 816

9,419 1,683 220 237 1,031 33.8% 682 779

8,358 1,309 269 239 301 34.0% 199 528

7,243 1,295 238 191 893 33.8% 592 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,413 Current Assets 3,451 Total Assets 9,175 Current Liabilities 1,781 Long Term Debt 3,604 Common Equity 2,817 Total Capital 6,785 Capital Expenditures 125 Cash Flow 114 Current Ratio 1.9 % Long Term Debt of Capitalization 53.1 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,028 3,300 9,483 1,547 3,915 2,846 7,323 200 -146 2.1 53.5 NM NM NM

922 3,808 10,907 1,908 3,966 4,025 7,991 248 638 2.0 49.6 3.4 3.4 9.4

1,958 5,115 12,325 3,389 3,533 4,471 8,004 388 705 1.5 44.1 3.6 3.7 9.9

1,964 5,123 12,559 2,894 3,915 4,848 9,665 282 1,113 1.8 40.5 6.9 6.9 17.0

1,256 4,402 12,541 2,147 4,187 5,596 9,783 310 1,167 2.1 42.8 7.7 7.5 16.6

795 3,804 12,149 2,099 3,848 5,456 9,304 271 984 1.8 41.4 6.8 6.1 13.8

1,067 3,950 12,050 1,932 4,316 5,294 9,610 285 902 2.0 44.9 7.2 6.5 14.7

312 2,627 9,183 1,237 3,628 4,120 7,747 274 468 2.1 46.8 2.4 2.3 5.3

169 2,308 7,744 1,078 3,018 3,426 6,444 388 830 2.1 46.8 8.2 8.2 18.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 21001 Van Born Road, Taylor, MI 48180. Telephone: 313-274-7400. Website: http://www.masco.com Chrmn: R.A. Manoogian

Pres & CEO: T. Wadhams COO & EVP: D.J. Demarie, Jr. CFO & Treas: J.G. Sznewajs Chief Acctg Officer & Cntlr: W.T. Anderson

Investor Contact: M.C. Duey (313-274-7400) Founded: 1929 Board Members: D. W. Archer, T. G. Denomme, A. F. Domicile: Delaware Earley, Jr., V. G. Istock, J. M. Losh, R. A. Manoogian, L. Employees: 35,400 A. Payne, M. A. Van Lokeren, T. Wadhams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MEE | MEE is in the S&P 500

Massey Energy Co S&P Recommendation HOLD

★★★★★

Price $39.83 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Coal & Consumable Fuels

12-Mo. Target Price $42.00

Summary Massey Energy is the fourth largest U.S. coal producer, with an estimated 23% of production sold into the metallurgical coal markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $54.80– 25.85 Trailing 12-Month EPS $-0.16 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $9,363

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.46 4.35 86.6 102.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.067 0.60 $0.24 77

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.11 20 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the coal market, MEE's and the industry's high fixed-cost structure, the concentration of company reserves in the central Appalachian region, the heavy regulation of the industry and its utilities end market, and recent lawsuits pending against the company.

80

40

20

10

Quantitative Evaluations

Vol. 108

Mil.

S&P Quality Ranking

45 30 15 0

D

5

3

4

3

3

3

C

B-

B B

B+

A-

A

Relative Strength Rank

3

STRONG 94

1 1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Mathew Christy, CFA on October 21, 2010, when the stock traded at $ 39.24.

➤

➤

➤

Including the operations of Cumberland Resources, we forecast that 2010 sales will rise about 17%. Our projection is based on an expected 6% increase in coal volumes from higher anticipated utility, metallurgical and industrial coal shipments. In addition, we estimate a 12% advance in average realized coal prices mainly on higher expected metallurgical coal and utility coal pricing. In 2011, we forecast a 27% increase in sales, as we look for higher volumes and overall better pricing. Following the nearly 5 percentage point decline in 2009, we project that operating margins will fall again in 2010, by 3.8 percentage points. This forecast is based on our expectation for higher absorption of fixed costs among reduced production capacity due to increased regulatory oversight and management's focus on the fallout from the Upper Big Bend mine explosion. In 2011, however, we forecast a significant rise in the operating margin, on positive operating leverage. Excluding charges and assuming tax rates of about 20.6% in 2010 and 22% in 2011, we estimate EPS of $0.46 for 2010 and $4.35 in 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

A+

We view positively the downward trend in thermal coal inventories at U.S. utilities over the past few months, which we attribute to higher electricity generation and coal use. We also believe a recovery in global steel production will persist, benefiting metallurgical coal producers such as MEE. However, we believe that the threat of a federal probe and/or charges following the mining accident that occurred at the Upper Big Bend mine increases the risks for lower future production, higher operating expenses, and litigation costs.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 682.8 810.2 2009 768.1 697.6 2008 644.6 826.8 2007 607.3 617.8 2006 559.5 556.1 2005 570.0 582.5

3Q -641.6 763.3 603.4 555.9 533.7

4Q -583.9 755.0 585.0 548.4 518.0

Year -2,691 2,990 2,414 2,220 2,204

Earnings Per Share ($) 2010 0.38 -0.88 2009 0.51 0.24 2008 0.52 -1.16 2007 0.40 0.43 2006 0.08 0.04 2005 0.59 0.44

E-0.47 0.19 0.64 0.27 0.30 0.28

E0.59 0.28 0.63 0.06 0.10 -2.37

E0.46 1.22 0.68 1.17 0.51 -1.33

Risks to our recommendation and target price include lower-than-expected coal prices, production volumes or productivity; reduced demand for metallurgical coal; adverse legislation or litigation; and the potential of a federal investigation and/or criminal negligence charges.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $42 is based on relative peer valuation analysis. We apply an EV/EBITDA multiple of 6.3X, below the peer average, to our forward 12-month EBITDA estimate, suggesting a $42 value.

0.060 0.060 0.060 0.060

11/09 02/16 05/18 08/17

12/15 03/15 06/14 09/14

12/17 03/17 06/16 09/16

12/31/09 03/31/10 06/30/10 09/30/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MEE

Massey Energy Co Business Summary October 21, 2010 CORPORATE OVERVIEW. Massey Energy produces low-sulfur coal for electric generation, steel-making, and various industrial applications. MEE is the fifth largest U.S. coal company, by our calculation, and the largest in the central Appalachian region. It produces, processes and sells bituminous, low-sulfur coal of steam and metallurgical grades from 42 underground mines and 14 surface mines in West Virginia, Kentucky and Virginia. Its steam coal is primarily purchased by utilities and industrial clients as fuel for power plants. Its metallurgical coal is used primarily to make coke for use in the manufacture of steel. Coal tons sold declined to 36.7 million in 2009, from 40.9 million in 2008, while revenue per ton increased to $63.25, from $62.47, respectively. Average cash cost per ton was $53.06 in 2009, up from $48.57 in 2008. In 2009, approximately 99% of coal sales volumes was sold under long-term contracts.

7%. In 2009, Constellation Energy Commodities Group, Inc. accounted for 19% of total produced coal revenue. The company produces coal using four distinct mining methods: underground room and pillar, underground longwall, surface, and highwall. Use of continuous miner machines in the room and pillar method of underground mining accounted for 45% of production in 2009, underground longwall mining operations provided 3% of production, surface mining accounted for 44%, and highwall 8%. MEE estimated that it had total recoverable reserves of about 2.4 billion tons as of December 31, 2009. The company projected that 61% of its reserves were comprised of coal containing less than 1% sulfur. Low-sulfur coal is vital to utility customers seeking to reduce emissions and reduce the costs of compliance with the Clean Air Act.

The breakdown of tonnage sold by end market in 2009 was as follows: electric utilities, 73%; metallurgical (steel industry sector), 20%; and general industrial, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 14.67 4.54 1.22 1.31 0.24 20% 44.40 9.62 36 8

2008 12.13 3.93 0.68 2.55 0.21 31% 95.70 10.05 NM NM

2007 10.17 4.22 1.17 1.09 0.17 15% 37.99 16.01 32 14

2006 8.60 3.34 0.51 0.27 0.16 31% 44.34 18.77 87 37

2005 10.26 1.74 -1.33 -1.83 0.16 NM 57.00 31.80 NM NM

2004 10.16 3.12 0.18 0.14 0.16 89% 36.96 17.99 NM NM

2003 10.05 2.20 -0.43 -0.60 0.16 NM 21.60 7.30 NM NM

2002 10.73 2.35 -0.44 -0.33 0.16 NM 22.41 4.55 NM NM

2001 11.55 2.38 -0.07 -0.30 0.12 NM 28.95 11.25 NM NM

2000 NM 3.39 1.07 NA Nil Nil 13.19 9.94 12 9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,691 NA 284 102 137 24.0% 104 112

2,990 647 269 89.9 60.3 6.80% 56.2 211

2,414 433 246 85.8 130 27.3% 94.1 87.6

2,220 348 231 86.1 45.0 7.57% 41.6 22.8

2,204 426 235 67.1 -75.4 NM -102 -140

1,767 280 225 60.7 -5.64 NM 13.9 10.6

1,553 179 196 48.3 -60.7 NM -32.3 -44.8

1,630 181 208 35.3 -57.5 NM -32.6 -24.0

1,432 191 181 34.2 -15.9 NM -5.42 -22.1

1,141 268 171 0.35 122 35.5% 78.8 NA

Balance Sheet & Other Financial Data (Million $) Cash 677 Current Assets 1,315 Total Assets 3,800 Current Liabilities 445 Long Term Debt 1,296 Common Equity 1,256 Total Capital 2,575 Capital Expenditures 275 Cash Flow 389 Current Ratio 3.0 % Long Term Debt of Capitalization 50.3 % Net Income of Revenue 3.9 % Return on Assets 2.8 % Return on Equity 9.1

646 1,236 3,676 504 1,464 1,037 2,618 737 325 2.5 55.9 1.9 1.7 6.2

365 887 2,861 368 1,103 784 2,041 270 340 2.4 54.0 3.9 3.4 12.7

239 800 2,741 355 1,102 697 1,916 298 272 2.3 57.5 1.9 1.5 5.4

319 1,044 2,986 374 1,103 841 2,177 347 133 2.8 50.6 NM NM NM

123 791 2,651 332 900 777 1,894 347 238 2.4 47.5 NM NM NM

88.8 703 2,377 259 784 759 1,770 164 164 2.7 44.3 NM NM NM

2.73 510 2,241 573 286 808 1,339 135 175 0.9 21.4 NM NM NM

5.66 458 2,271 542 300 861 1,411 248 176 0.8 21.3 NM NM NM

6.93 384 2,161 275 Nil 1,375 1,629 205 250 1.4 Nil 6.9 3.8 5.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4 North 4th Street, Richmond, VA 23219. Telephone: 804-788-1800. Website: http://www.masseyenergyco.com Chrmn & CEO: D.L. Blankenship

Pres: B.F. Phillips, Jr. COO & SVP: J.C. Adkins CFO: E.B. Tolbert Chief Admin Officer: J.M. Poma

Board Members: D. L. Blankenship, J. B. Crawford, R. Founded: 1912 H. Foglesong, R. M. Gabrys, R. B. Holland, III, B. R. Domicile: Delaware Inman, D. R. Moore, B. F. Phillips, Jr., S. C. Suboleski, L. Employees: 5,851 J. Welty

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: MA | MA is in the S&P 500

MasterCard Inc S&P Recommendation BUY

★★★★★

Price $245.15 (as of Oct 25, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $284.00

Investment Style Large-Cap Growth

Summary MasterCard is a global leader in transaction processing and brand licensing providing services in over 210 countries and territories. The company has nearly 30 million acceptance locations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $269.88– 191.00 Trailing 12-Month EPS $12.65 Trailing 12-Month P/E 19.4 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

13.50 15.76 18.2 130.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$29.132 0.24 $0.60 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.18 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as a dynamic market environment, offset by pending litigation risks and an evolving competitive and regulatory environment.

300

200 150

Quantitative Evaluations

100

S&P Quality Ranking

Vol.

D

C

B-

NR B

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

STRONG 84

5 3

3

3

LOWEST = 1 4

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for MA has recently been changed to $284.00 from $244.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on MA from MarketScope, see below.

➤

10/25/10 10:39 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF MASTERCARD INC. (MA 245.02****): We raise our '11 EPS est. to $15.76 from $15.25, reflecting a recent $1B share buyback plan; we expect MA's purchase of DataCash, completed 10/22, to be EPS neutral in '11. We note that there has been considerable uncertainty related to the "Durbin amendment", part of the financial regulatory reform signed into law in July. We continue to think that the card networks will still be able to grow their business profitably, as they have in other markets that have faced regulation. We lift our target price to $284 from $244, 18X our '11 est., in historical P/E ranges for MA shares. /Z. Bokhari

Revenue (Million $) 1Q 2Q 2010 1,308 1,365 2009 1,156 1,280 2008 1,182 1,247 2007 915.1 997.0 2006 738.5 846.5 2005 658.2 771.9

3Q -1,364 1,338 1,083 902.0 791.6

4Q -1,298 1,225 1,073 839.2 715.9

Year -5,099 4,992 4,068 3,326 2,938

Earnings Per Share ($) 2010 3.47 3.49 2009 2.80 2.67 2008 3.38 -5.74 2007 1.57 1.85 2006 0.94 -2.30 2005 0.93 1.20

E3.28 3.45 -1.49 2.31 1.42 1.06

E3.27 2.24 1.84 2.26 0.30 -0.53

E13.50 11.16 -1.95 8.00 0.37 2.67

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

12/08 02/02 06/07 09/21

01/06 04/07 07/01 10/07

01/08 04/09 07/06 10/12

02/10/10 05/10/10 08/10/10 11/10/10

Dividends have been paid since 2006. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: MA

MasterCard Inc Business Summary August 13, 2010 CORPORATE OVERVIEW. MasterCard Incorporated (MA), a leading global payment solutions company, provides a variety of services in support of the credit, debit and related payment programs of about 23,000 financial institutions and other types of entities. MA follows a three-tiered business model as a franchisor, processor and advisor. The company, through its businesses, develops and markets payment solutions, processes payment transactions, and provides consulting services to its customers and merchants. MA manages a family of payment card brands, including MasterCard, MasterCard Electronic, Maestro, and Cirrus, which it licenses to its customers. MasterCard generates revenues from two sources: operations fees and assessments. The company follows a "four-party" payment system, which typically involves four parties in addition to the company: the cardholder, the merchant, the issuer (the cardholder's bank) and the acquirer (the merchant's bank). Issuers typically pay operations fees and assessments, while acquirers principally pay assessments on gross dollar volume (GDV) or cards and, to a lesser extent, certain operations fees. MA charges operations fees to its customers for providing transaction processing and other payment-related services. Operations fees include core authorization, clearing and settlement fees, cross-border and currency conversion fees, switch fees, connectivity fees and other operations fees, such as acceptance development fees, warning bulletins, holograms, fees for com-

pliance programs, and user-pay fees for a variety of transaction enhancement services. The company charges assessments based on customers' GDV of activity on the cards that carry its brands, and rates vary by region. GDV includes the aggregated dollar amount of usage (purchases, cash disbursements, balance transfers and convenience checks) on MasterCard-branded cards. On an aggregate basis, the company processed 22.4 billion transactions (including PIN-based online transactions) during 2009, a 6.9% increase over the number of transactions processed in 2008. GDV on cards carrying the MasterCard brand, as reported by MA's customers, declined 3.3%, to approximately $2.45 trillion, in 2009. In 2009, MA's five largest customers accounted for 28% of total revenue, but no single customer exceeded 10% of total revenues. MA's revenue by geographic market is based on the location of the customer who issued the cards that are generating the revenue. Revenue generated in the U.S. contributed approximately 45.5%, 47.2% and 49.7% to net revenues in 2009, 2008 and 2007, respectively. No other country generated more than 10% of total revenues in those periods.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 21.42 12.32 11.16 11.29 0.60 5% 259.00 117.06 23 10

2008 9.56 -1.50 -1.95 9.37 0.60 NM 320.30 113.05 NM NM

2007 18.79 8.37 8.00 5.77 0.54 7% 227.18 95.30 28 12

2006 13.90 1.10 0.37 0.53 0.09 24% 108.60 39.00 NM NM

2005 6.99 3.77 2.67 2.97 Nil Nil NA NA NA NA

2004 NA 3.61 2.38 2.56 NA NA NA NA NA NA

2003 NA -2.71 -3.91 1.06 NA NA NA NA NA NA

2002 NA 2.40 1.35 NA NA NA NA NA NA NA

2001 NA 2.96 1.98 NA NA NA NA NA NA NA

2000 NA 2.48 1.65 NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,099 2,560 141 115 2,218 34.1% 1,463 1,471

4,992 2,007 59.1 104 -383 NM -254 1,230

4,068 1,161 49.3 57.3 1,671 35.0% 1,086 782

3,326 713 43.5 61.2 294 82.9% 50.2 72.8

2,938 580 110 70.2 407 34.5% 267 297

2,593 494 123 69.7 324 26.5% 238 257

2,231 285 120 62.9 -612 36.1% -391 107

1,892 239 90.5 9.89 158 26.5% 116 NA

1,611 299 70.0 9.55 229 39.7% 142 NA

1,445 246 59.4 9.65 193 42.5% 118 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,880 Current Assets 5,003 Total Assets 7,470 Current Liabilities 3,167 Long Term Debt 21.6 Common Equity 3,504 Total Capital 3,533 Capital Expenditures 56.6 Cash Flow 1,604 Current Ratio 1.6 % Long Term Debt of Capitalization 0.6 % Net Income of Revenue 28.7 % Return on Assets 21.0 % Return on Equity 53.9

2,247 4,312 6,476 2,990 19.4 1,927 2,026 75.6 -195 1.4 1.0 NM NM NM

2,970 4,592 6,260 2,363 150 3,027 3,253 81.6 1,135 1.9 4.6 26.7 19.2 40.3

2,484 3,577 5,082 1,812 230 2,364 2,665 61.2 150 2.0 8.8 1.5 1.1 2.8

1,282 2,228 3,701 1,557 229 1,169 1,403 43.9 377 1.4 16.4 9.1 7.7 24.9

1,138 1,903 3,265 1,301 230 975 1,209 30.5 361 1.5 19.0 9.2 7.7 28.5

911 1,610 2,901 1,189 230 699 933 76.3 -271 1.4 24.6 NM NM NM

872 1,456 2,261 930 80.1 1,023 1,104 54.2 207 1.6 7.3 6.2 6.2 14.3

670 1,118 1,486 650 80.1 607 687 57.9 212 1.7 11.7 8.8 NA NA

NA NA NA NA NA NA NA 113 178 NA Nil 8.2 NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2000 Purchase Street, Purchase, NY 10577. Telephone: 914-249-2000. Website: http://www.mastercard.com Chrmn: R.N. Haythornthwaite

Pres & CEO: A. Banga Vice Chrmn: R.W. Selander CFO: M. Hund-Mejean CTO: M. Manchisi

Investor Contact: B. Gasper (914-249-4565) Founded: 1966 Board Members: A. Banga, S. Barzi, D. R. Carlucci, S. J. Domicile: Delaware Freiberg, R. N. Haythornthwaite, N. J. Karch, M. R. Employees: 5,500 Olivie, J. O. Reyes, J. O. Reyes Lagunes, M. Schwartz, R. W. Selander, J. Tai, S. Tian

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: MAT | MAT is in the S&P 500

Mattel Inc. S&P Recommendation HOLD

★★★★★

Price $23.25 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Leisure Products

12-Mo. Target Price $25.00

Investment Style Large-Cap Blend

Summary This large toy company's brands and products include Barbie dolls, Fisher-Price toys, American Girl dolls and books, and Hot Wheels.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.60– 18.41 Trailing 12-Month EPS $1.87 Trailing 12-Month P/E 12.4 $10K Invested 5 Yrs Ago $18,639

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.85 1.95 12.6 359.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.364 3.23 $0.75 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.02 12 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our favorable view of MAT's leading market share position and strong balance sheet, offset by our negative view of intense industry rivalry and concentrated buying power of U.S. toy retailers.

30

20 15

Quantitative Evaluations 10

S&P Quality Ranking

Vol. Mil.

D

30 20 10 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

MODERATE

50

5 3

A+

4

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Jason N. Asaeda on October 19, 2010, when the stock traded at $ 22.71. Highlights ➤

➤

➤

Investment Rationale/Risk

Although we expect consumer spending to remain skittish due to high unemployment and economic uncertainty, we think conditions are generally improving and spending on toys will benefit. We look for net sales to reach $5.82 billion in 2010 and $6.05 billion 2011, with annual growth driven by momentum we see in core brands including Barbie, Disney Princess, Hot Wheels and American Girl, as well as popular entertainment properties Toy Story 3 and WWE Wrestling. We also expect top line benefit from an improving price-value offering in Fisher Price toys and new product introductions such as Monster High, Thomas and Friends and Sing-A-Ma-Jigs. We see currency translation as a headwind in 2010.

➤

We project annual operating margin expansion, as cost savings from MAT's Global Cost Leadership program outweigh higher royalty expense due to increased sales related to licensed products, continued external cost pressures such as higher raw material and transportation costs, and foreign exchange. Price increases should help modestly.

➤

We project 2010 EPS of $1.85, versus $1.46 in 2009, and 2011 EPS of $1.95.

➤

Revenue/Earnings Data

2010

Our hold recommendation is based on valuation. We have confidence in MAT's portfolio of leading consumer brands and its strong cash flow, and think it is effectively handling a difficult selling environment that we see carrying into the upcoming holiday season and into 2011. We note that cost-cutting efforts have been helping the bottom line, and we think efforts to market lower price point items are well placed. We also believe the recent recall of about 10 million Fisher Price products by federal regulators carries little of the headline risk associated with the company's 2007 recall of lead-tainted toys. We see MAT taking necessary steps to remedy the situation and maintain consumer confidence in the safety of its products. Risks to our recommendation and target price include an uncertain toy retailing environment and the possibility of continued toy store closings, an inability to reinvigorate the top line, continued cost pressures, and a material impact from toy recalls. Our 12-month target price of $25 is based on a peer-median forward P/E multiple of about 13X applied to our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 880.1 1,019 2009 785.7 898.2 2008 919.3 1,112 2007 940.3 1,003 2006 793.3 957.7 2005 783.1 886.8

3Q 1,833 1,792 1,946 1,839 1,790 1,666

4Q -1,955 1,940 2,189 2,109 1,843

Year -5,431 5,918 5,970 5,650 5,179

Earnings Per Share ($) 2010 0.07 0.14 2009 -0.14 0.06 2008 -0.13 0.03 2007 0.03 0.06 2006 0.08 0.10 2005 0.02 -0.23

0.78 0.63 0.66 0.61 0.62 0.55

E0.87 0.90 0.49 0.89 0.75 0.69

E1.85 1.45 1.05 1.54 1.53 1.01

Fiscal year ended Dec. 31. Next earnings report expected: Early February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.750

11/12

11/25

11/30

12/17/09

Dividends have been paid since 1990. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: MAT

Mattel Inc. Business Summary October 19, 2010 CORPORATE OVERVIEW. Mattel markets a wide variety of toy products on a worldwide basis. Brands are grouped in the following categories: Mattel Girls & Boys Brands, Fisher-Price Brands and American Girl Brands. Mattel brands include Barbie, Polly Pocket, Disney Classics, Hot Wheels, Matchbox and Tyco R/C vehicles and playsets, Nickelodeon, Harry Potter, Yu-Gi-Oh!, Batman, Justice League, and Megaman, among others. Fisher-Price brands include Fisher-Price, Power Wheels, Sesame Street, Little People, Winnie the Pooh, Rescue Heroes, Barney, See 'N Say, Dora the Explorer, BabyGear, and ViewMaster. American Girl brand products are sold directly to consumers, and its children's publications are sold to certain retailers. Brand names include American Girl Today, the American Girls Collection, Just Like You and Bitty Baby. MAT operates in the U.S. and internationally. Revenues from the international segment provided 46% of consolidated gross sales in 2009. In the international segment, the geographic breakdown was as follows: Europe, 52% of 2009 sales; Latin America, 31%; Asia Pacific, 10; and Other, 7%. CORPORATE STRATEGY. We believe that two key elements of MAT's growth strategy are to build its brands and cut costs. With declining sales in its core Barbie brand, MAT has been focused on reinvigorating this product line, while driving growth in other key brands. To further leverage its brands, MAT also pursues licensing arrangements and strategic partnerships, which we think

helps to extend its portfolio of brands into areas outside of traditional toys. In early August 2007, MAT reported a recall of 967,000 plastic preschool toys made by a Chinese vendor because of an excessive amount of lead paint and announced that it would cut its already announced second-quarter operating income by $30 million. Two weeks afterward, MAT announced an additional recall involving die-cast cars and other toys involving magnets. Then, in early September, MAT announced a third recall of toys that contain an excessive amount of lead, including Barbie Doll accessories. MAT's 2007 third-quarter results included $40 million in charges related to the product recalls. This included a $13.3 million increase in reserves due primarily to higher product return rates, $9.1 million in reserves for subsequent product recalls and $17 million in incremental legal, advertising and administrative costs. We remain concerned, but we believe the impact on worldwide sales has been minimal and that MAT has been able to restore consumer confidence in the safety of its products. In December 2008, MAT settled litigation with 39 U.S. states, agreeing to pay $12 million related to the recalls, to be divided among the states.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.11 1.93 1.45 1.54 0.75 52% 21.05 10.36 15 7

2008 2.97 1.51 1.05 1.06 0.75 71% 21.99 10.89 21 10

2007 4.04 1.97 1.54 1.54 0.75 49% 29.71 18.83 19 12

2006 4.13 1.98 1.53 1.55 0.65 42% 23.98 14.75 16 10

2005 3.51 1.44 1.01 0.88 0.50 50% 21.64 14.52 21 14

2004 3.97 1.79 1.35 1.25 0.45 33% 19.79 15.94 15 12

2003 3.49 1.63 1.22 1.14 0.40 33% 23.20 18.57 19 15

2002 2.92 1.47 1.03 1.00 0.05 5% 22.36 15.05 22 15

2001 1.46 1.31 0.71 0.66 0.05 7% 19.92 13.52 28 19

2000 0.59 1.00 0.40 NA 0.27 67% 15.13 8.94 38 22

5,431 964 170 71.8 660 19.9% 529 555

5,918 761 170 81.9 488 22.2% 380 380

5,970 1,011 170 71.0 703 14.7% 600 601

5,650 901 172 79.9 684 13.3% 593 600

5,179 840 175 76.5 652 36.0% 417 359

5,103 913 182 77.8 696 17.7% 573 531

4,960 974 184 80.6 741 27.4% 538 502

4,885 934 192 114 621 26.8% 455 439

4,804 881 263 155 430 27.7% 311 288

4,670 652 256 153 225 24.5% 170 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,117 Current Assets 2,555 Total Assets 4,781 Current Liabilities 1,061 Long Term Debt 700 Common Equity 2,531 Total Capital 3,281 Capital Expenditures 120 Cash Flow 699 Current Ratio 2.4 % Long Term Debt of Capitalization 21.3 % Net Income of Revenue 9.7 % Return on Assets 11.2 % Return on Equity 22.8

618 2,387 4,675 1,260 750 2,117 2,915 199 550 1.9 25.7 6.4 8.0 17.2

901 2,593 4,805 1,570 550 2,307 2,857 147 770 1.7 19.3 10.0 12.3 25.3

1,206 2,850 4,956 1,583 636 2,433 3,069 64.1 765 1.8 20.7 10.5 12.7 26.2

998 2,413 4,372 1,463 525 2,102 2,627 137 592 1.6 20.0 8.1 9.1 18.6

1,157 2,637 4,756 1,727 400 2,386 2,786 144 755 1.5 14.4 11.2 12.4 24.9

1,153 2,395 4,511 1,468 589 2,216 2,805 101 721 1.6 21.0 10.8 12.0 25.6

1,267 2,389 4,460 1,649 640 1,979 2,619 167 647 1.4 24.4 9.3 10.1 24.5

617 2,093 4,541 1,597 1,021 1,738 2,759 101 573 1.3 37.0 6.5 7.0 19.8

232 1,751 4,313 1,502 1,242 1,403 2,645 162 427 1.2 47.0 3.6 3.8 10.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 333 Continental Boulevard, El Segundo, CA 90245-5012. Telephone: 310-252-2000. Website: http://www.mattel.com Chrmn & CEO: R.A. Eckert

COO: T.A. Debrowski SVP, Chief Acctg Officer & Cntlr: H.S. Topham SVP, Secy & General Counsel: R. Normile CFO: K.M. Farr

Board Members: M. Dolan, R. A. Eckert, F. D. Founded: 1945 Fergusson, T. M. Friedman, D. Ng, V. M. Prabhu, A. L. Domicile: Delaware Rich, R. Sargent, D. A. Scarborough, C. A. Sinclair, G. C. Employees: 27,000 Sullivan, K. B. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MFE | MFE is in the S&P 500

McAfee Inc S&P Recommendation HOLD

★★★★★

Price $47.35 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $48.00

Investment Style Large-Cap Growth

Summary This company develops network security and management software products. Intel has agreed to acquire the company.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.44– 29.53 Trailing 12-Month EPS $1.06 Trailing 12-Month P/E 44.7 $10K Invested 5 Yrs Ago $15,474

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.22 1.45 38.8 151.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.77 10 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the highly competitive security software market, rapid technological obsolescence, and a slow recovery in IT spending.

50

40

30

Quantitative Evaluations

25

S&P Quality Ranking

Vol.

D

C

B-

B B

B+

A-

A

A+

225

Mil. 15 10 5 0 5

$7.194 Nil Nil 93

Relative Strength Rank

STRONG 76

LOWEST = 1 4

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on August 26, 2010, when the stock traded at $ 47.05. Highlights ➤

We project revenues will increase 7.2% in 2010, compared to 21% growth in 2009. Our projection of slower revenue growth reflects our view of a sluggish recovery in spending for enterprise software. Although we project 5% growth in overall IT spending in 2010, we believe most of the growth will be in hardware. We believe MFE will continue to gain market share in the corporate business segment in 2010, but at a slower pace than in 2009. We project midsingle digit growth in the consumer business segment, based on 21% growth in PC unit sales, partially offset by lower average selling prices.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect gross margins of 73% in 2010, down from 75% in 2009. We project operating expenses to decline to 61% of revenues in 2010, from 63% in 2009, due to cost synergies achieved from recent acquisitions and economies of scale. We see the operating margin staying at 12% in 2010, the same as in 2009, on higher revenues, offset by lower gross margins.

➤

On August 19, Intel (INTC 18, Buy) announced it agreed to acquire MFE for $48 per share in cash, a 60% premium to the prior day's closing price. INTC plans to operate MFE as a whollyowned subsidiary, but will incorporate its security software technology in future microprocessors. Although we believe the synergy of the two companies is minimal, we doubt another company will make a higher offer, given INTC's significant premium. With the shares trading near INTC's takeover price, we think they are fairly valued. Risks to our opinion and target price include failure to consummate the merger with INTC, a weaker than expected economic recovery, lower IT spending, and intense competition in the Internet security software sector as competitors broaden product offerings. Our 12-month target price of $48 is based on INTC's takeover bid and our view that no other bid will emerge.

Our EPS estimate for 2010 is $1.22, compared to $1.09 in 2009. The expected increase reflects our forecast of higher revenues.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 502.7 489.2 2009 447.7 468.7 2008 369.6 396.8 2007 314.9 314.8 2006 275.2 277.6 2005 235.7 245.4

3Q -485.3 409.7 322.0 287.1 252.9

4Q -525.7 424.0 356.5 305.2 253.3

Year -1,927 1,600 1,308 1,145 987.3

Earnings Per Share ($) 2010 0.23 0.25 2009 0.34 0.18 2008 0.18 0.30 2007 0.28 0.30 2006 0.25 0.19 2005 0.21 0.25

E0.31 0.23 0.32 0.39 0.19 0.13

E0.43 0.34 0.29 0.07 0.21 0.23

E1.22 1.09 1.08 1.02 0.84 0.82

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: MFE

McAfee Inc Business Summary August 26, 2010 CORPORATE OVERVIEW. MFE is a leading supplier of computer security software that helps home users, businesses, government agencies and service providers protect their systems and networks from potential threats around the world. The company was incorporated in 1992 as an application service provider (ASP) targeted at consumers and small to medium-sized businesses. It merged with Network General Corporation in December 1997 to become Network Associates, Inc. The company adopted its current name in June 2004, and began trading on the New York Stock Exchange under the symbol MFE. MFE provides integrated solutions that help its customers solve problems, enhance security and reduce costs. The company's major product lines are system security, network security and vulnerability and risk management. Its system security products protect both consumer and corporate computer systems including laptops and other mobile devices from malicious attacks such as viruses and spyware. The products also safeguard sensitive data stored in mobile devices from leaking to the public that occurs through theft. MFE's mobile security offerings also limit the spread of mobile malware, inappropriate content, and unsolicited messaging.

system security products, but are focused on the enterprise IT infrastructure. Network protection encompasses firewall, intrusion prevention, and email and data loss protection security appliances. It also includes McAfee SiteAdvisor, which warns Internet users of potential harmful websites. MFE's vulnerability and risk management offerings help companies meet regulatory statues, resolve policy issues, conduct audits and identify risks such as non-compliant personal computers connecting to the internal network. MFE markets its products to commercial and government customers through resellers and distributors. The top 10 distributors typically account for 30%-45% of total revenue. The two largest distributors, Ingram Micro and Tech Data Corp., together accounted for approximately 23% of total revenue in 2009. For the consumer market, MFE sells its products through original equipment manufacturers, retail stores and online. The company generated approximately 43%, 47% and 48% of its revenue outside of North America in 2009, 2008 and 2007, respectively.

MFE's network security products provide the same type of protection as its Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.41 2.17 1.09 1.07 Nil Nil 45.68 26.65 42 24

2008 1.74 1.86 1.08 1.14 Nil Nil 40.97 24.72 38 23

2007 6.32 1.53 1.02 1.02 Nil Nil 41.66 27.74 41 27

2006 4.90 1.27 0.84 0.83 Nil Nil 277.60 287.10 1145 23

2005 5.58 1.20 0.82 0.81 Nil Nil 33.24 20.35 41 25

2004 4.04 1.65 1.31 0.28 Nil Nil 33.55 14.90 26 11

2003 2.09 0.75 0.36 0.05 Nil Nil 20.70 10.42 58 29

2002 2.55 1.03 0.80 0.62 Nil Nil 30.50 8.14 38 10

2001 1.85 0.04 -0.74 -1.58 Nil Nil 27.84 3.56 NM NM

2000 2.16 -0.09 -0.74 NA Nil Nil 37.19 3.25 NM NM

1,927 406 172 4.90 224 22.7% 173 170

1,600 348 124 Nil 222 22.5% 172 181

1,308 286 84.4 Nil 229 27.2% 167 166

1,145 210 70.0 Nil 184 25.1% 137 136

987 280 64.9 Nil 182 23.5% 139 139

911 146 66.7 5.32 316 28.9% 225 37.3

936 157 62.8 7.54 73.1 18.1% 59.9 9.42

1,043 257 53.7 25.1 130 NM 128 102

834 29.9 108 24.7 -91.4 NM -102 -217

746 -61.9 90.1 18.2 -97.8 NM -103 NA

Balance Sheet & Other Financial Data (Million $) Cash 950 Current Assets 1,763 Total Assets 3,963 Current Liabilities 1,436 Long Term Debt NA Common Equity 2,118 Total Capital 2,118 Capital Expenditures 60.5 Cash Flow 346 Current Ratio 4.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 9.0 % Return on Assets 4.7 % Return on Equity 9.0

594 1,405 3,453 1,329 Nil 1,752 1,752 48.8 296 1.1 Nil 10.8 5.0 9.4

733 1,408 3,414 1,178 Nil 1,905 1,905 33.6 251 1.2 Nil 12.8 5.4 10.0

606 1,177 2,800 1,030 Nil 1,427 1,427 44.0 207 1.1 Nil 11.9 5.0 9.5

1,045 1,568 2,643 869 Nil 1,455 1,455 28.9 204 1.8 Nil 14.1 5.7 10.5

524 966 2,238 706 Nil 1,201 1,201 25.4 292 1.4 Nil 24.7 10.3 21.5

508 961 2,120 545 347 888 1,236 60.0 123 1.8 28.1 7.2 2.9 7.2

674 1,194 2,045 882 356 770 1,126 59.4 182 1.4 31.6 12.3 7.0 23.1

749 1,083 1,627 541 579 445 1,061 31.5 5.67 2.0 54.5 NM NM NM

361 621 1,385 424 396 519 934 54.0 -12.6 1.5 42.4 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3965 Freedom Circle, Santa Clara, CA 95054. Telephone: 408-988-3832. Email: [email protected] Website: http://www.mcafee.com

Chrmn: C. Robel Pres & CEO: D.G. DeWalt EVP & CTO: G. Kurtz EVP, Secy & General Counsel: M.D. Cochran

SVP & Chief Acctg Officer: K.S. Krzeminski Founded: 1989 Investor Contact: K. Doherty (917-842-0334) Domicile: Delaware Board Members: C. Bass, T. E. Darcy, D. G. DeWalt, L. Employees: 6,100 G. Denend, J. A. Miller, L. M. Norrington, D. J. O'Leary, R. W. Pangia, C. Robel, A. Zingale

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MKC | MKC is in the S&P 500

McCormick & Co Inc S&P Recommendation HOLD

★★★★★

Price $43.40 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $43.00

Investment Style Large-Cap Growth

Summary This company primarily produces spices, seasonings, and flavorings for the retail food, food service, and industrial markets. Trademarks include McCormick and Lawry's.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $43.40– 34.09 Trailing 12-Month EPS $2.63 Trailing 12-Month P/E 16.5 $10K Invested 5 Yrs Ago $16,129

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.59 2.75 16.8 132.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.233 2.40 $1.04 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.40 8 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relatively stable nature of the company's end markets, our view of its strong balance sheet and cash flow, and an S&P Quality Ranking of A+, which reflects historical growth of earnings and dividends.

40 36 32

Quantitative Evaluations

28

S&P Quality Ranking

Vol. Mil.

D

6 4 2 0 5

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 66

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: Ph

Analysis prepared by Tom Graves, CFA on October 01, 2010, when the stock traded at $ 41.59. Highlights ➤

For FY 11 (Nov.), we look for sales to increase 3% from the $3.3 billion we project for FY 10. We expect that sales to be bolstered by sales of ethnic-related and new products.

➤

We are wary that FY 11 profit margins will be restrained by higher input costs, but we think that margins will benefit from productivity improvements and sales mix. Overall, we look for an operating margin in FY 11 of 15.9%, up from the 15.6% that we project for FY 10. We think that FY 10's profitability will reflect a substantial expansion of MKC's gross margin, helped by productivity benefits, which we think will help offset some higher costs elsewhere.

➤

We estimate that FY 11 EPS will increase to $2.75, from the $2.59 that we project for FY 10, which excludes a $0.10 benefit in FY 10's third quarter from the reversal of a tax accrual. Also, MKC spent $38 million on stock repurchase in FY 11's third quarter, and said in September 2010 that it was projecting about $75 million of stock repurchase in all of FY 10. MKC has completed a buyback authorization that started in 2005, and a new $400 million repurchase program was approved in June 2010.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We believe the July 2008 acquisition of Lawry's was a good fit with MKC, and we expect it to be more accretive to EPS in FY 10 than in FY 09. Also, we expect additional cost savings in FY 10 and FY 11 from MKC's Comprehensive Continuous Improvement program. We look for incremental savings of more than $45 million related to this program in FY 10. Risks to our recommendation and target price include competitive pressures in MKC's businesses, consumer acceptance of new product introductions, consumer shifts to private label, and commodity cost inflation. In terms of corporate governance, the company has a dual class capital structure with unequal voting rights, which we view unfavorably. Our 12-month target price of $43 is based on a blend of our historical and relative analyses. Our historical analysis suggests a discounted P/E of 16.7X our FY 11 EPS estimate of $2.75, for about a $46 value. Our peer analysis applies a P/E of 14.3X, a 10% to the peer average, for a $39 value. For peers, we use a mixture of small and mid-capitalization stocks in the food industry or the flavoring and/or coloring business.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 764.5 798.3 2009 718.5 757.3 2008 724.0 764.1 2007 652.6 687.2 2006 609.7 639.9 2005 603.6 628.6

3Q 794.6 791.7 781.6 716.2 663.1 622.7

4Q -924.5 906.9 860.1 803.7 737.1

Year -3,192 3,177 2,916 2,716 2,592

Earnings Per Share ($) 2010 0.51 0.49 2009 0.44 0.38 2008 0.39 0.41 2007 0.33 0.31 2006 0.11 0.46 2005 0.26 0.31

0.76 0.57 0.52 0.43 0.32 0.35

E0.93 0.88 0.62 0.67 0.62 0.65

E2.59 2.27 1.94 1.73 1.50 1.56

Fiscal year ended Nov. 30. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.260 0.260 0.260 0.260

11/24 03/31 06/22 09/28

12/29 04/08 07/01 10/06

12/31 04/12 07/06 10/11

01/15/10 04/26/10 07/20/10 10/25/10

Dividends have been paid since 1925. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MKC

McCormick & Co Inc Business Summary October 01, 2010 CORPORATE OVERVIEW. Founded by Willoughby M. McCormick in 1889, McCormick & Co. is a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings, specialty foods and flavors to the entire food industry. The company markets its products to retail food, foodservice and industrial markets under a number of brands, including McCormick, Lawry's, Zatarain's, Thai Kitchen, Ducros, Schwartz and Vahine. McCormick's consumer segment, which accounted for 60% of sales and 82% of operating profits (before restructuring and impairment charges) in FY 09 (Nov.), sells spices, herbs, extracts, seasoning blends, sauces, marinades and specialty foods to the consumer food market. The industrial segment (40%, 18%) sells seasoning blends, natural spices and herbs, wet flavors, coating systems and compound flavors to multi-national food manufacturers and the food service industry, both directly and through distributors.

Inc. - each accounting for about 11% of total sales. In FY 09, the United States accounted for 62% of total sales (58% in FY 08) , Europe 21% (24%) and Other countries 17% (18%). Sales outside the United States in FY 09 were hurt by negative foreign currency translation. MARKET PROFILE. Although we think MKC has impressive leading market shares in the relevant spices and seasonings categories of MKC's four major geographic markets (U.S., Canada, U.K. and France), there is a constant threat from private label products. While MKC itself accounts for about half of the private label business in the U.S., this business carries lower margins than MKC's branded business.

Sales to MKC's five largest customers in FY 09 accounted for about 30% of total sales, with the two largest customers - PepsiCo, Inc. and Wal-Mart Stores, Company Financials Fiscal Year Ended Nov. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.98 2.27 2.20 0.96 42% 36.80 28.08 16 12

2008 NM 2.50 1.94 1.70 0.88 45% 42.06 28.21 22 15

2007 NM 2.36 1.73 1.81 0.80 46% 39.73 33.89 23 20

2006 NM 2.14 1.50 1.40 0.72 48% 39.82 30.09 27 20

2005 NM 2.10 1.56 1.51 0.64 41% 39.14 28.95 25 19

2004 0.45 2.11 1.52 1.43 0.56 37% 38.94 28.60 26 19

2003 0.28 1.85 1.40 1.28 0.46 33% 30.21 21.71 22 16

2002 0.62 1.73 1.26 1.12 0.37 29% 27.25 20.70 22 16

2001 NM 1.57 1.05 0.90 0.40 38% 23.27 17.00 22 16

2000 NM 1.43 0.99 NA 0.38 38% 18.88 11.88 19 12

3,192 577 94.3 52.8 433 30.7% 300 291

3,177 496 73.5 57.6 356 28.2% 256 224

2,916 468 83.0 61.0 302 30.4% 230 240

2,716 429 86.8 53.7 270 24.0% 202 189

2,592 429 74.6 48.2 316 30.6% 215 208

2,526 402 72.0 41.0 308 28.9% 215 202

2,270 366 65.3 38.6 286 29.1% 199 182

2,320 353 66.8 43.6 257 28.9% 180 158

2,372 324 73.0 52.9 212 29.7% 147 126

2,124 287 61.3 39.7 204 32.6% 138 NA

Balance Sheet & Other Financial Data (Million $) Cash 56.5 Current Assets 970 Total Assets 3,388 Current Liabilities 818 Long Term Debt 875 Common Equity 1,335 Total Capital 2,225 Capital Expenditures 82.4 Cash Flow 394 Current Ratio 1.2 % Long Term Debt of Capitalization 39.3 % Net Income of Revenue 9.4 % Return on Assets 9.1 % Return on Equity 25.1

38.9 968 3,220 1,034 885 1,055 1,988 85.8 329 0.9 44.5 8.1 8.5 23.9

46.0 983 2,788 861 574 1,085 1,669 79.0 313 1.1 34.3 7.8 8.5 22.7

49.0 899 2,568 780 570 933 1,575 84.8 289 1.2 37.8 7.4 8.4 23.3

30.3 800 2,273 699 464 800 1,293 73.8 290 1.1 35.9 8.3 9.3 25.4

70.3 864 2,370 773 465 890 1,386 69.8 287 1.1 33.6 8.5 9.5 26.1

25.1 762 2,148 713 449 755 1,226 91.6 265 1.1 36.6 8.8 9.8 29.6

47.3 725 1,931 673 454 592 1,046 111 247 1.1 43.4 7.8 9.7 34.1

31.3 636 1,772 714 454 463 943 112 220 0.9 48.2 6.2 8.5 35.7

23.9 620 1,660 1,027 160 359 523 53.6 199 0.6 30.6 6.5 9.7 37.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 18 Loveton Circle, Sparks, MD 21152-6000. Telephone: 410-771-7301. Website: http://www.mccormick.com Chrmn, Pres & CEO: A.D. Wilson

EVP & CFO: G.M. Stetz, Jr. SVP, Chief Acctg Officer & Cntlr: K.A. Kelly, Jr. SVP & Treas: P.C. Beard SVP, Secy & General Counsel: W.G. Carpenter

Investor Contact: J. Brooks (410-771-7244) Founded: 1889 Board Members: J. P. Bilbrey, J. T. Brady, J. Domicile: Maryland Fitzpatrick, F. A. Hrabowski, III, P. Little, M. D. Employees: 7,500 Mangan, M. M. Preston, G. A. Roche, W. E. Stevens, A. D. Wilson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: MCD | MCD is in the S&P 500

McDonald's Corp

★★★★★

S&P Recommendation HOLD

Price $78.70 (as of Oct 25, 2010)

GICS Sector Consumer Discretionary Sub-Industry Restaurants

12-Mo. Target Price $83.00

Investment Style Large-Cap Growth

Summary MCD is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $79.48– 58.44 Trailing 12-Month EPS $4.53 Trailing 12-Month P/E 17.4 $10K Invested 5 Yrs Ago $28,295

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.57 4.92 17.2 1,064.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$83.763 3.10 $2.44 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.59 7 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

McDonald's competes in the global fast food industry, where it arguably has the most dominant brand name presence. However, results can vary widely due to fluctuations in food costs, competitive discounting, and exchange rate volatility. Our risk assessment reflects our view that global economic weakness has started to subside, although recovery prospects remain uncertain.

80 70 60

50

Vol. Mil. 60 40 20 0

Quantitative Evaluations S&P Quality Ranking 5

4

5

5

4

3

5

D

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE 66

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Erik Kolb on October 25, 2010, when the stock traded at $ 78.87. Highlights ➤

We project that revenues in 2010 will increase about 4%, exclusive of a small positive forex effect of about 1%, which occurred primarily in the first half. We expect systemwide sales in the U.S. to be up 3%, while they are likely to climb about 4% in local currencies in Europe and 7% in Asia Pacific/Middle East/Africa. In 2011, we see a similar 4%-5% increase.

➤

We think various food and other commodity input costs will likely decrease 3% in the U.S. and 2% in Europe in 2010. While much of MCD's top-line forex exposure is naturally hedged, we expect negative forex translation effects on EPS in the fourth quarter of about $0.02, after a negative $0.02 effect in the third quarter, a neutral effect in the second quarter, and a positive $0.05 in the first.

➤

We estimate that 2010 operating EPS, aided by stock repurchases, will increase to $4.57, from $4.03 in 2009, which excluded an $0.08 nonrecurring gain related to the 2007 divestiture of MCD's Latin American operations, but included several other small non-operating gains. We see EPS of $4.92 in 2011.

Investment Rationale/Risk ➤

➤

➤

We think expansion opportunities in international markets will help to drive growth in the coming quarters, particularly in Asia/Pacific, the Middle East, and Africa. MCD's focus on menu innovation, which has seen success with frappes and smoothes of late, is helping it to gain market share relative to peers. We also think its Dollar Menu will help to drive positive traffic trends. Although costs have been relatively contained of late, we expect a modest increase in 2011. We believe the $2.44 per share annual cash dividend adds to total return potential. Risks to our recommendation and target price include higher-than-expected food costs, poor customer acceptance of MCD's new menu offerings, and exchange rate risk in light of MCD's substantial international business. Our 12-month target price of $83 is based on a multiple of approximately 16.8X our 2011 EPS estimate of $4.92, a slight premium to the peer group average. The 2010 fourth quarter increase in the annual dividend rate to $2.44 provides a 3.2% dividend yield at recent stock prices.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,610 5,946 2009 5,077 5,647 2008 5,615 6,075 2007 5,293 5,839 2006 4,914 5,367 2005 4,803 5,096

3Q 6,305 6,047 6,267 5,901 5,671 5,327

4Q -5,973 5,565 5,754 5,634 5,235

Year -22,745 23,522 22,787 21,586 20,460

Earnings Per Share ($) 2010 1.00 1.13 2009 0.87 0.98 2008 0.81 1.04 2007 0.63 -0.59 2006 0.46 0.56 2005 0.56 0.42

1.29 1.15 1.05 0.83 0.67 0.58

E1.15 1.11 0.87 1.06 0.61 0.48

E4.57 4.11 3.76 1.93 2.30 2.04

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.550 0.550 0.550 0.610

01/22 05/20 07/22 09/23

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

03/15/10 06/15/10 09/16/10 12/15/10

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: MCD

McDonald's Corp Business Summary October 25, 2010 CORPORATE OVERVIEW. With one of the world's most widely known brand names, McDonald's operates and franchises about 32,500 restaurants around the world. Systemwide sales totaled $72.4 billion in 2009, up from $70.7 billion in 2008. In the U.S., the McDonald's chain leads the $160 billion quick-service restaurant industry. With U.S. systemwide sales of $31 billion, its domestic business is several times larger than its closest competitors, Burger King and Wendy's Old Fashioned Hamburgers. MCD's international segment has supplied much of its earnings growth over the past two decades, and, in 2009, contributed 53% of operating income (before corporate expenses and one-time charges). All restaurants are operated by MCD, franchisees, or affiliates under joint venture agreements. In August 2007, the company completed the sale of its existing businesses in Brazil, Argentina, Mexico, Puerto Rico, Venezuela and 13 other countries in Latin America and the Caribbean to a developmental licensee (the Latam transaction). The company recorded impairment charges totaling approximately $1.7 billion, substantially all of which was non-cash. The charges included approximately $892 million for the difference between the net book value of the Latam business and the approximately $680 million in cash proceeds,

and $773 million in foreign currency translation losses previously included in comprehensive income. CORPORATE STRATEGY. In 2010, the company will continue its "Plan to Win" corporate strategy that it commenced in 2003. MCD's stated operating priorities include fixing operating inadequacies in existing restaurants; taking a more integrated and focused approach to growth, with an emphasis on increasing sales, margins and returns in existing restaurants; and ensuring the correct operating structure and resources, aligned behind focusing priorities that create benefits for its customers and restaurants. A significant part of the new corporate strategy was to de-emphasize Partner Brands concepts in order to focus on the McDonald's brand. In 2006 and 2007, MCD disposed of interests in the Chipotle Mexican Grill restaurant concept as well as the Boston Market chain, and it sold its minority interest in Pret a Manger in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.78 5.21 4.11 3.99 2.05 50% 64.75 50.44 16 12

2008 10.00 4.78 3.76 3.60 1.63 43% 67.00 45.79 18 12

2007 11.14 2.87 1.93 1.88 1.50 78% 63.69 42.31 33 22

2006 11.01 3.29 2.30 2.28 1.00 43% 44.68 31.73 19 14

2005 10.45 3.05 2.04 2.00 0.67 33% 35.69 27.36 17 13

2004 9.74 2.73 1.79 1.66 0.55 31% 32.96 24.54 18 14

2003 8.18 2.08 1.18 0.96 0.40 34% 27.01 12.12 23 10

2002 6.88 1.59 0.77 0.51 0.24 31% 30.72 15.17 40 20

2001 6.30 2.08 1.25 1.01 0.23 18% 35.06 24.75 28 20

2000 5.86 2.20 1.46 NA 0.22 15% 43.63 26.38 30 18

22,745 7,774 1,216 473 6,487 29.8% 4,551 4,416

23,522 7,445 1,162 535 6,158 30.0% 4,313 4,127

22,787 6,683 1,145 417 3,572 34.6% 2,335 2,277

21,586 5,829 1,250 402 4,166 31.0% 2,873 2,848

20,460 5,243 1,250 356 3,702 29.7% 2,602 2,540

19,065 4,742 1,201 358 3,202 28.9% 2,279 2,100

17,141 3,980 1,148 388 2,346 35.7% 1,508 1,226

15,406 3,164 1,051 360 1,662 40.3% 992 667

14,870 3,983 1,086 452 2,330 29.8% 1,637 1,328

14,243 4,144 1,011 430 2,882 31.4% 1,977 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,796 Current Assets 3,416 Total Assets 30,225 Current Liabilities 2,989 Long Term Debt 10,564 Common Equity 14,034 Total Capital 24,616 Capital Expenditures 1,952 Cash Flow 5,767 Current Ratio 1.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 20.0 % Return on Assets NA % Return on Equity NA

2,063 3,518 28,462 2,538 10,186 13,383 24,514 2,136 5,475 1.4 41.6 18.3 NA NA

1,981 3,582 29,392 4,499 7,310 15,280 23,551 1,947 3,480 0.8 31.0 10.3 8.9 15.2

2,136 3,625 29,024 3,008 8,417 15,458 24,941 1,742 4,123 1.2 33.7 13.3 9.7 18.8

4,260 5,850 29,989 4,036 8,937 15,146 25,060 1,607 3,852 1.4 35.7 12.7 9.0 17.7

1,380 2,858 27,838 3,521 8,357 14,202 23,340 1,419 3,480 0.8 35.8 12.0 8.5 17.4

493 1,885 25,525 2,486 9,343 11,982 22,340 1,307 2,656 0.8 41.8 8.8 6.1 13.5

330 1,715 23,971 2,422 9,704 10,281 20,988 2,004 2,043 0.7 46.2 6.4 4.3 10.0

418 1,819 22,535 2,248 8,556 9,488 19,156 1,906 2,723 0.8 44.7 11.0 7.4 17.5

422 1,662 21,683 2,361 7,844 9,204 18,133 1,945 2,988 0.7 43.3 13.9 9.3 21.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: McDonald's Plaza, Oak Brook, IL 60523. Telephone: 630-623-3000. Website: http://www.mcdonalds.com Chrmn: A.J. McKenna

Pres & COO: D. Thompson Vice Chrmn & CEO: J. Skinner EVP & CFO: P.J. Bensen EVP, Secy & General Counsel: G. Santona

Investor Contact: M.K. Shaw (630-623-7559) Founded: 1948 Board Members: S. E. Arnold, R. A. Eckert, E. Domicile: Delaware Hernandez, Jr., J. P. Jackson, R. H. Lenny, W. E. Employees: 385,000 Massey, A. J. McKenna, C. D. McMillan, S. A. Penrose, J. W. Rogers, Jr., J. Skinner, R. W. Stone, M. D. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MHP | MHP is in the S&P 500

McGraw-Hill Companies Inc. (The) S&P Recommendation NOT RANKED

★★★★★

Price $36.40 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Publishing

Investment Style Large-Cap Growth

Summary This leading information services organization serves worldwide markets in education, business, industry, other professions and government.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.94– 26.95 Trailing 12-Month EPS $2.54 Trailing 12-Month P/E 14.3 $10K Invested 5 Yrs Ago $8,548

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

NA NA NA 309.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.251 2.58 $0.94 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.14 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

Below Avg.

A Qualitative Risk Assessment is not available for this company.

60

Quantitative Evaluations 40

S&P Quality Ranking

30

D

20

C

B-

NR B

B+

A-

A

Relative Strength Rank

STRONG 88

Vol. Mil.

LOWEST = 1

24 16 8 0

Revenue (Million $) 1Q 2Q 2010 1,190 1,500 2009 1,148 1,465 2008 1,218 1,673 2007 1,296 1,718 2006 1,141 1,528 2005 1,029 1,456

3Q -1,876 2,049 2,188 1,993 1,977

4Q -1,462 1,415 1,570 1,594 1,541

Year -5,952 6,355 6,772 6,255 6,004

In July 2010, MHP said it anticipates 2010 free cash flow (after investments and dividends) of $600 million to $650 million, down from $770 million in 2009. Pre-publication investments were expected to be $195 million to $205 million in 2010, up from $177 million in 2009. The company said it expects 2010 expenditures for property and equipment of $90 million to $100 million, up from $68.5 million in 2009, and depreciation and amortization charges of $415 million to $420 million, compared to about $436 million in 2009.

Earnings Per Share ($) 2010 0.33 0.61 2009 0.20 0.52 2008 0.25 0.66 2007 0.40 0.79 2006 0.20 0.60 2005 0.21 0.51

-1.07 1.23 1.34 1.06 1.00

-0.53 0.37 0.43 0.56 0.50

-2.33 2.51 2.94 2.40 2.21

MHP noted in its 2009 10-K report filed with the SEC in February 2010 that possible risk factors for the company include exposure to litigation, changes in the volume of debt securities issued in capital markets, possible loss of market share or revenue due to competition or regulation, and changes in educational funding.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.225 0.235 0.235 0.235

10/28 01/20 04/28 07/26

11/23 02/22 05/24 08/24

11/25 02/24 05/26 08/26

12/10/09 03/10/10 06/10/10 09/10/10

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tom Graves, CFA on July 27, 2010, when the stock traded at $ 30.64. Highlights

➤

➤

HIGHEST = 99

Revenue/Earnings Data

5

➤

A+

In 2010's second quarter, MHP's total revenue was up 0.6%, year to year, and would have increased 2.7% if the divestitures of BusinessWeek and Vista Research were excluded. Overall segment profit was up 6.8%, helped by the absence of restructuring charges and a year-ago loss on a divestiture. In July 2010, MHP said that due to choppiness in some of its key markets, it expects to report diluted EPS for 2010 at the low end of its previous guidance range of $2.55 to $2.65. Earlier, in January, MHP directors approved the 37th consecutive annual increase in the quarterly cash dividend on MHP's common stock. MHP's quarterly dividend was increased 4.4%, to $0.235 per share, with the March 2010 payment. MHP repurchased 6.5 million of its common shares in the 2010 second quarter for $186.9 million. Authorization to repurchase 10.6 million shares remained. At June 30, 2010, MHP had cash and short-term investments of $1.145 billion, and long-term debt of $1.198 billion.

Investment Rationale/Risk ➤

➤

➤

Standard & Poor's is a division of MHP, and provides no EPS estimates, target price or recommendation for the company.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1937. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MHP

McGraw-Hill Companies Inc. (The) Business Summary July 27, 2010 CORPORATE OVERVIEW. The McGraw-Hill Companies, Inc. is a leading provider of information products and services to business, professional and education markets worldwide. The company believes that through acquisitions, new product and service development, and a strong commitment to customer service, many of its business units have grown to be leaders in their respective fields. Well known brands include Standard & Poor's and Platts. The Financial Services segment (44% of revenues and 73% of segment operating profit in 2009) operates under the Standard & Poor's brand and provides services to investors, corporations, governments, financial institutions, investment managers and advisors globally. S&P provides independent credit ratings, credit risk evaluations, and credit ratings-related information and products. This can include analyses related to corporations, financial institutions, securitized and project financings, and local, state and sovereign governments. Also, S&P's Investment Services business provides financial data, information, indices and research.

of credit ratings, financial news and risk and policy advisory services in India. In 2004, MHP acquired privately owned Capital IQ, a provider of information solutions to the global investment and financial services communities. In May 2009, MHP sold its Vista Research business to Guidepoint Global, LLC. MHP had acquired Vista, a leading provider of primary research, in 2005. In February 2007, MHP announced the sale of its mutual fund data business to Morningstar, Inc. McGraw-Hill Education (40%, 20%) operates in in the elementary and high school, college and university, professional, international and adult education markets. In the el-hi market, MHP sells textbooks (print and digital versions) and supplementary material, and provides assessment and reporting services. In the college and university and the international market, MHP sells textbooks and other resources to higher education institutions.

In 2005, MHP acquired majority ownership of Crisil Limited, a leading provider Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.86 2.33 2.29 0.90 39% 35.24 17.22 15 7

2008 NM 3.07 2.51 2.29 0.88 35% 47.13 17.15 19 7

2007 NM 3.41 2.94 2.89 0.82 28% 72.50 43.46 25 15

2006 1.00 2.85 2.40 2.38 0.73 30% 69.25 46.37 29 19

2005 2.04 3.21 2.21 2.05 0.66 30% 53.97 40.51 24 18

2004 2.72 2.98 1.96 1.80 0.60 31% 46.06 34.55 23 18

2003 2.24 2.84 1.79 1.44 0.54 30% 35.00 25.87 20 14

2002 0.94 1.71 1.48 1.15 0.51 34% 34.85 25.36 24 17

2001 0.09 2.04 0.96 0.60 0.49 51% 35.44 24.35 37 25

2000 0.17 2.13 1.21 NA 0.47 39% 33.84 20.94 28 17

5,952 1,440 165 76.9 1,179 36.4% 730 717

6,355 1,607 178 75.6 1,279 37.5% 799 729

6,772 1,846 161 40.6 1,623 37.5% 1,014 995

6,255 1,580 162 13.6 1,405 37.2% 882 874

6,004 1,749 385 5.20 1,360 37.9% 844 786

5,251 1,467 393 5.79 1,169 35.3% 756 694

4,828 1,369 403 7.10 1,130 39.1% 688 552

4,788 1,037 89.6 22.5 905 36.3% 577 446

4,646 1,044 421 55.1 615 38.7% 377 233

4,281 1,128 362 52.8 767 38.5% 472 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,235 Current Assets 2,936 Total Assets 6,475 Current Liabilities 2,452 Long Term Debt 1,198 Common Equity 1,847 Total Capital 3,127 Capital Expenditures 68.5 Cash Flow 896 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 12.3 % Return on Assets NA % Return on Equity NA

472 2,303 6,080 2,531 1,198 1,282 2,480 106 978 0.9 48.2 12.6 12.8 55.3

396 2,333 6,357 2,657 1,197 1,607 2,943 230 1,175 0.9 40.7 15.0 16.3 47.3

353 2,258 6,043 2,468 0.31 7,785 7,936 127 1,044 0.9 NM 14.1 14.2 12.8

749 2,591 6,396 2,225 0.34 3,113 3,432 120 1,230 1.2 0.0 14.1 13.8 27.7

681 2,448 5,863 1,969 0.51 4,952 5,185 139 1,149 1.2 0.0 14.4 13.5 16.5

696 2,256 5,394 1,994 0.39 2,557 2,758 115 1,091 1.1 0.0 14.2 13.2 29.1

58.2 1,674 5,032 1,775 459 2,202 2,861 70.0 666 0.9 16.0 12.0 11.3 28.2

53.5 1,813 5,161 1,876 834 1,884 2,908 117 798 1.0 28.7 8.1 7.5 20.5

3.17 1,802 4,931 1,781 818 1,761 2,742 97.7 834 1.0 29.8 11.0 10.4 27.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1221 Avenue Of The Americas, New York, NY 10020-1095. Telephone: 212-512-2000. Email: [email protected] Website: http://www.mcgraw-hill.com

Chrmn, Pres & CEO: H. McGraw, III EVP & CFO: R.J. Bahash EVP & General Counsel: K.M. Vittor EVP & CIO: B.D. Marcus

SVP, Chief Acctg Officer & Cntlr: E.K. Korakis Founded: 1899 Investor Contact: D.S. Rubin (212-512-4321) Domicile: New York Board Members: P. A. Armella, W. Bischoff, D. N. Employees: 21,077 Daft, L. K. Lorimer, R. P. McGraw, H. McGraw, III, H. M. Ochoa-Brillembourg, M. Rake, E. B. Rust, Jr., K. L. Schmoke, S. Taurel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MCK | MCK is in the S&P 500

McKesson Corp S&P Recommendation STRONG BUY

★★★★★

Price $61.08 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Distributors

12-Mo. Target Price $78.00

Investment Style Large-Cap Blend

Summary This company (formerly McKesson HBOC) provides pharmaceutical supply management and information technologies to a broad range of health care customers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $71.49– 55.82 Trailing 12-Month EPS $4.66 Trailing 12-Month P/E 13.1 $10K Invested 5 Yrs Ago $14,434

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.82 5.35 12.7 261.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$15.969 1.18 $0.72 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 10 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of MCK's improving profitability and the rising demand for its highly profitable IT products and services, offset by our belief the company is more price competitive than peers and that future drugmaker-distributor contract negotiations might be less favorable for distributors.

80 60

40 30

Quantitative Evaluations

Vol. Mil. 24 16 8 0

S&P Quality Ranking D 5

4

5

5

2007

2008

2009

B+

A-

A

A+ WEAK

Analysis prepared by Herman B. Saftlas on August 31, 2010, when the stock traded at $ 59.05. Highlights For FY 11 (Mar.), we forecast total revenues will rise 3.4%, paced by higher revenues from branded and generic drugs (Distribution Solutions). However, we see only a 1%-2% gain for the Medical-Surgical Solutions division, well below the growth in achieved by that unit in FY 10, which was inflated by H1N1 flu vaccine volume. International sales are expected to decline due to the recent sale of an Asian Pacific subsidiary. We project 7.3% revenue growth for the Technology Solutions division, following a 2.0% rise in FY 10, as hospitals' consultations with MCK on electronic health record systems likely translate into bookings. We expect firmwide FY 11 operating margins to narrow slightly versus FY 10's, as the benefits from further generic drug penetration, cost controls and higher Technology Solutions sales are unlikely to compensate for the margin gains in FY 10 from the spike in flu-related sales and a favorable settlement related to MCK's 401(k) plan.

Investment Rationale/Risk ➤

➤

➤

We project FY 11 operating EPS of $4.82, versus FY 10's $4.58, excluding one-time items in both years. We look for EPS of $5.35 in FY 12.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

AB

25 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

We believe MCK's large footprints in drugs, medical supplies and information technology will enable it to benefit strongly from crossselling opportunities. We think its leading positions in drug distribution, med-surg supply (in the alternate site market) and pharmacy systems reinforce its cost-competitiveness, while distribution margins will continue to benefit from generic drug penetration. We also view the high-margin Technology Solutions segment as poised to gain greatly from stimulus-related spending, and we are encouraged that bookings have begun. While it may be tough for MCK to match H1N1's $0.37 a share contribution in FY 10 during FY 11, we believe its $3.3 billion cash hoard as of June 30, 2010, and healthy cash flow provide it with financial flexibility. Risks to our recommendation and target price include the loss of major accounts and unfavorable regulatory changes. Recent moves to cut drug spending in Canada is another risk. Our 12-month target price of $78 is derived by applying an approximate peer-level 14.6X P/E to our FY 12 EPS estimate of $5.35.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 27,450 -2010 26,657 27,130 2009 26,704 26,574 2008 24,528 24,450 2007 23,315 22,386 2006 20,968 21,515

3Q -28,272 27,130 26,494 23,111 22,510

Earnings Per Share ($) 2011 1.10 E1.13 2010 1.06 1.11 2009 0.83 1.17 2008 0.77 0.83 2007 0.60 0.94 2006 0.55 0.49

E1.22 1.19 -0.07 0.68 0.79 0.61

4Q Year --26,643 108,702 26,224 106,632 26,231 101,703 24,165 92,977 23,057 88,050

E1.37 1.26 1.01 1.05 0.85 0.70

E4.82 4.62 2.99 3.32 3.17 2.34

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.120 0.120 0.180 0.180

10/30 01/20 05/26 07/28

11/27 02/25 06/08 08/30

12/01 03/01 06/10 09/01

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1995. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MCK

McKesson Corp Business Summary August 31, 2010 CORPORATE OVERVIEW. McKesson Corp. is a leading distributor of medical products and supplies and health care information technology products and services. Beginning in FY 08 (Mar.), MCK started reporting its results in two segments: McKesson Distribution Solutions (MDS; 97.1% of FY 10 revenue on a pro forma basis) includes what was previously reported as Pharmaceutical Solutions and Medical-Surgical Solutions, with the exception of its Payor business. The pharmaceutical distribution unit primarily distributes ethical and proprietary drugs and health and beauty care, and focuses on three customer segments: retail independent pharmacies, retail chains, and institutions, in all 50 states and Canada. The medical-surgical distribution unit provides medical-surgical supplies, equipment, logistics and related services to alternate-site health care providers, including physicians' offices, long-term care and home care. Through its investment in Parata Systems, MDS also markets automated pharmacy systems to hospitals and retail pharmacies.

Provider Technologies segment and the aforementioned Payor business. MTS delivers enterprise-wide patient care, clinical, financial, supply chain, and strategic management software solutions, pharmacy automation for hospitals, as well as connectivity, outsourcing and other services, to health care organizations throughout North America, the United Kingdom and other European countries. Its customers include hospitals, physicians, home care providers, retail pharmacies and payors. CORPORATE STRATEGY. Distribution agreements between distributors and most drugmakers have transitioned toward a more fee-based approach, with the distributors appropriately and predictably compensated for distribution and related logistic and administrative services and data, in our opinion. MCK and its peers see over 80% of their drugmaker compensation as fixed and not dependent upon drug price inflation.

McKesson Technology Solutions (MTS; 2.9%) consists primarily of the former Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 9.95 6.12 4.62 4.62 0.48 10% 2009 64.98 33.13 14 7

2009 4.83 3.89 2.99 4.16 0.48 16% 2008 68.40 28.27 23 9

2008 10.42 4.09 3.32 3.33 0.24 7% 2007 68.43 50.80 21 15

2007 9.10 4.14 3.17 3.16 0.24 8% 2006 55.10 44.60 17 14

2006 13.36 3.28 2.34 2.07 0.24 10% 2005 52.89 30.13 23 13

2005 12.47 0.32 -0.53 1.93 0.24 NM 2004 35.90 22.61 NM NM

2004 12.66 2.94 2.19 1.29 0.24 11% 2003 37.14 22.61 17 10

2003 10.57 2.65 1.90 1.24 0.24 13% 2002 42.09 24.99 22 13

2002 9.81 2.20 1.43 0.87 0.24 17% 2001 41.50 23.40 29 16

2001 8.55 0.72 -0.15 -0.39 0.24 NM 2000 37.00 16.00 NM NM

108,702 2,400 474 187 1,864 32.2% 1,263 1,260

106,632 1,951 261 144 1,064 22.7% 823 1,159

101,703 1,736 231 142 1,457 32.1% 989 991

92,977 1,553 295 99.0 1,297 25.4% 968 964

88,050 1,425 266 94.0 1,158 36.4% 737 650

80,515 1,260 251 118 -240 NM -157 565

69,506 1,216 232 120 911 29.1% 646 380

57,121 1,134 204 121 855 34.3% 562 364

50,006 923 208 119 601 30.4% 419 255

42,010 454 246 118 9.60 NM -42.7 -113

Balance Sheet & Other Financial Data (Million $) Cash 3,731 Current Assets 21,504 Total Assets 28,189 Current Liabilities 17,012 Long Term Debt 2,293 Common Equity 7,532 Total Capital 9,828 Capital Expenditures 199 Cash Flow 1,670 Current Ratio 1.3 % Long Term Debt of Capitalization 23.3 % Net Income of Revenue 1.2 % Return on Assets 4.7 % Return on Equity 18.4

2,109 18,671 25,267 15,606 2,290 6,193 8,483 195 1,084 1.2 27.0 0.8 3.3 13.4

1,362 17,786 24,603 15,348 1,795 6,121 7,916 195 1,220 1.2 22.7 1.0 4.1 16.0

1,954 17,856 23,943 15,126 1,803 6,273 8,076 126 1,263 1.2 22.3 1.0 4.3 15.9

2,142 16,919 20,975 13,515 965 5,907 6,872 167 1,003 1.3 14.0 0.8 3.7 13.2

1,809 15,332 18,775 11,793 1,202 5,275 6,477 140 94.2 1.3 18.6 NM NM NM

718 13,004 16,240 9,456 1,210 5,165 6,375 115 879 1.4 19.0 0.9 4.2 13.3

534 11,254 14,353 7,974 1,487 4,529 6,016 116 766 1.4 24.7 1.0 4.1 13.3

563 10,699 13,324 7,588 1,485 3,940 5,425 132 626 1.4 27.4 0.8 3.4 11.3

446 9,164 11,530 6,550 1,232 3,493 4,724 159 203 1.4 26.1 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Post St McKesson Plaza, San Francisco, CA 94104-5296. Telephone: 415-983-8300. Email: [email protected] Website: http://www.mckesson.com

Chrmn, Pres & CEO: J.H. Hammergren EVP & CFO: J. Campbell EVP, CTO & CIO: R. Spratt EVP & General Counsel: L.E. Seeger

Chief Acctg Officer & Cntlr: N.A. Rees Investor Contact: J.C. Campbell (800-826-9360) Board Members: A. Bryant, W. A. Budd, J. H. Hammergren, A. F. Irby, III, M. C. Jacobs, M. L. Knowles, D. M. Lawrence, E. A. Mueller, J. E. Shaw

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1994 Domicile: Delaware Employees: 32,500

Stock Report | October 23, 2010 | NYS Symbol: MJN | MJN is in the S&P 500

Mead Johnson Nutrition Co S&P Recommendation HOLD

★★★★★

Price $59.04 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $52.00

Investment Style Large-Cap Blend

Summary Mead Johnson Nutrition, split off from Bristol-Myers Squibb in 2009, is a global leader in pediatric nutrition.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.46– 40.57 Trailing 12-Month EPS $1.99 Trailing 12-Month P/E 29.7 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.38 2.67 24.8 204.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.077 1.52 $0.90 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

NA 10 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that demand for Mead Johnson's infant formula and children's nutritional products is comparatively predictable in developed economies and growing in emerging markets. Demand in these categories has a relatively low sensitivity to changes in general economic and geopolitical conditions. This is partly offset by volatility in dairy prices.

60 50

35 30 25 Vol.

Quantitative Evaluations

84 25

Mil. 9 6 3 0

S&P Quality Ranking D

5

C

B-

NR B

B+

A-

A

Relative Strength Rank

1

MODERATE 70

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Highlights

➤

➤

In December 2009, Bristol-Myers Squibb completed an exchange offer that resulted in the split-off of MJN. This followed MJN's February 2009 initial public offering. For 2010, we look for sales to rise 8.7%, with almost all of the growth coming from the Asia/Latin America segment and a slightly positive contribution from foreign currency. Sales were down 0.7% in 2009, on negative foreign currency translation, market share losses in the North America/Europe segment, and a decrease in U.S. births. For 2010, we look for a 300 basis point decline in the operating margin, primarily due to a forecasted increase in raw material costs, additional expenses related to being an independent company and impact of changes in Venezuelan bolivar. In 2009, the operating margin improved 110 bps, with lower commodity costs more than offsetting higher expenses. We expect interest expense to decline in 2010, following a drop in 2009. For the historical periods, we use the management-provided adjusted income statements, which we think better reflect MJN's results as an independent company.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Joseph Agnese on August 02, 2010, when the stock traded at $ 53.14.

➤

A+

3

We think the current stock price adequately reflects what we see as MJN's good long-term growth prospects, especially in Asia. The pediatric nutrition industry is projected to grow at a compound annual rate of 7% for the next few years. However, MJN's higher cost brands may not be as attractive in a weak spending environment. Risks to our recommendation and target price include consolidation of retail customers, prolonged economic downturns causing consumers to trade down to lower-priced products (including private label or store brands), rising dairy costs, changes in government programs, product quality and safety issues, high financial leverage, and unfavorable foreign exchange. Our 12-month target price of $52 is a weighted blend of our DCF and relative analyses. Our DCF model assumes an 7.7% terminal weighted average cost of capital and 3% terminal growth, to arrive at a $56 valuation. Our peer analysis assumes a premium to the average peer P/E multiple applied to our 2010 EPS estimate, to value the stock at $50.

Our EPS estimate is $2.38 for 2010, versus adjusted EPS of $2.23 in 2009 and $1.90 in 2008.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 763.5 764.2 2009 693.0 719.3 2008 716.0 716.0 2007 615.1 615.1 2006 --2005 ---

3Q -699.8 742.8 673.1 ---

4Q -714.4 707.7 673.1 ---

Year -2,827 2,882 2,576 2,345 2,202

Earnings Per Share ($) 2010 0.61 0.59 2009 0.55 0.66 2008 0.77 0.67 2007 --2006 --2005 ---

E0.60 0.48 0.60 ----

E0.52 0.31 0.23 ----

E2.38 1.99 2.32 ----

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.225 0.225 0.225

12/18 03/17 06/16 09/16

12/29 03/22 06/23 09/22

12/31 03/24 06/25 09/24

01/15/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 2009. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MJN

Mead Johnson Nutrition Co Business Summary August 02, 2010 CORPORATE OVERVIEW. Mead Johnson Nutrition Company is a global leader in pediatric nutrition with about $2.8 billion in net sales in 2009. Its Enfa family of brands, including Enfamil infant formula, addresses a broad range of nutritional needs for infants, children and expectant and nursing mothers. MJN also markets some other brands on a local, regional or global basis. MJN's principal product categories are infant formula (63.9% of 2009 sales) and children's nutrition and other (26.1%).

A one vote. Bristol-Myers retained 83.1% of the outstanding shares.

MJN markets its portfolio of more than 70 products to mothers, health care professionals and retailers in more than 50 countries in Asia, North America, Latin America and Europe. MJN has two reportable segments -- Asia/Latin America (58% of sales and 60% of segment operating profits in 2009) and North America/Europe (43% and 40%). The U.S. represented 35% of revenues in 2009. Wal-Mart Stores, Inc. was MJN's largest single customer, accounting for 12% of sales in 2009.

MARKET PROFILE. There are five general stages of child development: Stage 0 (Pre-natal); Stage 1 (0-6 months old); Stage 2 (6-12 months old); Stage 3 (12 months to 3 years old); Stage 4 (3-5 years old); and Stage 5 (beyond 5 years old).

Mead Johnson was founded in 1905 and introduced its first infant formula product in 1911. Over the years, MJN expanded to more countries and added more products. In 1967, it became a wholly owned subsidiary of Bristol-Myers Squibb Company. In February 2009, MJN completed an initial public offering of 34.5 million shares of its Class A common stock, with Bristol-Myers owning 100% of MJN's Class B common stock and over 42 million shares (55%) of its Class A common stock. Each Class B share had 10 votes per share and Class

In December 2009, Bristol-Myers completed an exchange offer, resulting in the split-off of MJN. This also involved the conversion of Class B shares into Class A shares, with Bristol-Myers distributing 170 million shares of Class A stock, or 83% of the outstanding shares of MJN. Subsequently, Bristol-Myers retained no share ownership in MJN.

MJN produces different products for each stage. In the U.S., its business has been focused on the infant formula category (Stages 1 and 2), while outside the U.S., it sells infant formula products (Stages 1 and 2) and children's nutritional products (Stages 3, 4 and 5). In August 2009, MJN first shipped Enfagrow, nutrition tailored for toddlers, in the U.S.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.28 1.99 2.02 0.40 20% 50.35 25.72 25 13

2008 NM 2.58 2.32 1.97 Nil Nil NA NA NA NA

2007 NA NA NA 2.11 NA NA NA NA NA NA

2006 NA NA NA 1.99 NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

2,827 822 58.9 95.9 587 30.1% 400 411

2,882 753 44.1 43.3 652 38.5% 394 394

2,576 710 51.0 NA 663 35.2% 423 423

2,345 696 49.5 NA 635 36.3% 398 398

2,202 667 53.8 NA 618 36.0% 390 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 561 Current Assets 1,336 Total Assets 2,070 Current Liabilities 1,100 Long Term Debt 1,485 Common Equity -675 Total Capital 821 Capital Expenditures 95.8 Cash Flow 459 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 14.1 % Return on Assets NA % Return on Equity NA

NA 717 1,361 653 2,000 -1,401 604 81.1 438 1.1 330.9 13.7 29.6 NM

NA 688 1,302 563 NA 631 638 78.4 466 1.2 Nil 16.4 33.7 69.5

NA 624 1,204 530 NA 586 592 68.9 441 1.2 Nil 17.0 NA NA

NA NA NA NA NA NA NA 56.4 436 NA Nil 17.7 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2701 Patriot Blvd, Glenview, IL 60026. Telephone: 847-832-2420. Website: http://www.meadjohnson.com Chrmn: J.M. Cornelius

Pres & CEO: S.W. Golsby SVP & CFO: P.G. Leemputte SVP, Secy & General Counsel: W. P'Pool Chief Acctg Officer & Cntlr: S.D. Burhans

Investor Contact: K. Chieger (847-804-9896) Founded: 1905 Board Members: S. M. Altschuler, H. B. Bernick, K. A. Domicile: Delaware Casiano, A. C. Catalano, J. M. Cornelius, S. W. Employees: 5,600 Golsby, P. G. Ratcliffe, E. Sigal, R. S. Singer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MWV | MWV is in the S&P 500

MeadWestvaco Corp S&P Recommendation HOLD

★★★★★

Price $25.14 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Paper Products

12-Mo. Target Price $28.00

Investment Style Large-Cap Value

Summary This company is primarily a major producer of paperboard packaging used in a variety of consumer markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.74– 20.81 Trailing 12-Month EPS $1.45 Trailing 12-Month P/E 17.3 $10K Invested 5 Yrs Ago $11,959

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.35 1.60 18.6 170.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.294 3.66 $0.92 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.76 36 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

MWV operates in a moderately cyclical and seasonal sector and is subject to swings in certain commodity prices. However, it has some pricing power due to its high market share, and its debt levels are low relative to many of its peers.

30 20 15 10

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

12 8 4 0 5

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 59

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Stuart J. Benway, CFA on August 09, 2010, when the stock traded at $ 23.70. Highlights ➤

We expect sales to rebound by 4%-6% in 2010. Demand for media and office products is likely to be weak due to secular declines in usage for CDs, DVDs and time management products. MWV has also shut several facilities and eliminated certain product lines. However, we look for economic activity to improve moderately in 2010, which should boost demand for paperboard packaging and specialty chemicals, and growth in emerging markets should resume. Similar revenue growth is expected in 2011.

Investment Rationale/Risk ➤

➤ ➤

➤

We anticipate margin improvement in 2010. Weak demand in 2009 prompted management to reduce its product line and close several manufacturing facilities. We expect lower costs from reduced overhead and improved manufacturing efficiencies to boost margins in 2010. Our forecast is for operating margins to widen to 7.7% in 2010 from 5.6% in 2009. Our operating EPS forecast for 2010 is $1.35 (excluding charges), up significantly from $0.70 earned in 2009. Our 2010 estimate includes modest land sales gains, which could be significant in certain quarters. For 2011, we project EPS of $1.60.

➤

Revenue/Earnings Data

2010

We believe that volume trends will improve in 2010 as customers rebuild inventories and new products generate market share gains. MWV's strong position in emerging markets and its moves to eliminate low-margin product lines should also aid long-term growth, by our analysis. Additionally, we think that MWV has valuable land that it will sell gradually over the long term. We believe these shares fully reflect the improved results that we project. Risks to our recommendation and target price include a weaker-than-expected global economy, softer-than-projected demand and pricing trends for MWV's packaging grades, and a renewed rise in energy and raw material costs. Our discounted cash flow model, which assumes a weighted average cost of capital of 10.0%, solid cash flow generation in 2010, and growth in perpetuity of 3%, values the shares at $30. A peer group of packaging stocks is trading at 15.7X our 2011 estimates. Applying this forward P/E to our 2011 forecast for MWV values the shares at $24. Our 12-month target price of $28 is a weighted blend of these metrics.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,402 1,552 2009 1,354 1,432 2008 1,518 1,709 2007 1,552 1,706 2006 1,434 1,570 2005 1,373 1,587

3Q -1,627 1,811 1,796 1,751 1,583

4Q -1,636 1,599 1,852 1,775 1,627

Year -6,049 6,637 6,906 6,530 6,170

Earnings Per Share ($) 2010 0.14 0.29 2009 -0.46 0.72 2008 -0.05 0.33 2007 -0.09 0.17 2006 0.02 -0.04 2005 0.08 -0.06

E0.55 0.74 0.26 0.66 0.31 0.30

E0.34 0.29 -0.09 0.82 0.23 0.33

E1.35 1.30 0.46 1.56 0.52 0.62

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.230 0.230 0.230 0.230

11/17 01/25 04/26 06/29

11/24 02/02 05/04 07/29

11/27 02/04 05/06 08/02

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1892. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MWV

MeadWestvaco Corp Business Summary August 09, 2010 CORPORATE OVERVIEW. Through a series of mergers and divestitures, MeadWestvaco has molded itself into one of the largest producers of packaging products in the world, and it is also a major supplier of consumer and office products and specialty chemicals. The Packaging Resources segment (38% of 2009 revenues) produces bleached paperboard, coated paperboard, kraft paperboard, linerboard and saturating kraft, and packaging for consumer products including beverage and dairy, cosmetics, tobacco, pharmaceuticals, and health care products. Some of the company's major customers include Altria, Anheuser-Busch, Coca-Cola and Procter & Gamble. The Consumer Solutions segment (35%) sells a full range of consumer packaging products, including printed plastic packaging and injection-molded products used for packaging DVDs, CDs, cosmetics, and pharmaceuticals, and plastic dispensing and spraying systems for worldwide personal care, health care, fragrance, and lawn and garden markets. The Consumer and Office Products segment (16%) makes, markets and distributes school and office products, time management products, and envelopes. The Specialty Chemicals segment (8%) produces, markets and distributes specialty chemicals derived from sawdust and other by-products of the pulp and papermaking process. These chemicals include activated carbon, printing ink resins, emulsifiers used in asphalt paving, and

dyestuffs. Real estate and corporate and other accounted for 3% of sales in 2009. The company also owns about 800,000 acres of forest lands in the U.S. MARKET PROFILE. We believe MeadWestvaco is the largest producer of paperboard, also known as folding boxboard or cartonboard, in North America, with a share of about 16%. The market is somewhat fragmented, with more than 15 companies accounting for at least a 1% share. Unlike containerboard, paperboard has a bendable quality for creasing, scoring and shaping, and usually packages single items meant for consumer purchase. It is used in a variety of consumer applications where print quality, strength and customer appeal are important. Folding carton demand is primarily driven by consumer spending and industrial production. We believe the company's market position, technical expertise and product line diversity give it a moderate level of control over pricing.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.02 3.86 1.30 0.82 0.92 71% 29.33 7.53 23 6

2008 9.37 2.91 0.46 -0.68 0.92 NM 31.44 9.44 68 21

2007 13.52 4.13 1.56 0.21 Nil Nil 36.50 28.39 23 18

2006 14.74 3.37 0.52 -0.11 0.92 177% 30.85 24.76 59 48

2005 14.58 3.17 0.62 0.27 0.92 148% 34.33 25.06 55 40

2004 18.44 1.87 -1.73 -2.67 0.92 NM 34.34 25.16 NM NM

2003 19.89 3.60 -0.01 -0.81 0.92 NM 29.83 21.37 NM NM

2002 20.44 3.49 -0.01 -1.37 0.92 NM 36.50 15.57 NM NM

2001 17.34 4.29 0.87 -1.04 0.88 101% 32.10 22.68 37 26

2000 23.17 5.63 2.53 NA 0.88 35% 34.75 24.06 14 10

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

6,049 828 443 204 375 40.0% 225 141

6,637 734 423 210 79.0 NM 80.0 -118

6,906 893 473 219 400 28.8% 285 36.7

6,530 743 517 211 98.0 5.10% 93.0 -22.1

6,170 818 491 208 135 11.9% 119 50.6

8,227 1,042 726 278 -454 NM -349 -539

7,553 855 724 291 -29.0 NM -2.00 -164

7,242 859 674 309 -15.0 NM -3.00 -264

3,935 677 347 208 119 25.6% 88.2 -104

3,663 869 314 192 404 36.9% 255 NA

Balance Sheet & Other Financial Data (Million $) Cash 850 Current Assets 2,530 Total Assets 9,021 Current Liabilities 1,245 Long Term Debt 2,153 Common Equity 3,406 Total Capital 5,576 Capital Expenditures 224 Cash Flow 668 Current Ratio 2.0 % Long Term Debt of Capitalization 38.6 % Net Income of Revenue 3.7 % Return on Assets 2.6 % Return on Equity 7.1

549 2,161 8,455 1,274 2,309 2,967 6,195 288 503 1.7 37.3 1.2 0.9 2.4

245 2,167 9,837 1,455 2,375 3,708 7,311 347 758 1.5 32.5 4.1 3.0 7.9

156 2,015 9,285 1,465 2,372 3,533 7,082 302 610 1.4 33.5 1.4 1.0 2.7

297 2,030 8,908 1,042 2,417 3,483 7,052 305 610 1.9 34.3 1.9 1.2 3.1

270 2,562 11,681 1,751 3,427 4,317 9,249 407 377 1.5 37.1 NM NM NM

225 2,426 12,487 1,501 3,969 4,768 10,415 393 722 1.6 38.1 NM NM NM

372 2,431 12,921 1,620 4,233 4,831 10,821 377 671 1.5 39.1 NM NM NM

81.2 1,016 6,787 701 2,660 2,341 6,009 290 436 1.4 44.3 2.2 1.3 3.8

255 1,064 6,570 567 2,687 2,333 5,927 214 569 1.9 45.3 7.0 4.4 11.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 501 South 5th Street, Richmond, VA 23219-0501. Telephone: 804-444-1000. Website: http://www.meadwestvaco.com Chrmn & CEO: J.A. Luke, Jr.

Pres: J.A. Buzzard SVP & CFO: E.M. Rajkowski SVP, Secy & General Counsel: W.L. Willkie, II CTO: M.T. Watkins

Investor Contact: E.M. Rajkowski (804-327-5200) Founded: 1846 Board Members: M. E. Campbell, T. W. Cole, Jr., J. G. Domicile: Delaware Kaiser, R. B. Kelson, J. M. Kilts, S. J. Kropf, D. S. Employees: 20,000 Luke, J. A. Luke, Jr., R. C. McCormack, T. H. Powers, E. M. Straw, J. L. Warner

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MHS | MHS is in the S&P 500

Medco Health Solutions Inc. S&P Recommendation STRONG BUY

★★★★★

Price $51.34 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Services

12-Mo. Target Price $70.00

Investment Style Large-Cap Blend

Summary Medco is the largest U.S. pharmacy benefit manager (PBM) in terms of revenues and script count.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $66.94– 43.45 Trailing 12-Month EPS $2.84 Trailing 12-Month P/E 18.1 $10K Invested 5 Yrs Ago $18,129

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.38 3.90 15.2 433.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

MEDIUM

HIGH

2-for-1

30

Quantitative Evaluations

Vol. 55

Mil.

S&P Quality Ranking

24 16 8 0

D 4

5

4

C

B-

NR B

B+

A-

Relative Strength Rank

A

A+

MODERATE

38

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Herman B. Saftlas on July 30, 2010, when the stock traded at $ 47.67. Highlights We forecast revenues will rise about 9% in 2010, to over $65 billion. Drivers we see include a 99% retention rate of existing business, net new business of $5 billion garnered so far for 2010 as of June 30, and brand-name drug price inflation. MHS expects to renew $15 billion of business in 2010. However, we see growth tempered by the weak economy and the penetration of generic drugs, which carry lower prices but wider margins than branded drugs. We expect EBITDA per adjusted prescription (one three-month mail prescription counted as three one-month retail prescriptions), a measure of PBM profitability, to increase in the low single-digits, reflecting projected higher retail volumes. The acquisition of DNA Direct in early 2010 is expected to be about $0.01 dilutive to 2010 EPS. We look for operating EPS before amortization charges of $3.38 for 2010, versus 2009's $2.79 (before a one-time state tax gain), and we see $3.90 in 2011. MHS expects cash from operations in 2010 of about $2.4 billion, which we view as providing it with significant financial flexibility.

Investment Rationale/Risk ➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects rising drug demand and our view of MHS's improving financial performance and declining debt leverage. However, we believe that intense competition and increased government regulation of pharmacy benefit managers, which we view as likely, could slow long-term progress in profits.

40

➤

0.46 21 BBB+

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

80

5

$22.264 Nil Nil 77

We view the fundamentals of the PBM space as bright, as health plans, governments and employers seek to control drug costs. We believe MHS has significant opportunities to expand generic drug mail penetration of its new accounts and has begun to make progress. In addition, we see the company and peers benefiting from the $102.1 billion in brand-name drugs it expects to go off-patent from 2009 to 2015. Meanwhile, we view its initiatives, including personalized medicine based on genetics, as bolstering its competitive position. In general, we believe Medco is well positioned in the PBM industry, with a record of high-quality service and competitive pricing. MHS also plans to expand PBM services in Europe through a joint venture with Celesio, a German drug distributor.

➤

Risks to our recommendation and target price include intensifying competition and more regulatory oversight.

➤

Our 12-month target price of $70 is derived by applying a peer EBITDA/share multiple of 10X to our 2011 EBITDA forecast. Applying a closeto-peers price-to-EPS before amortization ratio of 18X to our 2011 estimate also yields a $70 price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 16,311 16,408 2009 14,834 14,930 2008 12,963 12,775 2007 11,160 11,050 2006 10,564 10,589 2005 8,743 8,999

3Q -14,795 12,559 10,919 10,461 9,325

4Q -15,245 12,961 11,379 10,930 10,803

Year -59,804 51,258 44,506 42,544 37,871

Earnings Per Share ($) 2010 0.67 0.77 2009 0.58 0.64 2008 0.50 0.51 2007 0.47 0.38 2006 0.08 0.28 2005 0.24 0.24

E0.88 0.69 0.58 0.39 0.31 0.26

E0.94 0.70 0.54 0.38 0.39 0.29

E3.38 2.61 2.13 1.63 1.05 1.03

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: MHS

Medco Health Solutions Inc. Business Summary July 30, 2010 CORPORATE OVERVIEW. Medco Health Solutions was spun off to Merck & Co. (MRK) shareholders in a tax-free transaction on August 19, 2003. The company is one of the largest U.S. pharmacy benefit managers (PBMs). It provides programs and services to clients and members of PBMs, and to physicians and pharmacies that they use. In 2009, MHS processed about 899 million adjusted prescriptions (with one mail-order prescription is the equivalent of three retail prescriptions), compared to 796 million in 2008. Revenues and net income are derived from: rebates and discounts on prescription drugs from pharmaceutical manufacturers; competitive discounts from retail pharmacies; the negotiation of favorable client pricing, including rebate sharing terms; the shift in dispensing volumes from retail to home delivery; and the provision of services in a cost-efficient manner.

ed as a reduction in cost of product net revenues, totaled $4,447 million in 2008, $3,561 million in 2007, and $3,417 million in 2006, with formulary rebates representing 54.7%, 50.1% and 51.9% of total rebates, respectively, and market share rebates reflecting the remainder. The increases in rebates reflect improved formulary management and patient compliance, as well as favorable pharmaceutical manufacturer rebate contract revisions, and volume from new 2008 clients, partially offset by lower rebates as a result of brandname drug volumes that have converted to generic drugs. MHS retained about $806 million, or 18.1%, of total rebates in 2008, $547 million, or 15.4%, in 2007, and $670 million, or 19.6%, in 2006.

Rebates from brand-name pharmaceutical manufacturers, which are reflectCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.60 2.61 2.62 Nil Nil 66.00 36.46 25 14

2008 NM 2.98 2.13 2.11 Nil Nil 54.63 29.80 26 14

2007 NM 2.33 1.63 1.62 Nil Nil 51.67 26.26 32 16

2006 NM 1.69 1.05 1.21 Nil Nil 32.06 23.54 31 22

2005 NM 1.63 1.03 0.93 Nil Nil 28.98 20.28 28 20

2004 0.49 1.56 0.88 0.74 Nil Nil 20.95 14.70 24 17

2003 NM 1.31 0.79 0.52 Nil Nil 19.00 10.10 24 13

2002 NM 1.07 0.59 0.54 NA NA NA NA NA NA

2001 0.85 1.08 0.48 0.36 NA NA NA NA NA NA

2000 0.66 0.94 0.40 NA NA NA NA NA NA NA

59,804 2,751 485 173 2,103 39.1% 1,280 1,284

51,258 2,461 443 234 1,791 38.4% 1,103 1,092

44,506 2,000 397 134 1,503 39.3% 912 908

42,544 1,470 392 65.9 1,012 37.7% 630 726

37,871 1,350 358 73.9 953 36.8% 602 544

35,352 1,244 378 Nil 806 40.3% 482 404

34,265 1,025 283 Nil 729 41.6% 426 279

32,959 886 257 73.5 547 41.7% 319 287

29,071 837 323 Nil 518 50.5% 257 188

22,266 731 289 Nil 448 51.6% 217 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,548 Current Assets 8,159 Total Assets 17,916 Current Liabilities 6,348 Long Term Debt 4,000 Common Equity 6,387 Total Capital 10,387 Capital Expenditures 239 Cash Flow 1,765 Current Ratio 1.3 % Long Term Debt of Capitalization 38.5 % Net Income of Revenue 2.1 % Return on Assets 7.3 % Return on Equity 20.7

1,002 7,098 17,011 5,798 4,003 5,958 11,026 287 1,546 1.2 36.3 2.2 6.6 17.2

844 6,303 16,218 5,129 2,894 6,875 10,937 178 1,309 1.2 26.5 2.1 6.0 12.7

818 5,855 14,388 4,827 866 7,504 9,531 151 1,022 1.2 9.1 1.5 4.4 8.3

888 5,061 13,703 3,761 944 7,724 9,882 132 960 1.3 9.6 1.6 5.0 9.0

1,146 4,320 10,542 2,645 1,093 5,719 6,812 98.1 859 1.6 16.0 1.4 4.6 8.9

638 3,760 10,263 2,605 1,346 5,080 7,604 125 709 1.4 17.7 1.2 4.2 7.3

203 3,044 9,714 2,370 1,385 4,738 7,305 235 576 1.3 19.0 1.0 NA NA

16.3 2,534 9,252 1,809 Nil 6,268 7,423 322 580 1.4 Nil 0.9 2.8 4.1

NA NA 8,915 NA Nil 6,358 7,502 251 506 NA Nil 1.0 NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Parsons Pond Drive, Franklin Lakes, NJ 07417-2603. Telephone: 201-269-3400. Website: http://www.medcohealth.com Chrmn & CEO: D.B. Snow, Jr.

Pres & COO: K.O. Klepper SVP & CFO: R.J. Rubino SVP, Chief Acctg Officer & Cntlr: G.R. Cappucci SVP, Secy & General Counsel: T.M. Moriarty

Board Members: H. W. Barker, Jr., J. L. Cassis, M. Goldstein, C. M. Lillis, M. S. Potter, W. Roper, D. B. Snow, Jr., D. D. Stevens, B. J. Wilson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1983 Domicile: Delaware Employees: 22,850

Stock Report | October 23, 2010 | NYS Symbol: MDT | MDT is in the S&P 500

Medtronic Inc. S&P Recommendation HOLD

★★★★★

Price $35.75 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $36.00

Investment Style Large-Cap Growth

Summary This global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $46.66– 30.80 Trailing 12-Month EPS $3.16 Trailing 12-Month P/E 11.3 $10K Invested 5 Yrs Ago $6,913

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.40 3.75 10.5 1,079.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

0.82 9 AA-

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects MDT's exposure to intensely competitive areas of the medical equipment markets, which are typically characterized by relatively short product life cycles, pricing pressures, and threat of new market entrants. However, we believe this is offset by MDT's many competitive advantages from the scale of its operations and sales force, product breadth, and what we see as its financial strength.

60 50 40 30

Vol. 128

97

45 30 15 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

Mil.

$38.606 2.52 $0.90 77

Quantitative Evaluations 4

S&P Quality Ranking

5

4

3

A

3

D

C

B-

B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

MODERATE

2010 Options: ASE, CBOE, P, Ph

54 LOWEST = 1

HIGHEST = 99

Analysis prepared by Phillip M. Seligman on September 30, 2010, when the stock traded at $ 33.58. Highlights ➤

➤

Following weaker-than-expected July-quarter sales, MDT reduced its outlook for sales growth in constant currency to 2%-5% for FY 11 (Apr.) from 4%-7%. Taking a more conservative posture, we expect total sales to decline by 0.3%. In this regard, we look for a mid single-digit decline in the cardiac rhythm disease management (CRDM) division sales and a low single-digit decline in spine division sales, outweighing mid single-digit growth in cardiovascular sales and high single-digit growth in neuromodulation and diabetes sales. We expect revenues and earnings to be back-end loaded on new products and seasonality. We look for gross margins to widen slightly to about the high end of MDT's goal of 75.5%-76%, reflecting ongoing cost optimization efforts and assuming an improving product mix. We see R&D costs rising 30 basis points (bps) to 9.5% of sales, driven by additions to R&D head count. We expect SG&A costs to be flat with FY 10 levels as a percentage of sales, on cost control.

Investment Rationale/Risk ➤

➤

➤ ➤

We see FY 11 operating EPS of $3.40, including $0.06-$0.07 of acquisition-related dilution, up from $3.22 in FY 10. We forecast EPS of $3.75 for FY 12.

In late September, we reduced our opinion on MDT shares to hold from strong buy. We view MDT's diversification, product pipeline, emerging market sales, cost reduction, and balance sheet positively. The dividend yield also looks attractive to us. Even so, procedure volumes remain down amid the tough economy and payor pushback, and while we think health care reform can eventually bring a lift, we view the timing as uncertain. We also see more pricing pressures ahead, though we think MDT may be able to limit their impact by improving product mix. However, the company noted market share losses in ICDs and drug-eluting stents, and recent positive news from rivals in the areas of spine and transcatheter aortic valves suggests that MDT may see other market share losses. Risks to our opinion and target price include loss of share in key markets, adverse reimbursement rate changes, and further weakness in the U.S. ICD and spinal surgery markets. Our 12-month target price of $36 is 10.5X our FY 11 EPS estimate, a discount to peers given MDT's recent and potential market share losses.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 3,773 -2010 3,933 3,838 2009 3,706 3,570 2008 3,127 3,124 2007 2,897 3,075 2006 2,690 2,765

3Q -3,851 3,494 3,405 3,048 2,770

4Q -4,196 3,829 3,860 3,280 3,077

Year -15,817 14,599 13,515 12,299 11,292

Earnings Per Share ($) 2011 0.76 E0.81 2010 0.40 0.78 2009 0.66 0.51 2008 0.66 0.58 2007 0.51 0.59 2006 0.26 0.67

E0.85 0.75 0.65 0.07 0.61 0.55

E0.95 0.86 0.11 0.72 0.70 0.62

E3.40 2.79 1.93 1.95 2.41 2.09

Fiscal year ended Apr. 30. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.205 0.205 0.225 0.225

12/03 02/18 06/24 08/25

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

01/29/10 04/30/10 07/30/10 10/29/10

Dividends have been paid since 1977. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MDT

Medtronic Inc. Business Summary September 30, 2010 CORPORATE OVERVIEW. Medtronic has leading positions in medical device categories, including cardiac rhythm management, spinal, vascular, neurology and cardiac surgery. Cardiac rhythm disease management products (CRDM; 33% of FY 10 (Apr.) revenues) include implantable pacemakers to treat bradycardia, a condition of slow or irregular heartbeats. Some models are non-invasively programmed by a physician to adjust sensing, electrical pulse intensity, duration, rate and other factors, as well as pacers that can sense in both upper and lower heart chambers and produce appropriate impulses. In May 2005, FDA approval was received for EnRhythm, a dual-chamber pacemaker and the first pacemaker to offer an exclusive pacing mode, called Managed Ventricular Pacing, which enables the device to be programmed to minimize pacing pulses to the right ventricle.

by monitoring the heart; when a rapid rhythm is detected, electrical impulses or shocks are delivered. Cardiac resynchronization therapy (CRT) devices synchronize contractions of multiple heart chambers. The company's InSynch ICD offers CRT for heart failure, as well as advanced defibrillation capabilities for patients also at risk for potentially lethal tachyarrhythmias that may lead to cardiac arrest. The CDRM segment also includes diagnostics and monitoring devices to record the heart's electrical activity and patient management tools, including CareLink, which enables patients to transmit data from their pacemaker, ICD or CRT-D using a portable monitor that is connected to a standard telephone line.

Implantable cardioverter defibrillators (ICDs) treat abnormally fast heart beats Company Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.35 3.49 2.79 3.06 NA NA 2009 44.94 24.06 16 9

2009 1.95 2.55 1.93 2.12 0.50 26% 2008 56.97 28.33 30 15

2008 1.62 2.51 1.95 2.12 0.44 23% 2007 57.99 44.87 30 23

2007 4.56 2.91 2.41 2.44 0.39 16% 2006 59.87 42.37 25 18

2006 2.98 2.54 2.09 2.00 0.34 16% 2005 58.91 48.70 28 23

2005 4.26 1.86 1.48 1.65 0.29 20% 2004 53.70 43.99 36 30

2004 3.18 1.96 1.60 1.46 0.25 16% 2003 52.92 42.90 33 27

2003 2.21 1.64 1.30 1.10 0.25 19% 2002 50.69 32.50 39 25

2002 1.10 1.07 0.80 0.76 0.20 25% 2001 60.81 36.64 72 43

2001 3.53 1.10 0.85 0.91 0.12 14% 2000 62.00 32.75 61 32

15,817 5,909 772 246 3,969 NA 3,099 3,395

14,599 5,276 699 217 2,772 17.4% 2,291 2,392

13,515 4,728 637 255 2,885 22.7% 2,231 2,423

12,299 4,322 583 228 3,515 20.3% 2,802 2,841

11,292 4,248 544 Nil 3,161 19.4% 2,547 2,450

10,055 3,907 463 55.1 2,544 29.1% 1,804 2,006

9,087 3,583 443 56.5 2,797 29.9% 1,959 1,790

7,665 3,062 408 7.20 2,341 31.7% 1,600 1,347

6,411 2,479 330 Nil 1,524 35.4% 984 936

5,552 2,176 297 74.0 1,549 32.5% 1,046 1,121

Balance Sheet & Other Financial Data (Million $) Cash 3,775 Current Assets 9,839 Total Assets 28,090 Current Liabilities 5,121 Long Term Debt 6,944 Common Equity 14,629 Total Capital 21,573 Capital Expenditures 573 Cash Flow 3,871 Current Ratio 1.9 % Long Term Debt of Capitalization 32.2 % Net Income of Revenue 19.6 % Return on Assets 12.0 % Return on Equity 22.6

1,676 7,460 23,605 3,147 6,772 12,973 19,570 498 2,868 2.4 34.6 15.7 10.0 18.7

1,613 7,322 22,198 3,535 5,700 11,536 17,330 513 2,868 2.1 33.3 16.5 10.7 19.8

1,256 7,918 19,512 2,563 5,578 10,977 16,555 573 3,385 3.1 33.7 22.8 14.3 27.5

2,994 10,377 19,665 4,406 5,486 9,383 14,891 407 3,090 2.4 36.8 22.6 14.0 25.7

2,232 7,422 16,617 3,380 1,973 10,450 12,901 452 2,267 2.2 15.3 17.9 11.7 18.5

1,594 5,313 14,111 4,241 1.10 9,077 9,486 425 2,402 1.3 0.0 21.6 14.8 23.1

1,470 4,606 12,321 1,813 1,980 7,906 10,191 380 2,008 2.5 19.4 20.9 13.8 22.3

411 3,488 10,905 3,985 9.50 6,431 6,674 386 1,314 0.9 0.1 15.3 11.0 16.5

1,030 3,757 7,039 1,359 13.0 5,510 5,523 440 1,343 2.8 0.2 18.8 16.5 20.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 710 Medtronic Parkway, Minneapolis, MN 55432-5604. Telephone: 763-514-4000. Website: http://www.medtronic.com Chrmn & CEO: W.A. Hawkins, III

COO: H.J. Dallas SVP, CFO & Chief Acctg Officer: G.L. Ellis SVP & CSO: R. Kuntz SVP, Secy & General Counsel: D.C. Findlay

Investor Contact: J. Warren (763-505-2696) Board Members: R. H. Anderson, D. L. Calhoun, V. J. Dzau, W. A. Hawkins, III, S. A. Jackson, J. T. Lenehan, D. M. O'Leary, K. J. Powell, R. C. Pozen, J. Rosso, J. W. Schuler

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1957 Domicile: Minnesota Employees: 43,000

Stock Report | October 23, 2010 | NYS Symbol: WFR | WFR is in the S&P 500

MEMC Electronic Materials Inc S&P Recommendation HOLD

★★★★★

Price $12.56 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductor Equipment

12-Mo. Target Price $13.00

Investment Style Large-Cap Growth

Summary This company is a worldwide producer of silicon wafers used in semiconductors for microelectronic applications. It also provides silicon materials to the solar industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$16.99– 9.19 $-0.30 NM $6,382

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.41 0.84 30.6 227.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.856 Nil Nil 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.42 NM NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects WFR's exposure to the historical cyclicality of the semiconductor equipment industry and intense competition, partly offset by what we view as WFR's strong market position and size.

80

40

20

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0

C

B-

BB

B+

A-

A

Relative Strength Rank 5

5

4

2

A+ STRONG

72

5 3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Angelo Zino on October 05, 2010, when the stock traded at $ 12.13. Highlights ➤

➤

➤

We see sales rising 9% in 2011 following our forecast for a 71% increase in 2010. We project that sales will be driven by WFR's semiconductor materials segment, where we anticipate gains of 71% in 2010 and 8% in 2011. Within WFR's solar materials segment, we expect sales to increase 23% in 2010 and 11% in 2011, as we see robust volume partly offset by further pricing declines. Finally, we forecast about $276 million in sales for the SunEdison business during 2010 and $300 million in 2011. We project an annual gross margin of 26% in 2011, versus our outlook for a 21% margin in 2010. We do not see significant solar margin expansion until 2011, when WFR should benefit from manufacturing internal wafers. However, solar wafer pricing visibility is expected to remain limited. We forecast semiconductor margins to widen, on rising volume and selling prices. We expect operating expenses, excluding restructuring costs, to comprise 16% of sales in 2010 and 2011. We forecast EPS of $0.41 in 2010 and $0.84 in 2011, compared to a $0.30 loss in 2009. WFR has signed long-term solar agreements with Suntech, Gintech, Conergy and Tainergy.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We expect sales and margins to benefit from elevated semiconductor capacity utilization levels and healthy wafer starts. Given strong current demand for semiconductor wafers, we see prices increasing, which should aid margins. Although we continue to see solar pricing pressure, we expect the rate of decline to slow considerably. We look for polysilicon prices to drop to about $45/kg by the middle of 2011. We view positively WFR's solar vertical integration strategy and what we perceive as a strong balance sheet. We think WFR has been able to gain share and are encouraged by a rising SunEdison pipeline. We view WFR's financial position as superior to most peers.

➤

Risks to our recommendation and target price include faster expansion of industry capacity than we expect, changes in governmental policy related to alternative energy technology, a further slowdown in the global economy, and slower-than-expected growth.

➤

Our 12-month target price of $13 is based on a price/sales multiple of 1.3X our 2011 sales per share forecast of $9.49, above semiconductor and solar peers. However, this is below WFR's three and five year moving averages.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 437.7 448.3 2009 214.0 282.9 2008 501.4 531.4 2007 440.4 472.7 2006 341.6 370.5 2005 250.9 272.3

3Q -310.0 546.0 472.8 408.0 280.7

4Q -356.7 425.7 535.9 420.6 303.4

Year -1,164 2,005 1,922 1,541 1,107

Earnings Per Share ($) 2010 -0.04 0.06 2009 0.01 0.01 2008 -0.18 0.76 2007 0.58 0.70 2006 0.29 0.36 2005 0.25 0.18

E0.09 -0.29 0.80 0.65 0.40 0.45

E0.30 -0.03 0.33 1.62 0.56 0.22

E0.41 -0.30 1.71 3.56 1.61 1.10

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: WFR

MEMC Electronic Materials Inc Business Summary October 05, 2010 CORPORATE OVERVIEW. MEMC Electronic Materials, Inc. (WFR) is a global leader in the manufacture of silicon wafers. The company designs, manufactures and provides wafers and intermediate products for use in the semiconductor, solar and related industries. WFR operates manufacturing facilities in every major semiconductor manufacturing region, including Europe, Japan, Malaysia, South Korea, Taiwan, and the U.S. Its customers include virtually all of the world's major semiconductor device manufacturers, such as the major memory, microprocessor, and applications specific integrated circuit (ASIC) manufacturers, as well as the world's largest foundries. WFR's products include prime polish wafers, epitaxial wafers, test and monitor wafers, and silicon-on-insulator (SOI) wafers. WFR's prime wafer is a polished, highly refined, pure wafer with an ultraflat and ultraclean surface. The majority of these wafers are manufactured with a sophisticated chemicalmechanical polishing process that removes defects and leaves an extremely smooth surface. WFR's epitaxial, or epi, wafers consist of a thin silicon layer grown on the polished surface of the wafer. The epitaxial layer usually has different electrical properties from the underlying wafer, which provides customers with better isolation between circuit elements than a polished wafer, and the ability to tailor the wafer to the specific demands of the device.

conductor manufacturing lines and processes. Although test/monitor wafers are essentially the same as prime wafers with respect to cleanliness, it has some less rigorous requirements, allowing WFR to produce some of the test/ monitor wafers from the portion of the silicon ingot that does not meet customer specifications. A SOI wafer is a new type of starting material for the chip making process. SOI wafers have three layers: a thin surface layer of silicon where the transistors are formed, an underlying layer of insulating material, and a support bulk silicon wafer. Transistors built within the top silicon layer typically switch signals faster, run at lower voltages, and are much less vulnerable to signal noise from background cosmic ray particles. Through WFR's SunEdison business, the company is a leading solar energy installer in North America, and also provides financing services under longterm power purchase arrangements and feed-in tariff arrangements. Customers pay only for the electricity output generated by the solar system installed, avoiding the significant capital outlays usually associated with solar projects.

WFR supplies test/monitor wafers to customers for their use in testing semiCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.08 0.25 -0.30 -0.28 Nil Nil 21.36 11.32 NM NM

2008 9.27 2.15 1.71 1.68 Nil Nil 91.45 10.00 53 6

2007 8.98 3.90 3.56 3.57 Nil Nil 96.08 39.51 27 11

2006 5.23 1.91 1.61 1.62 Nil Nil 48.90 22.60 30 14

2005 3.21 1.35 1.10 1.06 Nil Nil 24.68 10.70 17 7

2004 2.13 1.22 1.02 0.96 Nil Nil 13.28 7.33 13 7

2003 0.94 0.68 0.53 0.49 Nil Nil 14.51 7.00 27 13

2002 NM 0.09 -0.17 -0.33 Nil Nil 11.50 2.25 NM NM

2001 NM -4.65 -7.51 -7.60 Nil Nil 11.90 1.05 NM NM

2000 4.61 1.86 -0.62 NA Nil Nil 24.25 6.25 NM NM

1,164 61.1 124 4.00 -112 37.7% -68.3 -61.8

2,005 969 103 2.60 590 33.4% 390 385

1,922 929 79.3 2.40 1,112 25.4% 826 827

1,541 629 70.3 2.43 590 36.4% 369 370

1,107 314 57.2 7.26 252 NM 249 240

1,028 304 44.1 13.5 175 NM 226 212

781 174 31.0 12.9 162 22.7% 117 108

687 114 34.2 73.4 20.8 NM -5.07 -41.9

618 -9.69 169 78.4 -259 NM -489 -529

872 161 173 78.8 -65.6 NM -43.4 NA

Balance Sheet & Other Financial Data (Million $) Cash 719 Current Assets 1,250 Total Assets 3,558 Current Liabilities 509 Long Term Debt 379 Common Equity 2,169 Total Capital 2,620 Capital Expenditures 253 Cash Flow 55.7 Current Ratio 2.5 % Long Term Debt of Capitalization 14.5 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,137 1,454 2,940 473 26.1 2,085 2,146 303 490 3.1 1.2 19.5 13.4 19.0

1,316 1,590 2,887 444 25.6 2,035 2,096 276 906 3.6 1.2 43.0 35.5 51.6

528 900 1,766 258 29.4 1,167 1,235 148 440 3.5 2.4 24.0 25.3 39.3

126 436 1,148 225 34.8 711 791 163 307 1.9 4.4 22.5 22.9 43.2

92.3 390 1,010 216 116 443 605 150 270 1.8 19.2 22.0 26.0 71.1

96.9 365 727 244 59.3 194 317 85.2 148 1.5 18.7 14.9 17.2 138.1

166 364 632 286 161 -24.7 194 22.0 12.1 1.3 82.9 NM NM NM

107 264 549 222 145 -9.74 186 7.00 -324 1.2 77.8 NM NM NM

94.8 410 1,891 324 943 366 1,384 57.8 130 1.3 68.1 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 501 Pearl Drive, St. Peters, MO 63376. Telephone: 636-474-5000. Email: [email protected] Website: http://www.memc.com

Chrmn: J.W. Marren Pres & CEO: A.R. Chatila SVP & CFO: T.C. Oliver Chief Acctg Officer: D. McCarthy

Secy & General Counsel: B.D. Kohn Investor Contact: B. Michalek (636-474-5443) Board Members: P. Blackmore, R. J. Boehlke, A. R. Chatila, E. Hernandez, J. W. Marren, C. D. Marsh, M. McNamara, W. E. Stevens, M. Turner, Jr., J. B. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1984 Domicile: Delaware Employees: 5,143

Stock Report | October 23, 2010 | NYS Symbol: MRK | MRK is in the S&P 500

Merck & Co Inc.

★★★★★

S&P Recommendation BUY

Price $37.10 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $42.00

Investment Style Large-Cap Blend

Summary This company, one of the world's largest drugmakers, acquired Schering-Plough in November 2009 for about $41 billion in cash and stock.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $41.56– 30.29 Trailing 12-Month EPS $3.92 Trailing 12-Month P/E 9.5 $10K Invested 5 Yrs Ago $17,504

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.38 3.80 11.0 3,073.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$114.030 4.10 $1.52 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.73 8 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects challenges to branded patents, new drug development, and regulatory risks. In addition, MRK's Vytorin/Zetia franchise has been affected by disappointing clinical trial results. However, we see significant synergies accruing from the recent acquisition of Schering-Plough. We also think MRK has one of the stronger R&D pipelines in the sector.

60

40 30

20 Vol. 245

Mil. 120 80 40 0 5

Quantitative Evaluations

243

S&P Quality Ranking D

5

4

3

2

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE

48

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

We project revenues of about $46 billion in 2010, up from 2009's $27.4 billion, with the increase reflecting the full-year inclusion of Schering-Plough (acquired in early November 2009). In our opinion, key established Merck drivers should be Singulair, Januvia/Janumet, and viral vaccines. Among Schering's products, we see gains in Nasonex and Remicade. We project relatively flat sales of Vytorin and Zetia cholesterol drugs, reflecting lingering effects of past disappointing clinical data. Sales of Cozaar/Hyzaar should decline sharply due to generic erosion, in our view. We forecast that gross margins will narrow slightly in 2010, partly reflecting the inclusion of Schering's relatively low-margin animal health and consumer products lines. The SG&A cost ratios will likely decline, helped by merger synergies and other cost-streamlining measures, but we believe that interest expense will rise sharply.

Investment Rationale/Risk ➤

➤

➤ ➤

After a projected adjusted tax rate of about 23%, versus 2009's 20%, we estimate 2010 nonGAAP EPS of $3.38, up from 2009's $3.25. We see further EPS progress to $3.80 in 2011.

HIGHEST = 99

2010

Analysis prepared by Herman B. Saftlas on August 04, 2010, when the stock traded at $ 35.01. Highlights

A+

4

3

We view the November 2009 acquisition of drugmaker Schering-Plough for $41 billion in cash and stock as a major transforming event for Merck. In our opinion, this has significantly expanded and diversified Merck's revenue base ahead of impending patent expirations on Cozaar/Hyzaar and Singulair. The deal should also provide annual cost synergies of close to $3.5 billion, which should be fully realized by the end of 2012. The acquisition also beefed up Merck's R&D pipeline, which consists of over 60 projects in Phase II, Phase III and regulatory review. Key opportunities, in our opinion, include Tredaptive for atherosclerosis, and Simponi for autoimmune diseases. Risks to our opinion and target price include failure to successfully integrate ScheringPlough, uncertainties with respect to Remicade/Simponi litigation with Johnson & Johnson, and possible pipeline setbacks. Our 12-month target price of $42 applies a modest premium-to-peers P/E of 11.1X our $3.80 operating EPS estimate for 2011. The dividend, which we think may be raised over the next 12 months, recently yielded 4.3%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 11,422 11,346 2009 5,385 5,900 2008 5,822 6,052 2007 5,769 6,111 2006 5,410 5,772 2005 5,362 5,468

3Q -6,050 5,944 6,074 5,410 5,416

4Q -10,094 6,032 6,243 6,044 5,766

Year -27,428 23,850 24,198 22,636 22,012

Earnings Per Share ($) 2010 0.10 0.24 2009 0.67 0.74 2008 1.52 0.82 2007 0.78 0.77 2006 0.69 0.69 2005 0.62 0.33

E0.83 1.61 0.51 0.70 0.43 0.65

E0.86 2.35 0.78 -0.74 0.22 0.51

E3.38 5.65 3.64 1.49 2.03 2.10

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.380 0.380 0.380 0.380

11/24 02/23 05/26 07/27

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

01/08/10 04/07/10 07/08/10 10/07/10

Dividends have been paid since 1935. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MRK

Merck & Co Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. Merck & Co. is a leading global drugmaker, producing a wide range of prescription drugs in many therapeutic classes in the U.S. and abroad. Foreign operations accounted for 47% of total pharmaceutical and vaccine sales in 2009. In early November 2009, MRK acquired rival drugmaker Schering-Plough for about $41 billion in cash and stock. Schering earned $2.5 billion from operations on sales of $13.5 billion in the first three quarters of 2009. MRK's largest-selling products include Singulair (sales of $4.7 billion in 2009), a treatment for asthma and seasonal allergic rhinitis; Cozaar/Hyzaar ($3.6 billion), treatments for high blood pressure and congestive heart failure; Fosamax ($1.1 billion), a drug for osteoporosis (a bone-thinning disease that affects postmenopausal women); and Januvia/Janumet ($2.5 billion), treatments for type 2 diabetes.

rubella and chicken pox; Gardasil ($1.1 billion) for human papillomavirus, the main cause of cervical cancer; and, RotaTeq for rotavirus. With the purchase of Schering-Plough, Merck gained total rights to Zetia -- a cholesterol therapy that works by blocking cholesterol absorption in the intestines -- as well as Vytorin, a combination pill containing both Zocor and Zetia. In 2009, Vytorin had sales of $1.7 billion ($2.4 billion in 2008), and Zetia had sales of $1.8 billion ($2.3 billion in 2008). OTC medications are offered through a venture with Johnson & Johnson. Through a venture with AstraZeneca, Merck books sales of Nexium and other drugs. In March 2010, MRK and Sanofi-Aventis announced plans to combine their animal health businesses into a new joint venture, with annual sales projected at over $5 billion.

Merck is also a leading maker of vaccines, which accounted for 13% of total sales in 2009. Key vaccines include ProQuad ($1.4 billion) for measles, mumps, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.97 6.65 5.65 2.61 1.52 27% 38.42 20.05 7 4

2008 7.97 4.30 3.64 2.78 1.52 42% 61.18 22.82 17 6

2007 11.76 2.19 1.49 2.85 1.52 102% 61.62 42.35 41 28

2006 7.00 3.06 2.03 2.28 1.52 75% 46.37 31.81 23 16

2005 7.48 2.88 2.10 2.09 1.52 72% 35.36 25.50 17 12

2004 7.03 3.29 2.61 2.56 1.49 57% 49.33 25.60 19 10

2003 6.13 3.51 2.92 2.71 1.45 50% 63.50 40.57 22 14

2002 4.88 3.79 3.14 2.81 1.41 45% 64.50 38.50 21 12

2001 3.77 3.77 3.14 2.87 1.37 44% 95.25 56.80 30 18

2000 3.23 3.44 2.90 NA 1.26 43% 96.69 52.00 33 18

27,428 7,081 2,227 458 15,292 14.8% 12,901 5,936

23,850 7,854 1,415 251 9,808 20.4% 7,808 5,958

24,198 7,779 1,528 384 3,492 2.73% 3,275 6,255

22,636 5,955 2,268 375 6,342 28.2% 4,434 4,973

22,012 7,567 1,708 386 7,486 36.5% 4,631 4,582

22,939 8,074 1,451 294 8,129 26.6% 5,813 5,699

22,486 9,912 1,314 351 9,220 26.7% 6,590 6,089

51,790 11,361 1,488 391 10,428 29.3% 7,150 6,395

47,716 11,192 1,464 465 10,693 29.2% 7,282 6,649

40,363 10,686 1,277 484 10,133 29.6% 6,822 NA

Balance Sheet & Other Financial Data (Million $) Cash 9,605 Current Assets 28,429 Total Assets 112,090 Current Liabilities 15,751 Long Term Debt 16,075 Common Equity 59,058 Total Capital 78,316 Capital Expenditures 1,461 Cash Flow 15,127 Current Ratio 1.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 47.0 % Return on Assets NA % Return on Equity NA

5,486 19,305 47,196 14,319 3,943 18,758 25,118 1,298 9,223 1.4 15.5 32.7 16.3 42.3

8,231 15,045 48,351 12,258 3,916 18,185 24,903 1,011 4,803 1.2 15.7 13.5 7.1 18.3

5,915 15,230 44,570 12,723 5,551 17,560 25,517 980 6,702 1.2 21.8 19.6 9.9 25.0

9,585 21,049 44,846 13,304 5,126 17,917 25,449 1,403 6,339 1.6 20.1 21.0 10.6 26.3

2,879 13,475 42,573 11,744 4,692 17,288 24,387 1,726 7,264 1.1 19.2 25.3 14.0 35.4

1,201 11,527 40,588 9,570 5,096 15,576 24,588 1,916 7,904 1.2 20.7 29.3 15.0 39.0

2,243 14,834 47,561 12,375 4,879 18,200 28,008 2,370 8,638 1.2 17.4 13.8 15.6 41.7

2,144 12,962 44,007 11,544 4,799 16,050 25,686 2,725 8,746 1.1 18.7 15.3 17.3 47.2

2,537 13,353 39,910 9,710 3,601 14,832 23,454 2,728 8,099 1.4 15.4 16.9 18.1 48.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Merck Drive, PO Box 100, Whitehouse Station, NJ 08889-0100. Telephone: 908-423-1000. Website: http://www.merck.com Chrmn & CEO: R.T. Clark

Pres: K.C. Frazier EVP & CFO: P.N. Kellogg EVP & General Counsel: B.N. Kuhlik EVP & CIO: J.C. Scalet

Investor Contact: G. Bell (908-423-5185) Founded: 1891 Board Members: L. A. Brun, T. R. Cech, R. T. Clark, T. H. Domicile: New Jersey Glocer, S. F. Goldstone, W. B. Harrison, Jr., H. R. Employees: 100,000 Jacobson, W. N. Kelley, C. R. Kidder, R. B. Lazarus, C. E. Represas, P. F. Russo, T. Shenk, A. M. Tatlock, C. B. Thompson, W. P. Weeks, P. C. Wendell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MDP | MDP is in the S&P 500

Meredith Corp S&P Recommendation BUY

★★★★★

Price $35.00 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Publishing

12-Mo. Target Price $37.00

Investment Style Large-Cap Growth

Summary This company derives its earnings mainly from magazine publishing (primarily Better Homes and Gardens and Ladies' Home Journal) and ownership of 12 TV stations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.08– 25.83 Trailing 12-Month EPS $2.28 Trailing 12-Month P/E 15.4 $10K Invested 5 Yrs Ago $8,130

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.61 2.80 13.4 45.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.272 2.63 $0.92 NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.65 12 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects a highly competitive environment for advertising among publishers and other media, offset by incremental growth opportunities we see in brand licensing and integrated marketing.

60

30 20

Quantitative Evaluations 10

S&P Quality Ranking

Vol. Mil.

D

6 4 2 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 69

4

3

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE

Analysis prepared by Joseph Agnese on August 09, 2010, when the stock traded at $ 32.66. Highlights ➤

➤

➤

Advertising revenues increased 7.5% in the second half of FY 10 (Jun.), following declines in the first half, due to an improved economic environment and easier comparisons. Despite the closing of magazines, circulation revenues increased more than 1.5% in the fourth quarter, reflecting increased newsstand prices. We project total revenues will rise 4.0%, to $1.443 billion, in FY 11, from $1.388 billion in FY 10, reflecting low single digit growth in circulation, $25 to $30 million in net political advertising revenues, improvement in non-political advertising demand, and growth in retransmission fees and in revenues from MDP's highly profitable brand licensing, video production and integrated marketing businesses. We see operating margin expansion in FY 11 due to improved sales leverage following stabilization of publishing and broadcasting advertising revenues and continued expense reductions. However, we believe margin benefits will be partially offset by less favorable raw material prices and increased pension expense. We see operating EPS rising 11%, to $2.62, in FY 11, from operating EPS of $2.25 in FY 10 (excluding one-time tax benefits).

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We expect MDP to continue to supplement organic growth with selective acquisitions. We also believe recent licensing deals demonstrate the company's ability to leverage its strong brands into incremental and profitable revenue streams. In addition, we see incremental revenue growth opportunities for MDP in its noncore advertising categories. However, our optimism is tempered by a difficult economic environment with poor visibility. Risks to our opinion and target price include a slower-than-expected increase in advertising spending. We also are concerned about MDP's corporate governance, as we do not believe policies such as a dual class voting structure are in the best interests of common shareholders. We believe MDP, with a more conservative debt/EBITDA ratio than peers in an unstable economic environment, should trade at a premium to the peer average enterprise value (EV)/ EBITDA multiple of 6.6X. Applying a 7.6X ratio, representing a 15% premium to peers EV/ EBITDA ratio, to our forward 12-month EBITDA estimate of $253 million yields our 12-month target price of $37.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 332.4 336.9 2009 370.1 361.3 2008 404.1 396.3 2007 386.4 399.4 2006 390.3 386.0 2005 288.9 294.6

3Q 353.3 337.6 401.0 337.6 394.9 305.5

4Q 365.1 345.9 385.2 428.5 426.4 332.4

Year 1,388 1,409 1,587 1,616 1,598 1,221

Earnings Per Share ($) 2010 0.40 0.42 2009 0.42 0.39 2008 0.68 0.73 2007 0.62 0.73 2006 0.52 0.58 2005 0.46 0.52

0.73 0.55 0.98 1.08 0.97 0.69

0.73 -3.64 0.41 1.01 0.97 0.83

2.28 -2.28 2.82 3.44 2.86 2.50

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.225 0.230 0.230 0.230

11/05 02/01 05/13 08/12

11/25 02/24 05/26 08/27

11/30 02/26 05/28 08/31

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1930. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MDP

Meredith Corp Business Summary August 09, 2010 CORPORATE OVERVIEW. Meredith Corp. is a diversified media and marketing company with operations in publishing (80% of FY 10 (Jun.) revenues) and broadcasting (20%). Advertising accounted for about 56% of total revenues, followed by magazine circulation (20%) and other (23%). The national media group focuses on the home and family market. Meredith has more than 25 subscription-based magazines, including Better Homes and Gardens, Family Circle, Ladies' Home Journal and approximately 135 special interest publications. The segment also includes book publishing, integrated marketing, a large consumer database, 30 websites, brand licensing and other related activities. Books are published under the Better Homes and Gardens trademark and under licensed trademarks such as The Home Depot books. Meredith Integrated Marketing offers integrated promotional, database management, relationship and direct marketing capabilities for corporate customers. In April 2006, Meredith acquired O'Grady Meyers (OGM), an interactive marketing services agency that specializes in online customer relationship marketing. Overall FY 10 publishing segment revenues were derived from

advertising (48%), circulation (26%) and other (27%). The local media group consists of 12 network-affiliated TV stations, one AM radio station, related interactive media operations, and video related operations. Broadcasting affiliations consist of CBS (six stations), FOX (three), MyNetwork TV (two), and NBC (one). The segment also includes 28 websites and video related operations. Local and national advertising contributed approximately 94% of segment revenues in FY 09, and the company reports that 30% to 40% of a market's television ad revenues are generated by local news on major network-affiliated stations. The other 6% of revenues comes primarily from broadcast retransmission fees. The company negotiated a 20% increase in retransmission fees for FY 10 when most of its retransmission agreements expired at the end of FY 09.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 3.18 2.28 2.28 0.91 40% 38.08 28.92 17 13

2009 NM -1.33 -2.28 1.85 0.88 NM 33.17 10.60 NM NM

2008 NM 3.85 2.82 2.69 0.80 28% 55.08 12.06 20 4

2007 NM 4.94 3.44 3.48 0.69 20% 63.41 48.15 18 14

2006 NM 3.76 2.86 2.84 0.60 20% 57.29 45.04 20 16

2005 NM 3.19 2.50 2.49 0.52 21% 54.33 44.51 22 18

2004 NM 2.82 2.14 2.01 0.43 20% 55.94 48.24 26 23

2003 NM 2.40 1.78 1.64 0.37 22% 50.32 47.09 28 26

2002 NM 3.64 1.79 0.92 0.35 20% 47.75 33.42 27 19

2001 NM 2.39 1.39 0.92 0.33 24% 38.97 26.50 28 19

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,388 230 40.9 18.6 164 NA 104 104

1,409 202 42.6 20.8 -155 NM -103 83.4

1,587 317 49.2 22.4 220 39.1% 134 128

1,616 365 73.8 27.2 263 35.7% 169 171

1,598 312 45.7 30.2 237 39.0% 145 144

1,221 263 35.3 Nil 209 38.7% 128 127

1,162 238 35.2 22.7 181 38.7% 111 104

1,080 209 31.4 27.8 149 38.7% 91.1 83.5

988 212 93.8 33.2 149 38.7% 91.4 46.8

1,053 204 51.6 32.9 116 38.7% 71.3 47.6

Balance Sheet & Other Financial Data (Million $) Cash 48.6 Current Assets 381 Total Assets 1,727 Current Liabilities 438 Long Term Debt 250 Common Equity 688 Total Capital 988 Capital Expenditures 24.7 Cash Flow 145 Current Ratio 0.9 % Long Term Debt of Capitalization 25.3 % Net Income of Revenue 7.5 % Return on Assets 6.1 % Return on Equity 16.0

27.9 340 1,669 349 380 609 1,053 23.5 -59.9 1.0 36.1 NM NM NM

37.6 403 2,060 443 410 788 1,337 29.6 183 0.9 30.7 8.5 6.5 16.6

39.2 453 2,090 487 375 833 1,375 42.6 243 0.9 27.3 10.4 8.2 22.1

30.7 432 2,041 464 515 698 1,338 29.2 190 0.9 38.5 9.1 8.2 21.5

29.8 304 1,491 439 125 652 871 23.8 163 0.7 14.4 10.5 8.7 20.3

58.7 314 1,466 371 225 589 912 24.5 146 0.8 24.7 9.5 7.6 20.4

22.3 268 1,437 297 375 501 948 26.6 123 0.9 39.6 8.4 6.3 18.1

28.2 272 1,460 307 385 508 985 23.4 185 0.9 39.1 9.3 6.3 19.1

36.3 291 1,438 371 400 448 907 56.0 123 0.8 44.1 6.8 5.0 16.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1716 Locust Street, Des Moines, IA 50309-3023. Telephone: 515-284-3000. Website: http://www.meredith.com Chrmn, Pres & CEO: S.M. Lacy

Vice Chrmn: D.M. Frazier CFO & Chief Acctg Officer: J.H. Ceryanec Secy & General Counsel: J.S. Zieser Investor Contact: S.V. Radia (515-284-3357)

Board Members: M. S. Coleman, J. R. Craigie, A. H. Founded: 1902 Drewes, D. M. Frazier, F. B. Henry, J. W. Johnson, S. M. Domicile: Iowa Lacy, P. A. Marineau, E. E. Tallett Employees: 3,225

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MET | MET is in the S&P 500

Metlife Inc. S&P Recommendation BUY

★★★★★

Price $40.34 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $51.00

Investment Style Large-Cap Blend

Summary This company is a leading publicly traded diversified U.S. life insurance and financial services concern.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.75– 32.16 Trailing 12-Month EPS $2.39 Trailing 12-Month P/E 16.9 $10K Invested 5 Yrs Ago $9,089

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.53 5.50 8.9 820.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$33.097 1.83 $0.74 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.88 25 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's consistent earnings growth, strong brand identity, diversified product offerings, and geographic footprint, offset by the potential for further losses in its investment portfolio and vulnerability to declines in the equity markets.

80 60 40

20

Quantitative Evaluations Vol. 146

Mil. 60 40 20 0

S&P Quality Ranking

142

B+

120

D

C

B-

B

B+

A-

A

Relative Strength Rank

5

5

3

4

A+

MODERATE

43 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Bret Howlett on August 04, 2010, when the stock traded at $ 41.68. Highlights ➤

➤

➤

We see operating earnings increasing approximately 50% in the U.S. business in 2010 on favorable underwriting, higher investment income, lower expenses and increased fee income. We expect the segment's results to be driven by strong dental, group life, term life and variable annuities sales. We forecast robust earnings growth in Retirement due to strong premium growth, solid flows across most products and increased account values. We project double-digit earnings growth in Corporate Benefits as MET gains market share in structured settlements and pension closeouts. We believe variable income should boost revenue growth substantially in 2010 as income from hedge funds and real estate JVs picks up. We forecast that International operating earnings will increase roughly 10% on growth in Latin America. We anticipate Metlife Bank's earnings being down sharply on lower mortgage refinancing activity. In Auto & Home, we belive earnings will decline 12% to 14% on a worsening of the combined ratio. We forecast operating EPS of $4.53 in 2010 and $5.50 in 2011. Our estimates exclude realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

We believe MET is well positioned to capture market share given its strong capital position, scale, diverse businesses, distribution capabilities, and global reach. We believe the acquisition of Alico will significantly boost MET's International earnings and increase the company's exposure to faster growing and more profitable markets in 2011. We expect credit impairment to trend down, and we believe MET holds enough excess capital to absorb future investment losses. We believe MET is poised to generate 12% to 13% ROE in 2011 from higher new business returns, investment income growth, and a higher earnings contribution from its International segment. We expect earnings growth to be fueled by expense reduction initiatives, strong net flows in many businesses, and better investment spreads. Risks to our recommendation and target price include credit and interest rate risk; a decline in the equity markets; the potential need for additional capital; and exposure to asbestos-related liability claims. Our 12-month target price of $51 is about 1.1X our 2010 book value per share (Ex- FAS 115) projection, below MET's historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 13,190 14,246 2009 10,216 8,266 2008 13,027 13,715 2007 12,908 13,216 2006 11,565 11,387 2005 10,257 10,961

3Q -10,238 13,378 13,053 12,551 12,012

4Q -12,341 13,962 13,830 12,893 11,546

Year -41,058 50,989 53,007 48,396 44,776

Earnings Per Share ($) 2010 0.98 1.83 2009 -0.75 -1.74 2008 0.84 1.26 2007 1.29 1.47 2006 0.92 0.74 2005 1.08 1.36

E1.14 -0.79 1.42 1.25 1.19 0.96

E1.15 0.35 1.15 1.44 1.00 0.77

E4.53 -2.94 4.55 5.44 3.85 4.16

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.740

10/29

11/05

11/09

12/14/09

Dividends have been paid since 2000. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MET

Metlife Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. MetLife (MET) is one of the largest insurance and financial services companies in the U.S. The company benefits from a strong brand, a solid financial position, and a large distribution network, in our view. At the end of 2009, the MetLife distribution channel had 5,762 agents under contract in 82 agencies. According to the American Council of Life Insurers, MetLife was the largest life insurer in 2008, based on total assets. The company ranked fourth in total net life insurance premiums. As of February 2007, MetLife had access to over 71% of the world's life insurance markets, up from 36% in 2004. Formerly a mutual insurance company, MetLife demutualized and issued publicly traded stock in April 2000. In the fourth quarter of 2009, MET realigned its U.S. Business segment. MET's U.S. Business now consists of Insurance Products, Retirement Products, Corporate Benefit Funding, and Auto & Home. Other segments include International Business, and Banking, Corporate & Other. MET's U.S. Business accounted for 83.5% of operating earnings in 2009, and the International Business segment acounted for 16.5% Corporate and other activities, including MetLife Bank operations, reported a loss of $450 million for the year.

MET focusing on building relationships and investing in growth and upgrading systems. We expect investments in Japan, Brazil, China, Hong Kong and India to add to EPS in 2010 and 2011. IMPACT OF MAJOR DEVELOPMENTS. In February 2010, MET said it was in talks with American International Group (AIG 36, Hold) to purchase its subsidiary American Life Insurance Company (ALICO). On March 8, 2010, MET said it had reached an agreement with AIG to purchase ALICO for roughly $15.5 billion. MET will pay AIG $6.8 billion in cash and issue $8.7 billion in stock for the unit. The transaction is expected to close at the end of 2010. In 2009, ALICO's after-tax operating income was $1.5 billion, and we believe the unit's earnings would increase roughly 25% under the MET umbrella. We believe ALICO would add $0.45-$0.50 to MET's 2011 EPS. We view the deal positively for MET, as it would increase the company's footprint in faster growing insurance markets, especially in Japan. The planned acquisition would triple the size of MET's International segment.

CORPORATE STRATEGY. MET's international strategy is to establish meaningful positions in growing markets that can provide attractive margins. We see Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 52.73 NA -2.94 3.44 0.74 NM 41.45 11.37 NM NM

2008 19.54 NA 4.55 2.42 0.74 16% 65.50 15.72 14 3

2007 34.79 NA 5.44 5.91 0.74 14% 71.23 58.48 13 11

2006 35.64 NA 3.85 5.01 0.59 15% 60.00 48.00 16 12

2005 32.06 NA 4.16 4.12 0.52 13% 52.57 37.29 13 9

2004 31.16 NA 3.59 3.41 0.46 13% 41.27 32.30 11 9

2003 27.94 NA 2.57 2.87 0.23 9% 34.14 23.51 13 9

2002 24.83 NA 1.58 2.06 0.21 13% 34.85 20.60 22 13

2001 22.43 NA 0.62 0.91 0.20 32% 36.63 24.70 59 40

2000 21.53 NA 1.49 NA 0.20 13% 36.50 14.25 24 10

4,540,576 17,001 6,546 14,838 41,058 -4,333 NA -2,286 2,813

4,382,280 16,410 6,523 NA 50,989 5,090 NA 3,510 1,811

6,135,797 19,254 5,666 19,006 53,007 6,279 NA 4,280 4,495

5,707,215 18,368 4,991 17,192 49,746 4,221 NA 3,105 3,867

5,125,427 17,399 4,489 14,910 44,869 4,399 NA 3,139 3,123

4,346,898 15,341 4,016 12,418 39,014 3,779 NA 2,708 2,574

3,875,110 14,065 3,537 11,636 36,147 2,630 NA 1,943 2,144

2,679,870 13,070 3,052 11,329 33,147 1,671 NA 1,155 1,512

2,419,341 11,611 2,744 11,923 31,928 739 NA 473 697

2,572,261 11,224 2,377 11,768 31,947 1,416 NA 953 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 13,285 Premiums Due 16,752 Investment Assets:Bonds 227,642 Investment Assets:Stocks 3,084 Investment Assets:Loans 60,970 Investment Assets:Total 327,567 Deferred Policy Costs 19,256 Total Assets 539,314 Debt 21,708 Common Equity 33,120 % Return on Revenue NM % Return on Assets NM % Return on Equity NM % Investment Yield 4.7

27,268 16,973 188,251 3,197 61,166 298,311 20,144 501,678 18,617 23,733 6.9 0.7 11.9 5.3

13,998 14,607 242,242 6,829 57,449 334,734 21,521 558,562 19,834 35,178 8.1 0.8 12.0 5.8

10,454 14,490 243,428 5,890 52,467 324,689 20,851 527,715 13,759 33,797 6.2 0.6 9.4 5.5

7,054 12,186 230,050 4,163 47,170 301,709 19,641 481,645 12,022 29,100 7.0 0.7 11.8 5.6

6,389 6,696 176,763 2,188 41,305 234,985 14,336 356,808 5,944 22,824 6.9 0.8 12.3 6.8

5,919 7,047 167,752 1,598 34,998 218,099 12,943 326,841 5,703 21,149 5.4 0.6 10.1 5.7

4,411 7,669 140,553 1,348 33,666 188,335 11,727 277,385 5,690 17,385 3.5 0.4 6.9 6.5

9,535 6,437 115,398 3,063 31,893 162,222 11,167 256,898 4,884 16,062 1.5 0.2 2.9 7.5

5,484 8,343 112,979 2,193 30,109 156,527 10,618 255,018 3,516 16,389 3.0 0.4 6.3 8.0

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 Park Ave, New York, NY 10166-0188. Telephone: 212-578-2211. Website: http://www.metlife.com Chrmn, Pres & CEO: C.R. Henrikson

COO & CTO: M.R. Morris EVP & CFO: W.J. Wheeler EVP & Chief Admin Officer: R.A. Fattori EVP & Chief Acctg Officer: P.M. Carlson

Board Members: S. M. Burwell, E. Castro-Wright, C. W. Founded: 1999 Grise, C. R. Henrikson, R. G. Hubbard, J. M. Keane, A. F. Domicile: Delaware Kelly, Jr., J. M. Kilts, C. R. Kinney, H. B. Price, D. Employees: 54,000 Satcher, K. J. Sicchitano, L. C. Wang

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PCS | PCS is in the S&P 500

MetroPCS Communications Inc S&P Recommendation STRONG BUY

★★★★★

Price $10.61 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Wireless Telecommunication Services

12-Mo. Target Price $15.00

Investment Style Large-Cap Blend

Summary This company provides wireless services primarily to the youth and minority markets under the brand name MetroPCS.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$11.24– 5.52 $0.59 18.0 NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.79 1.05 13.4 353.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.755 Nil Nil 63

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.62 14 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the competitive nature of the wireless market and the company's focus on the prepaid market, partly offset by our view of its relatively strong balance sheet.

40

20

10

Quantitative Evaluations S&P Quality Ranking

5 Vol.

D

Mil.

C

B-

NR B

B+

A-

A

A+

125

45 30 15 0

Relative Strength Rank

STRONG 73

5

4

3

LOWEST = 1

5

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by James Moorman, CFA on August 19, 2010, when the stock traded at $ 8.80. Highlights ➤

We estimate subscriber revenue increases of 16.8% for 2010 and 12.2% for 2011, following a 28% advance in 2009, with growth driven by new, simplified pricing plans and further penetration of recently launched markets, such as Las Vegas (late March 2008), Philadelphia (July 1, 2008), Boston (February 4, 2009) and New York (February 4, 2009). We also believe that its early adoption of LTE (Long Term Evolution), a new radio platform technology, could further spur growth. However, we are concerned that adverse economic conditions could pressure net additions, and new rate plans could pressure average revenue per user (ARPU) in 2010.

Investment Rationale/Risk ➤

➤ ➤

We see EBITDA margins on service revenue expanding to 33.2% in 2010, from 30.5% in 2009, and to 34.4% in 2011. We expect continued solid subscriber growth and a decline in churn to benefit EBITDA margins.

➤

We estimate higher depreciation charges for 2010 stemming from PCS's market launches. We see EPS of $0.79 in 2010 and $1.05 in 2011, following operating EPS of $0.49 in 2009.

➤

Our buy opinion reflects our outlook for 16% EBITDA growth in 2011, despite a competitive wireless industry. We believe that the implementation of their Wireless for All plans have contributed to a significant reduction in churn and solid subscriber growth. We expect further consolidation in the prepaid space that will eventually take pressure off of the competitive pricing. Additionally, we believe that PCS's early move into 4G with LTE could bring it an early adopter advantage and make it a potential takeout candidate. We consider PCS shares very attractive at current levels. Risks to our recommendation and target price include weaker-than-expected net customer growth, higher-than-expected churn, pressure on EBITDA margins, and debt issuance. Further, increased or prolonged pricing pressure could cause margins to deteriorate. Our 12-month target price of $15 is derived from an enterprise value-to-EBITDA multiple of 5.5X projected 2011 results, in line with the peer average. We expect the shares to be volatile.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 970.5 1,013 2009 795.3 859.6 2008 662.4 678.8 2007 536.7 551.2 2006 329.5 368.2 2005 236.0 250.7

3Q -895.6 686.7 556.7 396.1 263.6

4Q -930.0 723.6 591.1 453.1 288.2

Year -3,481 2,752 2,236 1,547 1,038

Earnings Per Share ($) 2010 0.06 0.22 2009 0.12 0.07 2008 0.11 0.14 2007 0.11 0.17 2006 0.04 0.06 2005 0.26 0.47

E0.29 0.21 0.13 0.15 0.08 0.03

E0.20 0.09 0.04 -0.10 -0.08 0.05

E0.79 0.50 0.42 0.28 0.18 0.62

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: PCS

MetroPCS Communications Inc Business Summary August 19, 2010 CORPORATE OVERVIEW. Metro PCS offers digital wireless services in the U.S. under the MetroPCS brand. The company's services are based on the Code Division Multiple Access (CDMA 1xRTT) technology. PCS offers unlimited service for a flat rate to customer segments that we believe are underserved by traditional wireless carriers. The company sells handsets that are equipped with color screens, camera phones and other features to facilitate digital data transmission. In the second quarter of 2010, equipment sales accounted for 9% of total revenues, while service revenues contributed 91%. PCS provided services to roughly 7.6 million subscribers at the end of the second quarter of 2010, up from 6.3 million a year earlier. In the second half of 2006, the company won eight licenses costing a total of $1.4 billion in Auction 66, the Advanced Wireless Services auction, covering roughly 126 million potential customers, including areas where PCS already provides service. The company expanded its coverage with launches in New York, Philadelphia, Boston and Las Vegas, and plans to build out these markets to cover 40 million POPs in 2010. In March 2008, PCS participated in the 700 MHz spectrum auction and won a license covering the Boston market for roughly $360 million.

Wireless (LEAP 11, Hold), a regional prepaid wireless carrier. The terms of the deal, equal to 2.75 shares of PCS for every LEAP share, originally valued LEAP at $5.5 billion, or $75 a share. In November 2007, PCS withdrew its offer. In September 2008, PCS and LEAP announced a national roaming agreement and spectrum swap. As part of the agreement, both companies also settled all outstanding litigation. We believe that consolidation in the competitive prepaid market will continue throughout 2010 and into 2011. PRIMARY BUSINESS DYNAMICS. In the second quarter of 2010, PCS added 303,009 net subscribers, and had a monthly churn rate of 3.3% and average revenue per user (ARPU) of $39.84, down 1.7% from a year earlier. In the second and third quarters of any given year, PCS's churn rate tends to increase and customer growth slows, but this is likely to be more pronounced in 2010 due to economic issues, including less disposable income. The company's customer profile is skewed toward first-time users, with roughly 55% of its customers fitting into that category. About 90% of its subscribers use their wireless phone as their primary phone service.

In September 2007, PCS announced a stock-based offer to merge with Leap Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.57 0.50 0.49 Nil Nil 18.98 5.65 38 11

2008 NM 1.14 0.42 0.51 Nil Nil 21.86 10.23 52 24

2007 NM 0.91 0.28 0.47 Nil Nil 40.87 13.77 NM NM

2006 NM 0.54 0.18 0.18 NA NA NA NA NA NA

2005 NA 1.72 0.62 0.17 NA NA NA NA NA NA

2004 NA 0.82 0.33 NA NA NA NA NA NA NA

2003 NA 0.30 0.01 NA NA NA NA NA NA NA

2002 NA 1.37 0.57 NA NA NA NA NA NA NA

2001 NA -0.46 -0.48 NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

3,481 NA 383 270 264 32.9% 177 175

2,752 742 255 179 279 46.5% 149 182

2,236 639 178 202 224 55.1% 100 164

1,547 381 135 116 90.5 40.6% 53.8 59.5

1,038 292 87.9 58.0 326 39.1% 199 55.2

748 193 62.2 19.0 112 42.0% 64.9 NA

451 84.0 42.4 11.1 31.7 51.1% 15.5 NA

129 -95.9 21.5 6.72 156 16.4% 130 NA

NA NA 0.21 10.5 -45.2 NA -45.2 NA

NA NA NA 16.1 -20.6 NA -20.6 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,154 Current Assets 1,491 Total Assets 7,386 Current Liabilities 797 Long Term Debt 3,626 Common Equity 2,288 Total Capital 5,761 Capital Expenditures 865 Cash Flow 560 Current Ratio 1.9 % Long Term Debt of Capitalization 61.1 % Net Income of Revenue 5.1 % Return on Assets 2.6 % Return on Equity 8.2

698 1,044 6,422 742 3,058 2,034 5,116 955 405 1.4 59.8 5.4 2.4 7.7

1,470 1,733 5,806 580 2,986 1,849 5,130 768 271 3.0 58.2 4.5 2.0 8.2

1,375 NA NA NA 2,596 1,730 4,326 551 164 NA NA NA NA NA

503 612 2,159 236 903 368 1,744 278 265 2.6 51.8 19.1 12.7 80.5

59.4 157 965 163 171 125 712 251 106 1.0 24.0 8.7 7.0 61.7

236 293 902 200 182 84.9 660 117 43.8 1.5 27.6 4.5 2.8 25.6

61.7 110 563 119 41.4 76.1 422 212 150 0.9 9.8 110.7 31.4 NA

42.7 51.3 324 204 48.6 -52.9 119 134 -49.9 0.3 40.8 NA NA NA

NA NA NA NA NA NA NA 0.09 -21.2 NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2250 Lakeside Boulevard, Richardson, TX 75082. Telephone: 214-570-5800. Website: http://www.metropcs.com Chrmn, Pres & CEO: R.D. Linquist

COO: T.C. Keys EVP & CFO: J.B. Carter, II EVP, Secy & General Counsel: M.A. Stachiw SVP, Chief Acctg Officer & Cntlr: C.B. Kornegay

Investor Contact: J. Mathias (214-570-4641) Board Members: R. A. Anderson, W. M. Barnes, J. F. Callahan, Jr., C. C. Landry, R. D. Linquist, A. C. Patterson, J. N. Perry, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2004 Domicile: Delaware Employees: 3,600

Stock Report | October 23, 2010 | NNM Symbol: MCHP | MCHP is in the S&P 500

Microchip Technology Inc S&P Recommendation HOLD

★★★★★

Price $31.35 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $34.00

Investment Style Large-Cap Growth

Summary This company supplies microcontrollers and analog and other semiconductor products for a wide variety of high-volume embedded control applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.99– 23.55 Trailing 12-Month EPS $1.48 Trailing 12-Month P/E 21.2 $10K Invested 5 Yrs Ago $12,951

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.10 2.34 14.9 185.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.829 4.38 $1.37 NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.12 37 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the semiconductor industry, offset by the company's very broad customer base and end-markets and its low cost structure.

40 30 25

Quantitative Evaluations

20

S&P Quality Ranking Vol.

D

B-

B+ B

B+

A-

A

A+

64

Mil. 24 16 8 0 5

C

Relative Strength Rank

MODERATE 59

5

4

3

LOWEST = 1

5

4

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Clyde Montevirgen on August 11, 2010, when the stock traded at $ 29.20. Highlights ➤

➤

➤

We expect sales to advance 44% in FY 11 (Mar.) after a 5% increase in FY 10. Assuming improving economic conditions and including recently acquired Silicon Storage Technology Inc. businesses, we believe sales growth will be supported by business and product cycles. We see more share gains in the 8-bit and 16-bit microcontroller (MCU) markets, as the company expands its served available market and focuses on further penetrating a wider range of endproducts. We also expect MCHP's relatively small but budding analog business to grow faster than peers. We look for non-GAAP gross margins to widen to 63% in FY 11, from 56% in FY 10, reflecting higher plant utilization, cost efficiencies, and licensing revenues. Although we believe that variable expenses will rise as business conditions improve, we still expect non-GAAP operating margins to expand to about 36% in FY 11, from 26% in FY 10, reflecting benefits from operating leverage as sales rise faster than costs and expenses. Our EPS estimates assume a 14% effective tax rate and include around $0.20 per share of stock-based compensation.

Investment Rationale/Risk ➤

➤

➤

We believe healthy sales growth and operational efficiencies will lead to multi-year high profitability, greater free cash flow and improving return metrics. We also think MCHP, through its ability to reduce volatility in margins by effectively managing cost and expenses, has relatively less business risk than peers. Although we see earnings advancing at an above-industry pace, we believe that this is already reflected in multiples, which are trading above the industry's. Risks to our recommendation and target price include a weaker than expected recovery in MCHP's industrial and related businesses, and slower than anticipated share gains in the 8-bit and 16-bit MCU markets. Our 12-month target price of $34 is based on a weighted blend of valuation metrics. We apply a P/E multiple of 13X, above the peer average to account for its relative growth, return metrics, and risk, to our calendar 2011 EPS estimate, implying a value of $30. We also utilize a DCF model, which assumes a 10% weighted average cost of capital and a terminal growth rate of 4%, resulting in an intrinsic value of $41.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 320.8 -2010 193.0 226.7 2009 268.2 269.7 2008 264.1 258.7 2007 262.6 267.9 2006 218.5 227.3

3Q -250.1 192.2 252.6 251.0 234.9

4Q -278.0 173.3 260.4 258.2 247.2

Year -947.7 903.3 1,036 1,040 927.9

Earnings Per Share ($) 2011 0.47 E0.53 2010 0.15 0.24 2009 0.40 0.41 2008 0.36 0.27 2007 0.35 0.36 2006 0.29 0.31

E0.54 0.37 0.40 0.38 0.33 0.19

E0.53 0.40 0.12 0.40 0.57 0.35

E2.10 1.16 1.33 1.40 1.62 1.13

Fiscal year ended Mar. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.340 0.341 0.342 0.343

11/04 02/03 05/05 08/05

11/16 02/16 05/17 08/17

11/18 02/18 05/19 08/19

12/02/09 03/04/10 06/02/10 09/02/10

Dividends have been paid since 2002. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: MCHP

Microchip Technology Inc Business Summary August 11, 2010 CORPORATE OVERVIEW. Microchip Technology Inc. (MCHP) develops and manufactures specialized chips used in a wide variety of embedded control applications. MCHP is a leading microcontroller (MCU) company, having shipped over 7 billion PIC microcontrollers since 1990. MCHP also offers a broad range of high-performance linear, mixed-signal, power management, thermal management, battery management, and interface devices, and serial EEPROMs. Microcontrollers are low-cost components that form the brains of the vast majority of electronic devices, except for PCs. MCHP's signature products include a broad family of proprietary 8- and 16-bit field programmable microcontrollers under the PIC name, designed for applications requiring high performance, fast time-to-market, and user programmability. The company offers a comprehensive set of low-cost and easy-to-learn application development tools that let system designers program a PIC microcontroller for specific applications.

By main product line, microcontrollers provided 81.0% of sales in FY 09 (Mar.) (80.4% in FY 08), memory products 9.9% (11.6%), and analog and interface products 9.1% (8.0%). Average selling prices are relatively stable for the microcontrollers and for analog products with significant proprietary content, which is about half the analog segment. Pricing for some commodity-type products, such as EEPROMs, tend to fluctuate. Foreign sales accounted for 75% of FY 09 net sales, similar to FY 08. By major region, FY 09 sales came from Asia (46.2%), Europe (28.5%) and the Americas (25.3%). Approximately 23% of FY 09 sales were sourced from China, including Hong Kong, and Taiwan accounted for about 10%. About 64% of net sales in FY 09 were made through distributors.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 7.86 1.64 1.16 1.16 1.36 117% 2009 29.56 16.23 25 14

2009 5.18 1.85 1.33 1.35 1.35 102% 2008 38.37 16.28 29 12

2008 5.39 1.87 1.40 1.48 0.97 69% 2007 42.46 27.50 30 20

2007 9.03 2.14 1.62 1.62 0.57 35% 2006 38.56 30.63 24 19

2006 7.89 1.64 1.13 1.05 0.21 18% 2005 34.98 24.06 31 21

2005 6.95 1.58 1.01 0.89 0.11 11% 2004 34.88 25.12 35 25

2004 6.19 1.32 0.65 0.47 0.04 6% 2003 36.50 17.85 56 27

2003 5.58 1.00 0.47 0.30 0.04 9% 2002 33.99 15.02 72 32

2002 5.36 0.98 0.45 0.28 Nil Nil 2001 28.29 14.00 62 31

2001 4.80 1.20 0.69 0.57 Nil Nil 2000 34.39 12.92 50 19

948 336 90.1 31.2 238 8.75% 217 216

903 336 96.1 24.3 237 NM 249 253

1,036 427 98.2 0.75 351 15.2% 298 314

1,040 464 116 5.42 401 11.0% 357 357

928 567 111 1.97 359 32.5% 242 226

847 400 120 0.94 277 22.9% 214 190

699 314 142 0.25 178 22.8% 137 100

651 286 111 0.49 128 22.3% 99.7 63.5

571 232 109 0.57 127 25.5% 94.8 58.2

716 304 104 0.75 196 27.2% 143 117

Balance Sheet & Other Financial Data (Million $) Cash 1,214 Current Assets 1,611 Total Assets 2,516 Current Liabilities 203 Long Term Debt 341 Common Equity 1,533 Total Capital 1,874 Capital Expenditures 47.6 Cash Flow 307 Current Ratio 7.9 % Long Term Debt of Capitalization 18.2 % Net Income of Revenue 22.9 % Return on Assets 8.8 % Return on Equity 17.2

1,390 1,743 2,421 156 1,149 991 2,192 102 345 11.2 52.4 27.6 10.1 24.6

1,325 1,718 2,512 191 1,150 1,036 2,208 69.8 396 9.0 52.1 28.8 12.5 19.6

167 1,085 2,270 256 Nil 2,004 2,013 60.0 473 4.2 Nil 34.3 15.5 19.1

565 1,119 2,351 609 Nil 1,726 1,741 76.3 353 1.8 Nil 26.1 11.6 15.1

68.7 1,075 1,818 307 Nil 1,486 1,510 63.2 334 3.5 Nil 25.2 12.4 15.2

105 884 1,622 270 Nil 1,321 1,351 63.5 279 3.3 Nil 19.6 9.0 11.0

53.9 609 1,428 215 Nil 1,179 1,212 80.4 211 2.8 Nil 15.3 7.4 8.8

281 549 1,276 168 Nil 1,076 1,107 44.7 204 3.3 Nil 16.6 7.8 9.4

130 372 1,161 195 Nil 943 966 441 247 1.9 Nil 20.0 14.1 17.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2355 West Chandler Boulevard, Chandler, AZ 85224-6199. Telephone: 480-792-7200. Email: [email protected] Website: http://www.microchip.com

Chrmn, Pres & CEO: S. Sanghi COO & EVP: G. Moorthy CFO & Chief Acctg Officer: J.E. Bjornholt CTO: S.V. Drehobl

Secy & General Counsel: K. Van Herk Investor Contact: G. Parnell (480-792-7374) Board Members: M. W. Chapman, L. Day, IV, A. Hugo-Martinez, W. Meyercord, S. Sanghi

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1989 Domicile: Delaware Employees: 5,418

Stock Report | October 23, 2010 | NNM Symbol: MU | MU is in the S&P 500

Micron Technology Inc. S&P Recommendation HOLD

★★★★★

Price $7.69 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $10.00

Investment Style Large-Cap Value

Summary This company is a manufacturer of semiconductor memory products, including DRAM and NAND flash memory, as well as image sensors.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$11.40– 6.12 $1.76 4.4 $6,069

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.27 NA 6.1 994.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.645 Nil Nil 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.01 NM B

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Micron is subject to semiconductor industry cyclicality and to sudden changes in pricing for commodity memory products. It is a relatively large semiconductor company and is the lone American survivor in the global DRAM industry, which has been consolidating in recent years.

15 8

4

2

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 150 100 50 0 5

D

C

B-

C B

B+

Relative Strength Rank 3

4

3

A-

A

A+

MODERATE

51

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on October 11, 2010, when the stock traded at $ 7.71. Highlights ➤

We forecast revenues will increase 19% in FY 11 (Aug.), after a 77% rise in FY 10. The industry dynamics for memory chips have improved over the past year, and we expect average selling prices (ASPs) for DRAM and NAND chips to fall at a more reasonable pace ahead. Although we anticipate a couple of quarters of softer demand, we expect strong bit growth over the longer term due to our projection of healthy sales of computing and consumer electronic devices. Our projection also assumes healthy shipments for NOR, which MU recently acquired from Numonyx.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect a gross margin of 27% in FY 11, versus 32% in FY 10, largely based on lower average selling prices. Nonetheless, we believe gross margins will benefit from higher volumes, and consequent cost per bit reductions, as well as an improving sales mix of specialty DRAM chips. All told, we anticipate operating margins narrowing to 13% in FY 11, from 19% in FY 10. Our FY 11 EPS estimate includes $275 million from a patent cross-licensing agreement with Samsung. Considering MU's debt, we see interest expense continuing to weigh on profitability.

➤

With our view that Micron has the right technology to compete favorably in the memory market and to reduce cost-per-bit at a fast rate, we think its growth will beat that of competitors. We are modeling ASP deterioration and see margins taking a hit, but we expect them to be far better than those seen in recent years. The anticipated profitability should provide healthy cash flows and help strengthen the balance sheet as MU reduces debt. We see return on equity staying around historically high levels, but remaining below the industry average. Risks to our opinion and target price include worse-than-expected sales of computers and consumer electronic products, faster-than expected capacity expansion, and lowerthan-anticipated unit cost reductions. Our 12-month target price of $10 is based on a weighted blend of relative metrics. We apply a price-to-earnings multiple of 10X our calendar 2011 EPS estimate and a price-to-sales multiple of 1.0X our forward 12-month sales per share estimate. Both valuations are below peer averages to account for our view of risk and projected relative profitability.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,740 1,961 2009 1,402 993.0 2008 1,535 1,359 2007 1,530 1,427 2006 1,362 1,225 2005 1,260 1,308

3Q 2,288 1,106 1,498 1,294 1,312 1,054

4Q 2,493 1,302 1,449 1,437 1,373 1,258

Year 8,482 4,803 5,841 5,688 5,272 4,880

Earnings Per Share ($) 2010 0.23 0.39 2009 -0.91 -0.97 2008 -0.34 -1.01 2007 0.15 -0.07 2006 0.09 0.27 2005 0.23 0.17

0.92 0.23 -0.30 -0.29 0.12 -0.20

0.30 -0.10 -0.45 -0.21 0.08 0.07

1.76 -2.29 -2.10 -0.42 0.57 0.29

Fiscal year ended Aug. 31. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 1996.

Stock Report | October 23, 2010 | NNM Symbol: MU

Micron Technology Inc. Business Summary October 11, 2010 CORPORATE OVERVIEW. Micron Technology is a global manufacturer and marketer of dynamic random access memory (DRAM) and NAND flash memory. The company's products are used in an increasingly broad range of electronic devices, including personal computers, workstations, network servers, mobile phones, digital still cameras, MP3 players and other consumer electronics products. About 30% of FY 09 (Aug.) total sales were to the computing market. Intel accounted for 20% of the company's FY 09 sales.

enues in FY 09. By memory type, DRAM sales accounted for 50% of the total in FY 09, down from 54% in the previous fiscal year, reflecting an expansion into flash memory and CMOS image sensors over the last couple of years. NAND flash memory sales comprised 39% of sales in FY 09, up from 54% in the prior year, reflecting growing market demand for memory devices that can retain memory when the power is turned off, for use in handheld electronic devices such as digital still cameras.

The company has been in the DRAM business since 1980, and is currently one of the world's largest DRAM suppliers. DRAM products are high-density, lowcost per bit, random access memory devices that provide high-speed data storage and retrieval. Micron offers DRAM products with a variety of performance, pricing, and other characteristics. The company's DRAM products may be classified as core DRAM or specialty memory.

The imaging segment made up 11% of total revenues in FY 09. This segment's main product is the CMOS image sensor. Micron has a supply agreement to manufacture the image sensors to Aptina Imaging Corporation, which was once a wholly-owned subsidiary of Micron.

Micron has two segments -- memory, which includes both DRAM and NAND flash memory, and imaging. The memory segment comprised 89% of total revCompany Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA NA 1.76 NA NA Nil 11.40 6.36 6 4

2009 5.08 0.35 -2.29 -2.27 Nil Nil 10.87 2.55 NM NM

2008 7.56 0.57 -2.10 -1.54 Nil Nil 8.97 1.59 NM NM

2007 9.00 1.81 -0.42 -0.38 Nil Nil 14.31 7.11 NM NM

2006 9.64 2.33 0.57 0.40 Nil Nil 18.65 13.12 33 23

2005 9.07 2.07 0.29 -0.12 Nil Nil 14.82 9.32 51 32

2004 8.73 2.13 0.24 -0.09 Nil Nil 18.25 10.89 76 45

2003 7.68 -0.10 -2.11 -2.60 Nil Nil 15.66 6.60 NM NM

2002 9.93 0.45 -1.51 -2.14 Nil Nil 39.50 9.50 NM NM

2001 11.59 1.00 -0.88 -1.06 Nil Nil 49.61 16.39 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,482 3,566 NA 160 1,881 NA 1,850 NA

4,803 673 2,113 138 -1,944 NM -1,835 -1,819

5,841 887 2,056 95.0 -1,611 NM -1,619 -1,190

5,688 1,381 1,718 40.0 -168 NM -320 -290

5,272 1,631 1,281 25.0 433 4.16% 408 288

4,880 1,458 1,265 46.9 199 5.34% 188 -75.8

4,404 1,445 1,218 36.0 232 32.2% 157 -62.2

3,091 133 1,210 36.5 -1,200 NM -1,273 -1,578

2,589 152 1,177 17.1 -998 NM -907 -1,288

3,936 138 1,114 16.7 -960 NM -521 -626

Balance Sheet & Other Financial Data (Million $) Cash 2,913 Current Assets 6,333 Total Assets 14,693 Current Liabilities 2,702 Long Term Debt 1,648 Common Equity 8,020 Total Capital 12,176 Capital Expenditures NA Cash Flow NA Current Ratio 2.3 % Long Term Debt of Capitalization 13.5 % Net Income of Revenue 21.8 % Return on Assets 14.2 % Return on Equity 29.2

1,485 3,344 11,455 1,892 2,674 4,654 9,738 488 278 1.8 27.5 NM NM NM

1,362 3,779 13,430 1,598 2,451 6,178 11,503 2,529 437 2.4 21.3 NM NM NM

2,192 5,234 14,818 2,026 1,987 7,752 12,371 3,603 1,398 2.6 16.1 NM NM NM

1,431 5,101 12,221 1,661 405 8,114 10,115 1,365 1,689 3.1 4.0 7.7 4.0 5.8

525 2,926 8,006 979 1,020 5,847 6,902 1,065 1,453 3.0 14.8 3.9 2.4 3.3

486 2,639 7,760 972 1,028 5,615 6,685 1,081 1,375 2.7 15.4 3.6 2.1 3.0

570 2,037 7,158 993 997 5,038 6,035 822 -63.3 2.1 16.5 NM NM NM

398 2,119 7,555 753 361 6,367 6,727 760 270 2.8 5.4 NM NM NM

469 3,138 8,363 687 445 7,135 7,599 1,489 593 4.6 5.9 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 8000 South Federal Way, Boise, ID 83707-0006. Telephone: 208-368-4000. Email: [email protected] Website: http://www.micron.com

Chrmn & CEO: S.R. Appleton Pres & COO: D.M. Durcan CFO & Chief Acctg Officer: R.C. Foster Treas: P. Morali

Secy & General Counsel: R.W. Lewis Investor Contact: K.A. Bedard (208-368-4400) Board Members: T. Aoki, S. R. Appleton, J. W. Bageley, R. L. Bailey, M. Johnson, L. Mondry, R. E. Switz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1978 Domicile: Delaware Employees: 18,200

Stock Report | October 23, 2010 | NNM Symbol: MSFT | MSFT is in the S&P 500

Microsoft Corp S&P Recommendation HOLD

★★★★★

Price $25.38 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $31.00

Investment Style Large-Cap Growth

Summary Microsoft, the world's largest software company, develops PC software, including the Windows operating system and the Office application suite.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.58– 22.73 Trailing 12-Month EPS $2.10 Trailing 12-Month P/E 12.1 $10K Invested 5 Yrs Ago $11,167

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.24 2.40 11.3 8,653.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$219.606 2.52 $0.64 63

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.09 7 AAA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our concerns about a sluggish recovery in enterprise IT spending, market share losses in Internet search engine, and difficulties inherent in releasing new products in a timely manner, mitigated by the company's current leading market positions and financial strength.

40 30

20 15

Quantitative Evaluations

Vol. Mil. 450 300 150 0

S&P Quality Ranking D 5

4

5

3

3

4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Jim Yin, CFA on August 12, 2010, when the stock traded at $ 24.50. Highlights We expect revenues to rise 5.5% in FY 11 (Jun.), following 6.9% growth in FY 10. We see Windows and Windows Live revenue advancing 8.3% in FY 11, based on a low-teens growth rate in PC sales in the next 12 months, driven by strong consumer adoption of Windows 7 and a greater mix of premium versions. These factors should be partly offset by lower selling prices in emerging and laptop markets. We project 6.9% growth in Server and Tools revenue and 4.5% in Microsoft Business in FY 11, driven by new releases of Microsoft Office and SharePoint products. We see Entertainment and Devices division revenue increasing 23% in FY 11.

Investment Rationale/Risk ➤

➤

➤

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

We look for gross margins to narrow to 79% in FY 11, from 80% in FY 10, due mostly to higher Xbox sales, which have much lower gross margins than other MSFT businesses. We see operating margins staying at 38% in FY 11, as lower gross margins are offset by economies of scale. We estimate EPS of $2.24 in FY 11, up from $2.10 in FY 10, reflecting our forecast for higher revenues due to improving economies and new product releases.

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

43

1

➤

C

We recently lowered our recommendation on the shares to Hold, from Buy, reflecting our concern about a slowing global economy, given recent economic data. We think PC unit sales growth will moderate after rising over 20% in the first half of 2010. In addition to softer consumer demand, we believe companies may delay refreshing their aging PCs. These concerns are mitigated by several new product introductions, including Office 2010 and the next version of Xbox with its controller-free input device. We also think Bing, the company's new Web search engine, will gain market share. Risks to our recommendation and target price include lower-than-projected PC sales, a slowdown in the global economy, and further losses in the desktop operating systems market. Our 12-month target price of $31 is based on a blend of our discounted cash flow (DCF) and P/ E analyses. Our DCF model assumes an 11.1% weighted average cost of capital and 3% terminal growth, yielding an intrinsic value of $34. Our P/E analysis derives a value of $28, based on an industry P/E-to-growth ratio of 1.8X, or 12.5X our FY 11 EPS estimate of $2.24.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 12,920 19,022 2009 15,061 16,629 2008 13,762 16,367 2007 10,811 12,542 2006 9,741 11,837 2005 9,189 10,818

3Q 14,503 13,648 14,454 14,398 10,900 9,620

4Q 16,039 13,099 15,837 13,371 11,804 10,161

Year 62,484 58,437 60,420 51,122 44,282 39,788

Earnings Per Share ($) 2010 0.40 0.74 2009 0.48 0.47 2008 0.45 0.50 2007 0.35 0.26 2006 0.29 0.34 2005 0.23 0.32

0.45 0.33 0.47 0.50 0.29 0.23

0.51 0.34 0.46 0.31 0.28 0.34

2.10 1.62 1.87 1.42 1.20 1.12

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.130 0.130 0.130 0.160

12/09 03/08 06/16 09/21

02/16 05/18 08/17 11/16

02/18 05/20 08/19 11/18

03/11/10 06/10/10 09/09/10 12/09/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: MSFT

Microsoft Corp Business Summary August 12, 2010 CORPORATE OVERVIEW. Microsoft is the world's largest software maker, primarily as a result of its near-monopoly position in desktop operating systems and its Office productivity suite. The combination of these two strongholds poses a formidable barrier to entry for competitors, in our opinion. MSFT has used the strong cash flows from these businesses to fund research and development of other markets, including home entertainment consoles and Internet online advertising. The company has five operating business divisions: Windows and Windows Live, Server and Tools, Online Services Business, Microsoft Business, and Entertainment and Devices. Windows and Windows Live is responsible for the development of the Windows product family. The division generated over 80% of its revenue from OEMs pre-installing versions of Windows operating systems. Despite some market share loss to Apple and the Linux operating system in recent years, Microsoft Windows operating systems still run more than 90% of all PCs currently in use.

integrated server infrastructure and middleware software designed to support software applications built on the Windows Server operating system. Windows-based server products accounted for about 70% of the server market in 2009 in terms of unit shipments, according to IDC, an independent research firm. Online Services Business is comprised of various Internet websites that offer content and personal communications services. It also includes an online advertising platform that links publishers and advertisers to their targeted audiences. In 2009, MSFT updated its Internet search engine, called Bing, and trailed in third place behind Google and Yahoo! with about a 12% market share. Microsoft Business is comprised of the Microsoft Office system and Microsoft Dynamics business solutions. Despite the growing popularity of online software application suites such as Google Apps, Microsoft Office suite is the prevailing productivity application used in major enterprises.

Server and Tools develops and markets software server products, software developer tools, services, and solutions. Windows Server-based products are Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.76 2.40 2.10 2.07 0.52 25% 31.58 22.73 15 11

2009 2.84 1.90 1.62 1.63 0.50 31% 31.50 14.87 19 9

2008 2.43 2.07 1.87 1.99 0.43 23% 35.96 17.50 19 9

2007 2.71 1.57 1.42 1.38 0.39 27% 37.50 26.60 26 19

2006 3.55 1.28 1.20 1.27 0.34 28% 30.26 21.46 25 18

2005 4.14 1.20 1.12 1.20 3.32 NM 28.25 23.82 25 21

2004 6.55 0.86 0.75 0.83 0.16 21% 30.20 24.86 40 33

2003 5.34 1.05 0.92 0.75 0.08 9% 30.00 22.55 33 25

2002 2.05 0.80 0.71 0.65 Nil Nil 35.31 20.71 50 29

2001 4.39 0.83 0.66 0.58 Nil Nil 38.08 21.44 58 32

62,484 27,363 2,673 151 25,013 NA 18,760 18,534

58,437 23,255 2,562 58.0 19,821 26.5% 14,569 14,650

60,420 25,877 1,872 NA 23,814 25.8% 17,681 18,873

51,122 19,964 1,440 Nil 20,101 30.0% 14,065 13,643

44,282 17,375 903 Nil 18,262 31.0% 12,599 13,329

39,788 15,416 855 Nil 16,628 26.3% 12,254 13,107

36,835 10,220 1,186 Nil 12,196 33.0% 8,168 9,042

32,187 14,656 1,439 Nil 14,726 32.1% 9,993 8,155

28,365 12,994 1,084 Nil 11,513 32.0% 7,829 7,051

25,296 13,256 1,536 Nil 11,525 33.0% 7,721 6,518

Balance Sheet & Other Financial Data (Million $) Cash 36,726 Current Assets 55,676 Total Assets 86,113 Current Liabilities 26,147 Long Term Debt 4,939 Common Equity 46,175 Total Capital 51,114 Capital Expenditures 1,977 Cash Flow 21,433 Current Ratio 2.1 % Long Term Debt of Capitalization 9.7 % Net Income of Revenue 30.0 % Return on Assets 22.9 % Return on Equity 43.8

29,907 49,280 77,888 27,034 3,746 39,558 43,304 3,119 17,131 1.8 8.7 24.9 19.3 38.4

21,171 43,242 72,793 29,886 1.00 36,286 36,287 3,182 19,553 1.5 NM 29.3 26.0 52.5

6,111 40,168 63,171 23,754 Nil 31,097 31,097 2,264 15,505 1.7 Nil 27.5 21.2 39.5

6,714 49,010 69,597 22,442 Nil 40,104 40,104 1,578 13,502 2.2 Nil 28.5 17.9 28.6

4,851 48,737 70,815 16,877 Nil 48,115 48,115 812 13,109 2.9 Nil 30.8 14.8 19.9

15,982 70,566 92,389 14,969 Nil 74,825 74,825 1,109 9,354 4.7 Nil 22.2 9.4 11.7

6,438 58,973 79,571 13,974 Nil 61,020 62,751 891 11,432 4.2 Nil 31.0 13.6 17.7

3,016 48,576 67,646 12,744 Nil 52,180 52,578 770 8,913 3.8 Nil 27.6 12.4 15.7

3,922 39,637 59,257 11,132 Nil 47,289 48,125 1,103 9,257 3.6 Nil 30.5 13.9 17.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Microsoft Way, Redmond, WA 98052-8300. Telephone: 425-882-8080. Email: [email protected] Website: http://www.microsoft.com

Chrmn: W.H. Gates, III CEO: S.A. Ballmer COO: B.K. Turner SVP, Secy & General Counsel: B.L. Smith

CFO: P.S. Klein Founded: 1975 Investor Contact: F. Brod (800-285-7772) Domicile: Washington Board Members: S. A. Ballmer, D. Dublon, W. H. Gates, Employees: 89,000 III, R. V. Gilmartin, R. Hastings, M. M. Klawe, D. F. Marquardt, C. H. Noski, H. Panke

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: MOLX | MOLX is in the S&P 500

Molex Inc S&P Recommendation BUY

★★★★★

Price $21.84 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Electronic Manufacturing Services

12-Mo. Target Price $27.00

Investment Style Large-Cap Growth

Summary This company makes electrical and electronic devices primarily for OEMs in the computer, telecommunications, home appliance, and home entertainment industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.66– 17.50 Trailing 12-Month EPS $0.44 Trailing 12-Month P/E 49.6 $10K Invested 5 Yrs Ago $9,730

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.75 1.95 12.5 174.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.54 28 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality in MOLX's global markets, price and product competition, volatile raw material costs, and fluctuating foreign currency exchange rates. However, we view the balance sheet as strong.

30

20 15

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

D

9 6 3 0 5

$2.087 2.79 $0.61 72

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

73 4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Stewart Scharf on August 06, 2010, when the stock traded at $ 19.91. Highlights ➤

➤

➤

We expect revenues to advance close to 15% in FY 11, led by favorable order trends in telecom, data, and consumer electronics, especially for Asia/Pacific and parts of the Americas. We see a recovery in global industrial markets, driven by factory automation and alternative energy, while military and medical markets grow rapidly. We see some moderation in demand for automotive products in North America and Europe following incentive-driven strength. We look for gross margins to expand further in FY 11 to near 32%, from 29.6% in FY 10, on a better product mix and supply-chain cost savings, as MOLX improves its operating leverage. We expect a more than $2.5 million negative impact in the first half of FY 11 from higher copper and gold costs, as a hedge program expires at the end of FY 10. However, in our view, EBITDA margins should widen from 17.3% in FY 10, reflecting cost savings from a restructuring program completed in late FY 10. We project a lower effective tax rate of below 30% for FY 11, and operating EPS of $1.75, and then a 11% increase to $1.95 in FY 12.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our buy recommendation on the shares is based on our valuation metrics and signs of a further sequential rebound in order rates in most sectors. We view the balance sheet as solid, while return on net assets continues to trend upward. Risks to our recommendation and target price include a significant rise in copper, gold, and plastics prices; adverse foreign exchange rates; and, a prolonged global economic downturn. Corporate governance practices are also a concern to us, as MOLX has two classes of stock, and the board of directors consists mostly of insiders. Based on a blend of our relative and DCF valuation metrics, our 12-month target price is $27. Our relative metrics, including historical average price-to-sales and three-year PEG ratios, lead us to use a P/E multiple of about 14X our FY 11 EPS estimate, a modest premium to peers but below MOLX's five-year average historical forward P/E, valuing the shares at $24. Our DCF analysis, which assumes a 10.3% cost of capital (WACC) and a 3% terminal growth rate, suggests an intrinsic value of $30.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 674.0 729.6 2009 839.0 666.7 2008 792.6 841.6 2007 829.6 837.5 2006 659.8 697.4 2005 640.2 651.8

3Q 756.3 505.5 822.3 807.0 720.3 612.8

4Q 847.3 570.6 871.9 791.9 783.8 643.8

Year 3,007 2,582 3,328 3,266 2,861 2,549

Earnings Per Share ($) 2010 -0.09 E0.20 2009 0.25 -0.50 2008 0.29 0.33 2007 0.41 0.36 2006 0.25 0.31 2005 0.29 0.27

0.22 -0.34 0.28 0.35 0.33 0.24

0.23 -1.27 0.29 0.18 0.38 0.03

0.44 -1.84 1.19 1.30 1.26 0.81

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.153 0.153 0.153 0.153

12/21 03/16 06/16 09/15

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/25/10 04/26/10 07/26/10 10/25/10

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: MOLX

Molex Inc Business Summary August 06, 2010 CORPORATE OVERVIEW. Molex is the world's second largest connector maker, operating 39 plants in 16 countries, and offering more than 100,000 products. MOLX's products include electrical and electronic devices such as terminals, cable assemblies, interconnection systems, fiber-optic interconnection systems, and mechanical and electronic switches. In FY 10 (Jun.), these products were sold to the following industries: data products (22%), telecommunications (25%), consumer products (20%), automotive (16%), industrial (14%), and other (3%). Revenues by segment were: Connector, 72%; Custom & Electrical, 28%; and Corporate and other, less than 1%. MOLX sells primarily to original equipment manufacturers (OEMs), subcontractors and suppliers. Customers include Apple, Arrow, Cisco, Dell, Ford, General Motors, Hewlett-Packard, IBM, Motorola, Nokia, Panasonic and Research in Motion. Competitors include Tyco Electronics and Amphenol. The highly fragmented $40 billion global connector industry has grown at a compound annual rate (CAGR) of 5% over the past 25 years.

manufacturing capacity is in lower-cost regions such as Eastern Europe, Mexico and China. At June 30, 2010, order backlog was $473 million, up 8% on a sequential basis and 87% from a year ago. New orders in the fourth quarter of FY 10 were $910 million, up 58% from a year earlier and 9% sequentially, driven by orders in the Asia/Pacific. The book-to-bill ratio remained positive at 1.07, exceeding 1.0 for the fifth straight quarter. MOLX's annuaI target range for new products (introduced within the past 36 months) as a percent of sales is 20% to 30%. In the fourth quarter of FY 10, MOLX incurred a pretax restructuring charge of $26.5 million ($0.14 a share, after tax), and a pretax loss of $4.8 million ($0.02) related to unauthorized activities in Japan. In the third quarter of FY 10, MOLX incurred a $31 million pretax charge ($0.11 a share, after tax) related to alleged unauthorized loans and trading activity by an individual in a Japan subsidiary. The company projects the total fraud amount at $193 million, and has recorded a contingency liability of $166 million.

Net revenues outside the U.S. accounted for 76% of the FY 10 total. About 60% of net revenues were generated in Asia/Pacific (including 28% in China and 18% in Japan), 16% in Europe and 24% in the Americas. More than 50% of Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 10.39 1.81 0.44 0.45 0.61 139% 23.66 17.50 54 40

2009 10.89 -0.40 -1.84 -0.36 0.61 NM 22.41 9.68 NM NM

2008 12.66 2.58 1.19 1.13 0.45 38% 30.61 10.29 26 22

2007 10.64 2.58 1.30 1.30 0.30 23% 32.34 23.50 25 18

2006 11.60 2.41 1.26 1.27 0.23 18% 40.10 25.63 32 20

2005 10.78 2.02 0.81 0.76 0.15 19% 30.00 23.75 37 29

2004 10.05 2.10 0.92 0.85 0.10 11% 36.10 27.07 39 29

2003 9.10 1.62 0.44 0.39 0.10 23% 35.12 19.98 80 45

2002 8.64 1.53 0.39 0.39 0.10 26% 39.61 19.43 NM 50

2001 8.25 2.13 1.03 1.01 0.10 10% 48.00 25.76 47 25

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,007 521 239 5.42 131 NA 76.9 77.3

2,582 321 252 Nil -319 NM -321 -62.1

3,328 599 252 Nil 339 36.4% 215 205

3,266 596 238 Nil 338 28.8% 241 241

2,861 552 215 Nil 329 28.0% 237 238

2,549 481 231 Nil 217 28.8% 154 143

2,247 450 228 Nil 240 26.5% 176 164

1,843 -120 229 Nil 110 22.5% 84.9 76.1

1,712 324 224 Nil 93.2 17.9% 76.5 76.7

2,366 498 218 Nil 291 30.0% 204 200

Balance Sheet & Other Financial Data (Million $) Cash 395 Current Assets 1,776 Total Assets 3,237 Current Liabilities 913 Long Term Debt 183 Common Equity 1,985 Total Capital 2,273 Capital Expenditures 229 Cash Flow 316 Current Ratio 2.0 % Long Term Debt of Capitalization 8.1 % Net Income of Revenue 2.6 % Return on Assets 2.5 % Return on Equity 3.8

468 1,448 2,942 714 30.3 2,063 2,093 178 -69.4 2.0 1.5 NM NM NM

510 1,783 3,600 649 146 2,677 2,823 235 468 2.8 5.2 6.5 6.2 8.3

461 1,591 3,316 531 128 2,523 2,651 297 479 3.0 4.8 7.4 7.7 10.0

486 1,548 2,973 595 8.81 2,281 2,290 277 452 2.6 0.4 8.3 8.3 10.7

498 1,374 2,728 470 9.98 2,168 2,180 231 385 2.9 0.5 6.1 5.8 7.3

339 1,169 2,572 428 14.0 2,066 2,081 190 404 2.7 0.7 7.8 7.2 8.9

350 962 2,335 356 16.9 1,897 1,914 171 314 2.7 0.9 4.6 3.7 4.6

313 915 2,254 360 17.8 1,828 1,846 172 300 2.5 1.0 4.5 3.4 4.3

208 892 2,214 374 25.5 1,766 1,793 376 422 2.4 1.4 8.6 9.1 11.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2222 Wellington Court, Lisle, IL 60532. Telephone: 630-969-4550. Website: http://www.molex.com Co-Chrmn: J.H. Krehbiel, Jr.

Co-Chrmn: F.A. Krehbiel Pres & COO: L. McCarthy Vice Chrmn & CEO: M.P. Slark EVP, CFO & Treas: D.D. Johnson

Investor Contact: S. Martens (630-527-4344) Founded: 1938 Board Members: M. J. Birck, M. L. Collins, A. Dhebar, E. Domicile: Delaware D. Jannotta, F. L. Krehbiel, F. A. Krehbiel, J. H. Krehbiel, Employees: 35,519 Jr., D. L. Landsittel, J. W. Laymon, D. G. Lubin, J. S. Metcalf, R. J. Potter, M. P. Slark

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TAP | TAP is in the S&P 500

Molson Coors Brewing Co S&P Recommendation HOLD

★★★★★

Price $48.53 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Brewers

12-Mo. Target Price $50.00

Investment Style Large-Cap Blend

Summary TAP, the fifth largest brewer in the world, was formed in early 2005 via the combination of Adolph Coors Co. and Molson, Inc.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $51.33– 38.44 Trailing 12-Month EPS $4.28 Trailing 12-Month P/E 11.3 $10K Invested 5 Yrs Ago $17,508

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.40 3.70 14.3 185.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.78 8 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the stable revenue streams of the brewing industry, in which TAP is a major player, offset by our corporate governance concerns with respect to TAP's multi-class stock structure and its more than 50% controlling family interest.

60 50 40

2-for-1

30

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 12 8 4 0 5

$7.809 2.31 $1.12 85

D

C

B-

AB

B+

A-

A

Relative Strength Rank 4

3

4

A+

MODERATE 61

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on August 10, 2010, when the stock traded at $ 45.89. Highlights ➤

➤

➤

In June 2008, TAP combined its U.S. operations in a joint venture with SABMiller, with accounting on an equity interest basis. By pooling breweries, distribution resources and brand marketing, the companies believe they can achieve $500 million of cost synergies annually in three years. In 2010, we see sales rising at a high single digit rate, after falling more than 35% in 2009 as a result of the joint venture. We expect continued growth for Coors Light, Blue Moon and Keystone Light in the U.S., partially offsetting volume drops for Miller brands. We look for continued pressures in the U.K. market to hurt overall sales growth and margins, but we expect improvement in Canadian operations on new product line extensions and further penetration of existing brands into new geographies. On a new $200 million cost savings plan, we look for operating margin improvement, and we forecast a high-single digit improvement in MillerCoors equity income. On an effective tax rate of 16%, compared to slightly over 1% in 2009, we estimate 2010 operating EPS of $3.40, before special items, versus 2008's adjusted $3.80.

Investment Rationale/Risk ➤

➤

➤

We remain concerned about raw material inflation, particularly in Canada and the U.K., where TAP has limited ability to hedge, despite recent declines in key commodities. While volumes recently improved in Canada on narrowing price gaps and new product introductions, we look for weakness in U.S. operations as Miller brand volumes remain soft and Coors Light volumes have recently turned negative. We expect U.K. results to be under pressure as sales shift to lower-margin off-premise channels, but we consider TAP's valuation -- at a discount to peers -- to be reasonable. Risks to our opinion and target price include a weakening of Coors Light volumes in the U.S. and Canada, an inability to successfully raise prices, and heightened competitive pressures, particularly in Canada. Commodity cost increases could pose additional risks. We see significant execution risk in the joint venture. Our 12-month target price of $50 is based on our P/E analysis. We apply a multiple of 13.5X, below both TAP's recent average and the beverage group multiple, to our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 661.0 883.3 2009 559.0 798.9 2008 1,357 1,757 2007 1,229 1,676 2006 1,154 1,583 2005 1,048 1,547

3Q -853.7 921.1 1,685 1,577 1,527

4Q -820.8 739.2 1,600 1,531 1,385

Year -3,032 4,774 6,191 5,845 5,507

Earnings Per Share ($) 2010 0.33 1.27 2009 0.43 1.01 2008 0.25 0.50 2007 0.11 1.02 2006 -0.11 0.91 2005 -0.24 0.56

E1.11 1.31 0.92 0.74 0.71 0.76

E0.66 1.17 0.49 0.96 0.65 0.20

E3.40 3.92 2.16 2.84 2.16 1.44

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.240 0.240 0.280 0.280

11/12 02/11 05/03 08/05

11/25 02/24 05/26 08/27

11/30 02/26 05/28 08/31

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1970. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TAP

Molson Coors Brewing Co Business Summary August 10, 2010 CORPORATE OVERVIEW. Molson Coors Brewing Company was formed in February 2005 by the combination of Adolph Coors Co. and Canadian brewer Molson, Inc. The transaction resulted in each Molson Class B voting share being converted to shares with 0.126 voting rights and 0.234 non-voting rights of Molson Coors stock, and each Molson Class A converted to shares with a 0.360 non-voting share of Molson Coors. In June 2008, Molson Coors and SABMiller formed a joint venture of each company's United States and Puerto Rican operations. The deal gave TAP a 50% voting and 42% economic interest. Molson Inc. was the world's 14th largest brewer in 2004, pre-merger, with operations in Canada, Brazil and the United States. A global brewer with C$3.5 billion in gross annual sales, Molson traces its roots back to 1786, making it North America's oldest beer brand. Adolph Coors Co. was the third largest U.S. brewer, with a 10.3% share of the U.S. beer market in 2004, selling 32.7 million barrels of beer and other malt beverage products, up 3% from the level of 2003. The company was founded in 1873.

Creemore, Rickard's Red and other Rickard's brands, Carling, and Pilsner. In the U.S., key brands sold through MillerCoors include Coors Light and Miller Lite. Premium segment brands include Coors Banquet, Miller Genuine Draft and MGD 64, while super premium brands include Miller Chill and Sparks. Below premium brands include Miller High Life, Keystone Light and Milwaukee's Best, while craft and import brands include Blue Moon, Henry Weinhard's, George Killian's Irish Red, Leinenkugel's brands, Molson brands, Foster's, Peroni Nastro Azzurro, Pilsner Urquell and Grolsch. U.K. brands include Carling, C2, Coors Light, Worthington's, While Shield, Caffrey's, Kasteel Cru and Blue Moon. CORPORATE STRATEGY. We look favorably on TAP's strategy to gain market share in each area by cross marketing its products. We are particularly pleased with the gains we see for Coors Light in Canada, where it now has a 14% market share according to TAP, making it among the best-selling beer brands in that country.

TAP has a portfolio of over 65 strategic brands, including core brands Coors Light, Molson Canadian and Carling. In Canada, brands sold include Coors Light, Canadian, Export, Molson Canadian 67, Molson Dry , Molson M, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.77 4.93 3.92 3.74 0.92 23% 51.33 30.76 13 8

2008 4.13 3.63 2.16 1.03 0.76 35% 59.51 35.00 28 16

2007 NM 4.74 2.84 2.53 0.64 23% 57.70 37.56 20 13

2006 NM 4.68 2.16 1.87 0.64 31% 38.50 30.38 18 15

2005 NM 3.89 1.44 1.07 0.64 44% 40.00 28.69 28 20

2004 1.72 6.13 2.60 2.13 0.41 16% 40.06 26.87 15 10

2003 NM 5.71 2.39 2.10 0.41 17% 32.41 22.93 14 10

2002 NM 5.36 2.21 0.77 0.41 19% 35.08 25.25 16 11

2001 12.03 3.28 1.66 0.68 0.40 24% 40.59 21.33 25 13

2000 12.16 3.19 1.47 NA 0.36 25% 41.16 18.69 28 13

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,032 592 187 96.6 718 NM 729 695

4,774 874 273 104 515 20.0% 400 190

6,191 1,099 346 136 534 0.78% 515 459

5,845 1,097 438 143 472 17.5% 374 324

5,507 960 393 131 295 17.0% 230 172

4,306 609 268 72.4 308 30.9% 197 161

4,000 551 244 81.2 254 31.2% 175 154

3,776 535 230 70.9 257 37.0% 162 56.1

2,429 296 121 2.01 198 37.9% 123 50.7

2,414 295 129 6.41 170 35.3% 110 NA

Balance Sheet & Other Financial Data (Million $) Cash 734 Current Assets 1,763 Total Assets 12,021 Current Liabilities 1,581 Long Term Debt 1,413 Common Equity 7,080 Total Capital 8,806 Capital Expenditures 125 Cash Flow 917 Current Ratio 1.1 % Long Term Debt of Capitalization 16.0 % Net Income of Revenue 24.1 % Return on Assets 6.5 % Return on Equity 11.2

216 1,107 10,417 986 1,832 5,980 7,822 231 674 1.1 23.4 8.4 3.4 6.1

377 1,777 13,452 1,736 2,261 7,149 10,059 428 861 1.0 22.5 8.3 4.1 7.9

182 1,458 11,603 1,800 2,130 5,817 8,601 446 812 0.8 24.8 6.4 3.2 6.7

39.4 1,468 11,799 2,237 2,137 5,325 8,151 406 623 0.7 26.2 4.2 2.8 6.7

123 1,268 4,658 1,177 894 1,601 2,682 212 465 1.1 33.3 4.6 4.3 13.7

19.4 1,079 4,486 1,134 1,160 1,267 2,623 240 418 1.0 44.2 4.4 4.0 15.5

59.2 1,054 4,297 1,148 1,383 982 2,522 240 392 0.9 54.9 4.3 5.4 16.7

310 607 1,740 518 20.0 951 1,033 245 244 1.2 1.9 5.1 7.3 13.1

120 498 1,629 379 105 932 1,127 154 239 1.3 9.3 4.5 6.9 12.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1225 17th St, Denver, CO 80202-5534. Telephone: 303-279-6565. Website: http://www.molsoncoors.com Chrmn: P.H. Coors

Pres & CEO: P.S. Swinburn Vice Chrmn: A.T. Molson CFO: S. Glendinning Chief Acctg Officer & Cntlr: W.G. Waters

Investor Contact: D. Dunnewald (303-279-6565) Founded: 1873 Board Members: F. Bellini, R. Brewer, J. E. Cleghorn, C. Domicile: Delaware C. Coors, P. H. Coors, R. Hargrow, C. M. Herington, F. Employees: 14,540 W. Hobbs, A. T. Molson, E. H. Molson, G. E. Molson, I. Napier, D. P. Obrien, H. S. Riley, P. S. Swinburn

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MON | MON is in the S&P 500

Monsanto Co

★★★★★

S&P Recommendation HOLD

Price $57.15 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Fertilizers & Agricultural Chemicals

12-Mo. Target Price $55.00

Investment Style Large-Cap Blend

Summary This company is a global provider of agricultural products and integrated solutions for farmers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $87.06– 44.61 Trailing 12-Month EPS $2.01 Trailing 12-Month P/E 28.4 $10K Invested 5 Yrs Ago $20,460

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.90 NA 19.7 540.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$30.887 1.96 $1.12 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.79 12 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects MON's exposure to global agricultural markets and currencies, adverse weather, unfavorable legal and regulatory developments, and risks relating to the enforcement of intellectual property rights. This is offset by relatively low exposure to economic cycles and our view of consistent cash flow generation.

160 120

80 60

Vol. 92

45 30 15 0 5

Quantitative Evaluations

106

Mil.

S&P Quality Ranking 4

3

D

5 3

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 61

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P

➤

➤

➤

Following a 10% revenue decline in FY 10 (Aug.), we look for a 9% increase for FY 11. In our view, revenues will largely be driven by volume gains and a shift in mix as the latest generation of seeds are rolled out. Still, MON's strategic shift last year toward offering greater seed/trait variety and a larger number of price points will, in our view, lead to flat pricing, on average. For Roundup, we expect sales to be flat in FY 11 with volume gains balancing out lower prices after MON had to sharply cut prices during FY 10 in response to aggressive tactics by competitors. With initiatives already under way to lower production costs in its Roundup unit, we think MON will also be more aggressive in managing corporate overhead in the coming year. On this and a shift in the sales mix toward more valueadded seeds, we see margins widening in FY 11. We think there is an overhang of highercost inventories that will pressure margins in early FY 11, but that will likely be cleared out with the spring planting season. Our EPS estimate for FY 11 of $2.90 does not include further restructuring charges, nor does it build in additional stock buybacks.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Kevin Kirkeby on October 12, 2010, when the stock traded at $ 51.83. Highlights

A+

3

MON shares trade at a valuation premium to the S&P 500, reflecting what we see as its above-average earnings growth prospects. We forecast primary contributors being the introduction of next-generation seeds, and development of its smaller product segments. Even so, we believe the combination of a highly competitive glyphosate market and increased regulatory scrutiny will offset the favorable growth prospects for its seeds/traits segment, and warrants a below-average valuation. Risks to our recommendation and target price include below peer-average yield performance from its latest seeds, expansion of antitrust investigations, continued glyphosate oversupply, and a decline in grain prices. Our DCF model, which assumes a 10.3% cost of equity and annual free cash flow growth averaging 10% for five years, slowing to 4% terminal growth thereafter, calculates intrinsic value near $61. Our relative valuation model targets a four-quarter forward P/E multiple of 17.0X, which is below the 10-year historical average, and produces a value of about $49. Blending these two metrics results in our 12-month target price of $55.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,697 3,890 2009 2,649 4,035 2008 2,049 3,727 2007 1,539 2,609 2006 1,405 2,200 2005 1,072 1,908

3Q 2,962 3,161 3,538 2,842 2,348 2,040

4Q 1,953 1,879 2,051 1,573 1,391 1,274

Year 10,502 11,724 11,365 8,563 7,344 6,294

Earnings Per Share ($) 2010 -0.04 1.60 2009 0.98 1.97 2008 0.45 2.00 2007 0.17 0.99 2006 0.11 0.80 2005 -0.24 0.68

0.70 1.25 1.46 1.02 0.61 0.08

-0.26 -0.43 -0.32 -0.52 -0.25 -0.24

2.01 3.78 3.59 1.66 1.27 0.29

Fiscal year ended Aug. 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.265 0.265 0.265 0.280

12/07 01/26 06/09 08/04

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

01/29/10 04/30/10 07/30/10 10/29/10

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MON

Monsanto Co Business Summary October 12, 2010 CORPORATE OVERVIEW. Monsanto (MON) produces leading seed brands and develops biotechnology traits that assist farmers in controlling insects and weeds, and provides other seed companies with genetic material and biotech traits. MON's Roundup herbicides are used for agricultural, industrial and residential weed control, and are sold in more than 80 countries. MARKET PROFILE. The company operates in two segments: agricultural productivity, and seeds and genomics. Agricultural productivity (28% of sales and 11% of gross profits in FY 10 (Aug.)) consists of MON's crop protection products (Roundup herbicide and other glyphosate products), its animal agriculture business, and the Roundup lawn and garden products. In FY 10, Roundup and other glyphosate-based herbicides accounted for 19% of total sales, down from 30% in FY 09. Patent protection for the active ingredient in Roundup herbicides expired in the U.S. in 2000. MON repositioned itself as one of the lowest cost producers, while still working to retain the higher pricing afforded a premium brand. Still, selling prices came under renewed pressure during FY 10 as global production of generic glyphosate rose. This forced MON to cut prices sharply and initiate a new round of restructuring. We think this division will contribute just 18% of sales in FY 11 as the impact of the low-

er pricing offsets a partial recovery in volumes. Seeds and genomics (72% of sales and 89% of gross profits) consists of the global seeds and related traits businesses, and technology platforms based on plant genomics, which increases the speed and power of genetic research. MON's seeds and genomics segment focuses on corn, soybeans and other oilseeds, cotton and wheat. Given the loss of patent protection for Roundup, we believe MON has focused on capturing value and profitability in its patent-protected seeds and traits business, and expanded its product line through its acquisition of Seminis in 2005 and De Ruiter in 2008, among other smaller purchases. De Ruiter is a leader in the protected-culture segment of the vegetable seeds market, where MON had little presence. Given this trend, we think that the growth and margin outlook for MON's seeds and genomics segment is superior to that of its agricultural productivity segment.

Company Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA 3.10 2.01 NA 1.06 53% 87.06 44.61 43 22

2009 10.02 4.77 3.78 3.60 1.01 27% 93.35 66.57 25 18

2008 8.59 4.61 3.59 3.27 0.77 21% 145.80 63.47 41 18

2007 6.35 2.61 1.66 1.72 0.48 29% 116.25 49.10 70 30

2006 6.95 2.25 1.27 1.36 0.39 30% 53.49 37.91 42 30

2005 5.99 1.21 0.29 0.67 0.33 113% 39.93 25.00 NM 86

2004 7.71 1.37 0.51 0.68 0.27 53% 28.22 14.04 55 28

2003 7.26 0.56 -0.02 0.61 0.25 NM 14.45 6.78 NM NM

2002 7.24 1.12 0.25 0.01 0.24 98% 17.00 6.60 69 27

2001 7.84 1.61 0.57 0.52 0.23 40% 19.40 13.44 34 24

10,502 2,533 602 162 1,494 NA 1,105 NA

11,724 4,161 548 163 2,967 28.5% 2,098 1,997

11,365 3,458 573 132 2,926 30.7% 2,007 1,830

8,563 2,138 527 139 1,336 30.1% 922 951

7,344 1,694 519 134 1,055 32.2% 698 745

6,294 1,503 488 115 261 39.8% 157 363

5,457 1,254 452 91.0 402 32.6% 271 362

3,373 768 302 57.0 -38.0 NM -11.0 317

4,673 882 460 59.0 202 36.1% 129 5.45

5,462 1,335 554 99.0 463 35.9% 297 277

Balance Sheet & Other Financial Data (Million $) Cash 1,485 Current Assets 7,172 Total Assets 17,917 Current Liabilities 3,587 Long Term Debt 1,862 Common Equity 10,099 Total Capital 12,005 Capital Expenditures 755 Cash Flow 1,707 Current Ratio 2.0 % Long Term Debt of Capitalization 15.5 % Net Income of Revenue 10.5 % Return on Assets 6.2 % Return on Equity 11.0

1,956 7,883 17,874 3,756 1,724 10,056 11,780 916 2,646 2.1 14.6 17.9 11.7 21.6

1,613 7,609 17,993 4,439 1,792 9,374 11,370 918 2,580 1.7 15.8 17.7 13.0 23.8

866 5,084 12,983 3,075 1,150 7,503 8,653 509 1,449 1.7 13.3 10.8 7.5 13.0

1,460 5,461 11,728 2,279 1,639 6,680 8,319 370 1,217 2.4 19.7 9.5 6.3 11.2

525 4,644 10,579 2,159 1,458 5,613 7,071 281 645 2.2 20.6 2.5 1.6 2.9

1,037 4,931 9,164 1,894 1,075 5,258 6,333 210 723 2.6 17.0 5.0 2.9 5.2

511 4,962 9,461 1,944 1,258 5,156 6,414 114 291 2.6 19.6 NM NM NM

428 4,424 8,890 1,810 851 5,180 6,031 224 589 2.4 14.1 2.8 1.3 2.0

307 4,797 11,429 2,377 893 7,483 8,376 382 851 2.0 10.7 5.4 2.6 4.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 800 North Lindbergh Boulevard, St. Louis, MO 63167-0001. Telephone: 314-694-1000. Email: [email protected] Website: http://www.monsanto.com

Chrmn, Pres & CEO: H. Grant EVP & CFO: C.M. Casale EVP & CTO: R.T. Fraley SVP, Secy & General Counsel: D.F. Snively

Treas: T.D. Hartley Founded: 2000 Investor Contact: S.L. Foster (314-694-8148) Domicile: Delaware Board Members: F. V. AtLee, III, J. W. Bachmann, D. L. Employees: 27,000 Chicoine, J. Fields, H. Grant, A. H. Harper, G. S. King, C. S. McMillan, W. U. Parfet, G. H. Poste, B. Stevens

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MWW | MWW is in the S&P 500

Monster Worldwide Inc S&P Recommendation BUY

★★★★★

Price $14.13 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Internet Software & Services

12-Mo. Target Price $18.00

Investment Style Large-Cap Blend

Summary Monster Worldwide operates a multinational online career network. It also provides offerings to help consumers develop and direct their careers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.10– 10.01 Trailing 12-Month EPS $0.03 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $4,670

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.05 0.40 NM 129.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.834 Nil Nil 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.16 171 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the help wanted industry, as it strongly correlates with the economy. In addition, foreign operations carry operating and exchange rate risks.

40 30 20

Quantitative Evaluations

10

S&P Quality Ranking Vol.

D

C

B-

BB

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

STRONG 83

LOWEST = 1

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Michael W. Jaffe on August 04, 2010, when the stock traded at $ 13.84. Highlights ➤

➤

➤

We expect a 1% rise in revenues in 2010, followed by a 15% gain in 2011. Revenues have been much lower for the past two years, as U.S. labor markets have been depressed, and major downturns were also experienced in Monster's foreign markets. However, with global economies now seemingly in the midst of recoveries, we see a healthy rise in demand for MWW's services over the coming year. We see slightly narrower net margins in 2010, on the still sluggish revenue level that we forecast and a likely increase in employee salary and benefit costs (on improving trends in contract bookings). We expect margins to improve in 2011, largely on our outlook for better revenue trends. We also see margins in both years being aided by some likely incremental benefits from MWW's restructuring program, completed in mid-2009, which we believe has brought considerable cost control discipline. Our 2011 forecast compares with a 2010 forecast that excludes $0.08 a share of one-time charges in the year's first half. Our forecasts will not incorporate the planned acquisition of Yahoo! HotJobs until the deal closes (expected in 2010's third quarter).

Investment Rationale/Risk ➤

➤

➤

We think that a likely ongoing recovery of global economies will allow Monster's business to rebound in coming periods. We also have a positive view of MWW's pending acquisition of Yahoo! HotJobs, as we think Monster will derive a substantial benefit from having access to Yahoo's vast traffic network. Moreover, we have been impressed by MWW's aggressive actions to operate more efficiently and rein in costs. Based on these factors and our valuation model, we find the shares undervalued. Risks to our recommendation and target price include weaker-than-projected global labor markets, and less than expected success in MWW's restructuring initiatives. MWW's business is highly cyclical, as evidenced by the sharp downturn in its results over the past couple of years. Yet, it typically records growth above that of peers. On these views, we think MWW is undervalued. Our 12-month target price is $18, or 45X our 2011 EPS estimate, which is in the top half of MWW's historical range. We think that valuation is merited by our belief that MWW is poised for a strong business rebound once a labor recovery takes place.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 215.3 214.9 2009 254.4 223.1 2008 366.5 354.3 2007 329.0 331.2 2006 257.0 275.2 2005 232.1 239.0

3Q -214.5 332.2 337.1 285.9 249.3

4Q -213.2 290.7 354.0 298.6 266.6

Year -905.1 1,344 1,351 1,117 986.9

Earnings Per Share ($) 2010 -0.20 -0.02 2009 -0.09 -0.01 2008 0.19 0.15 2007 0.30 0.21 2006 0.26 0.29 2005 0.19 0.21

E0.02 0.27 0.36 0.25 0.31 0.25

E0.07 -0.02 0.24 0.36 0.31 0.28

E-0.05 0.16 0.94 1.13 1.17 0.92

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: MWW

Monster Worldwide Inc Business Summary August 04, 2010 CORPORATE OVERVIEW. Monster Worldwide is a leading online recruitment and career management services provider through its Monster.com Web site. MWW's clients range from Fortune 100 companies, to small and mediumsized enterprises and government agencies. During 2009, the company derived 45% of its revenues from its Monster Careers North America division, 40% from Monster Careers International, and 15% from its Advertising & Fees division. No client accounts for more than 5% of MWW's revenues. Among the most visited brands on the Internet, the Monster network is designed to connect companies with qualified job seekers, offering innovative technology and services that provide greater control over the recruiting process. As of early 2010, the Monster.com network was available in about 50 countries.

fee, including resume writing, resume priority listing, and premium networking. MWW charges a fee to employers and human resources professionals who want to post jobs, search its resume database, and use its career site hosting and other ancillary services. The company's Internet Advertising & Fees division provides consumers with content, services and offers, to help them manage the development and direction of their current and future careers. The majority of its services are free to users and are primarily available in North America at present, although MWW plans to expand its offerings across its global network. Revenues for the division are derived mostly from lead generation, display advertising, and products sold to consumers for a fee.

Monster's job search, resume posting services and basic networking are free to the job seeker. It also offers premium career services to job seekers at a Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.37 0.72 0.16 0.12 Nil Nil 19.28 5.95 NM NM

2008 0.85 1.42 0.94 1.16 Nil Nil 32.66 8.91 35 9

2007 3.97 1.49 1.13 1.13 Nil Nil 54.79 31.07 48 27

2006 3.65 1.47 1.17 1.17 Nil Nil 59.99 34.75 51 30

2005 1.47 1.22 0.92 0.47 Nil Nil 42.03 22.44 46 24

2004 0.27 0.92 0.62 0.37 Nil Nil 34.25 17.60 55 28

2003 0.18 0.31 0.06 -0.08 Nil Nil 29.65 7.63 NM NM

2002 2.02 -0.46 -0.96 -1.48 Nil Nil 48.13 7.94 NM NM

2001 2.61 1.28 0.61 0.10 Nil Nil 68.73 25.21 NM NM

2000 5.16 1.11 0.53 NA Nil Nil 94.69 45.00 NM NM

905 72.6 68.5 1.43 -19.0 199.9% 18.9 14.5

1,344 284 58.0 NA 179 36.2% 114 141

1,351 303 47.0 Nil 232 36.5% 147 147

1,117 270 39.8 Nil 241 36.3% 154 154

987 214 38.0 Nil 179 35.8% 115 59.2

846 152 37.6 Nil 112 34.6% 73.1 44.0

680 101 28.0 Nil 23.6 69.0% 7.32 -8.08

1,115 112 55.5 4.90 -130 NM -107 -165

1,448 262 76.0 10.6 125 46.1% 69.0 11.4

1,292 222 62.6 9.49 114 50.5% 56.9 NA

Balance Sheet & Other Financial Data (Million $) Cash 285 Current Assets 645 Total Assets 1,827 Current Liabilities 507 Long Term Debt 45.0 Common Equity 1,133 Total Capital 1,183 Capital Expenditures 48.7 Cash Flow 87.5 Current Ratio 1.3 % Long Term Debt of Capitalization 3.8 % Net Income of Revenue 2.1 % Return on Assets 1.0 % Return on Equity 1.7

224 683 1,917 724 0.01 1,047 1,072 93.6 173 0.9 Nil 8.5 5.7 10.6

578 1,185 2,078 829 0.23 1,117 1,136 64.1 194 1.4 0.0 10.9 7.3 13.2

58.7 1,124 1,970 826 0.42 1,110 1,143 55.6 193 1.4 0.0 13.8 8.4 15.0

320 773 1,679 697 15.7 920 981 39.8 153 1.1 1.6 11.7 7.1 13.7

198 704 1,544 731 34.0 756 789 24.3 111 1.0 4.3 8.6 5.5 11.9

142 567 1,122 640 2.09 468 470 21.6 35.4 0.9 0.4 1.1 0.5 1.1

192 809 1,631 799 3.93 813 817 46.7 -51.0 1.0 0.5 NM NM NM

341 1,006 2,206 930 9.13 1,229 1,238 73.6 145 1.1 0.7 4.8 3.2 6.0

572 1,248 1,992 853 28.0 1,058 1,086 78.9 119 1.5 2.6 4.4 3.7 8.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 622 Third Ave, New York, NY 10017-6707. Telephone: 212-351-7000. Email: [email protected] Website: http://www.monsterworldwide.com

Chrmn, Pres & CEO: S. Iannuzzi EVP & CFO: T.T. Yates EVP & Chief Admin Officer: L. Poulos EVP, Secy & General Counsel: M.C. Miller

EVP & CIO: D. Dejanovic Investor Contact: T.T. Yates Board Members: R. J. Chrenc, J. R. Gaulding, E. P. Giambastiani, Jr., S. Iannuzzi, C. P. McCague, J. F. Rayport, R. Tunioli, T. T. Yates

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Delaware Employees: 5,700

Stock Report | October 23, 2010 | NYS Symbol: MCO | MCO is in the S&P 500

Moody's Corp. S&P Recommendation HOLD

★★★★★

Price $26.84 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized Finance

12-Mo. Target Price $23.00

Investment Style Large-Cap Growth

Summary Moody's is a leading global credit rating, research and risk analysis concern.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.04– 18.50 Trailing 12-Month EPS $1.84 Trailing 12-Month P/E 14.6 $10K Invested 5 Yrs Ago $5,533

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.80 1.90 14.9 234.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Our risk assessment reflects Moody's significant market share in the high barrier-to-entry ratings industry, and what we consider the company's net positive balance sheet cash position, offset by ratings business sensitivity to higher interest rates, and the possibility of regulatory reform designed to increase competition.

40 30 20

Quantitative Evaluations

Vol. 77

Mil.

64

S&P Quality Ranking

30 20 10 0

D 4

5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

3

A+ STRONG

78

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Royal F. Shepard, CFA on August 13, 2010, when the stock traded at $ 22.13. Highlights We expect a resurgence in debt issuance by U.S. corporations and financial institutions to drive revenue growth in 2010. Also, scheduled debt maturities could spark demand in the speculative grade sector. Non-U.S. demand will be more tepid, in our view, primarily due to a decline in new issuance by the European insurance and banking sectors. We project steady growth for analytical services, including risk management software. Overall, we look for a 2010 revenue increase of about 6.5%. Financial reform, passed by the U.S. Congress in July, will result in new rule-making and compliance standards to be implemented by the SEC. In our view, MCO will need to ramp up hiring for intensified regulatory compliance in 2010. This may include the increased documentation of ratings decisions and the use of thirdparty verification services where appropriate. We project about $15 million in incremental costs in 2010, increasing to an estimated $25 million in 2011. Our 2010 EPS estimate is $1.80, up from $1.69 in 2009. During the second quarter, MCO reactivated its $1.4 billion share repurchase program to buy back 2.8 million shares for $70 million.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

1.32 4 BBB+

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

80

➤

$6.289 1.56 $0.42 NM

We believe MCO's credit ratings business has significant barriers to entry, which should help it maintain steady cash flow despite increased spending for regulatory compliance. We also expect growth to come from capital markets development overseas, acquisitions, and analytical services. We think the economic environment in the U.S. is beginning to improve, although the sovereign debt crisis in southern Europe could slow growth opportunities overseas. Recently passed financial reform is likely to increase regulatory scrutiny as new rules are implemented by the SEC. Risks to our opinion and target price include a greater-than-anticipated decline in the volume of debt issued in domestic and global capital markets, regulatory changes that increase competition, and persistently high long-term interest rates. Our 12-month target price of $23 is based primarily on applying an 8.0X EV/EBITDA multiple to our 2010 EBITDA estimate of $820 million. This multiple is at the low end of MCO's historical average, which we think is appropriate given an uncertain outlook for regulatory reform and potential litigation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 476.6 477.8 2009 408.9 450.7 2008 430.7 487.6 2007 583.0 646.1 2006 440.2 511.4 2005 390.5 446.8

3Q -451.8 433.4 525.0 495.5 421.1

4Q -485.8 403.7 504.9 590.0 473.2

Year -1,797 1,755 2,259 2,037 1,732

Earnings Per Share ($) 2010 0.47 0.51 2009 0.38 0.46 2008 0.48 0.55 2007 0.62 0.95 2006 0.49 0.59 2005 0.39 0.47

E0.42 0.42 0.46 0.51 0.55 0.48

E0.43 0.43 0.37 0.49 0.97 0.50

E1.80 1.69 1.87 2.58 2.58 1.84

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.105 0.105 0.105

10/29 12/15 04/21 07/29

11/18 02/17 05/18 08/18

11/20 02/20 05/20 08/20

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1934. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MCO

Moody's Corp. Business Summary August 13, 2010 CORPORATE PROFILE. Moody's Investors Service and the Dun & Bradstreet (D&B) operating company were separated into stand-alone entities on September 30, 2000. Old D&B changed its name to Moody's Corp. (MCO), and new D&B assumed the name Dun & Bradstreet Corp. (DNB). Moody's is a provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, and a provider of quantitative credit assessment services, credit training services and credit process software to banks and other financial institutions. Moody's credit ratings and research help investors analyze the credit risks associated with fixed-income securities. Beyond credit rating services for issuers, Moody's provides research services, data, and analytic tools that are utilized by institutional investors and other credit and capital markets professionals. Moody's provides ratings and credit research on governmental and commercial entities in more than 110 countries, and its customers include a wide range of corporate and governmental issuers of securities as well as institutional investors, depositors, creditors, investment banks, commercial banks, and other financial intermediaries. In 2009, 48.8% of total revenues were derived from non-U.S. markets.

Moody's operates in two reportable segments: Moody's Investors Service (MIS), and Moody's Analytics. Moody's Investors Service consists of core credit ratings services, including four ratings groups: corporate finance (34% of 2009 segment revenues), structured finance (25%), financial institutions and sovereign risk (21%), and public finance (20%). MIS revenues are derived from the originators and issuers of such transaction, typically known as an IssuerFee Model. The ratings groups generate revenue mainly from the assignment of credit ratings on fixed-income instruments in the debt markets. Moody's Analytics (MA), formerly Moody's KMV, provides a variety of credit risk processing and credit risk management products for banks and investors in credit-sensitive assets in about 120 countries. In addition, MA distributes investor-oriented research and data developed by MIS as part of its credit rating business. MA estimates that more than 30,000 clients access its data and research, primarily through the Moody's research web site.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.96 1.69 1.69 0.40 24% 31.79 15.57 19 9

2008 NM 2.06 1.87 1.85 0.38 20% 46.36 15.41 25 8

2007 NM 2.73 2.58 2.61 0.32 12% 76.09 35.05 29 14

2006 NM 2.72 2.58 2.26 0.28 11% 73.29 49.76 28 19

2005 0.30 1.95 1.84 1.83 0.20 11% 62.50 39.55 34 21

2004 0.39 1.51 1.40 1.35 0.15 11% 43.86 29.85 31 21

2003 NM 1.30 1.20 1.12 0.09 8% 30.43 19.75 25 17

2002 NM 1.00 0.92 0.85 0.07 7% 26.20 17.90 29 20

2001 NM 0.72 0.66 0.64 0.11 17% 20.55 12.78 31 19

2000 NM 0.54 0.49 NA 0.28 57% 18.09 11.31 37 23

1,797 769 64.1 44.0 646 37.0% 402 402

1,755 818 46.7 73.7 726 37.0% 458 452

2,259 1,222 41.2 62.2 1,117 37.2% 702 710

2,037 1,138 39.5 15.2 1,261 40.2% 754 662

1,732 975 35.2 21.0 935 40.0% 561 558

1,438 820 34.1 16.2 771 44.9% 425 413

1,247 696 32.6 21.8 656 44.6% 364 340

1,023 563 25.0 21.0 517 44.1% 289 269

797 416 17.0 16.5 382 44.4% 212 203

602 305 16.6 3.60 284 44.2% 159 NA

Balance Sheet & Other Financial Data (Million $) Cash 484 Current Assets 1,013 Total Assets 2,004 Current Liabilities 1,236 Long Term Debt 746 Common Equity -596 Total Capital 154 Capital Expenditures 90.7 Cash Flow 466 Current Ratio 0.8 % Long Term Debt of Capitalization 484.9 % Net Income of Revenue 22.4 % Return on Assets 21.3 % Return on Equity NM

253 809 1,772 1,393 750 -996 -244 84.4 504 0.6 NM 26.1 26.3 NM

441 989 1,715 1,349 600 -784 -184 182 743 0.7 -326.8 31.1 43.7 NM

408 1,002 1,498 700 300 167 467 31.1 793 1.4 64.2 37.0 51.0 316.2

486 1,052 1,457 579 300 309 609 31.3 596 1.8 49.2 32.4 39.4 178.9

606 1,023 1,376 837 Nil 318 318 21.3 459 1.2 Nil 29.6 36.5 297.9

269 569 941 432 300 -32.1 268 17.9 397 1.3 112.0 29.2 46.3 NM

40.0 272 631 462 300 -327 -27.0 18.0 314 0.6 NM 28.2 50.9 NM

163 371 505 359 300 -304 -4.10 14.8 229 1.0 NM 26.6 47.0 NM

119 278 398 253 300 -283 17.5 12.3 175 1.1 NM 26.3 47.1 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7 World Trade Center, at 250 Greenwich Street, New York, NY 10007. Telephone: 212-553-0300. Website: http://www.moodys.com Chrmn & CEO: R.W. McDaniel, Jr.

EVP & CFO: L.S. Huber SVP, Chief Acctg Officer & Cntlr: J. McCabe SVP & General Counsel: J.J. Goggins SVP & CIO: T. Stoupas

Investor Contact: L. Westlake (212-553-7179) Board Members: B. L. Anderson, J. D. Duffie, R. R. Glauber, E. Kist, R. W. McDaniel, Jr., C. McGillicuddy, III, H. A. McKinnell, Jr., N. S. Newcomb, J. K. Wulff

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1998 Domicile: Delaware Employees: 4,000

Stock Report | October 25, 2010 | NYS Symbol: MS | MS is in the S&P 500

Morgan Stanley S&P Recommendation HOLD

★★★★★

Price $24.38 (as of Oct 25, 2010)

GICS Sector Financials Sub-Industry Investment Banking & Brokerage

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary Morgan Stanley is among the largest financial services firms in the U.S., with operations in investment banking, securities, and investment and wealth management.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $35.00– 22.40 Trailing 12-Month EPS $1.27 Trailing 12-Month P/E 19.2 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.34 3.10 10.4 1,397.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.44 40 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our favorable view of the company's diversification by product and by region, offset by our concerns about corporate governance and view that certain segments lack competitive advantages.

80 40 20 10

Quantitative Evaluations S&P Quality Ranking

Vol. 956

Mil.

D

322

150 100 50 0 5

$34.058 0.82 $0.20 72

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ WEAK

17 3

2

3

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Robert McMillan on October 20, 2010, when the stock traded at $ 25.24. Highlights ➤

We think he outlook for investment banking has brightened somewhat, although recent market volatility and economic weakness suggest that trading results will be uneven. We expect improved margins in the asset management business as the firm focuses on institutional clients. Also, wealth management results should continue to improve as the Morgan Stanley Smith Barney joint venture gains momentum. We think MS is on solid financial footing now, with sufficient excess capital and credit spreads on its own debt that have narrowed to near precrisis levels. We forecast that net revenues will rise 29% in 2010 and 11% in 2011.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect compensation costs to decline to around 50% of net revenues in 2010 and 2011, helped by a more normal revenue stream. Noncompensation costs may rise as business volume picks up, although they should decline on a relative basis, helping the pretax margin. We project earnings of $2.34 in 2010 and $3.10 in 2011, although these estimates are clouded by the impact of new regulations, which are likely to limit the size and scope of operations and raise costs.

➤

Revenue/Earnings Data

2010

We think the creation of the Smith Barney joint venture and its sizable brokerage force will provide some long-term revenue stability. We believe trends in the Institutional Securities segment have improved, although near-term hurdles exist, and we think a global footprint will continue to provide business opportunities. We are also encouraged that MS was able to raise funds relatively easily to repay investments under TARP and is now well capitalized, by our analysis. Still, we think the company continues to lag peers at this point in the recovery, and we view the shares as appropriately valued. Risks to our recommendation and target price include stock and bond market depreciation and widening credit spreads, as well as additional industry regulation. MS recently traded at a discount to the overall market and its historical average multiples. Our 12-month target price of $30 represents a discount to our 2011 year end book value per share projection, a discount we think is warranted given the company's mix of businesses, which are sensitive to volatility in the capital markets.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,367 1,603 2009 5,417 1,881 2008 21,184 16,523 2007 23,192 26,195 2006 18,119 19,062 2005 11,641 11,845

3Q 1,754 1,408 16,699 21,230 20,055 13,157

4Q -1,190 1,829 14,711 19,473 15,525

Year -6,712 62,264 85,328 76,551 52,081

Earnings Per Share ($) 2010 1.03 0.60 2009 -0.57 -1.37 2008 1.45 0.95 2007 2.17 2.24 2006 1.50 1.85 2005 1.23 0.86

0.05 0.38 1.32 1.32 1.75 1.09

E0.46 0.13 -2.24 -3.61 2.08 1.69

E2.34 -0.94 1.54 2.37 7.09 4.81

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

01/20 04/21 07/21 10/20

01/27 04/28 07/28 10/27

01/29 04/30 07/30 10/29

02/12/10 05/14/10 08/13/10 11/15/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: MS

Morgan Stanley Business Summary October 20, 2010 CORPORATE OVERVIEW. Morgan Stanley is a global financial services firm that provides a comprehensive suite of products to a diverse group of clients and customers, including corporations, governments, financial institutions and individuals. MS currently has three operating segments: Institutional Securities, Global Wealth Management Group and Asset Management. The Institutional Securities segment includes capital raising; financial advisory services; corporate lending; sales, trading, financing and market-making activities for equity and fixed-income securities and related products such as foreign exchange and commodities; benchmark indices and risk management analytics; research; and investment activities. The investment banking business is included in this segment, and includes capital raising activities, financial advisory services and corporate lending. This business is one of the largest in the world, ranking second globally during its fiscal year in announced mergers and acquisitions, third in initial public offerings, and 10th in global debt issuance. This segment accounted for approximately 55% of net revenues in 2009.

ance products; credit and other lending products; banking and cash management services; retirement services; and trust and fiduciary services through the 51%-owned Morgan Stanley Smith Barney joint venture with Citigroup (C 4, Buy). It provides these services to clients through a network of more than 18,000 global representatives, overseeing $1.6 trillion in client assets at the end of 2009. The segment accounted for about 40% of net revenues in 2009. The Asset Management segment provides global asset management products and services in equity, fixed income, alternative investments and private equity to institutional clients. It had $253 billion of assets under management or supervision at the end of 2009. These totals exclude its retail asset management unit, which the company has sold to Invesco (IVZ 22, Buy). In the deal, completed in June 2010, MS gained about a 6.5% stake in Invesco. MS hopes to renew its focus on institutional asset management customers. The segment accounted for 6% of net revenues in 2009.

The Global Wealth Management Group provides brokerage and investment advisory services; financial and wealth planning services; annuity and insurCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 18.38 -0.94 -1.15 0.40 NM 35.78 13.10 NM NM

2008 27.24 1.54 1.07 1.08 70% 53.40 6.71 8 1

2007 25.75 2.37 2.17 1.08 46% 90.95 47.25 38 20

2006 34.89 7.09 7.12 1.08 15% 83.40 54.52 12 8

2005 25.23 4.81 5.00 1.08 22% 60.51 47.66 13 10

2004 23.93 4.08 4.18 1.00 25% 62.83 46.54 15 11

2003 21.52 3.45 3.48 0.92 27% 58.78 32.46 17 9

2002 19.43 2.69 2.38 0.92 34% 60.02 28.80 22 11

2001 17.36 3.19 2.84 0.92 29% 90.49 35.75 28 11

2000 16.91 4.73 NA 0.80 17% 110.00 58.63 23 12

990 22,368 Nil 22,501 61.8% 857 NM 1,133 NA -1,371

3,202 21,537 Nil 22,452 49.9% 2,287 21.0% 1,807 NA 1,163

2,781 25,245 831 24,858 96.0% 3,394 24.5% 2,563 NA 2,284

3,279 45,558 756 23,614 84.6% 10,772 30.4% 7,497 NA 7,511

3,750 23,906 878 20,857 84.2% 7,050 26.4% 5,192 NA 5,401

3,731 20,959 925 18,333 80.8% 6,312 28.6% 4,509 NA 4,624

2,935 19,189 1,267 16,636 79.9% 5,334 29.0% 3,787 5.40 3,830

3,896 16,549 1,336 15,725 81.3% 4,633 35.5% 2,988 5.50 2,658

3,348 19,600 1,052 17,264 84.6% 5,684 36.5% 3,610 5.57 3,203

3,058 24,179 810 18,746 79.5% 8,526 36.0% 5,456 6.08 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 168,211 Investment Securities 313,434 Earning Assets:Total Loans 7,259 Total Assets 771,462 Demand Deposits 57,114 Time Deposits 5,101 Long Term Debt 167,286 Common Equity 37,091 % Return on Assets 0.2 % Return on Equity 3.4 % Loan Loss Reserve Nil % Loans/Deposits 12.2 % Loans/Assets 1.0 % Equity to Assets 4.7

140,155 233,542 6,528 658,812 36,673 6,082 141,466 31,676 0.2 5.8 Nil 24.5 1.1 3.6

126,887 457,192 11,629 1,045,409 27,186 3,993 190,624 30,169 0.2 7.7 Nil 78.0 2.1 3.0

174,866 680,484 24,173 1,120,645 14,872 13,471 144,978 34,264 0.7 23.5 3.3 85.2 2.3 3.1

174,330 304,172 23,754 898,523 2,629 16,034 110,465 29,248 0.6 18.9 3.5 127.3 2.7 3.3

123,041 260,640 21,169 775,410 1,117 12,660 95,286 28,272 0.7 16.9 4.5 153.7 3.0 3.9

78,205 228,904 20,384 602,843 1,264 11,575 68,410 24,933 0.7 16.2 4.9 158.8 3.9 4.1

76,910 185,588 24,322 529,499 1,441 12,316 43,985 21,951 0.6 14.1 3.8 176.8 4.5 4.2

54,618 164,011 20,955 482,628 1,741 10,535 40,851 20,437 0.8 18.2 4.0 170.7 4.7 4.3

50,992 130,818 21,870 426,794 1,589 10,341 36,830 18,796 1.4 30.3 3.6 183.3 5.4 4.5

Income Statement Analysis (Million $) Net Interest Income Non Interest Income Loan Loss Provision Non Interest Expenses % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Prior to 2009, fiscal year ended November 30. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1585 Broadway, New York, NY 10036. Telephone: 212-761-4000. Website: http://www.morganstanley.com Chrmn: J.J. Mack

Pres & CEO: J. Gorman COO: T.R. Nides EVP & CFO: R. Porat Chief Admin Officer: S. Barney

Investor Contact: W. Pike (212-761-0008) Board Members: R. J. Bostock, E. B. Bowles, H. Davies, J. Gorman, J. H. Hance, Jr., N. Hirano, C. R. Kidder, J. J. Mack, D. T. Nicolaisen, H. Olayan, O. G. Sexton, L. D. Tyson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Auditor: Deloitte & Touche Founded: 1981 Domicile: Delaware Employees: 61,388

Stock Report | October 23, 2010 | NYS Symbol: MOT | MOT is in the S&P 500

Motorola Inc. S&P Recommendation BUY

★★★★★

Price $7.83 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $10.00

Investment Style Large-Cap Blend

Summary This manufacturer of wireless and networking equipment for cable, fixed-line and wireless service providers recently announced plans to split into two independent public companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.36– 6.04 $0.17 46.1 $3,980

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.26 0.37 30.1 2,333.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.274 Nil Nil 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.70 10 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to the economic health of the telecom and broadband industries and risks related to high-volume manufacturing and distribution to service providers. This is offset by our view of MOT's strong cash balance.

20 12 8

4

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 240 160 80 0

D

C

B-

C B

B+

A-

A

Relative Strength Rank

5

4

3

A+ WEAK

24 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by James Moorman, CFA on July 30, 2010, when the stock traded at $ 7.50. Highlights ➤

➤

➤

Following a 27% drop in sales in 2009, we expect a slight increase of 0.5% in 2010 and then an increase of 5.2% in 2011. We look for a recovery in MOT's still large Mobile Devices unit in 2010 and a 59% increase in average selling prices to be offset by a roughly 33% decrease in volumes. We expect Mobile Devices, Home and Enterprise to see continued improvement in the second half of the year. Despite our expectations for a slight decline in revenues in 2010, we believe gross margins will improve to 36.6% in 2010, from 32% in 2009, and then be roughly flat at 36.7% in 2011. The wider margins should reflect improvements in MOT's handset manufacturing process and a focus on higher-margin smartphones. We believe that Home and Networks profitability will improve in 2010, despite the projected decline in revenues. After breakeven operating earnings in 2009, we expect EPS of $0.26 in 2010 and $0.37 in 2011, including projected stock option expense.

Investment Rationale/Risk ➤

➤

➤

We are encouraged by MOT's efforts to lower costs and consolidate its mobile device operations as it seeks to return the business to profitability. We believe MOT will focus more on the high-end smartphone market, which could mean lower volumes but higher selling prices and margins. We anticipate mixed operating performance in non-handset operations due in part to the economy. Management recently announced plans to split the company into two publicly traded entities in 2011 and a deal to sell the wireless network infrastructure business to Nokia Siemens Networks for $1.2 billion. Risks to our recommendation and target price include execution risks involving the handset unit, failure to successfully introduce and ship new handset products, increasing competition in the handset and smartphone markets, and a slowdown in telecom equipment capital spending. Based on a below-peers enterprise valueto-sales multiple of 1.05X our 2011 estimate, our 12-month target price is $10. We believe the shares are attractive at current levels.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,044 5,414 2009 5,371 5,497 2008 7,448 8,082 2007 9,433 8,732 2006 9,608 10,876 2005 8,161 8,825

3Q -5,453 7,480 8,811 10,603 9,424

4Q -5,723 7,136 9,646 11,792 10,433

Year -22,044 30,146 36,622 42,879 36,843

Earnings Per Share ($) 2010 0.03 0.07 2009 -0.13 -0.01 2008 -0.09 Nil 2007 -0.09 -0.02 2006 0.26 0.54 2005 0.28 0.38

E0.08 0.01 -0.18 0.02 0.29 0.69

E0.10 0.06 -1.61 0.05 0.21 0.47

E0.26 -0.05 -1.87 -0.05 1.30 1.82

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2008.

Stock Report | October 23, 2010 | NYS Symbol: MOT

Motorola Inc. Business Summary July 30, 2010 CORPORATE OVERVIEW. Motorola provides wireless and networking equipment for cable and telecom service providers. We believe all these markets are exposed to increased buyers' power due to the industry consolidation of service providers. The Mobile Devices segment (31.7% of sales in the second quarter of 2010, down from 33.3% a year earlier) manufactures wireless handsets for GSM and CDMA standards. With the sale of 160 million handsets in 2007, 100 million in 2008 and 56 million in 2009, we estimate that MOT's global handset market share declined to 13%, 6.5% and 3.7% in the respective years, from 22% in 2006. The Mobile Devices segment incurred operating losses in 2008 and 2009. In October 2008, MOT announced efforts to revamp its handset software platforms to reduce its cost structure and better align its offerings with customer demand for both smartphones and low-end handsets; we believe this will result in a number of product cancellations. We also think this will result in further pressure on handset volumes in 2010. In early 2009, MOT announced an additional work force reduction. We also expect the company to move away

from the low-end handset business and focus more on the high-end smartphone market. The remainder of MOT's revenues come from the Home (16.3%), Enterprise Mobility (34.1%) and Networks (17.8%) segments. In the Networks segment, MOT provides infrastructure for CDMA, GSM and iDEN wireless networks. Within Enterprise Mobility, sales to the government and public safety segments remain a large percentage of the total. COMPETITIVE LANDSCAPE. Within the handset market, we see ongoing pressure from diversified manufacturers such as Nokia and Samsung and smartphone specialists such as Apple and Research in Motion that have been gaining market share as consumers look to use their phones for data services.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.64 0.28 -0.05 -0.08 Nil Nil 9.45 2.98 NM NM

2008 2.42 -1.51 -1.87 -1.16 0.20 NM 16.20 3.00 NM NM

2007 4.28 0.35 -0.05 0.07 0.20 NM 20.91 14.87 NM NM

2006 7.15 1.53 1.30 1.24 0.19 15% 26.30 18.66 20 14

2005 6.67 2.06 1.82 1.18 0.16 9% 24.99 14.48 14 8

2004 5.45 1.15 0.90 0.78 0.16 18% 20.89 13.83 23 15

2003 5.43 1.09 0.38 0.08 0.16 42% 14.40 7.59 38 20

2002 4.85 -0.17 -1.09 -0.93 0.16 NM 17.12 7.30 NM NM

2001 6.07 -0.63 -1.78 -2.23 0.16 NM 25.13 10.50 NM NM

2000 8.50 1.70 0.58 NA 0.16 28% 61.54 15.81 NM NM

22,044 1,322 751 213 -165 46.7% -111 -168

30,146 703 829 313 -2,536 NM -4,163 -2,641

36,622 1,349 906 365 -390 73.1% -105 186

42,879 4,675 558 335 4,610 29.3% 3,261 3,132

36,843 4,851 613 325 6,520 29.5% 4,599 2,964

31,323 3,887 659 199 3,252 32.6% 2,191 1,899

27,058 2,694 1,667 295 1,293 30.9% 893 164

26,679 2,059 2,108 668 -3,446 NM -2,485 -2,084

30,004 -2,595 2,552 645 -5,511 NM -3,937 -4,893

37,580 4,544 2,522 494 2,231 40.9% 1,318 NA

Balance Sheet & Other Financial Data (Million $) Cash 7,963 Current Assets 16,032 Total Assets 25,603 Current Liabilities 8,261 Long Term Debt 3,365 Common Equity 9,775 Total Capital 13,248 Capital Expenditures 275 Cash Flow 640 Current Ratio 1.9 % Long Term Debt of Capitalization 25.4 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

6,979 17,363 27,887 10,620 4,092 9,525 13,602 504 -3,415 1.6 30.1 NM NM NM

8,606 22,222 34,812 12,500 3,991 15,447 20,371 527 801 1.8 19.6 NM NM NM

15,416 30,975 38,593 15,425 2,704 17,142 19,846 649 3,819 2.0 13.6 7.6 8.8 19.3

14,641 27,869 35,649 12,488 3,806 16,673 20,479 583 5,212 2.2 18.6 12.5 13.8 30.7

10,556 21,082 30,889 10,573 4,578 13,331 17,909 494 2,850 2.0 25.6 7.0 7.0 16.8

7,877 17,907 32,098 9,433 7,161 12,689 19,850 655 2,560 1.9 36.1 3.3 2.8 7.5

6,507 17,134 31,152 9,810 7,674 11,239 18,913 607 -377 1.7 40.6 NM NM NM

6,082 17,149 33,398 9,698 8,857 13,691 22,548 1,321 -1,385 1.8 39.3 NM NM NM

3,301 19,885 42,343 16,257 4,778 18,612 24,894 4,131 3,840 1.2 19.2 3.5 3.2 7.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1303 East Algonquin Road, Schaumburg, IL 60196. Telephone: 800-262-8509. Email: [email protected] Website: http://www.motorola.com

Chrmn: D.W. Dorman Co-CEO: G.Q. Brown Co-CEO: S.K. Jha EVP, Secy & General Counsel: A.P. Lawson

SVP & CFO: E.J. Fitzpatrick Founded: 1928 Investor Contact: D. Lindroth (847-576-6899) Domicile: Delaware Board Members: G. Q. Brown, D. W. Dorman, W. R. Employees: 53,000 Hambrecht, S. K. Jha, K. A. Meister, T. J. Meredith, S. C. Scott, III, J. R. Stengel, T. Vinciquerra, D. A. Warner, III, J. A. White, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MTB | MTB is in the S&P 500

M&T Bank Corp S&P Recommendation BUY

★★★★★

Price $74.44 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $85.00

Investment Style Large-Cap Blend

Summary This bank holding company for M&T Bank has offices in New York, Pennsylvania, Maryland, Virginia, West Virginia, New Jersey, Delaware, and Washington, DC.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $96.15– 60.39 Trailing 12-Month EPS $4.63 Trailing 12-Month P/E 16.1 $10K Invested 5 Yrs Ago $8,481

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.72 6.47 13.0 119.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.867 3.76 $2.80 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.83 41 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's large-cap valuation, its history of profitability, its low chargeoff levels relative to peers, and its ability to build capital through income generation.

120

80 60

Quantitative Evaluations

40

S&P Quality Ranking Vol.

D 33

Mil.

B-

B+ B

B+

A-

A

A+

31

12 8 4 0 5

C

Relative Strength Rank

WEAK

11 LOWEST = 1 3

2

2

2

3

HIGHEST = 99

4

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for MTB has recently been changed to $85.00 from $80.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on MTB from MarketScope, see below.

➤

10/20/10 12:02 pm ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF M&T BANK (MTB 74.55****): Q3 EPS of $1.48, vs. $0.97, beat our $1.42 EPS estimate, on higher than expected mortgage banking revenues, offsetting higher than expected loan loss provisions, and lower than expected net interest income. On Q3 results, we raise our '10 EPS estimate to $5.72 from $5.66. Nonperforming loans are up 1% from Q2, a negative, in our view, but this level is still much better than peers. On a recent decline in banking valuation multiples, we reduce our target price to $85 down $5, based on a slight premium to peers 13.1X multiple on our unchanged '11 EPS estimate of $6.47. /E.Oja

Revenue (Million $) 1Q 2Q 2010 934.1 958.3 2009 891.8 954.3 2008 1,197 1,089 2007 1,098 1,161 2006 1,030 1,076 2005 872.6 921.9

3Q -984.6 915.1 1,146 1,127 942.3

4Q -964.5 1,016 1,073 1,127 1,002

Year -3,773 4,217 4,478 4,360 3,738

Earnings Per Share ($) 2010 1.17 1.46 2009 0.49 0.36 2008 1.82 1.44 2007 1.57 1.95 2006 1.77 1.87 2005 1.62 1.69

E1.48 0.97 0.82 1.83 1.85 1.64

E1.56 1.04 0.92 0.60 1.88 1.78

E5.72 2.89 5.01 5.95 7.37 6.73

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.700 0.700 0.700 0.700

11/17 02/16 05/19 08/17

11/27 02/24 05/27 08/30

12/01 02/26 06/01 09/01

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1979. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MTB

M&T Bank Corp Business Summary July 21, 2010 CORPORATE OVERVIEW. M&T Bank Corporation is a Buffalo, NY-based bank holding company with $68.9 billion of assets as of December 31, 2009. Its principal subsidiary is M&T Bank, a New York State chartered bank that focuses its lending on consumers and small and medium-sized businesses in the MidAtlantic region. It also owns M&T Bank, National Association (N.A.), a national banking association that offers selected deposit and loan products on a nationwide basis through direct mail and telephone marketing, and operates other subsidiaries that provide insurance, securities, investments, leasing, mortgage, mortgage reinsurance, real estate and other financial products and services. Following MTB's acquisition of Allfirst Financial Inc., a bank holding company in Baltimore, MD, from Allied Irish Banks, p.l.c. (AIB) in 2003, AIB gained a 22.5% stake in MTB. As of December 31, 2009, AIB owned 22.6% of MTB's common stock. As long as AIB maintains a significant ownership in MTB, each bank will have representation on the other's board.

MARKET PROFILE. As of June 30, 2009, including the acquisition of Marylandbased Provident Bankshares Corporation, MTB had 803 branches and $46.6 billion in deposits, with about 50% of its deposits and 33% of its branches concentrated in New York. In addition, 96.8% of MTB's deposits and 92% of branches were concentrated in the three adjoining states of New York, Maryland and Pennsylvania. In New York, MTB had 266 branches, $23.5 billion in deposits, and a deposit market share of about 2.85%, ranking eighth. In Pennsylvania, MTB had 213 branches, $7.7 billion in deposits, and a deposit market share of about 2.6%, also ranking eighth. In Maryland, MTB had 258 branches, $13.9 billion in deposits, and a deposit market share of about 12.9%, ranking second. Finally, MTB has a smaller presence in the Virginia, the District of Columbia, West Virginia, Delaware and New Jersey.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 28.03 2.89 2.89 2.80 97% 69.89 29.11 24 10

2008 24.21 5.01 4.63 2.80 56% 108.53 52.20 22 10

2007 30.62 5.95 5.87 2.60 44% 125.13 77.39 21 13

2006 30.05 7.37 7.36 2.25 31% 124.98 105.72 17 14

2005 25.56 6.73 6.64 1.75 26% 112.50 96.71 17 14

2004 24.52 6.00 5.97 1.60 27% 108.75 82.90 18 14

2003 21.43 4.95 4.95 1.20 24% 98.98 74.71 20 15

2002 20.23 5.07 4.60 1.05 21% 90.05 67.70 18 13

2001 17.84 3.82 3.40 1.00 26% 82.11 59.80 21 16

2000 16.10 3.44 NA 0.62 18% 68.42 35.70 20 10

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

2,056 22.0 1,048 604 63.8% 519 26.8% 380 3.49 333

1,940 21.9 939 412 54.4% 740 24.9% 556 3.38 514

1,850 20.8 1,059 192 55.9% 964 32.1% 654 3.60 646

1,818 NA 1,043 80.0 54.2% 1,232 31.9% 839 3.70 838

1,794 17.3 978 88.0 53.2% 1,171 33.2% 782 3.77 772

1,735 NA 940 95.0 56.7% 1,067 32.3% 723 3.88 718

1,599 16.3 831 131 59.6% 851 32.5% 574 4.09 574

1,248 14.0 513 122 51.9% 716 32.3% 485 4.36 440

1,158 17.5 476 104 57.4% 584 35.2% 378 4.23 336

854 10.5 325 NA 61.6% 446 35.9% 286 4.02 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 540 Investment Securities 7,781 Commercial Loans 28,259 Other Loans 24,047 Total Assets 68,880 Demand Deposits 13,795 Time Deposits 33,655 Long Term Debt 10,240 Common Equity 7,023 % Return on Assets 0.6 % Return on Equity 5.7 % Loan Loss Reserve 1.7 % Loans/Deposits 109.5 % Equity to Assets 9.8

649 7,919 27,397 21,963 65,816 8,856 32,584 12,075 6,217 0.9 8.4 1.6 115.1 9.7

348 8,962 25,715 22,637 64,876 9,322 31,944 10,318 6,485 1.1 10.3 1.6 112.1 10.5

143 7,371 23,165 20,042 57,065 8,820 25,660 6,891 6,281 1.5 13.8 1.5 107.6 10.8

211 8,400 23,940 16,614 55,146 9,044 28,056 5,586 5,876 1.4 13.5 1.6 108.7 10.7

199 8,475 22,886 15,758 52,939 9,246 26,183 6,349 5,730 1.4 12.6 1.6 108.4 11.1

250 7,259 20,869 15,169 49,826 10,150 20,756 5,535 5,717 1.4 12.9 1.7 108.0 10.8

380 3,955 14,522 11,415 33,175 5,101 16,564 4,497 3,182 1.5 15.8 1.7 119.7 9.5

84.4 3,024 14,071 11,117 31,450 4,634 16,946 3,462 2,939 1.3 13.4 1.7 116.7 9.3

57.8 3,310 13,399 9,571 28,949 4,218 16,014 3,415 38.0 1.1 12.7 1.6 112.4 8.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 M And T Plz, Buffalo, NY 14203-2399. Telephone: 716-842-5445. Email: [email protected] Website: http://www.mandtbank.com

Chrmn & CEO: R.G. Wilmers Pres: M.J. Czarnecki Vice Chrmn: J.G. Pereira Vice Chrmn: R.E. Sadler, Jr.

Vice Chrmn: M. Pinto Founded: 1969 Investor Contact: D.J. MacLeod (716-842-5138) Domicile: New York Board Members: B. D. Baird, R. J. Bennett, C. A. Employees: 14,226 Bontempo, R. T. Brady, M. D. Buckley, T. J. Cunningham, III, M. J. Czarnecki, G. N. Geisel, P. W. Hodgson, R. G. King, J. G. Pereira, M. Pinto, M. R. Rich, R. E. Sadler, Jr., E. Sheehy, H. L. Washington, R. G. Wilmers

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: MUR | MUR is in the S&P 500

Murphy Oil Corp S&P Recommendation BUY

★★★★★

Price $65.39 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $70.00

Investment Style Large-Cap Blend

Summary This international integrated oil company has exploration and production interests worldwide, and refining and marketing operations in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $66.27– 48.14 Trailing 12-Month EPS $4.82 Trailing 12-Month P/E 13.6 $10K Invested 5 Yrs Ago $16,530

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.83 5.45 13.5 191.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.541 1.68 $1.10 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.95 21 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of MUR's moderate financial policies and integrated operations in a volatile, cyclical, and capital-intensive segment of the energy industry. We believe its low reserve-to-production ratio limits its operating flexibility, increasing dependence on long-term projects.

100 80 60 50 40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 3

3

4

3

4

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Tina J. Vital on August 11, 2010, when the stock traded at $ 53.90. Highlights Second quarter oil and gas production was up 33% from last year to 189,951 boe per day, on project ramp-ups. However, as we expected, second quarter volumes declined 3% from the first quarter on maintenance work in Malaysia, and we have trimmed our 2010 growth forecast to 20% reflecting unplanned downtime at Kikeh in Malaysia and project delays at Azurite in the Republic of Congo, and we expect about 16% growth for 2011. We see minimal impact on MUR's overall production from the Gulf of Mexico drilling moratorium, as reduced Gulf volumes will likely be made up elsewhere. On the downstream, we are seeing signs of improved U.S. fuel demand. As of July 2010, we look for U.S. Gulf Coast 3-2-1 crack spreads to widen by 9% in 2010 and by 3% in 2011. We expect MUR's ethanol and marketing business to post solid earnings in 2010 and 2011, and MUR is planning to expand its U.S. retail segment.

Investment Rationale/Risk ➤

➤

➤

First-half 2010 operating EPS excluded a net charge of $0.22 related to foreign exchange. We expect after-tax operating earnings to rise 65% in 2010 and 18% in 2011, reflecting production growth and improved economic conditions.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B+ B

81 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

With its oil focus and solid queue of projects, we look for MUR to benefit from our forecast for higher oil prices. While MUR's upstream operations had focused on the U.S. deepwater Gulf of Mexico, we see added growth from international prospects. In July 2010, MUR said it will exit its refining and U.K. retail business and use proceeds to reduce debt and speed up growth of upstream operations; while we like the move, we believe the market is tough to be selling refining assets. In August 2010, MUR said it signed a letter of intent to buy a partially completed ethanol plant in Hereford, TX from Panda Ethanol. Risks to our recommendation and target price include unfavorable changes to economic, industry and operating conditions, such as rising costs, or difficulty replacing oil and gas reserves. Blending our discounted cash flow ($68 per share, assuming a WACC of 9.8% and terminal growth of 3%) and relative market valuations leads to our 12-month target price of $70. This represents an expected enterprise value of about 4.5X our 2011 EBITDA estimate, a slight discount to the major oil peer average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,180 5,592 2009 3,416 4,496 2008 6,533 8,363 2007 3,435 4,614 2006 2,991 3,799 2005 2,415 2,950

3Q -5,202 8,186 4,781 4,153 3,317

4Q -5,804 4,431 5,610 3,364 3,195

Year -19,012 27,513 18,439 14,307 11,877

Earnings Per Share ($) 2010 0.77 1.41 2009 0.37 0.84 2008 2.14 3.22 2007 0.58 1.32 2006 0.60 1.13 2005 0.60 1.85

E1.14 0.98 3.04 1.04 1.18 1.18

E1.29 1.66 0.83 1.07 0.46 0.82

E4.83 3.85 9.22 4.01 3.37 4.46

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.275 0.275

02/03 04/07 08/04 10/06

02/11 05/12 08/12 11/09

02/16 05/14 08/16 11/12

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1961. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MUR

Murphy Oil Corp Business Summary August 11, 2010 CORPORATE OVERVIEW. Originally incorporated in Louisiana in 1950 as Murphy Corp., the company was reincorporated in Delaware in 1964 under the name Murphy Oil Corp. (MUR). As an international integrated oil and gas company, MUR explores for oil and gas worldwide, and has refining and marketing interests in the U.S. The company operates in two business segments: Exploration and Production (16% of 2009 revenues; 91% of segment income), and Refining and Marketing (84%; 9%). Exploration and Production activities are conducted in the U.S. by wholly owned Murphy Exploration & Production Co - USA (Murphy Expro USA); in Malaysia, the Republic of Congo, Indonesia, Australia and Suriname by wholly owned Murphy Exploration & Production Co. - International (Murphy Expro International and its subsidiaries); in Western Canada and offshore Eastern Canada by wholly owned Murphy Oil Co. Ltd. (MOCL) and its subsidiaries; and in the U.K. North Sea and the Atlantic Margin by wholly owned Murphy Petroleum Ltd.

MUR's operations in Canada include limited heavy oil exploration and exploitation in Western Canada, combined with its non-operated interests in legacy properties: Terra Nova (12%), Hibernia (6.5%), and Syncrude Canada Ltd. (5%). In June 2007, the company acquired the Tupper leases, a tight natural gas play in northeastern British Columbia. In Malaysia, the company has majority interests in seven separate production-sharing contracts (PSCs) and serves as operator. In 2002, MUR made an important discovery at the Kikeh field (80%) in deepwater Block K, offshore Sabah, and added another important discovery at Kakap in 2004. In April 2010, Petronas informed MUR that offshore Blocks L and M were no longer part of Malaysia, and as a result, MUR's production-sharing contracts for these blocks with Petronas were terminated; MUR is discussing replacement production-sharing contracts covering these areas. The company also has interests in the U.K. sector of the North Sea, offshore Ecuador, and offshore the Republic of Congo.

As of year-end 2009, U.S. producing fields (about 16% of MUR's 2009 oil and gas production) included seven in the deepwater Gulf of Mexico - including Medusa (60% interest), Habanero (33.75%), Front Runner (37.5%), Front Runner South (37.5%), Quatrain (37.5%), and Thunder Hawk (37.5%) -- and two onshore Louisiana.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 38.22 9.22 3.85 3.79 1.00 26% 65.12 37.96 17 10

2008 32.73 13.48 9.22 8.55 0.88 9% 101.47 35.55 11 4

2007 25.99 6.75 4.01 4.03 0.68 17% 85.94 45.45 21 11

2006 21.37 5.40 3.37 3.32 0.52 16% 60.18 44.72 18 13

2005 18.38 6.57 4.46 3.85 0.45 10% 57.07 37.80 13 8

2004 14.16 4.38 2.66 2.40 0.43 16% 43.69 28.45 16 11

2003 10.27 3.39 1.63 1.40 0.40 25% 34.35 19.27 21 12

2002 8.41 2.16 0.53 0.39 0.39 73% 24.86 15.95 47 30

2001 7.99 3.07 1.82 1.30 0.38 21% 21.96 13.81 12 8

2000 6.72 2.87 1.69 NA 0.36 21% 17.27 12.05 10 7

19,012 NA 1,028 24.4 1,277 42.0% 741 728

27,513 3,640 850 43.7 2,850 37.9% 1,771 1,643

18,439 1,845 523 75.5 1,237 38.1% 767 772

14,307 1,514 384 9.48 1,028 37.9% 638 630

11,877 1,854 397 8.77 1,372 38.9% 838 725

8,360 1,110 321 34.1 805 38.3% 496 448

5,345 781 328 20.5 419 28.1% 301 259

3,967 492 300 27.0 152 35.7% 97.5 71.4

4,479 768 229 19.0 506 34.6% 331 236

4,639 723 213 16.3 465 34.3% 306 NA

Balance Sheet & Other Financial Data (Million $) Cash 301 Current Assets 3,376 Total Assets 12,827 Current Liabilities 2,182 Long Term Debt 1,353 Common Equity 7,246 Total Capital 8,699 Capital Expenditures 1,989 Cash Flow 1,774 Current Ratio 1.5 % Long Term Debt of Capitalization 15.7 % Return on Assets 6.2 % Return on Equity 11.0

666 2,846 12,205 1,888 1,026 6,314 8,183 2,186 2,590 1.5 12.5 15.6 31.1

674 2,887 10,536 2,109 1,516 5,066 7,526 1,949 1,290 1.4 20.2 8.5 16.8

543 2,107 7,446 1,311 840 4,053 5,498 1,192 1,022 1.6 15.3 9.2 17.0

585 1,839 6,369 1,287 610 3,461 4,685 1,246 1,235 1.4 13.0 14.2 27.4

536 1,629 5,458 1,205 613 2,649 3,263 938 818 1.4 18.8 9.8 21.6

252 1,039 4,713 810 1,090 1,951 3,463 938 630 1.3 31.5 7.0 17.0

165 854 3,886 718 863 1,594 2,784 834 398 1.2 31.0 2.7 6.3

82.7 599 3,259 560 521 1,498 2,322 814 560 1.1 22.4 10.4 24.0

133 817 3,134 745 525 1,260 2,014 512 519 1.1 26.1 11.0 26.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 Peach Street, El Dorado, AR 71730-7000. Telephone: 870-862-6411. Email: [email protected] Website: http://www.murphyoilcorp.com

Chrmn: W.C. Nolan, Jr. Pres & CEO: D.M. Wood EVP & General Counsel: S.A. Cosse SVP & CFO: K.G. Fitzgerald

Chief Admin Officer: K.M. Hammock Founded: 1950 Investor Contact: M. West (870-864-6315) Domicile: Delaware Board Members: F. W. Blue, C. P. Deming, R. A. Employees: 8,369 Hermes, J. V. Kelley, R. M. Murphy, W. C. Nolan, Jr., N. E. Schmale, D. J. Smith, C. G. Theus, D. M. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: MYL | MYL is in the S&P 500

Mylan Inc S&P Recommendation STRONG BUY

★★★★★

Price $19.38 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $25.00

Investment Style Large-Cap Growth

Summary This leading manufacturer of generic pharmaceuticals produces a broad range of generic drugs in varying strengths. In October 2007, Mylan acquired the generic drug division of German drugmaker Merck KGaA for some $7.0 billion in cash.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.63– 15.71 Trailing 12-Month EPS $0.25 Trailing 12-Month P/E 77.5 $10K Invested 5 Yrs Ago $9,663

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.60 2.00 12.1 309.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

0.68 21 BB

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects risks inherent in the generic pharmaceutical business, which include the need to successfully develop generic products, obtain regulatory approvals and legally challenge branded patents. However, we believe these risks are offset by Mylan's wide and diverse generic portfolio and promising branded drugs business. We also think the acquisition of Merck KGaA's generic business holds long-term promise.

25 20 15 10

Vol. 178

138

94

45 30 15 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

Mil.

$5.995 Nil Nil NM

Quantitative Evaluations S&P Quality Ranking

5

A-

3

D

C

B-

B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

2010 Options: ASE, CBOE, P, Ph

MODERATE 63

LOWEST = 1

HIGHEST = 99

Analysis prepared by Herman B. Saftlas on August 23, 2010, when the stock traded at $ 17.55. Highlights ➤

➤

We forecast 2010 net revenues of $5.4 billion, up from 2009's $5.1 billion. We see sales growth in 2010 driven by gains in existing lines, as well as by new products such as recently launched generic versions of Prevacid and Benzaclin. In total, MYL has some 141 ANDAs awaiting FDA review, of which 41 represent potential firstto-file opportunities with six months of marketing exclusivity. We also expect significant new product launches overseas. In the branded business, we see robust growth for EpiPen, an auto-injector treatment for potential lifethreatening allergic reactions. We look for gross margins in 2010 to show modest expansion on the projected better volume and productivity enhancements. We also see tight control of SG&A costs and R&D spending, helped by ongoing merger synergies (over $350 million expected to be realized in 2010). We expect an adjusted tax rate of about 29% in 2010, down from 30% in 2009.

Investment Rationale/Risk ➤

➤

After projected lower preferred dividend payments, we see 2010 operating EPS of $1.60, up from $1.30 in 2009. We see further EPS progress to $2.00 in 2011.

We believe MYL's efforts to expand through acquisitions hold much long-term promise. In July 2010, MYL announced plans to purchase Bioniche Pharma, an Ireland-based maker of injectable drugs. Mylan expects this deal to be EPS accretive within one year after completion. Other acquisitions, such as Merck KGaA's generic business and Matrix Laboratories, have broadened MYL's geographic reach and provided access to in-house raw materials and generic biologics. We expect MYL to launch over 500 new products worldwide in 2010 and maintain that level in coming years. We see MYL as uniquely positioned to benefit from the robust growth we see for the generics market.

Revenue (Million $) 1Q 2Q 2010 1,292 1,369 2009 1,181 1,267 2008 1,074 1,203 2007 356.1 366.7 2006 323.4 298.0 2005 339.0 307.0

3Q -1,264 1,657 401.8 311.3 291.0

4Q -1,352 1,203 487.3 324.6 316.4

Year -5,064 5,138 1,612 1,257 1,253

Earnings Per Share ($) 2010 0.20 0.16 2009 0.23 0.19 2008 -1.46 -0.03 2007 0.35 0.36 2006 0.16 0.16 2005 0.30 0.18

E0.42 -0.13 0.45 0.63 0.22 0.13

E0.45 0.01 -0.13 -0.31 0.27 0.14

E1.60 0.30 -1.05 0.99 0.79 0.74

Risks to our recommendation and target price include possible problems integrating acquisitions, as well as cash flow risks that could threaten MYL's ability to manage its heavy debt load.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Dividends were suspended in 2008.

➤ ➤

Revenue/Earnings Data

Our 12-month target price of $25 applies a peer multiple of 12.5X to our 2011 EPS estimate. Our DCF model, which assumes a WACC of 8% and perpetuity growth of 1%, also shows intrinsic value in the $25 area.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: MYL

Mylan Inc Business Summary August 23, 2010 CORPORATE PROFILE. Mylan Laboratories is a leading manufacturer of generic pharmaceutical products in finished tablet, capsule and powder dosage forms. Generic drugs are the chemical equivalents of branded drugs, and are marketed after patents on the primary products expire. Generics are typically sold at prices significantly below those of comparable branded products. Generics accounted for some 92% of operating revenues in 2009, with specialty products representing the balance. By geographic region, generics sales in 2009 were derived as follows: North America 45%, Europe 34%, and Asia/Pacific 21%. MYL markets more than 900 products throughout the world. The U.S. generic division markets about 224 generic products, primarily solid oral dose drugs encompassing a wide variety of therapeutic categories. Some 25 generics are extended-release drugs. UDL Laboratories is the largest U.S. repackager of pharmaceuticals in unit dose formats, which are used primarily in hospitals, nursing homes and similar settings. Mylan Technologies develops and markets products using transdermal drug delivery systems.

generic drug business from German drugmaker Merck KGaA (referred to as Merck Generics) that markets several hundred products. The operation has a strong presence in key foreign generic markets, including France, Italy, the U.K., Japan, Canada and Australia. As part of this acquisition, MYL also acquired Dey, a producer of branded specialty respiratory and allergy drugs. Key Dey products are EpiPen, an auto-injector treatment for allergic reactions; and DuoNeb, a nebulized treatment for COPD. Through its India-based Matrix Laboratories subsidiary, Mylan manufactures active pharmaceutical ingredients (APIs) for use in MYL products, as well as for third parties. Matrix ranks as one of the largest API producers in the world. Matrix also offers finished dose drugs and other products. In July 2010, MYL announced plans to purchase Bioniche Pharma, an Irelandbased maker of injectable drugs, for $550 million in cash. Mylan expects this deal to be EPS accretive within one year after completion.

IMPACT OF MAJOR DEVELOPMENTS. In October 2007, Mylan acquired a Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.61 0.30 0.75 Nil Nil 19.21 9.65 64 32

2008 NM 0.33 -1.05 0.25 Nil Nil 15.49 5.75 NM NM

2007 2.75 1.27 0.99 -4.50 0.24 24% 22.90 12.93 23 13

2006 2.76 0.99 0.79 0.78 0.12 15% 25.00 18.65 25 19

2005 6.03 0.91 0.74 0.64 0.10 14% 21.69 15.21 27 19

2004 5.30 1.37 1.21 1.05 0.08 7% 26.35 14.24 36 19

2003 4.39 1.11 0.97 0.89 0.08 18% 28.75 15.56 24 13

2002 3.97 1.07 0.91 0.84 0.07 8% 16.56 11.15 17 12

2001 2.97 0.28 0.13 0.40 0.07 55% 16.94 8.96 19 12

2000 3.00 0.65 0.52 NA 0.07 14% 14.33 7.11 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,064 1,122 401 319 227 NM 233 232

5,138 1,359 422 357 -47.8 NM -181 75.6

1,612 586 61.5 52.3 426 48.9% 217 -1,156

1,257 347 46.8 31.3 275 32.8% 185 184

1,253 321 45.1 Nil 312 34.8% 204 175

1,375 504 44.3 Nil 513 34.7% 335 286

1,269 452 40.6 Nil 427 36.1% 272 247

1,104 441 46.1 Nil 408 36.3% 260 241

847 209 42.4 Nil 58.0 36.0% 37.1 113

790 259 35.7 Nil 243 36.5% 154 NA

Balance Sheet & Other Financial Data (Million $) Cash 408 Current Assets 3,285 Total Assets 10,802 Current Liabilities 1,718 Long Term Debt 4,985 Common Equity 3,131 Total Capital 8,130 Capital Expenditures 154 Cash Flow 495 Current Ratio 1.9 % Long Term Debt of Capitalization 61.3 % Net Income of Revenue 4.6 % Return on Assets 2.2 % Return on Equity 8.0

599 3,175 10,410 1,545 5,165 2,704 8,443 165 101 2.1 61.2 NM NM NM

1,427 2,412 4,254 701 1,655 1,649 3,390 162 279 3.4 48.8 13.5 7.1 17.8

518 1,192 1,871 265 685 4,242 4,948 104 231 4.5 13.8 14.7 9.2 5.3

808 1,528 2,136 246 19.3 2,786 2,830 90.7 249 6.2 0.7 16.2 10.1 7.6

687 1,318 1,875 174 19.1 2,600 2,642 118 379 7.6 0.7 24.3 18.5 14.1

687 1,228 1,745 266 19.9 1,446 1,479 32.6 313 4.6 1.3 21.5 16.2 19.1

617 1,062 1,617 175 21.9 1,607 1,646 20.6 306 6.1 1.3 23.6 16.9 17.7

285 879 1,466 291 23.3 1,133 1,175 24.7 79.5 3.0 2.0 4.4 2.6 3.2

303 687 1,341 87.8 30.6 1,204 1,253 28.8 190 7.8 2.4 19.5 12.1 13.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1500 Corporate Dr, Canonsburg, PA 15317-8580. Telephone: 724-514-1800. Email: [email protected] Website: http://www.mylan.com

Chrmn & CEO: R.J. Coury Pres: H. Bresch Vice Chrmn: R. Piatt COO & EVP: R. Malik

EVP & CFO: J. Sheehan Founded: 1970 Investor Contact: K. King (724-514-1800) Domicile: Pennsylvania Board Members: W. Cameron, R. J. Coury, N. Dimick, D. Employees: 15,500 J. Leech, J. Maroon, M. W. Parrish, R. Piatt, C. B. Todd, R. L. Vanderveen

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NBR | NBR is in the S&P 500

Nabors Industries Ltd S&P Recommendation HOLD

★★★★★

Price $19.35 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Drilling

12-Mo. Target Price $19.00

Investment Style Large-Cap Growth

Summary This Bermuda company is the world's largest oil and gas land drilling contractor.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $27.05– 15.54 Trailing 12-Month EPS $0.23 Trailing 12-Month P/E 84.1 $10K Invested 5 Yrs Ago $6,287

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.94 1.38 20.6 285.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.520 Nil Nil 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.49 -23 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects NBR's sensitivity to commodity prices, capital spending by oil and gas producers, and the rising US rig supply. Partly offsetting these risks is NBR's diversified fleet, including overseas operations, and its leadership position in the industry.

60

30 20

10

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

NR B

B+

A-

Relative Strength Rank 4

A

A+

MODERATE 69

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on September 29, 2010, when the stock traded at $ 18.62. Highlights ➤

➤

➤

Second-quarter cash margins fell $629 per day, to $7,788. NBR had an average of 172 working rigs, versus about 143 rigs last year. As of late July, NBR's rig count stood at 179, with four idle rigs under contract. The well servicing segment incurred greater than normal costs to bring equipment back into service during the second quarter. With a dominant position in U.S. shale, as two-thirds of its rigs are higher-spec used for horizontal drilling and one-third of its rigs are now employed in liquids-rich markets, NBR stands to further improve market share when natural gas markets strengthen. We see third quarter utilization at 55%, but continue to see challenges in pricing into 2011. NBR recently closed on the acquisition of Superior Well Services for $900 million, expanding into the pressure pumping business. International results continue to disappoint, most recently on project deferrals in Saudi Arabia and Mexico. We see opportunities in Canadian shale, but uncertainty in Alaska. We see 2010 and 2011 EPS of $0.94 and $1.38, respectively, versus 2009's of $1.30. We estimate capex reduction to $600 million in 2010, from about $1 billion in 2009.

Investment Rationale/Risk ➤

➤

➤

North American onshore drilling has faced challenges due to capacity additions, spending cutbacks and an overall decline in drilling activity. While we view NBR as somewhat protected by long-term contracts, an emphasis on larger operators, segment diversification and a modern fleet, we expect volatility in the sector as rig counts remain well-below 2008 levels. In our view, NBR has strong drilling prospects in unconventional plays, given technology advantages and its newbuild program. We are positive on the outlook of the pressure pumping business; however, NBR's core business has been drilling and it remains to be seen what synergies will arise. Risks to our opinion and target price include reduced oil and gas prices and dayrates; delays in rig deliveries; and cost inflation. Shares of land drillers recovered nicely in 2009, but weak dayrates and utilization (albeit rising), uncertain economies and weak natural gas fundamentals have us cautious on the sector. Blending peer-average valuations of 5.5X our 2011 EBITDA estimate, 4.5X our 2011 cash flow projection, and 14X our 2011 EPS estimate, we arrive at our 12-month target price of $19.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 902.1 905.1 2009 1,143 867.9 2008 1,322 1,282 2007 1,277 1,128 2006 1,164 1,144 2005 783.7 786.1

3Q -791.9 1,455 1,226 1,244 893.3

4Q -834.5 1,475 1,309 1,329 1,016

Year -3,692 5,512 4,941 4,943 3,551

Earnings Per Share ($) 2010 0.14 0.15 2009 0.44 -0.68 2008 0.81 0.67 2007 0.92 0.79 2006 0.79 0.77 2005 0.40 0.41

E0.24 0.10 0.73 0.68 1.02 0.56

E0.30 -0.17 -0.30 0.78 0.97 0.65

E0.94 -0.30 1.93 3.13 3.40 2.00

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: NBR

Nabors Industries Ltd Business Summary September 29, 2010 CORPORATE OVERVIEW. The world's largest land drilling contractor, Nabors Industries Ltd. owns a fleet of about 528 land drilling rigs. Formed as a Bermuda-exempt company in December 2001, but operating continuously in the drilling sector since the early 1900s, Nabors conducts oil, gas and geothermal land drilling operations in the lower 48 U.S. states, Alaska and Canada, and internationally, mainly in South and Central America, the Middle East and Africa. NBR actively markets 548 land drilling rigs and 557 land workover and well servicing rigs in the U.S. and approximately 172 rigs in Canada. In addition, it markets 40 platform, 13 jackup and three barge rigs in the Gulf of Mexico and international markets; these rigs provide well servicing, workover and drilling services. NBR also has a 51% ownership interest in a joint venture in Saudi Arabia, which actively markets nine rigs. The contract drilling segment (98% of 2009 revenues) provides drilling, workover, well servicing and related services in the U.S. (including the lower 48, Alaska and offshore), Canada, and internationally. During 2009, 44% of contract drilling revenues served customers in the Lower 48, either for land drilling or land well-servicing. Well servicing and workover services are provided for existing wells where some form of artificial lift is required to bring oil to the surface. To supplement its primary business, NBR offers ancillary wellsite services, such as oilfield management, engineering, transportation, con-

struction, maintenance, and well logging. NBR's contract drilling business is dependent on the level of capital spending by oil and gas exploration and production companies. The decline in oil and gas prices in late 2008 led to a sharp drop in drilling activity during 2009, sending rig utilization levels and dayrates plunging. We estimate NBR's U.S. onshore rig utilization averaged 46% in 2009, versus 79% in 2008, and dayrates declined about 10%, less pronounced than the industry given NBR's contract coverage. We expect rig utilization of about 54% in 2010 and over 65% in 2011 as drilling activity improves. Internationally, NBR's business has grown significantly in the past decade. In 2009, International land drilling represented a greater percentage of operating income than U.S. land drilling. However, we see better 2010 results at U.S. land drilling offset by the decline in international activity, most notably in Saudi Arabia and Mexico. International markets are seeing a shift in focus to natural gas, the opposite of the domestic environment, causing significant downtime and lagging results.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NA NA -0.30 Nil Nil 24.07 8.25 NM NM

2008 15.96 4.24 1.93 Nil Nil 50.58 9.72 26 5

2007 14.84 5.01 3.13 Nil Nil 36.42 26.00 12 8

2006 11.46 4.77 3.40 Nil Nil 41.35 27.26 12 8

2005 10.83 3.04 2.00 Nil Nil 39.94 23.10 20 12

2004 8.68 1.84 0.96 Nil Nil 27.13 20.01 28 21

2003 7.35 1.36 0.63 Nil Nil 22.93 16.10 37 26

2002 6.39 1.06 0.41 Nil Nil 24.99 13.07 62 32

2001 5.89 1.59 1.09 Nil Nil 31.56 9.00 29 8

2000 5.51 0.94 0.45 Nil Nil 30.24 14.06 68 32

3,692 NA 736 265 -235 63.5% -85.6

5,512 1,264 658 91.6 802 31.2% 551

4,941 1,750 540 63.6 1,135 21.1% 896

4,943 1,952 409 46.6 1,471 30.6% 1,021

3,551 1,304 339 44.8 874 25.8% 649

2,394 626 300 48.5 336 9.94% 302

1,880 438 235 70.7 175 NM 192

1,466 351 195 67.1 141 13.7% 121

2,121 0.69 190 60.7 542 35.9% 348

1,327 377 152 35.4 227 40.2% 135

Balance Sheet & Other Financial Data (Million $) Cash 1,091 Current Assets NA Total Assets 10,664 Current Liabilities NA Long Term Debt 3,941 Common Equity 5,168 Total Capital NA Capital Expenditures 1,093 Cash Flow NA Current Ratio 3.6 % Long Term Debt of Capitalization 43.3 % Return on Assets NA % Return on Equity NM

584 2,167 10,468 1,129 3,888 4,692 9,339 1,490 1,209 1.9 41.6 5.4 12.0

767 2,205 10,103 1,494 3,306 4,514 8,363 2,014 1,436 1.5 39.5 9.3 22.3

701 2,505 9,142 854 4,004 3,537 8,125 1,927 1,430 2.9 49.3 12.5 28.0

565 2,617 7,230 1,352 1,252 3,758 5,727 907 987 1.9 21.9 9.9 19.4

1,253 1,581 5,863 1,199 1,202 2,929 4,517 544 603 1.3 26.6 5.3 11.2

1,532 1,516 5,603 598 1,986 2,490 4,849 353 427 2.5 41.0 3.6 8.3

1,331 1,370 5,064 751 1,615 2,158 4,175 317 317 1.8 38.7 2.6 6.0

919 1,031 4,152 330 1,568 1,858 3,711 701 538 3.1 42.2 9.5 19.0

551 1,018 3,137 279 855 1,806 2,759 301 288 3.6 31.0 4.9 8.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 8 Par-La-Ville Road, Hamilton, Bermuda HM08. Telephone: 441-292-1510. Website: http://www.nabors.com Chrmn & CEO: E.M. Isenberg

Pres, Vice Chrmn & COO: A.G. Petrello CFO, Chief Acctg Officer & Cntlr: R.C. Wood Secy: M.D. Andrews Investor Contact: D.A. Smith (281-775-8038)

Board Members: W. T. Comfort, III, E. M. Isenberg, J. V. Founded: 1968 Lombardi, J. L. Payne, A. G. Petrello, M. M. Domicile: Bermuda Sheinfeld, M. J. Whitman Employees: 15,242

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: NDAQ | NDAQ is in the S&P 500

Nasdaq OMX Group Inc (The) S&P Recommendation HOLD

★★★★★

Price $20.66 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized Finance

12-Mo. Target Price $21.00

Investment Style Large-Cap Blend

Summary This leading global exchange group delivers trading, exchange technology, securities listing, and public company services across six continents.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.11– 17.18 Trailing 12-Month EPS $1.21 Trailing 12-Month P/E 17.1 $10K Invested 5 Yrs Ago $7,101

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.97 2.18 10.5 202.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.187 Nil Nil 60

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.01 12 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the potential volatility in results due to changes in equity trading volumes, the potential impact of future regulatory changes, and the uncertainty surrounding NDAQ's international strategy.

40 30

20

Quantitative Evaluations

15

S&P Quality Ranking

Vol. Mil.

51

D

24 16 8 0 5

C

B-

NR B

B+

A-

Relative Strength Rank

A

A+

MODERATE 65

3

3

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Rafay Khalid, CFA on July 30, 2010, when the stock traded at $ 19.46. Highlights ➤

➤

We project that revenues will increase 1% in 2010, reflecting our expectation for stabilization in NDAQ's U.S. cash equities market share. We believe the company's new pricing scheme will help it gain market share and generate revenue growth in the Market Services business unit. We forecast the company's Market Technology business segment will experience growth, on our view of increasing customer orders. We see revenue growth of about 3% in 2011. We expect gross margins will widen in 2010, on our outlook for lower liquidity rebates as the company introduces a new pricing scheme. However, we project expenses on a dollar basis to increase to about $858 million in 2010 and $896 million in 2011, from $838 million in 2009. Overall, we see operating margins improving to 20.8% in 2010 and 22.2% in 2011, from 18.1% in 2009.

Investment Rationale/Risk ➤

➤

➤ ➤

Our operating EPS estimates are $1.97 for 2010 and $2.20 in 2011, both excluding one-time items. This compares to operating EPS of $1.83 in 2009, also excluding one-time items.

Revenue/Earnings Data

2010

We believe NDAQ has made solid progress in integrating its recent acquisitions and establishing new opportunities such as interest rate swap clearing through its subsidiary, IDCG, which has garnered significant participant interest. We expect the company to benefit financially from its initiative to introduce central clearing to all Nordic cash equity markets and diversify its revenue stream away from just cash equities. However, we are concerned about execution risk, given the large number of new initiatives the company is undertaking during 2010. Risks to our recommendation and target price include a significant decline in pricing, legislation that restricts proprietary trading, integration risk related to acquisitions, and longerthan-expected time to complete new initiatives. Our 12-month target price of $21, reflects a historical average P/E ratio of 9.7X our 2011 EPS forecast. We believe the historical average is warranted, given our outlook for a gradually improving economy.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 764.0 876.0 2009 895.0 889.0 2008 813.8 821.5 2007 562.0 558.2 2006 396.2 411.0 2005 180.2 219.7

3Q -810.0 990.3 652.0 402.9 220.5

4Q -815.0 1,024 664.5 447.2 259.6

Year -3,409 3,649 2,437 1,658 879.9

Earnings Per Share ($) 2010 0.28 0.46 2009 0.44 0.33 2008 0.69 0.48 2007 0.14 0.39 2006 0.16 0.13 2005 0.13 0.13

E0.51 0.28 0.28 2.41 0.22 0.16

E0.52 0.20 0.17 0.57 0.43 0.15

E1.97 1.25 1.56 3.46 0.95 0.57

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: NDAQ

Nasdaq OMX Group Inc (The) Business Summary July 30, 2010 CORPORATE OVERVIEW. Nasdaq OMX Group is a leading global exchange group that delivers trading, exchange technology, securities listing and public company services across six continents. In the U.S., it operates The Nasdaq Stock Market, the largest electronic equity securities market in the country, with 3,700 listed companies as of December 31, 2009. The company earns revenue from a number of products and services including trade execution, reselling market data, listing fees, intellectual property licensing, and corporate client services. NDAQ's business is divided into three segments - Market Services, Issuer Services, and Market Technology. In 2009, Market Services accounted for approximately 86% of the company's revenue. This segment consists of NDAQ's U.S. and European transaction-based business, market data, and broker services. The largest portion of Market Services segment is transaction fees NDAQ receives for executing trades on its electronic platform. A smaller revenue source is the fees the company earns from aggregating and reselling trade and quote information from its systems.

shares, and fees for new listings (initial public offerings). Issuer Services also generates revenue from developing and licensing the Nasdaq brand. Market Technology made up 4% of the NDAQ's revenues in 2009. This segment offers systems solutions, which support trading, clearing and settlement, and information dissemination for a variety of instruments including equities and derivatives. COMPETITIVE LANDSCAPE. We see NDAQ competing with other domestic exchanges, primarily the NYSE Euronext (NYX), for company listings, and competing with these exchanges, regional exchanges and electronic communication networks (ECNs) for trade execution volume. While consolidation, particularly among ECNs, has decreased the number of domestic competitors, we believe technology advancements and regulatory changes have kept the U.S. equity exchange business highly competitive. We think NDAQ competes on the basis of liquidity, speed and price in its core trade execution services. NDAQ plans to be the low price provider in the market for trade execution, and we expect it to continue offering lower listing fees than the NYSE.

Issuer Services, which accounts for about 10% of revenues, includes fees from its securities listings business and other financial products. Revenues in this segment are primarily derived from annual fees from companies whose shares are listed on the Nasdaq Stock Market, fees for listing additional Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.72 1.25 1.55 Nil Nil 27.39 17.51 22 14

2008 NM 2.02 1.56 1.75 Nil Nil 49.90 14.96 32 10

2007 7.54 3.65 3.46 1.62 Nil Nil 50.47 26.57 15 8

2006 2.44 1.20 0.95 0.96 Nil Nil 46.75 23.91 49 25

2005 NM 1.08 0.57 0.53 Nil Nil 45.23 8.15 79 14

2004 NM 0.99 -0.14 -0.19 Nil Nil NA NA NM NM

2003 2.04 0.57 -0.68 -0.69 Nil Nil NA NA NA NA

2002 NA 1.56 0.40 0.31 NA NA NA NA NA NA

2001 NA 1.15 0.35 NA NA NA NA NA NA NA

2000 NA 1.92 1.34 NA NA NA NA NA NA NA

3,409 766 104 102 391 32.7% 266 330

3,649 758 92.6 86.6 524 38.6% 320 355

2,437 440 38.9 72.9 794 34.7% 518 238

1,658 288 45.1 91.1 212 40.2% 128 129

880 181 67.0 20.0 106 41.8% 62.0 50.5

540 85.0 76.0 11.0 2.60 29.3% 1.80 -15.2

590 126 90.0 19.0 -66.0 NM -45.0 -54.1

799 197 97.9 19.6 71.7 57.3% 43.1 26.4

857 207 93.4 9.65 73.1 52.4% 40.5 NA

868 300 65.6 NA 254 41.3% 150 NA

Balance Sheet & Other Financial Data (Million $) Cash 902 Current Assets 3,454 Total Assets 10,722 Current Liabilities 2,867 Long Term Debt 1,867 Common Equity 4,927 Total Capital 7,051 Capital Expenditures 59.0 Cash Flow 370 Current Ratio 1.2 % Long Term Debt of Capitalization 26.5 % Net Income of Revenue 7.8 % Return on Assets 2.3 % Return on Equity 5.8

793 5,435 12,695 5,061 2,294 4,242 7,224 54.7 412 1.1 31.8 8.8 4.1 9.9

1,325 1,682 2,979 411 118 2,208 2,419 18.5 557 4.1 4.9 21.3 15.5 28.3

1,950 2,313 3,716 461 1,493 1,457 3,066 21.0 172 5.0 50.6 7.7 4.4 15.8

165 597 2,047 325 1,185 253 1,533 25.0 129 1.8 77.2 7.0 4.3 30.2

58.0 406 815 208 265 157 452 26.0 77.8 2.0 58.6 0.0 0.0 6.7

149 530 851 238 265 27.0 467 32.0 45.0 2.2 56.7 NM NM NM

445 697 1,176 295 430 137 705 85.4 131 2.4 60.9 5.4 3.5 13.2

522 815 1,326 294 289 518 812 123 134 2.8 35.5 4.7 3.4 6.3

516 718 1,075 224 25.0 765 805 187 216 3.2 3.1 17.3 18.2 26.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Liberty Plaza, 165 Broadway, New York, NY 10006. Telephone: 212-401-8700. Website: http://www.nasdaq.com Chrmn: H.F. Baldwin

Vice Chrmn: U. Backstrom CEO: R. Greifeld EVP & CFO: A.T. Friedman EVP & General Counsel: E. Knight

Investor Contact: V. Palmiere (212-401-8742) Board Members: U. Backstrom, H. F. Baldwin, M. Casey, L. Gorman, R. Greifeld, G. H. Hutchins, B. Kantola, E. Kazim, J. D. Markese, H. M. Nielsen, T. F. O'Neill, J. Riepe, M. R. Splinter, L. Wedenborn, D. L. Wince-Smith

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Delaware Employees: 2,216

Stock Report | October 23, 2010 | NYS Symbol: NOV | NOV is in the S&P 500

National Oilwell Varco Inc S&P Recommendation BUY

★★★★★

Price $48.59 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Equipment & Services

12-Mo. Target Price $52.00

Investment Style Large-Cap Growth

Summary This company designs and manufactures drill rig equipment, provides downhole tools and services, and also provides supply chain integration services to the upstream oil and gas industry.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.02– 32.18 Trailing 12-Month EPS $3.83 Trailing 12-Month P/E 12.7 $10K Invested 5 Yrs Ago $17,391

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.87 3.72 12.6 419.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

40

2-for-1 20

MEDIUM

HIGH

Quantitative Evaluations

Vol. 105

Mil.

S&P Quality Ranking

45 30 15 0

D 4

4

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

2008

2009

Analysis prepared by Stewart Glickman, CFA on August 03, 2010, when the stock traded at $ 40.96. Highlights At the end of June, total backlog stood at $4.9 billion, down $0.5 billion sequentially, as second quarter new orders (net of cancellations) of $660 million were about 53% of the revenues out of backlog. We note that additions to backlog are inherently uneven. Given the amount of work slated to be done in key markets such as Brazil, and NOV's key role in the oilfield capital equipment market, we think order and thus backlog recovery is mainly a question of timing. We expect NOV to exit 2010 with a backlog of about $4.3 billion, and note that NOV anticipates Brazil tenders possibly occurring in late 2010, but more likely early 2011. With the rise of U.S. shale plays, which yield high service intensity, we see improved 2010 revenues in the Petroleum Services & Supplies segment. We expect cannibalization of oilfield equipment from idled rigs to drop off in 2010, and note that both shale plays and deepwater wells tend to require premium equipment, such as drill pipe, which NOV offers. We see revenues down 4.3% in 2010, but rising 3.2% in 2011. We see EPS of $3.87 in 2010, falling about 4% to $3.72 in 2011.

Investment Rationale/Risk ➤

➤

➤

A+

STRONG 88

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P

➤

LOW

Our risk assessment reflects NOV's exposure to volatile crude oil and natural gas prices, and capital spending decisions made by its contract driller and exploration and production customers. Offsetting these risks is what we view as NOV's leading industry position as a manufacturer of rig capital equipment.

60

➤

1.39 4 A-

Below Avg.

80

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

100

5

$20.363 0.82 $0.40 82

We view NOV as an attractive play on the need for new rig equipment, particularly for deepwater and unconventional natural gas projects. While the current book of 122 rigs under construction (53 jackups, 35 semisubmersibles, and 34 drillships) implies about a 22% addition to the existing marketed fleet, we think that currently unsatisfied demand (especially for deepwater-capable equipment) will absorb most new additions. We also see potential regulatory changes to U.S. Gulf of Mexico deepwater drilling that may require new equipment. Risks to our opinion and target price include lower-than-expected prices for crude oil and natural gas; a slowdown in drilling activity; delays in meeting capital equipment orders; and unexpected contract cancellations. Our discounted cash flow (DCF) model, assuming free cash flow growth of 9%, terminal growth of 3% and a WACC of 12.8%, yields intrinsic value of $52. Applying below-peer multiples of 8X enterprise value to projected 2010 EBITDA, 11X estimated 2010 cash flow, and our DCF model, our 12-month target price is $52.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,032 2,941 2009 3,481 3,010 2008 2,685 3,324 2007 2,166 2,385 2006 1,512 1,657 2005 814.9 1,216

3Q -3,087 3,612 2,580 1,778 1,237

4Q -3,134 3,810 2,659 2,079 1,377

Year -12,712 13,431 9,789 7,026 4,645

Earnings Per Share ($) 2010 1.01 0.96 2009 1.13 0.53 2008 1.11 1.04 2007 0.78 0.90 2006 0.34 0.42 2005 0.17 0.18

E0.95 0.92 1.31 1.02 0.50 0.25

E0.95 0.94 1.40 1.05 0.68 0.29

E3.87 3.52 4.90 3.76 1.94 0.91

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

1.0 Spl. 0.100 0.100 0.100

11/17 02/26 05/13 08/19

11/30 03/10 06/09 09/08

12/02 03/12 06/11 09/10

12/16/09 03/26/10 06/25/10 09/24/10

Dividends have been paid since 2009. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NOV

National Oilwell Varco Inc Business Summary August 03, 2010 CORPORATE OVERVIEW. Formerly known as National-Oilwell, this company changed its name to National Oilwell Varco (NOV) on March 14, 2005, following the completion of the merger with Varco International. NOV, a worldwide designer, manufacturer and marketer of comprehensive systems and components used in oil and gas drilling and production, as well as a provider of downhole tools and services, also provides supply chain integration services to the upstream oil and gas industry. The company estimates that more than 90% of the mobile offshore rig fleet and the majority of the world's larger land rigs (2,000 horsepower and greater) manufactured in the past 20 years use drawworks, mud pumps and other drilling components manufactured by NOV. The company generated 2009 revenues of about $12.7 billion, and operating income of $2.3 billion, for an operating margin of approximately 18.2%. The company's Rig Technology segment ($8.1 billion of revenue in 2009, and $2.3 billion of 2009 segment operating income) designs, manufactures and sells drilling systems and components for both land and offshore drilling rigs, as well as complete land drilling and well servicing rigs. The major mechanical components include drawworks, mud pumps, power swivels, SCR houses,

solids control equipment, traveling equipment and rotary tables. Many of these components are designed specifically for applications in offshore, extended reach and deep land drilling. This equipment is installed on new rigs and is often replaced during the upgrade and refurbishment of existing rigs. As of December 31, 2009, total backlog in this segment was about $6.4 billion, down 42% from a year earlier. The company's Petroleum Services & Supplies segment ($3.7 billion, $453 million) provides a variety of consumable goods and services used in the drilling, completion, workover and remediation of oil and gas wells, service pipelines, flowlines, and other oilfield tubular goods. Products include transfer pumps, solids control systems, drilling motors and other downhole tools, rig instrumentation systems, and mud pump consumables. Following the April 2008 acquisition of Grant Prideco, this segment now offers drill pipe and drill bits.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.93 4.70 3.52 3.75 0.10 3% 50.17 22.19 14 6

2008 NA 5.90 4.90 4.89 NA NA NA NA NA NA

2007 9.65 4.19 3.76 3.76 Nil Nil 82.00 26.88 22 7

2006 5.91 2.39 1.94 1.94 Nil Nil 38.80 25.81 20 13

2005 4.20 1.27 0.91 0.90 Nil Nil 34.17 16.54 38 18

2004 3.33 0.89 0.64 0.58 Nil Nil 18.69 10.83 29 17

2003 2.49 0.68 0.45 0.41 Nil Nil 12.43 8.75 28 19

2002 2.17 0.60 0.45 0.38 Nil Nil 14.41 7.60 32 17

2001 3.19 0.87 0.64 0.57 Nil Nil 20.62 6.20 32 10

2000 2.72 0.30 0.08 NA Nil Nil 19.84 7.00 NM NM

12,712 NA 490 53.0 2,208 33.3% 1,469 1,565

13,431 3,419 401 67.3 2,961 33.5% 1,952 1,947

9,789 2,198 153 50.3 2,029 33.3% 1,337 1,338

7,026 1,280 161 48.7 1,049 33.9% 684 685

4,645 623 115 52.9 430 32.3% 287 283

2,318 213 44.0 38.4 132 14.6% 110 99.2

2,005 198 39.2 38.9 117 28.9% 76.8 69.3

1,522 159 25.0 27.3 112 35.0% 73.1 61.6

1,747 228 38.9 24.9 168 38.1% 104 93.6

1,150 97.6 35.0 Nil 27.0 51.4% 13.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,622 Current Assets 9,598 Total Assets 21,532 Current Liabilities 4,174 Long Term Debt 876 Common Equity 14,113 Total Capital 15,111 Capital Expenditures 250 Cash Flow 1,959 Current Ratio 2.3 % Long Term Debt of Capitalization 5.8 % Return on Assets 6.8 % Return on Equity 11.0

1,543 9,657 21,399 5,624 870 12,637 15,728 379 2,353 1.7 5.5 11.6 20.2

1,842 7,594 12,115 4,027 738 6,661 8,026 252 1,490 1.9 9.2 12.7 22.9

957 4,966 9,019 2,665 835 5,024 6,283 200 845 1.9 13.3 8.7 14.8

209 2,998 6,679 1,187 836 4,194 5,428 105 402 2.5 15.4 6.2 10.5

143 1,537 2,599 800 350 1,296 1,767 39.0 154 1.9 19.8 4.6 9.2

74.2 1,246 2,243 452 594 1,090 1,753 32.4 116 2.8 33.9 3.6 7.6

118 1,115 1,969 346 595 933 1,592 24.8 98.1 3.2 37.3 4.2 8.1

43.2 909 1,472 277 300 868 1,188 27.4 143 3.3 25.3 7.6 12.7

42.5 743 1,279 263 222 767 1,006 24.6 48.2 2.8 22.1 1.2 1.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 7909 Parkwood Circle Dr, Houston, TX 77036-6565. Telephone: 713-346-7500. Email: [email protected] Website: http://www.natoil.com

Chrmn, Pres & CEO: M.A. Miller, Jr. EVP & CFO: C.C. Williams SVP, Secy & General Counsel: D.W. Rettig CTO: H. Kverneland

Chief Acctg Officer & Cntlr: R.W. Blanchard Founded: 1987 Board Members: G. L. Armstrong, R. E. Beauchamp, B. Domicile: Delaware A. Guill, D. Harrison, R. L. Jarvis, E. L. Mattson, M. A. Employees: 36,802 Miller, Jr., J. Smisek

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NSM | NSM is in the S&P 500

National Semiconductor Corp S&P Recommendation HOLD

★★★★★

Price $13.17 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $16.00

Investment Style Large-Cap Growth

Summary This company is a leading manufacturer of a broad line of semiconductors, including analog, digital and mixed-signal integrated circuits.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $16.00– 11.84 Trailing 12-Month EPS $1.10 Trailing 12-Month P/E 12.0 $10K Invested 5 Yrs Ago $6,091

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.26 1.24 10.5 239.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.12 25 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

NSM operates in the semiconductor industry, which tends to be cyclical. Sudden slowdowns can result from downturns in demand for electronics or from chip inventory buildup and industry overcapacity.

30

20 15

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

$3.155 3.04 $0.40 89

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE

37 4

3

4

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on September 10, 2010, when the stock traded at $ 11.94. Highlights ➤

➤

➤

We expect revenues to rise 12% in FY 11 (May), after a decline of 3% in FY 10. With a renewed focus on growing sales and taking market share, NSM has cut lower-margin product lines and transformed its product portfolio, now consisting of higher-margin chips for fastergrowing markets. We see power management products, new solar and light-emitting diode (LED) products and better penetration in end markets, such as wireless, supporting longterm revenue advances. But, we think economic uncertainty and rising inventory will limit growth over the near-term. We see gross margins widening to 69% in FY 11, from 66% in FY 10. We expect an improving sales mix, higher plant utilization and recent capacity rationalization to boost profitability in coming quarters. Although we expect expenses to rise for new product development and sales, we still look for operating margins to widen to 31% in FY 11, from 23% in FY 10, reflecting operating leverage and fewer non-recurring expenses. Our projections assume an effective tax rate of 30% and include stock-based compensation and restructuring-related charges.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our hold opinion reflects our view of subindustry growth and fair valuation. Although we believe that the company is gaining design wins, we anticipate below-industry growth over the next few quarters as better-positioned competitors defend their market share. We also think that margins, following recent restructuring, are peaking and should ebb as orders slow. However, NSM has what we view as attractive margins, free cash flows, and return on equity. Based on these factors, we believe relative multiples should be more-or-less in line with the industry average, which is reflected in our valuation. Risks to our recommendation and target price include a weaker-than-anticipated economy, a worse-than-expected impact from product mix, and market share loss for NSM or its larger customers. Our 12-month target price of $16 is based on our price/earnings (P/E) analysis. We apply a P/ E multiple of 12X, near the industry average to account for our view of NSM's relative growth, return on equity, and risks, to our calendar 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 412.0 -2010 314.4 344.6 2009 465.6 421.6 2008 471.5 499.0 2007 541.4 501.6 2006 493.8 544.0

3Q -361.9 292.4 453.4 431.0 547.7

4Q -398.5 280.8 462.0 455.9 572.6

Year -1,419 1,460 1,886 1,930 2,158

Earnings Per Share ($) 2011 0.36 E0.33 2010 0.13 0.20 2009 0.33 0.16 2008 0.33 0.33 2007 0.35 0.27 2006 0.24 0.32

E0.27 0.22 0.09 0.29 0.22 0.37

E0.30 0.33 -0.28 0.34 0.28 0.34

E1.26 0.87 0.31 1.26 1.12 1.26

Fiscal year ended May 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.080 0.080 0.080 0.100

12/10 03/11 06/10 07/14

12/17 03/18 06/17 09/16

12/21 03/22 06/21 09/20

01/11/10 04/12/10 07/12/10 10/12/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NSM

National Semiconductor Corp Business Summary September 10, 2010 CORPORATE OVERVIEW. National Semiconductor Corp. designs, develops, makes and markets a wide range of semiconductor products. Leading-edge products include power management circuits, display drivers, audio and operational amplifiers, communication interface products and data conversion solutions.

The company markets its products globally to original equipment manufacturers (OEMs) and original design manufacturers through a direct sales force. In FY 09, 60% of sales were to its top 10 customers. NSM listed two large customers, including distributors Avnet (which accounted for 15% of NSM's FY 09 sales) and Arrow (13%). Some 53% of FY 09 revenues came from distributors.

The company targets a broad range of markets and applications such as wireless handsets, medical applications, displays, automotive applications, networks, test and measurement applications, industrial markets, and a broad range of portable applications. Most of its products are analog and mixed-signal integrated circuits, comprising about 91% of FY 09 (May) total revenue.

CORPORATE STRATEGY. National Semiconductor has transformed from a low to high margin company. In 1996, NSM spun off its logic, memory and discrete products (considered commodity-type components) as a separate company, Fairchild Semiconductor. The company's current expertise has been primarily in analog intensive, digital and mixed-signal complex integrated circuits; and its stated goal is to become the premier provider of high-performance, energy-efficient analog and mixed-signal solutions.

NSM recently consolidated its product line operations into one group called The Product Group, which can be further divided into four different businesses that address the power management markets including: advanced power, infrastructure power products, mobile devices power and performance power products. There are also two more business units that address the signal path area, precision signal path and high speed product, as well as a custom solutions business. Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 1.52 1.26 0.87 0.85 0.32 37% 2009 16.20 9.06 19 10

2009 0.50 0.82 0.31 0.28 0.20 65% 2008 24.75 9.02 80 29

2008 0.59 1.76 1.26 1.24 0.14 11% 2007 29.69 21.54 24 17

2007 5.43 1.56 1.12 1.11 0.10 9% 2006 30.93 20.56 28 18

2006 5.57 1.72 1.26 1.21 0.04 3% 2005 28.75 18.36 23 15

2005 5.65 1.63 1.11 1.15 Nil Nil 2004 24.35 11.85 22 11

2004 4.21 1.27 0.74 0.26 Nil Nil 2003 22.63 6.27 31 8

2003 4.18 0.54 -0.09 -0.59 Nil Nil 2002 18.65 4.98 NM NM

2002 4.46 0.31 -0.34 -0.84 Nil Nil 2001 17.55 9.85 NM NM

2001 4.70 1.30 0.65 0.29 Nil Nil 2000 42.97 8.56 66 13

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,419 440 94.5 60.3 269 NA 209 203

1,460 447 120 72.7 114 35.5% 73.3 66.9

1,886 404 133 85.5 451 26.4% 332 326

1,930 642 145 Nil 531 29.3% 375 372

2,158 844 166 Nil 695 35.4% 449 433

1,913 626 194 Nil 410 NM 415 430

1,983 582 210 Nil 334 14.7% 285 102

1,673 248 229 Nil -23.3 NM -33.3 -215

1,495 81.9 230 3.90 -123 NM -122 -298

2,113 517 243 5.00 307 19.4% 246 108

Balance Sheet & Other Financial Data (Million $) Cash 1,027 Current Assets 1,471 Total Assets 2,275 Current Liabilities 548 Long Term Debt 1,001 Common Equity 426 Total Capital 1,703 Capital Expenditures 43.3 Cash Flow 304 Current Ratio 2.7 % Long Term Debt of Capitalization 58.8 % Net Income of Revenue 14.7 % Return on Assets 9.9 % Return on Equity 69.4

700 1,087 1,963 276 1,227 177 1,467 83.7 193 4.0 83.7 5.0 3.6 39.2

737 1,172 2,149 309 1,415 197 1,674 111 465 3.8 84.5 17.6 15.3 34.2

829 1,291 2,202 300 20.6 1,749 1,769 107 520 4.3 1.2 19.4 15.9 20.4

932 1,541 2,511 398 21.1 1,926 1,947 163 616 3.9 1.1 20.8 17.9 22.6

867 1,514 2,504 285 23.0 2,062 2,085 96.6 610 5.3 1.1 21.7 17.4 22.1

643 1,246 2,280 461 Nil 1,681 1,681 215 495 2.7 Nil 14.4 12.6 16.8

802 1,281 2,245 367 19.9 1,706 1,726 171 195 3.5 1.2 NM NM NM

681 1,073 2,289 404 20.4 1,781 1,802 138 109 2.7 1.1 NM NM NM

818 1,275 2,362 472 26.0 1,768 1,794 228 489 2.7 1.4 11.6 10.3 14.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2900 Semiconductor Drive, Santa Clara, CA 95051. Telephone: 408-721-5000. Email: [email protected] Website: http://www.national.com

Chrmn, Pres & CEO: D. Macleod SVP & CFO: L. Chew SVP, Secy & General Counsel: T.M. DuChene CTO: A. Bahai

Chief Acctg Officer & Cntlr: J.E. Samath Founded: 1959 Investor Contact: R.E. DeBarr () Domicile: Delaware Board Members: W. J. Amelio, S. R. Appleton, G. P. Employees: 5,800 Arnold, R. J. Danzig, R. J. Frankenberg, D. Macleod, E. McCracken, R. McGeary, W. E. Mitchell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: NTAP | NTAP is in the S&P 500

NetApp Inc S&P Recommendation HOLD

★★★★★

Price $51.97 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Storage & Peripherals

12-Mo. Target Price $40.00

Investment Style Large-Cap Growth

Summary This company provides storage hardware, software, and services to a variety of enterprise customers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.42– 26.89 Trailing 12-Month EPS $1.36 Trailing 12-Month P/E 38.2 $10K Invested 5 Yrs Ago $19,611

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.57 1.69 33.1 357.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.557 Nil Nil 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.39 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment takes into account the historical volatility of the data storage industry and the rapid pace of technological change that typifies the industry.

40 30 20

Quantitative Evaluations 10

S&P Quality Ranking

Vol.

D

C

B-

B B

B+

A-

A

A+

Mil. 60 40 20 0 5

4

3

3

2

Relative Strength Rank

STRONG 87

LOWEST = 1

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on August 23, 2010, when the stock traded at $ 40.33. Highlights ➤

➤

➤

Investment Rationale/Risk

We expect revenues to rise 23% in FY 11 (Apr.), following a 15% increase in FY 10. Although the growth of the global economy has slowed considerably recently, we expect demand for data storage products to remain robust given the severity of the cutback during the downturn. We see strong demand coming from the continued trend of content digitization and increased adoption of server virtualization. We also think NTAP is gaining market share due to its presence in the network-attached storage (NAS) market, which is expected to grow faster than the overall data storage market.

➤

We project gross margins of 63% in FY 11, versus 64% in FY 10, based on our outlook for modest pricing pressure. We also think margins will be hurt by higher component costs. We believe NTAP will keep a tight control over employee head count. As a result, we see operating margins widening to 14% in FY 11, from 12% in FY 10.

➤

We estimate EPS of $1.57 for FY 11, compared to $1.13 posted in FY 10. In addition to stronger demand, we think earnings will be helped by better cost containment.

➤

Our hold recommendation is based mostly on valuation, following recent price appreciation. We think NTAP's fundamentals remain strong. Despite the financial crisis in Europe, we expect demand for data storage to remain robust due to the severity of the decline during the downturn. In addition to a modest economic recovery, we believe demand will be driven by growth of content digitization, such as record retention for compliance with government regulations. We think NTAP will gain market share with new products and stronger distribution partnerships. Risks to our recommendation and target price include a weaker-than-expected economic recovery, lower IT spending, and significant loss of market share. Our 12-month target price of $40 is based on a blend of our discounted cash flow (DCF) and enterprise value (EV)-to-sales analyses. Our DCF model assumes a weighted average cost of capital of 12% and 3% terminal growth, and yields an intrinsic value of $40. We apply an EVto-sales multiple of 2.4X, near the company's historical average, to our FY 11 sales estimate of $4.8 billion and derive a same $40 valuation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,138 -2010 838.0 910.0 2009 868.8 911.6 2008 689.2 792.2 2007 621.3 652.5 2006 448.4 483.1

3Q -1,012 746.3 884.0 729.3 537.0

4Q -1,172 879.6 937.7 801.2 598.0

Year -3,931 3,406 3,303 2,804 2,066

Earnings Per Share ($) 2011 0.38 E0.37 2010 0.15 0.27 2009 0.11 0.15 2008 0.11 0.23 2007 0.14 0.22 2006 0.16 0.18

E0.39 0.30 -0.23 0.29 0.17 0.20

E0.42 0.40 0.23 0.26 0.23 0.15

E1.57 1.13 0.26 0.86 0.77 0.69

Fiscal year ended Apr. 30. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: NTAP

NetApp Inc Business Summary August 23, 2010 CORPORATE OVERVIEW. NetApp Inc. (formerly known as Network Appliance) is a provider of enterprise-level storage hardware and data-management software products and services. NTAP's solutions help global enterprises meet major information technology challenges such as managing the continuing growth in the volume of data, scaling existing infrastructure, complying with regulatory regimes, and security corporate networks and information.

CORPORATE STRATEGY. NearStore products focus on optimizing data protection and retention applications. This system offers an alternative to customers by providing faster data access than off-line storage at a significantly lower cost than primary storage. Offerings in this category include the Virtual Tape Library (VTL), a disk-to-disk backup appliance that appears as a tape library to a back-up software application.

The NTAP family of modular and scalable networked systems provides seamless access to a full range of enterprise data for users working with a variety of platforms, including Fibre Channel (FC), network-attached storage (NAS), storage area network (SAN), and iSCSI environments, as well as online data residing in central locations. NTAP refers to this as fabric-attached storage (FAS). Products include the 200, 900, 3000 and 6000 series.

The NetCache suite of solutions is designed to manage, control and improve access to Web-based information. Working with a range of software partners, NetCache provides large enterprises with the ability to manage Internet access and security. It essentially enables IT managers to control user access to information, based on profiles, actions, timing, etc.

NTAP's V-Series is a network-based solution that consolidates storage arrays from different suppliers, enabling unified SAN and file access to data stored in heterogeneous FC SAN storage arrays. The V-Series family supports products from Hewlett-Packard, Hitachi and IBM. Company Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 5.25 1.60 1.13 1.12 NA NA 2009 34.99 12.39 31 11

2009 2.82 0.77 0.26 0.71 Nil Nil 2008 27.49 10.39 NM NM

2008 2.72 1.26 0.86 0.84 Nil Nil 2007 40.89 22.51 48 26

2007 3.56 1.05 0.77 0.73 Nil Nil 2006 41.56 25.85 54 34

2006 3.62 0.90 0.69 0.45 Nil Nil 2005 34.98 22.50 51 33

2005 3.67 0.77 0.59 0.39 Nil Nil 2004 34.99 15.92 59 27

2004 2.91 0.58 0.42 0.16 Nil Nil 2003 26.69 9.26 64 22

2003 2.75 0.38 0.22 -0.28 Nil Nil 2002 27.95 5.18 NM NM

2002 2.39 0.14 0.01 -0.77 Nil Nil 2001 74.98 6.00 NM NM

2001 2.21 0.33 0.21 -0.52 Nil Nil 2000 152.75 33.88 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,931 617 166 74.1 447 NA 400 398

3,406 410 171 26.9 44.8 NM 86.5 235

3,303 464 144 Nil 383 19.1% 310 303

2,804 387 111 11.6 360 17.2% 298 282

2,066 395 81.8 1.28 350 23.9% 266 175

1,598 319 65.6 Nil 276 18.3% 226 148

1,170 228 59.5 Nil 170 10.8% 152 59.5

892 146 57.4 Nil 97.8 21.8% 76.5 -98.0

798 76.5 65.3 Nil 2.53 NM 3.03 -256

1,006 179 42.3 Nil 133 43.7% 74.9 -167

Balance Sheet & Other Financial Data (Million $) Cash 3,724 Current Assets 4,537 Total Assets 6,494 Current Liabilities 1,911 Long Term Debt 1,273 Common Equity 2,531 Total Capital 3,804 Capital Expenditures 136 Cash Flow 566 Current Ratio 2.4 % Long Term Debt of Capitalization 33.5 % Net Income of Revenue 10.2 % Return on Assets 6.7 % Return on Equity 19.1

2,604 3,439 5,453 1,679 1,430 1,662 3,092 290 257 2.1 46.2 2.5 1.8 5.2

1,164 2,067 4,071 1,414 173 1,700 1,873 188 454 1.5 9.2 9.4 8.0 16.8

489 2,241 3,658 1,188 Nil 1,989 1,989 166 409 1.9 Nil 10.6 8.6 15.2

461 2,033 3,261 917 138 1,923 2,061 133 348 2.2 6.7 12.9 9.5 14.9

194 1,576 2,373 520 4.47 1,661 1,665 93.6 291 3.0 0.3 14.1 10.6 14.7

241 1,089 1,877 344 4.86 1,416 1,421 48.6 212 3.2 0.3 13.0 9.5 12.7

284 853 1,319 265 3.10 987 990 61.3 134 3.2 0.3 8.6 6.3 8.3

211 679 1,109 216 3.73 858 862 284 47.4 3.2 0.4 0.4 0.3 0.4

272 636 1,036 219 0.15 804 805 83.7 117 2.9 0.0 7.4 9.2 11.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 495 East Java Drive, Sunnyvale, CA 94089. Telephone: 408-822-6000. Email: [email protected] Website: http://www.netapp.com

Chrmn: D. Warmenhoven Pres, CEO & COO: T. Georgens Investor Contact: S. Gomo () EVP, CFO & Chief Acctg Officer: S. Gomo

SVP & CSO: S. Kleiman Board Members: J. R. Allen, A. L. Earhart, T. Georgens, G. Held, N. G. Moore, T. Nevens, G. T. Shaheen, R. T. Wall, D. Warmenhoven

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1992 Domicile: Delaware Employees: 8,333

Stock Report | October 23, 2010 | NYS Symbol: NWL | NWL is in the S&P 500

Newell Rubbermaid Inc. S&P Recommendation HOLD

★★★★★

Price $18.07 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Housewares & Specialties

12-Mo. Target Price $20.00

Investment Style Large-Cap Value

Summary Major product lines of this high-volume brand name consumer products concern include housewares, home furnishings, office products and hardware.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $18.48– 13.11 Trailing 12-Month EPS $1.09 Trailing 12-Month P/E 16.6 $10K Invested 5 Yrs Ago $9,228

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.45 1.62 12.5 278.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.029 1.11 $0.20 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.72 10 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that housewares companies' products are generally affordable, low-priced goods that are usually modestly affected by swings in the economy. However, there is a greater level of import competition for commodity-type goods.

30

15 10

5

Quantitative Evaluations Vol.

S&P Quality Ranking

64

Mil. 30 20 10 0 5

D

C

B-

BB

B+

A-

A

Relative Strength Rank

A+

MODERATE 67

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Efraim Levy, CFA on August 05, 2010, when the stock traded at $ 16.44. Highlights ➤

➤

➤

Investment Rationale/Risk

Our 2010 sales growth projection is 3.2%, which assumes minimal foreign exchange impact but a continuing negative impact from 2009's planned product line exits. Using the revised 2009 segmentation, we project sales growth of 4% for Office Products, 9% for Tools, Hardware & Commercial Products, and less than 2% for Home & Family. In 2009, sales fell 14%, with negative foreign currency translation of 2% and planned product line exits of 5%.

➤

For 2010, we see further operating margin improvement on top of the gain achieved in 2009, excluding impairment and restructuring charges, allowing the operating margin to get close to the level in 2007. In 2009, moderation in commodity cost pressures and gross margin benefits from product line exits more than offset negative sales leverage, allowing the operating margin to rise 250 basis points. We also assume lower interest & other expenses in 2010, following a decline in 2009.

➤

We estimate that EPS will be $1.45 in 2010, versus 2009's operating EPS of $1.31. Our 2010 EPS estimate incorporates a $0.04 per share impact from the devaluation of the Venezuelan bolivar.

➤

We think the stock price adequately reflects NWL's improved longer-term growth prospects but a current difficult environment. We believe the company is poised for better innovation and efficiency. NWL has been exiting lower-margin, often resin-intensive product lines and investing in what we think are more profitable categories. In our view, NWL should be able to gain market share through better consumer research and greater product innovation. Risks to our recommendation and target price include poor consumer acceptance of new products, a prolonged weak consumer spending environment, a low level of cost savings from the company's reorganization program, negative currency translation, and a material increase in prices of key raw materials. Our 12-month target price of $20 is based on a blend of our historical and relative analyses. Our historical model uses a P/E of 13.8X our 2010 EPS estimate, a discount to the 10-year median, and arrives at a $20 value. Our relative analysis uses a near peer-average multiple for a $20 value.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,306 1,496 2009 1,204 1,504 2008 1,434 1,825 2007 1,384 1,693 2006 1,343 1,634 2005 1,363 1,646

3Q -1,449 1,760 1,687 1,586 1,585

4Q -1,420 1,452 1,643 1,638 1,749

Year -5,578 6,471 6,407 6,201 6,343

Earnings Per Share ($) 2010 0.19 0.41 2009 0.12 0.37 2008 0.21 0.33 2007 0.23 0.51 2006 0.47 0.49 2005 0.33 0.30

E0.39 0.28 0.20 0.61 0.41 0.37

E0.29 0.20 -0.93 0.36 0.33 0.31

E1.45 0.97 -0.19 1.72 1.71 1.29

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

11/12 02/11 05/13 08/12

11/25 02/24 05/26 08/27

11/30 02/26 05/28 08/31

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1946. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NWL

Newell Rubbermaid Inc. Business Summary August 05, 2010 CORPORATE OVERVIEW. Newell Rubbermaid is a global manufacturer and marketer of name brand consumer products and their commercial extensions, serving a wide array of retail channels including department stores, warehouse clubs, home centers, hardware stores, commercial distributors, office superstores, contract stationers, automotive stores and small superstores. As of April 2009, NWL recategorized its four business segments into three: Office Products (30% of 2009 sales, 31% of segment operating profits), Tools, Hardware & Commercial Products (27%, 33%), and Home & Family (43%, 36%). About 30% of 2009 sales were made outside the U.S. Sales to Wal-Mart Stores, Inc. and its subsidiaries amounted to about 12% of sales in 2009. The global business units (GBUs) that formerly comprised the Cleaning, Organization & Decor segment, that is Home Products, Foodservice Products, Commercial Products and Decor, have been integrated into two of the three remaining segments. Brands include Rubbermaid, Brute, Roughneck, TakeAlongs, Levolor and Kirsch. The Rubbermaid Food & Home Products and Decor GBUs are now included in Home & Family segment. Also, the Amerock brand, which was previously part of the Tools & Hardware segment, has been integrated into the Decor GBU.

The office products segment is comprised of the following GBUs: Markers, Highlighters, Art & Office Organization, Everyday Writing & Coloring, Technology, and Fine Writing & Luxury Accessories. Brands include Sharpie, PaperMate, Waterman, Parker, and DYMO. The tools & hardware business is composed of the following GBUs: Commercial Products, Construction Tools & Accessories, Industrial Products & Services, and Hardware. It sells hand tools, power tool accessories, propane torches, manual paint applicator products, cabinet hardware, and window hardware under brand names such as Irwin, Lenox, Rubbermaid Commercial Products, Technical Concepts, and BernzOmatic. The home & family segment includes the following GBUs: Rubbermaid Consumer Products, Baby & Parenting Essentials, Decor, Culinary Lifestyles and Beauty & Style. Brand names include Rubbermaid, Graco, Aprica, Levelor, Calphalon and Goody.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.56 0.97 0.98 0.25 26% 16.10 4.51 17 5

2008 NM 0.29 -0.19 0.71 0.84 NM 25.94 9.13 NM NM

2007 NM 2.18 1.72 1.73 0.84 49% 32.19 24.22 19 14

2006 NM 2.41 1.71 1.73 0.84 49% 29.98 23.25 18 14

2005 NM 2.07 1.29 1.22 0.84 65% 25.69 20.50 20 16

2004 NM 0.84 -0.07 0.56 0.84 NM 26.41 19.05 NM NM

2003 NM 0.84 -0.17 0.39 0.84 NM 32.00 20.27 NM NM

2002 NM 2.21 1.16 0.86 0.84 72% 36.70 26.11 32 23

2001 0.44 2.22 0.99 0.71 0.84 85% 29.50 20.50 30 21

2000 0.97 2.57 1.57 NA 0.84 54% 31.88 18.25 20 12

5,578 850 175 149 428 33.3% 286 288

6,471 752 131 147 1.80 NM -51.8 196

6,407 970 143 132 632 23.7% 479 481

6,201 916 193 155 515 8.58% 471 476

6,343 843 214 142 418 14.8% 356 333

6,748 870 249 130 86.3 NM -19.1 153

7,750 992 278 140 20.1 NM -46.6 108

7,454 1,033 281 111 495 31.7% 312 232

6,909 966 329 137 443 34.2% 265 190

6,935 1,173 293 130 685 38.5% 422 NA

Balance Sheet & Other Financial Data (Million $) Cash 278 Current Assets 2,182 Total Assets 6,424 Current Liabilities 1,760 Long Term Debt 2,015 Common Equity 1,779 Total Capital 4,290 Capital Expenditures 153 Cash Flow 461 Current Ratio 1.2 % Long Term Debt of Capitalization 47.0 % Net Income of Revenue 5.1 % Return on Assets 4.3 % Return on Equity 16.8

275 2,394 6,793 2,206 2,118 1,614 4,485 158 79.3 1.1 47.2 NM NM NM

329 2,652 6,683 2,564 1,197 2,247 3,445 157 622 1.0 34.8 7.5 7.4 23.2

201 2,477 6,311 1,897 1,972 1,890 3,863 138 664 1.3 51.1 7.6 7.4 26.6

116 2,473 6,446 1,798 2,430 1,643 4,073 92.2 570 1.4 59.7 5.6 5.4 20.9

506 3,012 6,666 1,871 2,424 1,764 4,189 122 230 1.6 57.9 NM NM NM

144 3,000 7,481 2,022 2,869 2,016 4,887 300 232 1.5 58.7 NM NM NM

55.1 3,080 7,389 2,614 2,357 2,064 4,426 252 592 1.2 53.2 4.2 4.3 13.9

6.80 2,851 7,266 2,534 1,865 2,433 4,373 250 593 1.1 42.7 3.8 3.6 10.8

31.7 2,897 7,262 1,551 2,815 2,449 5,358 317 714 1.9 52.5 6.1 6.0 16.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Three Glenlake Parkway, Atlanta, GA 30328. Telephone: 770-418-7000. Email: [email protected] Website: http://www.newellrubbermaid.com

Chrmn: M.T. Cowhig Pres & CEO: M.D. Ketchum EVP & CFO: J.R. Figuereo SVP, Secy & General Counsel: J.K. Stipancich

SVP & CIO: G.C. Steele Founded: 1903 Investor Contact: N. O'Donnell (770-418-7723) Domicile: Delaware Board Members: T. E. Clarke, S. S. Cowen, M. T. Employees: 19,500 Cowhig, E. Cuthbert-Millett, D. De Sole, M. D. Ketchum, W. Marohn, C. A. Montgomery, M. Polk, S. J. Strobel, M. A. Todman, R. Viault

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NEM | NEM is in the S&P 500

Newmont Mining Corp S&P Recommendation BUY

★★★★★

Price $59.37 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Gold

12-Mo. Target Price $68.00

Investment Style Large-Cap Growth

Summary Newmont is one of the world's largest gold producers, and is also engaged in the production of copper.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $65.50– 41.45 Trailing 12-Month EPS $3.80 Trailing 12-Month P/E 15.6 $10K Invested 5 Yrs Ago $14,147

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.51 3.90 16.9 484.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.46 18 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects Newmont's exposure to the cyclical markets for copper and gold. This is offset by our view of its moderate balance sheet leverage and our expectation that the company will generate positive free cash flow on a more consistent basis.

60

40 30

20

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 60 40 20 0 5

$28.777 1.01 $0.60 83

D

B-

B

B+

A-

A

Relative Strength Rank

5

4

3

C

B-

3

3

4

A+ WEAK

23 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Leo J. Larkin on August 05, 2010, when the stock traded at $ 56.36. Highlights ➤

➤

Following a sales gain of 24% in 2009, we look for a 17% rise in 2010. This year, we expect a higher average price for both gold and copper compared to 2009, and we look for higher gold production as increases from the Boddington and Batu Hijau mines should more than offset declines in Nevada and Peru. We think that copper production will slightly exceed 2009's level of 507 million pounds. We expect that continued low short-term interest rates worldwide and volatility in the world's major currencies will support another rise in the gold price in 2010. We believe that a gradual decline in metal exchange inventories and a rebound in global demand will boost the copper price. Reflecting increased gold output and increased prices for both metals, we look for higher operating profits. After interest expense, taxes, and more shares outstanding, we estimate operating EPS of $3.51 for 2010, versus operating EPS of $2.79 for 2009, which excludes unusual items totaling $0.11.

Investment Rationale/Risk ➤

➤

➤ ➤

Long term, we see EPS and reserves being aided by a projected rise in the price of gold, further consolidation of the industry, acquisitions, and expansion projects.

We see NEM's growth prospects as more secure following a series of acquisitions in recent years. Also, with its output exposed to the spot gold price, NEM appears well positioned for a continued bull market in gold. We believe that gold will remain in a bull market for several reasons: we expect the gap between consumption and production to persist as production worldwide stagnates; we think gold and gold shares will be viewed as attractive alternative investments, given our view that financial asset returns will continue to trail the high levels seen in the late 1990s; and, we believe that currency instability will increase gold's role as a monetary reserve asset. We think shares of NEM are attractively valued, recently trading at about 14.1X our 2011 estimate. Risks to our recommendation and target price include declines in the prices of gold and copper in 2011 instead of the increases that we project. Applying a P/E multiple of 17.4X to our 2011 EPS estimate, at the low end of its historical range and at a discount to its major peer, we arrive at our 12-month target price of $68. We think a discount is warranted given our view of NEM's comparatively less robust growth profile.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,242 2,153 2009 1,552 1,602 2008 1,943 1,522 2007 1,256 1,302 2006 1,132 1,293 2005 945.0 998.0

3Q -2,049 1,392 1,646 1,102 1,158

4Q -2,518 1,342 1,410 1,460 1,305

Year -7,705 6,199 5,526 4,987 4,406

Earnings Per Share ($) 2010 1.11 0.77 2009 0.40 0.35 2008 0.80 0.61 2007 0.15 -0.90 2006 0.46 0.34 2005 0.19 0.19

E0.91 0.79 0.39 0.72 0.59 0.29

E1.01 1.14 0.02 -2.03 0.47 0.16

E3.51 2.68 1.82 -2.13 1.86 0.83

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.150

10/28 02/24 04/23 07/28

12/04 03/10 06/11 09/03

12/08 03/12 06/15 09/08

12/29/09 03/30/10 06/29/10 09/29/10

Dividends have been paid since 1934. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NEM

Newmont Mining Corp Business Summary August 05, 2010 CORPORATE OVERVIEW. Newmont Mining Corp. is one of the world's largest gold producers. It has significant assets and operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, Bolivia, New Zealand and Mexico. The company has two large development projects in Ghana, West Africa. Newmont is also engaged in the production of copper, principally through its Batu Hijau operation in Indonesia.

versus 130 million lbs. in 2008.

Proven and probable gold reserves totaled 91.8 million oz. at the end of 2009 using a gold price of $800 an oz., versus 85 million oz. at the end of 2008 using a gold price of $725 an oz.

As of December 31, 2009, 21% of the company's total long-lived assets were located in the U.S., 13% in Canada, 10% in Peru, 33% in Australia/New Zealand, 15% in Indonesia and 8% in Ghana.

At December 31, 2009 NEM's proven and probable gold reserves in North America were 30.3 million equity ounces. Outside of North America, year-end proven and probable gold reserves were 61.5 million equity ounces, including 32.9 million equity ounces in Asia Pacific, 16.8 million equity ounces in Africa and 11.8 million equity ounces in South America.

CORPORATE STRATEGY. NEM's main strategy is to increase its portfolio of low-cost, long-life mines. In 2007's second quarter, NEM incurred a charge to eliminate its remaining gold hedges, as it anticipates higher gold prices over the longer term, and seeks to provide shareholders with maximum leverage to the price of gold.

In 2009, 32% of Newmont's gold sales came from North America, 32% from Peru, 19% from Australia/New Zealand, 9% from Indonesia and 8% from Ghana. Equity gold sales totaled 5.22 million oz. in 2009, versus 5.18 million oz. in 2008.

Copper reserves totaled 9.1 billion lbs. at the end of 2009, using a copper price of $2.00 per lb., versus 7.8 billion lbs. at the end of 2008, using a copper price assumption of $2.00 per lb. Equity copper sales totaled 226 million lbs. in 2009, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 21.37 4.45 2.68 2.69 0.40 15% 56.45 34.40 21 13

2008 15.20 3.56 1.82 1.86 0.40 22% 57.55 21.17 32 12

2007 16.27 -0.59 -2.13 0.42 0.40 NM 56.35 38.01 NM NM

2006 14.98 3.27 1.86 1.45 0.40 22% 62.72 39.84 34 21

2005 12.27 2.27 0.83 0.79 0.40 48% 53.93 34.90 65 42

2004 11.02 2.66 1.10 1.22 0.30 28% 50.20 34.70 46 32

2003 8.39 2.60 1.23 1.05 0.17 14% 50.28 24.08 41 20

2002 2.77 1.75 0.39 0.25 0.12 31% 32.75 18.52 84 47

2001 7.49 1.38 -0.16 -0.26 0.12 NM 25.23 14.00 NM NM

2000 8.58 1.61 -0.06 NA 0.12 NM 28.38 12.75 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,705 3,910 852 120 2,897 27.2% 1,308 1,308

6,199 2,057 789 149 1,271 8.89% 829 847

5,526 2,041 695 155 -353 NM -963 192

4,987 2,059 636 97.0 1,627 26.1% 840 657

4,406 1,621 644 98.0 1,068 29.4% 374 356

4,524 1,878 697 97.6 1,102 25.0% 490 540

3,214 1,219 564 88.6 890 23.2% 510 435

2,658 852 506 130 268 7.43% 150 96.7

1,656 435 300 86.4 -10.2 NM -23.3 -52.8

1,555 502 293 79.6 94.2 12.1% -10.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,271 Current Assets 5,822 Total Assets 22,299 Current Liabilities 2,320 Long Term Debt 4,652 Common Equity 10,703 Total Capital 17,422 Capital Expenditures 1,769 Cash Flow 2,165 Current Ratio 2.5 % Long Term Debt of Capitalization 26.7 % Net Income of Revenue 17.0 % Return on Assets 6.9 % Return on Equity 14.8

447 2,361 15,839 1,596 3,373 7,102 12,896 1,881 1,618 1.5 26.2 13.4 5.3 11.3

1,292 2,672 15,598 1,500 2,683 7,548 12,705 1,670 -268 1.8 21.1 NM NM NM

1,275 2,642 15,601 1,739 Nil 9,865 10,963 1,551 1,476 1.5 Nil 16.8 5.7 9.0

1,899 3,036 13,992 1,350 1,733 8,376 11,489 1,226 1,018 2.2 15.1 8.5 2.8 4.5

1,726 2,721 12,771 1,101 1,311 7,938 10,500 718 1,187 2.5 12.5 10.8 4.2 6.4

1,459 2,360 11,050 834 887 7,385 9,251 501 1,075 2.8 9.6 15.9 4.8 8.0

402 1,113 10,155 693 1,701 5,419 8,132 300 652 1.6 20.9 5.7 2.1 4.4

149 709 4,062 486 1,090 1,469 2,955 402 269 1.5 40.3 NM NM NM

60.3 512 3,510 291 976 1,466 2,695 378 283 1.8 36.2 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6363 South Fiddlers Green Circle, Suite 800, Greenwood Village, CO 80111. Telephone: 303-863-7414. Website: http://www.newmont.com Chrmn: V.A. Calarco

Pres & CEO: R. O'Brien COO: B.A. Hill EVP & CFO: R. Ball CFO: D.B. Russell

Investor Contact: J. Seaberg (303-837-5743) Board Members: G. A. Barton, V. A. Calarco, J. A. Carrabba, N. Doyle, V. M. Hagen, M. S. Hamson, R. J. Miller, R. O'Brien, J. B. Prescott, D. C. Roth, S. R. Thompson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1916 Domicile: Delaware Employees: 14,500

Stock Report | October 23, 2010 | NYS Symbol: NYT | NYT is in the S&P 500

New York Times Co (The) S&P Recommendation HOLD

★★★★★

Price $7.68 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Publishing

12-Mo. Target Price $8.00

Investment Style Large-Cap Blend

Summary This diversified communications company publishes newspapers, operates radio and television stations, and has equity holdings in newsprint and paper mills.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$14.87– 7.06 $0.66 11.6 $3,212

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.63 0.66 12.2 145.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.114 Nil Nil 68

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.52 5 B+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of a highly competitive advertising environment for publishers and other media.

30

15 8

Quantitative Evaluations

4

S&P Quality Ranking D

C

B-

BB

B+

A-

A

A+

Vol. 27

Mil.

27

Relative Strength Rank

12 8 4 0 5

WEAK

15 LOWEST = 1 4

3

3

2

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Joseph Agnese on September 23, 2010, when the stock traded at $ 7.66. Highlights ➤

For full-year 2011, we expect advertising revenues to decline 0.7%, following our estimate of a 3.4% decline in 2010, as trends improve significantly on a sequential basis with clients boosting marketing budgets in a more stable economic environment. However, we see circulation revenues declining 2.3% in 2011, following our estimate of a 0.4% decrease in 2010, on lower volumes and the cycling of newsstand price increases in June 2009. In total, we look for revenues to decline 1.3% in 2011, following our estimate of a 2.3% drop in 2010.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect the operating margin to widen slightly in 2011 after significant expansion in 2010, as a continued focus on cost reduction improves sales leverage and newsprint prices rise beginning in the 2010 third quarter. We look for interest expense to be stable as reduced borrowings are offset by higher interest rates. We estimate EPS of $0.56 in 2011, up 3.7% from our estimate of $0.54 in 2010. Our estimates include severance and pension costs, which we view as operational due to ongoing restructuring activity at NYT, but exclude one-time costs in 2010 (gain on asset sales and one-time tax charges).

➤

We believe NYT's valuation will be supported by an improving cyclical trend in advertising spending in the second half of 2010. Additionally, debt refinancing concerns were lessened in 2009 after NYT reduced its capital expenditures budget, cut costs, suspended its dividend (February 2009), entered into two private loan agreements totaling $250 million (January 2009), did a sale-leaseback on part of its headquarters space (March 2009), and announced interest in selling other assets. Risks to our recommendation and target price include contraction in the health of the New York City and Boston economies, where NYT derives most of its newspaper advertising revenues. Our 12-month target price of $8 reflects our historical and relative enterprise value/EBITDA models. Our historical model applies a multiple of 7.0X to our 2011 EBITDA estimate of $350 million, to value the stock at $8. Our relative analysis uses a multiple of 5.4X, in line with peers, to reach an $8 valuation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 587.9 589.6 2009 607.1 582.7 2008 747.9 741.9 2007 786.0 788.9 2006 799.2 819.6 2005 805.6 845.1

3Q -569.5 687.0 754.4 739.6 791.1

4Q -681.2 772.1 865.8 931.5 931.0

Year -2,440 2,949 3,195 3,290 3,373

Earnings Per Share ($) 2010 -0.08 0.21 2009 -0.52 -0.27 2008 Nil 0.15 2007 0.14 0.15 2006 0.21 0.37 2005 0.76 0.42

E0.07 -0.24 -0.01 0.10 0.06 0.16

E0.27 0.48 0.19 0.37 -4.59 0.49

E0.63 0.01 -0.46 0.76 -3.93 1.82

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data The most recent (quarterly) payment of $0.06 a share was made in December 2008.

Stock Report | October 23, 2010 | NYS Symbol: NYT

New York Times Co (The) Business Summary September 23, 2010 CORPORATE OVERVIEW. The New York Times Company is a media company that includes newspapers, Internet businesses, a radio station, investments in paper mills and other investments. The NYT classifies its businesses into two segments, the News Media Group (about 95% of revenues) and the About Group (5%). The News Media Group primarily consists of The New York Times, the International Herald Tribune, The Boston Globe, the Worcester Telegram & Gazette, 14 daily newspapers in Alabama, California, Florida, Louisiana, North Carolina and South Carolina, and related print and digital businesses, such as NYT.com. The majority of the News Media Group's revenue comes from advertising sold in its newspapers and other publications and on its Web sites. In 2009, revenues for the News Media Group were derived from national advertising (55%), classified (18%), retail and pre-print (25%), and other (3%). We note that as one of only three national newspapers (along with USA Today and The Wall Street Journal), the New York Times garners a disproportionate amount of its advertising from national advertisers relative to most other newspapers. According to TNS Media Intelligence, the New York Times had a

50% market share of national advertising revenue among national newspapers in 2008. The About Group consists of the websites About.com, ConsumerSearch.com, UCompareHealthCare.com and Caloriecount.about.com. About.com provides users with information and advice on thousands of topics, and the site was one of the top 15 most visited ad supported Web sites in 2009. About.com generates revenues through display advertising relevant to adjacent content, cost-per-click advertising, and e-commerce. ConsumerSearch.com is a leading online aggregator and publisher of reviews of consumer products. UCompareHealthCare.com provides Web-based interactive tools to enable users to measure the quality of certain healthcare services. Caloriecount.about.com offers weight loss tools and nutritional information.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 0.92 0.01 -0.20 Nil Nil 12.75 3.44 NM NM

2008 NM 0.51 -0.46 -1.04 0.75 NM 21.14 4.95 NM NM

2007 1.16 1.82 0.76 0.91 0.87 114% 26.90 16.02 35 21

2006 0.25 -2.76 -3.93 1.13 0.69 NM 28.98 21.54 NM NM

2005 NM 2.81 1.82 1.41 0.65 36% 40.90 26.09 22 14

2004 NM 2.94 1.96 1.62 0.61 31% 49.23 38.47 25 20

2003 NM 2.95 1.98 1.77 0.57 29% 49.06 43.29 25 22

2002 NM 2.93 1.94 1.35 0.53 27% 53.00 38.60 27 20

2001 NM 2.48 1.26 0.72 0.49 39% 47.98 35.48 38 28

2000 NM 3.65 2.32 NA 0.45 19% 49.88 32.63 21 14

2,440 320 134 83.1 3.78 58.4% 1.56 -28.8

2,949 302 139 50.8 -71.4 NM -66.1 -149

3,195 492 153 59.1 185 41.2% 109 129

3,290 464 170 50.7 -552 NM -568 164

3,373 502 144 49.2 446 40.4% 266 205

3,304 657 147 44.2 477 38.5% 293 242

3,227 687 148 44.8 500 39.6% 303 268

3,079 698 153 48.7 491 39.0% 300 208

3,016 568 194 51.4 340 40.5% 202 116

3,489 864 228 64.1 673 40.9% 398 NA

Balance Sheet & Other Financial Data (Million $) Cash 36.5 Current Assets 501 Total Assets 3,089 Current Liabilities 501 Long Term Debt 769 Common Equity 604 Total Capital 1,376 Capital Expenditures 51.1 Cash Flow 135 Current Ratio 1.0 % Long Term Debt of Capitalization Nil % Net Income of Revenue 0.1 % Return on Assets NA % Return on Equity NA

56.8 624 3,402 1,033 580 504 1,180 167 73.3 0.6 49.1 NM NM NM

51.5 664 3,473 976 679 978 1,663 380 262 0.7 40.8 3.4 3.0 12.1

72.4 1,185 3,856 1,298 795 820 1,621 332 -398 0.9 49.1 NM NM NM

44.9 658 4,533 1,067 898 1,516 2,683 221 409 0.6 33.5 7.9 6.3 18.2

42.4 614 3,950 1,120 471 1,401 2,139 154 439 0.5 22.0 8.9 7.5 21.0

39.4 603 3,805 760 726 1,392 2,350 121 450 0.8 30.9 9.4 8.1 22.7

37.0 563 3,634 736 729 1,362 2,164 161 453 0.8 33.7 9.7 8.5 23.9

52.0 560 3,439 861 599 1,150 1,813 90.4 396 0.7 33.0 6.7 5.7 16.6

69.0 611 3,607 877 637 1,281 2,024 85.3 626 0.7 31.5 11.4 11.2 29.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 620 8th Ave, New York, NY 10018-1618. Telephone: 212-556-1234. Website: http://www.nytco.com Chrmn: A.O. Sulzberger, Jr.

Pres & CEO: J.L. Robinson Vice Chrmn: M. Golden SVP & CFO: J.M. Follo SVP, Chief Acctg Officer & Cntlr: R.A. Benten

Investor Contact: C.J. Mathis (212-556-1981) Founded: 1896 Board Members: R. E. Cesan, R. E. Denham, L. Domicile: New York Dolnick, S. W. Dryfoos, M. Golden, C. D. Greenspon, J. Employees: 7,665 A. Kohlberg, D. G. Lepore, D. E. Liddle, E. R. Marram, T. T. Middelhoff, J. L. Robinson, A. O. Sulzberger, Jr., D. A. Toben

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: NWSA | NWSA is in the S&P 500

News Corp S&P Recommendation BUY

★★★★★

Price $14.40 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Movies & Entertainment

12-Mo. Target Price $17.00

Investment Style Large-Cap Blend

Summary This media conglomerate owns controlling interests in some of the world's leading media and entertainment brands, including Fox (film/TV), The Wall Street Journal, SKY Italia, BSkyB, and STAR TV, as well as other newspaper and magazine businesses.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.00– 11.11 Trailing 12-Month EPS $0.97 Trailing 12-Month P/E 14.9 $10K Invested 5 Yrs Ago $10,406

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.11 1.28 13.0 2,621.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$26.246 1.04 $0.15 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.48 12 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's portfolio of leading properties, with relatively balanced business and geographic diversification, combined with our view of its strong balance sheet, offset by some high cyclical ad exposure, film volatility, currency risk, and some corporate governance issues.

20 15 10

5

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

120 80 40 0 5

D 4 2

4

3

2008

2009

Analysis prepared by Tuna N. Amobi, CFA, CPA on August 19, 2010, when the stock traded at $ 12.76.

➤

➤

We see total revenues up about 4.0% in FY 11 (June) to $34.1 billion -- mainly on continued strong growth in affiliate and advertising revenues for the cable networks businesses. A continued ad rebound should also help the print and broadcast TV businesses -- the latter buoyed by political ads and retransmission revenues for the owned-and-operated stations. We see difficult film comparisons in FY 10 (on Avatar's record performance), versus relatively moderate growth for the Sky Italia satellite TV unit. With book publishing increasingly aided by e-book sales, and newspapers by WSJ's rising digital subscriptions, we see about 5.3% FY 11 total revenue growth, to nearly $35.9 billion. Management expects low double-digit growth in FY 11 adjusted EBIT (from over $4.4 billion in FY 10), and we project at nearly $5.0 billion -with the cable networks contributing more than half. With further operating leverage on recent restructuring actions, we project FY 12 adjusted EBIT of nearly $5.7 billion. Including equity affiliate earnings, and after interest and taxes, we estimate operating EPS of $1.11 and $1.28 for FY 11 and FY 12, respectively.

B+

A-

A

A+

MODERATE

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B

69

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

Highlights

B-

Relative Strength Rank

1

2007

C

A-

Despite mixed June quarter results, we think the company's encouraging FY 10 results and cautious FY 11 guidance reflect expectations for continued improvements across the core ads, content, and subscriptions businesses -with trends at Sky Italia also appearing to stabilize. We see early progress in the quest for "innovative subscriptions models" for online news properties. We see ample liquidity, but note a pending non-binding offer for the remaining 61% of BSkyB which, if successful, could entail a potential cash outlay of about $11.5 billion.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 7,199 8,684 2009 7,509 7,871 2008 7,067 8,590 2007 5,914 7,844 2006 5,682 6,665 2005 5,191 6,562

3Q 8,785 7,373 8,750 7,530 6,198 6,043

4Q 8,110 7,670 8,589 7,367 6,782 6,108

Year 32,778 30,423 32,996 28,655 25,327 23,859

Earnings Per Share ($) 2010 0.22 0.10 2009 0.20 -2.45 2008 0.23 0.27 2007 0.28 0.27 2006 0.19 0.22 2005 0.22 0.14

0.32 1.04 0.91 0.29 0.27 0.14

0.33 -0.08 0.43 0.30 0.24 0.23

0.97 -1.29 1.81 1.14 0.92 0.73

Risks to our recommendation and target price include a weaker-than-expected economic recovery; uncertainty with the BSkyB offer; secular hurdles for the print brands; continued challenges for the MySpace unit; a sharp decline for Fox ratings; succession and governance issues with the Murdoch family; dilutive acquisitions; and, currency exposure.

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Our PEG-based 12-month target price is $17, blending EV/EBITDA and P/E-to-growth analyses -- with some non-voting discount on shares (recently offering a 1.1% dividend yield) -- while noting recent cash of $8.7 billion ($3.30 a share).

Dividends have been paid since 1995. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.075 0.075

02/02 08/04

03/08 09/03

03/10 09/08

04/14/10 10/13/10

Stock Report | October 23, 2010 | NNM Symbol: NWSA

News Corp Business Summary August 19, 2010 CORPORATE OVERVIEW. News Corp., once a small publisher of Australian newspapers, has grown into one of the world's premier media conglomerates. In December 2004, the company moved its domicile to the U.S., followed in March 2005 by a tender offer for the public's 18% minority stake in its Fox Entertainment Group. Key U.S. assets include Fox film studio and 20th Century Fox TV; Fox broadcast network and TV stations; Fox News, FX and regional sports networks (including FSN Ohio, FSN Florida and 40% of FSN Bay Area); HarperCollins (book publishers); the Wall Street Journal and New York Post newspapers; and an inserts business. International assets include several newspaper businesses in the U.K. and Australia (including The Times, The Sun, News of the World and The Australian); the wholly owned DBS provider SKY Italia; a 39% controlling stake in U.K. DBS provider BSkyB; a 40% stake in Sky Deutschland; and other associated entities in Asia, Australia and Latin America. About 54% of FY 10 (Jun.) revenues were derived from the U.S. and Canada, 30% from Europe, and 16% from Australasia/other.

acquire 61% of BSkyB which it doesn't already own (for 700 pence a share), and in August 2010, NWS agreed to transfer a controlling stake in three TV channels in China, as well as its Chinese movie library, to a local private equity firm, for undisclosed terms. Earlier in December 2007, the company acquired Dow Jones for $5.7 billion. In February 2009, it divested a 38.4% stake in DIRECTV, plus three regional sports networks and $550 million of cash, in exchange for Liberty Media's 16.3% voting stake. In 2005, the company paid about $650 million for social networking site MySpace (as part of its Fox Interactive Media unit -- also including IGN Entertainment, Scout Media, iLike and imeem. Meanwhile, with MySpace's multiyear search deal with Google set to expire in August 2010, the company has been exploring strategic alliances with other Internet companies. It provides content through online video site Hulu -- a JV of Fox, Disney's ABC and GE's NBC -- as well as other digital outlets (including Apple's iTunes and mobile content destination Mobizzo).

CORPORATE STRATEGY. Over the past few years, the company has completed several strategic transactions. In June 2010, it made a non-binding offer to Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 0.96 1.42 0.97 1.06 0.14 14% 17.00 11.61 18 12

2009 NM -0.86 -1.29 0.53 0.12 NM 14.00 4.95 NM NM

2008 NM 2.22 1.81 1.39 0.12 7% 20.55 5.43 11 3

2007 2.37 1.38 1.14 1.00 0.12 11% 25.40 19.00 22 17

2006 1.86 1.62 0.92 0.83 0.13 14% 21.94 15.17 24 16

2005 1.81 1.40 0.73 0.66 0.11 14% 18.88 13.94 26 19

2004 1.85 0.79 0.58 0.52 0.10 17% 18.77 14.57 32 25

2003 NM 0.65 0.46 0.51 0.08 17% 15.54 9.33 34 20

2002 0.68 -2.39 -2.75 -1.10 0.07 NM 13.60 7.54 NM NM

2001 3.34 -0.01 0.32 NA 0.07 22% 18.70 9.80 58 31

32,778 5,644 1,185 NA 3,323 20.4% 2,539 2,771

30,423 4,696 1,138 927 -5,539 NM -3,378 1,379

32,996 6,482 1,207 970 7,321 24.6% 5,387 4,142

28,655 5,331 879 843 5,306 34.2% 3,426 3,171

25,327 4,643 775 791 4,405 34.6% 2,812 2,663

23,859 4,329 765 736 3,561 34.3% 2,128 2,017

29,428 5,146 844 958 3,855 32.3% 2,312 1,563

29,913 4,372 776 1,094 3,000 25.8% 1,808 1,303

29,014 4,291 749 1,384 -10,959 NM -11,962 -2,718

25,578 3,799 706 1,358 -562 NM -746 NA

Balance Sheet & Other Financial Data (Million $) Cash 8,709 Current Assets NA Total Assets 54,384 Current Liabilities NA Long Term Debt 13,191 Common Equity 25,113 Total Capital 39,186 Capital Expenditures 914 Cash Flow 3,724 Current Ratio 2.0 % Long Term Debt of Capitalization 33.7 % Net Income of Revenue 7.8 % Return on Assets 4.7 % Return on Equity 10.5

6,540 15,836 53,121 10,639 12,204 23,224 39,455 1,101 -2,240 1.5 30.9 NM NM NM

4,662 14,362 62,308 9,182 13,230 28,623 48,303 1,443 6,594 1.6 27.4 16.3 8.6 17.5

7,654 15,906 62,343 7,494 12,147 32,922 51,530 1,308 4,305 2.1 23.6 12.0 5.8 10.9

5,783 13,123 56,649 6,373 11,385 29,874 46,740 976 3,587 2.1 24.4 11.1 5.1 9.5

6,470 12,779 54,692 6,649 10,087 29,377 44,500 901 2,883 1.9 22.7 8.9 4.1 8.4

6,217 15,012 73,738 10,437 12,972 39,387 59,473 517 3,156 1.4 21.8 7.9 3.3 6.5

6,746 14,861 67,747 9,303 14,480 31,834 53,867 551 2,584 1.6 26.9 6.0 2.6 5.5

6,337 14,647 71,441 11,005 15,275 34,101 54,743 505 -11,213 1.3 27.9 NM NM NM

5,615 16,173 84,961 9,776 23,345 42,050 70,940 1,113 -40.0 1.7 32.9 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Income and balance sheet data in Australian $ prior to 2005. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1211 Avenue Of The Americas, New York, NY 10036-8701. Telephone: 212-852-7000. Website: http://www.newscorp.com Chrmn & CEO: K.R. Murdoch

Pres, Vice Chrmn & COO: C. Carey EVP, CFO & Chief Acctg Officer: D.F. DeVoe EVP & General Counsel: L. Jacobs SVP & Cntlr: R. Gannon

Investor Contact: R. Nolte (212-852-7017) Founded: 1922 Board Members: J. M. Aznar, N. Bancroft, P. L. Domicile: Delaware Barnes, C. Carey, K. E. Cowley, D. F. DeVoe, V. Dinh, R. Employees: 51,000 Eddington, A. S. Knight, J. Murdoch, K. R. Murdoch, L. Murdoch, T. J. Perkins, A. M. Siskind, J. L. Thornton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NEE | NEE is in the S&P 500

NextEra Energy Inc S&P Recommendation BUY

★★★★★

Price $55.45 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $58.00

Investment Style Large-Cap Blend

Summary NextEra Energy, Inc. (formerly FPL Group) is the holding company for Florida Power & Light and NextEra Energy Resources.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.57– 45.29 Trailing 12-Month EPS $4.53 Trailing 12-Month P/E 12.2 $10K Invested 5 Yrs Ago $15,378

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.45 4.58 12.5 415.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$23.058 3.61 $2.00 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.65 6 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of NextEra Energy's steady cash flows from its Florida Power & Light utility, despite the weak economy and housing market, a reduced number of customer accounts, and a much less supportive political and regulatory environment. We believe this will be complemented by the fast-growing but higher-risk cash flows from NextEra Energy Resources, its independent power subsidiary.

70 60 50 40

Vol. Mil.

Quantitative Evaluations

24 16 8 0 5

S&P Quality Ranking 5

4

3

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

A B

B+

A-

A

Relative Strength Rank

A+

MODERATE

49 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Justin McCann on September 01, 2010, when the stock traded at $ 53.73. Highlights ➤

➤

➤

Excluding one-time net gains of $0.32, we expect operating EPS in 2010 to increase nearly 10% from 2009's $4.05, which excluded net onetime charges of $0.08. Operating results in the first half of 2010 benefited from very favorable weather and a modest rate increase at Florida Power & Light, partially offset by poor first quarter wind resources and higher interest expense at NextEra Energy Resources. We believe EPS growth in the second half of 2010 and in 2011 will be driven by new wind power investments and tax credits at NextEra Energy Resources. However, we expect the gas merchant market in Texas to remain weak. We think growth prospects at FP&L will largely reflect the timing and extent of a recovery in Florida's economy and housing market, but believe that once it has recovered, the utility will realize growth rates above the national average. On January 13, 2010, the Florida Public Service Commission granted FP&L a rate base increase of $75 million, far lower than the $1.04 billion increase requested. Following the announcement of the rate case ruling, FP&L announced that it would suspend projects representing about $10 billion of investment over the next five years.

Investment Rationale/Risk ➤

➤

➤

Although the stock has recovered nearly 19% from its year-to-date low, we still view it as attractive for above-average total return potential. The shares had been hurt by the far worse than expected regulatory decision on FP&L's rate increase request, but we believe that the name change of the company to NextEra Energy, Inc. will continue to direct investor focus to the growth prospects we still see for NextEra Energy Resources, driven by the expansion of its wind and solar power projects and from the tax credits provided by the passage of the federal stimulus package. Risks to our opinion and target price include lower-than-expected results from the NextEra Energy Resources subsidiary, prolonged weakness in the Florida economy and housing market, and a reduction in the average P/E for the electric utilities sub-industry as a whole. We believe the stock will benefit from the company being the national leader in wind and solar power development. We expect the company to sustain annual dividend growth of about 5% over the next few years. Our 12-month target price is $58, an approximate peers P/E of 12.7X our operating EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,622 3,591 2009 3,705 3,811 2008 3,434 3,585 2007 3,075 3,929 2006 3,584 3,809 2005 2,437 2,741

3Q -4,473 5,387 4,575 4,694 3,504

4Q -3,655 4,003 3,683 3,623 3,164

Year -15,643 16,410 15,263 15,710 11,846

Earnings Per Share ($) 2010 1.36 1.02 2009 0.90 0.91 2008 0.62 0.52 2007 0.38 1.01 2006 0.64 0.60 2005 0.36 0.52

E1.50 1.31 1.92 1.33 1.32 0.87

E0.88 0.85 1.01 0.56 0.67 0.53

E4.45 3.97 4.07 3.27 3.23 2.29

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.500 0.500 0.500 0.500

02/12 05/21 07/30 10/15

02/24 06/02 08/25 11/23

02/26 06/04 08/27 11/26

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1944. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NEE

NextEra Energy Inc Business Summary September 01, 2010 CORPORATE OVERVIEW. NextEra Energy, Inc. (formerly FPL Group), one of the largest providers of electricity-related services in the U.S., is the holding company for Florida Power & Light Co. (FP&L), a regulated and vertically integrated utility, and NextEra Energy Resources (formerly FPL Energy), a wholesale generator of electricity with operations in 28 states and Canada. IMPACT OF MAJOR DEVELOPMENTS. On May 21, 2010, the company changed its name from FPL Group, Inc. to NextEra Energy, Inc. The management believes that the new name, which reflects the name of its subsidiary, NextEra Energy Resources, will better reflect the company's scale as one of the largest and cleanest energy providers in North America, and is well positioned for the ongoing transition to a low-carbon economy. The ticker symbol is expected to be changed from FPL to NEE on or about June 23.

well as the southern part of the state. Electric revenues by customer class in 2009 were: residential 55%; commercial 41%; industrial 3%; wholesale, 1%; and other (including deferred, and the net change in unbilled revenues), -1%. Given its unusually low level of exposure to industrial customers, we consider the company to normally be much less vulnerable to economic downturns. However, after experiencing average annual customer growth over the previous 10 years, FP&L started to experience a slowdown in retail customer growth in 2007, as well as a decline in non-weather-related usage, and in 2009, retail customer growth was down 0.2%. We do not expect to see a recovery in this growth until there is a broader recovery in the state's economy.

MARKET PROFILE. Florida Power & Light provides electricity to about 4.5 million customers in an area covering nearly all of Florida's eastern seaboard, as Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 31.35 3.97 3.73 1.89 48% 60.61 41.48 15 10

2008 28.57 4.07 3.84 1.78 44% 73.75 33.81 18 8

2007 26.35 3.27 3.04 1.64 50% 72.77 53.72 22 16

2006 24.52 3.23 3.00 1.50 46% 55.57 37.81 17 12

2005 21.52 2.29 2.06 1.42 62% 48.11 35.90 21 16

2004 20.24 2.46 2.17 1.30 53% 38.05 30.10 15 12

2003 18.93 2.51 2.21 1.20 48% 34.04 26.78 14 11

2002 17.46 2.01 1.52 1.16 58% 32.66 22.50 16 11

2001 17.09 2.31 1.83 1.12 48% 35.81 25.61 16 11

2000 15.89 2.07 NA 1.08 52% 36.50 18.19 18 9

15,643 1,947 NA 3.16 53.0 16.8% 1,615 1,516

16,410 1,579 NA 3.43 35.0 21.5% 1,639 1,547

15,263 1,261 NA 3.18 23.0 21.9% 1,312 1,218

15,710 1,185 NA 3.30 21.0 23.7% 1,281 1,187

11,846 1,285 NA 2.87 28.0 23.5% 885 797

10,522 1,198 NA 3.26 37.0 23.1% 887 782

9,630 1,105 NA 3.95 NA 29.2% 893 786

8,311 952 NA 4.52 NA 26.0% 695 527

8,475 983 NA 4.51 NA 32.7% 781 616

7,082 1,032 NA 4.55 Nil 32.3% 704 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 50,169 Capital Expenditures 5,645 Net Property 36,078 Capitalization:Long Term Debt 16,300 Capitalization:% Long Term Debt 55.7 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 12,967 Capitalization:% Common 44.3 Total Capital 29,836 % Operating Ratio 85.5 % Earned on Net Property 7.6 % Return on Revenue 10.3 % Return on Invested Capital 8.3 % Return on Common Equity 13.1

45,528 4,989 32,411 13,833 54.2 Nil Nil 11,681 45.8 29,745 85.5 9.3 10.0 8.4 14.6

41,040 1,826 28,652 11,280 51.2 Nil Nil 10,735 48.8 25,836 87.5 8.6 8.6 8.2 12.7

36,152 1,763 24,499 9,591 49.1 Nil Nil 9,930 50.9 22,953 87.1 8.9 8.2 10.9 13.9

33,351 1,616 22,463 8,039 48.6 Nil Nil 8,499 51.4 19,615 88.6 6.7 7.5 8.6 11.0

31,720 1,394 21,226 8,027 51.6 Nil Nil 7,537 48.4 15,645 87.8 7.1 8.4 9.2 12.0

30,272 1,383 20,297 8,728 55.6 Nil Nil 6,967 44.4 17,850 87.9 8.1 9.3 8.1 13.4

26,505 1,277 14,304 6,016 47.4 Nil Nil 6,688 52.6 14,444 85.7 9.5 8.4 9.0 10.7

23,388 1,544 11,662 5,084 45.8 Nil Nil 6,015 54.2 12,629 87.6 10.3 9.2 9.6 13.5

21,022 1,299 9,934 4,202 42.9 Nil Nil 5,593 57.1 11,442 86.3 12.9 9.9 9.7 12.8

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 700 Universe Boulevard, Juno Beach, FL 33408. Telephone: 561-694-4000. Website: http://www.nexteraenergy.com Chrmn & CEO: L. Hay, III

Pres & COO: J.L. Robo EVP & CFO: A. Pimentel, Jr. EVP & General Counsel: C.E. Sieving Chief Acctg Officer & Cntlr: C.N. Froggatt

Investor Contact: P. Cutler (800-222-4511) Founded: 1984 Board Members: S. S. Barrat, R. Beall, II, J. H. Domicile: Florida Brown, J. L. Camaren, K. B. Dunn, J. B. Ferguson, L. Employees: 15,070 Hay, III, T. Jennings, O. D. Kingsley, Jr., R. E. Schupp, W. H. Swanson, M. H. Thaman, H. E. Tookes, II

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: GAS | GAS is in the S&P 500

Nicor Inc. S&P Recommendation HOLD

★★★★★

Price $47.75 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Gas Utilities

12-Mo. Target Price $47.00

Investment Style Large-Cap Blend

Summary This holding company's Nicor Gas subsidiary is one of the largest U.S. distributors of natural gas.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.47– 36.69 Trailing 12-Month EPS $3.37 Trailing 12-Month P/E 14.2 $10K Invested 5 Yrs Ago $15,621

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.28 3.31 14.6 45.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.173 3.90 $1.86 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.42 6 AA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the low-risk nature of the company's main subsidiary, a regulated natural gas distribution company, slightly offset by the higher-risk nature of its much smaller competitive operations. The company benefits from being the lone delivery agent of natural gas to customers within its service territory.

45 40 35 30

Quantitative Evaluations

Vol. Mil. 6 4 2 0

S&P Quality Ranking D 5

4

5

3

4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Christopher B. Muir on August 13, 2010, when the stock traded at $ 42.90. Highlights We see revenues rising 3.0% in 2010. We expect utility revenues to rise as a result of higher gas prices and customer usage, customer growth and the full year effect of a large rate hike. We project nearly flat revenues at the Tropical Shipping unit due to the economic slowdown. Revenues at the Other Energy Ventures segment should grow slowly, in our view. In 2011, we see revenues rising by 1.7%. We project operating margins of 9.2% in 2010 and 9.4% in 2011, up from 8.3% in 2008, reflecting lower per-revenue non-utility operating costs and utility operating taxes, partly offset by higher per-revenue cost of gas. We expect other expense categories to grow about as fast as revenues. We forecast pretax margins of 8.2% in 2010 and 2011, up from 7.2% in 2008, as we see higher interest expense outweighed by higher non-operating income in 2010. Assuming a small increase in the number of shares outstanding, we estimate EPS of $3.28 in 2010, up 13% from 2009's $2.89, excluding a net one-time gain of $0.09 and helped by prior-year bad debt recoveries. Our 2011 EPS projection is $3.31, up 0.9%.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: P

➤

B B

65 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

Our 2010 projected payout ratio of 57% is near the peer average of around 55%, and the shares recently yielded about 4.3%. GAS was granted rate increases of $69 million effective April 2009 and $11 million effective October 2009, helping boost its earnings. We think this will allow GAS to consider a resumption of dividend increases in 2011. Should economic growth in the U.S. recover, we see strong earnings growth returning to GAS's unregulated businesses. Risks to our recommendation and target price include a weak economy in GAS's service territory, higher-than-expected interest rates, and slower-than-projected growth in unregulated operations. The stock recently traded at about 13.1X our 2011 EPS estimate, a 6% discount to natural gas utility peers. Our 12-month target price of $47 equates to a multiple of 14.2X our 2011 EPS estimate, a 7% discount to our peer forecast. We think this valuation is warranted by our view of no dividend increases through the end of 2010 and relatively moderate EPS and dividend growth after 2010, partly offset by what we see as an extremely strong balance sheet.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,193 425.6 2009 1,111 447.6 2008 1,596 699.8 2007 1,335 556.9 2006 1,319 451.3 2005 1,180 484.4

3Q -325.6 440.3 365.2 351.1 336.0

4Q -768.1 1,041 919.5 838.2 1,358

Year -2,652 3,777 3,176 2,960 3,358

Earnings Per Share ($) 2010 1.33 0.53 2009 0.96 0.50 2008 0.91 0.64 2007 1.04 0.40 2006 0.99 0.19 2005 0.99 0.75

E0.30 0.30 0.03 0.32 0.39 -0.06

E1.13 1.21 1.05 1.23 1.29 1.40

E3.28 2.98 2.63 2.99 2.87 3.07

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.465 0.465 0.465 0.465

11/20 02/19 04/22 07/22

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

02/01/10 05/01/10 08/01/10 11/01/10

Dividends have been paid since 1954. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: GAS

Nicor Inc. Business Summary August 13, 2010 CORPORATE OVERVIEW. Nicor Inc. is a holding company, whose principal subsidiaries are Northern Illinois Gas Company (doing business as Nicor Gas Company ), one of the nation's largest distributors of natural gas, and Tropical Shipping, a transporter of containerized freight in the Bahamas and the Caribbean region. Nicor also owns several energy-related ventures, including Nicor Services and Nicor Solutions, which provide energy-related products and services to retail markets, and Nicor Enerchange, a wholesale natural gas marketing company. PRIMARY BUSINESS DYNAMICS. Nicor seeks earnings growth through investment in unregulated operations, including its Tropical Shipping and Other Energy Ventures segments. However, the company's main operating segment remains its regulated gas utility operations. As of the end of 2009, Nicor Gas (68% of 2009 segment operating profits) served 2.2 million customers in a service area that covers most of northern Illinois, excluding Chicago. In 2009, gas deliveries fell to 475.9 billion cubic feet (Bcf), from 498.1 Bcf in 2008. The company has an extensive storage and transmission system that is directly connected to eight interstate pipelines, and includes eight owned underground gas storage facilities, with about 150

Bcf of annual storage capacity. In addition, Nicor Gas has about 40 Bcf of purchased storage from an affiliated party under contracts that expire between 2012 and 2013. Nicor Gas also operates the Chicago Hub, which provides natural gas storage and transmission-related services to marketers and other gas distribution companies, but revenues are passed on directly to Nicor Gas's customers. GAS's Tropical Shipping unit (13%) is one of the largest containerized cargo carriers in the Caribbean, with a fleet of 11 owned and four chartered vessels, with total container capacity of about 5,270 20-foot equivalent units (TEU), serving 25 ports. Total volumes shipped in 2009 were 176,600 TEU, down from 197,100 TEU in 2008 and 206,600 TEU in 2007. However, revenues per TEU remained relatively steady at $1,997 in 2009, versus $2,158 in 2008 and $1,955 in 2007.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 22.38 7.28 2.98 3.14 1.86 62% 43.39 27.50 15 9

2008 21.02 6.40 2.63 2.11 1.86 71% 51.99 32.35 20 12

2007 20.51 6.64 2.99 2.74 1.86 62% 53.66 37.80 18 13

2006 19.43 6.44 2.87 2.83 1.86 65% 49.92 38.72 17 13

2005 18.36 6.55 3.07 2.47 1.86 61% 42.97 35.50 14 12

2004 16.99 5.05 1.70 1.97 1.86 109% 39.65 32.04 23 19

2003 17.15 5.73 2.48 2.45 1.86 75% 39.30 23.70 16 10

2002 16.55 6.00 2.88 2.30 1.84 64% 49.00 18.09 17 6

2001 16.39 6.46 3.17 1.99 1.76 56% 42.38 34.00 13 11

2000 15.56 4.12 1.00 NA 1.66 166% 43.88 29.38 44 29

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,652 NA 196 38.7 201 32.5% 136 143

3,777 356 171 40.1 164 27.1% 120 96.2

3,176 372 166 38.2 184 26.6% 135 124

2,960 366 160 49.8 174 26.3% 128 127

3,358 202 155 48.0 171 20.3% 136 110

2,740 138 149 41.6 105 28.7% 75.1 87.7

2,663 189 144 37.3 169 35.2% 110 108

1,897 227 138 38.5 186 31.0% 128 102

2,544 244 149 44.9 217 33.8% 144 90.4

2,298 507 144 48.6 61.1 23.6% 46.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 134 Current Assets 1,003 Total Assets 4,436 Current Liabilities 1,168 Long Term Debt 498 Common Equity 1,038 Total Capital 1,536 Capital Expenditures 220 Cash Flow 331 Current Ratio 0.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 5.1 % Return on Assets 2.9 % Return on Equity NA

95.5 1,339 4,784 1,668 449 973 1,822 250 290 0.8 24.6 3.2 2.1 12.5

91.9 1,024 4,252 1,276 423 945 1,769 173 301 0.8 23.9 4.3 3.2 14.9

41.1 911 4,090 1,142 498 873 1,787 592 288 0.8 27.9 4.3 3.0 15.2

119 1,346 4,391 1,623 486 811 1,751 202 291 0.8 27.7 4.5 11.4 17.4

12.9 1,021 3,975 1,174 495 749 1,873 190 224 0.9 26.4 2.7 7.8 9.9

50.3 916 3,797 1,069 497 755 1,813 181 253 0.9 27.4 4.1 3.3 14.8

75.2 708 2,899 1,099 396 728 1,514 193 266 0.6 26.1 6.7 4.7 12.3

10.7 518 2,575 826 446 728 1,548 186 292 0.6 28.8 5.6 5.3 20.0

55.8 915 2,885 1,312 347 708 1,173 158 191 0.7 29.6 2.0 1.8 6.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1844 Ferry Road, Naperville, IL 60563-9600. Telephone: 630-305-9500. Website: http://www.nicor.com Chrmn, Pres & CEO: R.M. Strobel

EVP & CFO: R.L. Hawley SVP, Secy & General Counsel: P.C. Gracey, Jr. Chief Acctg Officer & Cntlr: K.K. Pepping Treas: D.M. Ruschau

Investor Contact: K.D. Brunner (630-388-2529) Founded: 1953 Board Members: R. M. Beavers, Jr., B. P. Bickner, J. H. Domicile: Illinois Birdsall, III, N. R. Bobins, B. J. Gaines, R. A. Jean, D. J. Employees: 3,900 Keller, R. E. Martin, G. R. Nelson, A. J. Olivera, J. E. Rau, J. C. Staley, R. M. Strobel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NKE | NKE is in the S&P 500

NIKE Inc S&P Recommendation BUY

★★★★★

Price $81.92 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Footwear

12-Mo. Target Price $90.00

Investment Style Large-Cap Growth

Summary NIKE is the world's leading designer and marketer of high-quality athletic footwear, athletic apparel, and accessories.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $83.40– 60.89 Trailing 12-Month EPS $3.96 Trailing 12-Month P/E 20.7 $10K Invested 5 Yrs Ago $21,238

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.39 4.87 18.7 477.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$31.775 1.32 $1.08 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.92 8 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as NKE's strong financial and operating metrics, offset by an increasingly competitive global marketplace and weak consumer spending in the U.S.

70 60 50

Quantitative Evaluations

40

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 69

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on September 29, 2010, when the stock traded at $ 79.98. Highlights ➤

➤

We expect FY 11 (May) sales growth of 9%. We see international business, direct to consumer (retail), and apparel being growth drivers for FY 11 and beyond. We think NKE's broad geographic exposure, with about 58% of sales outside the U.S., positions it well for long-term growth, but in FY 11, we see foreign currency exchange adversely impacting sales and earnings. NKE entered FY 11 with Nike brand future orders up 10%, with momentum for the August quarter to 13%, on a currency neutral basis. We see 50 bps of gross margin expansion, as NKE manages increases in raw materials, labor, and transportation costs with improved full price selling, and a more favorable merchandise and channel mix. Inventories remain in check, down 3% YOY in August. We see 50 bps of improvement in the SG&A expense ratio, benefiting from sales and global support services leverage, and fewer management layers.

Investment Rationale/Risk ➤

➤

➤ ➤

NKE had $5.1 billion in cash and short-term investments entering FY 11 ($9.50/share net of debt), and generates strong free cash flow. In FY 10, NKE purchased 11.3 million of its shares for $754 million, completing a $3 billion program, and a $5 billion four-year program was started.

Revenue/Earnings Data

2010

Over the past three years, NKE more than doubled its quarterly dividend and has repurchased nearly $3.6 billion worth of its shares. We see strong fundamentals and a dominant global brand with exceptional international growth opportunities supporting the share price. Moreover, NKE has launched key marketing and sales strategies designed to more closely align the company and sales with key markets. We expect NKE to pick up market share in most product categories as consumers tend to opt for established brands in uncertain environments. Risks to our recommendation and target price include a severe economic slowdown domestically and a greater-than-expected moderation in consumer spending. International risks include economic weakness, supply disruptions, and unfavorable currency fluctuations. Our 12-month target price of $90 is equal to about 19X our calendar 2011 EPS estimate of $4.67, about a 15% premium to peers and NKE's average five-year forward P/E to reflect our expectation of continued business momentum through FY 12.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 5,175 -2010 4,799 4,406 2009 5,432 4,590 2008 4,655 4,340 2007 4,194 3,822 2006 3,862 3,475

3Q -4,733 4,441 4,544 3,927 3,613

4Q -5,077 4,713 5,088 4,383 4,005

Year -19,014 19,176 18,627 16,326 14,955

Earnings Per Share ($) 2011 1.14 E0.85 2010 1.04 0.76 2009 1.03 0.80 2008 1.12 0.71 2007 0.74 0.64 2006 0.81 0.57

E1.14 1.01 0.50 0.92 0.68 0.62

E1.25 1.06 0.70 0.98 0.86 0.64

E4.39 3.86 3.03 3.74 2.93 2.64

Fiscal year ended May 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.270 0.270 0.270 0.270

11/19 02/11 05/17 08/16

12/03 03/04 06/03 09/02

12/07 03/08 06/07 09/07

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1984. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NKE

NIKE Inc Business Summary September 29, 2010 CORPORATE OVERVIEW. Nike Inc. is the world's largest supplier of athletic footwear, with an estimated 50% of this $20 billion market (at wholesale). Sports apparel and equipment are also sold under the Nike banner, and the company's Other segment (13% of sales) houses its affiliated brands including Cole Haan, Converse, Hurley Nike Golf and Umbro.

consumer estimated data, U.S. athletic footwear sales dropped about 3.2% in 2008, to $18.6 billion, following several years of low single digit gains, and was off another 1.4% in 2009 on a 3% decline in men's and modest increases in women's and kids'. S&P projects a low single digit sales gain in 2010 for athletic footwear and apparel.

MARKET PROFILE. Innovation, marketing and the sports cycle drive the global footwear and athletic apparel markets, in our view. Technologically superior performance products, we think, convey the idea of extraordinary ability to the wearer and are the root of the marketing campaigns aimed at lifestyle consumers (individuals attracted to a brand's attributes of an active lifestyle regardless of sports participation) while providing a basis for pricing. The global market for athletic apparel is several times as large as the footwear market, and totals over $100 billion, according to industry sources. An estimated 30% of this market consists of active sports apparel (purchased with the intent to be used in an active sport), and the remainder is lifestyle or casual wear. We see apparel representing a significant opportunity for NKE via its brand extensions and market penetration. According to NPD Fashionworld

COMPETITIVE LANDSCAPE. The athletic apparel market is fragmented, providing opportunities for growing market share, in our view. Significant domestic footwear retail channels in 2009 include athletic footwear specialty shops (8% market share), sporting goods stores (6%), and discounters or mass merchants (14%). We see NKE's prowess in athletic footwear and strong brand attributes as competitive advantages that should serve the company well as it aims to capture share of the underserved women's athletic apparel market.

Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 18.80 4.66 3.86 3.86 NA NA 2009 66.62 38.24 17 10

2009 16.54 3.74 3.03 3.56 0.83 27% 2008 70.60 42.68 23 14

2008 13.51 4.36 3.74 3.67 0.68 18% 2007 67.93 47.46 18 13

2007 12.93 3.51 2.93 2.89 0.56 19% 2006 50.60 37.76 17 13

2006 11.23 3.17 2.64 2.56 0.45 17% 2005 45.77 37.55 17 14

2005 9.77 2.72 2.24 2.14 0.45 20% 2004 46.22 32.91 21 15

2004 8.14 2.22 1.76 1.68 0.34 19% 2003 34.27 21.19 20 12

2003 7.22 1.83 1.39 1.31 0.26 19% 2002 32.14 19.27 26 16

2002 6.39 3.51 1.23 1.16 0.24 20% 2001 30.03 17.75 24 14

2001 5.77 1.44 1.08 1.03 0.24 22% 2000 28.50 12.91 26 12

19,014 2,824 396 6.30 2,517 NA 1,907 1,907

19,176 2,802 347 40.2 1,957 24.0% 1,487 1,748

18,627 2,747 313 67.1 2,503 24.8% 1,883 1,848

16,326 2,402 270 Nil 2,200 32.2% 1,492 1,472

14,955 23,912 282 Nil 2,142 35.0% 1,392 1,346

13,740 2,151 257 39.7 1,860 34.9% 1,212 1,148

12,253 1,802 252 40.3 1,450 34.8% 946 897

10,697 1,485 239 42.9 1,123 34.1% 740 698

9,893 1,291 224 47.6 2,035 17.2% 1,686 632

9,489 1,212 197 58.7 921 36.0% 590 559

Balance Sheet & Other Financial Data (Million $) Cash 5,146 Current Assets 10,959 Total Assets 14,419 Current Liabilities 3,364 Long Term Debt 446 Common Equity 9,754 Total Capital 10,207 Capital Expenditures 335 Cash Flow 2,302 Current Ratio 3.3 % Long Term Debt of Capitalization 4.4 % Net Income of Revenue 10.0 % Return on Assets 13.8 % Return on Equity 20.7

3,455 9,734 13,250 3,277 437 8,693 9,130 456 1,834 3.0 4.8 7.8 11.6 18.0

2,776 8,839 12,443 3,322 441 7,825 8,267 449 2,196 2.7 5.3 10.1 16.3 25.4

1,857 8,077 10,688 2,584 Nil 7,025 7,026 314 1,761 3.1 Nil 9.1 14.5 22.4

954 7,359 9,870 2,623 Nil 6,285 6,286 334 1,674 2.8 Nil 9.3 14.9 23.3

1,388 6,351 8,794 1,999 687 5,644 6,332 257 1,469 3.2 10.9 8.8 14.5 23.2

828 5,512 7,892 2,009 682 4,782 5,464 214 1,198 2.7 12.5 7.7 12.9 21.6

634 4,680 6,714 2,015 552 3,991 4,543 186 979 2.3 12.1 6.9 11.3 18.9

576 4,158 6,443 1,836 626 3,839 4,465 283 1,909 2.3 14.0 17.0 27.5 46.0

304 3,625 5,820 1,787 436 3,495 3,931 318 787 2.0 11.1 6.2 10.1 17.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Bowerman Dr, Beaverton, OR 97005-0979. Telephone: 503-641-6453. Website: http://www.nikebiz.com Chrmn: P. Knight

Pres & CEO: M.G. Parker COO: G.M. DeStefano CFO: D.W. Blair Chief Acctg Officer & Cntlr: B.F. Pliska

Investor Contact: K. Hall (800-640-8007) Board Members: J. G. Connors, J. K. Conway, T. D. Cook, R. D. DeNunzio, A. B. Graf, Jr., D. G. Houser, P. Knight, J. Lechleiter, M. G. Parker, J. A. Rodgers, O. Smith, J. R. Thompson, Jr., P. M. Wise

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1964 Domicile: Oregon Employees: 34,400

Stock Report | October 23, 2010 | NYS Symbol: NI | NI is in the S&P 500

NiSource Inc. S&P Recommendation SELL

★★★★★

Price $17.71 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $15.00

Investment Style Large-Cap Value

Summary NI, the third largest U.S. gas distribution utility and the fourth largest gas pipeline company, also provides electric utility services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.96– 12.83 Trailing 12-Month EPS $1.08 Trailing 12-Month P/E 16.4 $10K Invested 5 Yrs Ago $10,366

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.17 1.25 15.1 278.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.923 5.19 $0.92 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.89 9 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's reliance on fairly stable regulated sources of earnings including gas distribution, gas transmission, and electric utility services.

25

16 12

Quantitative Evaluations 8

S&P Quality Ranking

Vol.

D

C

B-

B B

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

MODERATE 53

LOWEST = 1 3

HIGHEST = 99

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Christopher B. Muir on August 19, 2010, when the stock traded at $ 16.69. Highlights ➤

➤

➤

We see 2010 revenues falling 6.2%. For the regulated utilities, we expect revenue contraction of 4.4% due to lower gas prices and declining per-customer usage as a result of customer conservation, partly offset by multiple rate increases and customer growth. We think gas transmission and storage revenues will benefit from higher short-term transportation and storage volumes, as well as a new pipeline. We see non-regulated revenues falling 20% due to lower prices, partly offset by higher volumes. We look for revenues to advance 3.0% in 2011. We expect NI to report operating margins of 14.4% in 2010 and 14.9% in 2011, versus 2009's 12.8%. We think 2010 results will reflect lower per-revenue energy costs, partly offset by higher per-revenue non-energy expenses. In 2011, we see lower per-revenue energy costs and operating taxes. We see pretax margins of 8.3% in 2010 and 8.7% in 2011, versus 7.3% in 2009. For 2010, we project higher interest expense. Our 2010 recurring EPS estimate, excluding $0.02 in nonrecurring charges, is $1.17, up 9.3% from 2009's $1.07, which excludes $0.16 of nonrecurring charges. Our 2011 forecast is $1.25, an increase of 6.8%.

Investment Rationale/Risk ➤

➤

➤

We view NI's utility service territory as having relatively slow, but stable, customer growth, and we see no near-term impetus for base revenue growth outside of rate increases. NI has several rate cases filed. Depreciation charges are rising as a result of capital spending programs now in place, and operations and maintenance costs have increased as a result of electric plant maintenance activities. We expect EPS growth of about 5% starting in 2010. Risks to our recommendation and target price include wider power margins, unusually cold winter weather, lower natural gas prices, and lower interest rates. The stock recently traded at 13.5X our 2011 EPS estimate, a 9% premium to multi-utility peers. Our 12-month target price of $15 is 12.0X our 2011 EPS estimate, a 6% discount to our peer target. We believe this is warranted by what we view as NI's absence of dividend growth and slightly below-average longer-term EPS growth. We do not think NI will increase its dividend until 2016, when we believe its payout ratio will be more in line with its peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,358 1,171 2009 1,685 1,268 2008 3,290 1,792 2007 2,894 1,577 2006 2,972 1,312 2005 2,683 1,356

3Q -974.7 1,409 1,241 1,156 1,165

4Q -1,685 2,386 2,245 2,050 2,695

Year -6,649 8,874 7,940 7,490 7,899

Earnings Per Share ($) 2010 0.71 0.10 2009 0.58 -0.01 2008 0.69 0.08 2007 0.76 0.11 2006 0.63 0.08 2005 0.77 0.03

E0.01 -0.05 0.12 0.03 0.10 -0.02

E0.32 0.32 0.46 0.24 0.33 0.27

E1.17 0.84 1.34 1.14 1.14 1.04

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.230 0.230 0.230 0.230

01/19 03/23 05/11 08/25

01/27 04/28 07/28 10/27

01/29 04/30 07/30 10/29

02/19/10 05/20/10 08/20/10 11/19/10

Dividends have been paid since 1987. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NI

NiSource Inc. Business Summary August 19, 2010 CORPORATE OVERVIEW. NiSource is one of the largest U.S. natural gas distributors (measured by customers served), one of the largest owners of U.S. natural gas interstate pipelines (by route miles), and one of the largest owners of underground natural gas storage. It also provides electric utility services in northern Indiana. The company's operating divisions include Gas Distribution (41% of year end-2009 segment operating income), Gas Transmission and Storage (48%), Electric Operations (15%), and Other Operations and corporate (-4%). Gas Distribution operations provide gas utility service to 3.3 million customers in seven states. The division owns and operates 57,785 miles of pipeline, 28,479 acres of underground storage, 90 underground storage wells and 75.8 million gallons of liquefied natural gas storage facilities. In 2009, total sales and transportation volumes were 831 MM Dth, down from 923 MM Dth in 2008. Deliveries were 32% to residential customers, 20% to commercial customers, 41% to industrial customers and 7% to off-system sales and other customers.

Dth, down 6.5% from 2008 due to decreased transportation deliveries, partly offset by the completion of projects in late 2008 and in 2009. The division has recently completed Millennium Pipeline and Hardy Storage projects and is engaged in other projects. The Millennium project is a 182-mile, 0.53 MM Dth/ day pipeline across southern New York State. The 12 Bcf Hardy storage project in West Virginia became fully operational in 2009. NI said it is in the process of a potential separation of Columbia Gas into a master limited partnership structure, but we do not expect any action until the economy and financial markets improve. NI's Northern Indiana subsidiary, NIPSCO, generates and distributes electricity for 456,835 electric utility customers. The utility owns four and operates three coal-fired plants (2,574 MW), six gas-fired units (738 MW), and two hydroelectric plants (10 MW). In 2009, the utility generated 85.2% of its electric requirements, and purchased the rest. NI has said it was considering a possible sale of this business.

Gas Transmission and Storage operates 14,926 miles of interstate natural gas pipelines and 773,000 acres of underground storage systems with a capacity of about 639 billion cubic feet (Bcf). In 2009, total throughput was 1,391 MM Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.10 2.87 0.84 1.18 0.92 110% 15.82 7.79 19 9

2008 2.63 3.40 1.34 0.83 0.92 69% 19.82 10.35 15 8

2007 3.58 3.17 1.14 1.09 0.92 78% 25.43 17.49 22 15

2006 3.29 3.16 1.14 1.13 0.92 81% 24.80 19.51 22 17

2005 2.79 3.04 1.04 1.20 0.92 88% 25.50 20.44 25 20

2004 2.14 3.54 1.62 1.62 0.92 57% 22.82 19.65 14 12

2003 0.70 3.53 1.63 1.67 1.10 67% 21.97 16.39 13 10

2002 NM 4.70 2.00 1.43 1.16 58% 24.99 14.51 12 7

2001 NM 4.07 1.01 0.32 1.16 115% 32.55 18.25 32 18

2000 NM 3.84 1.08 NA 1.08 100% 31.50 12.75 29 12

6,649 NA 589 399 397 41.8% 231 328

8,874 1,468 567 380 555 33.4% 370 229

7,940 1,493 559 418 484 35.6% 312 298

7,490 880 549 7,304 484 35.3% 314 310

7,899 1,520 545 425 433 34.5% 284 324

6,666 1,072 510 408 671 35.9% 430 429

6,247 1,116 497 469 662 35.4% 426 437

6,492 1,203 574 533 680 34.4% 426 305

9,459 1,009 642 605 416 44.1% 212 67.9

6,031 568 374 325 298 43.7% 147 NA

Balance Sheet & Other Financial Data (Million $) Cash 16.4 Current Assets 2,224 Total Assets 19,272 Current Liabilities 3,150 Long Term Debt 5,988 Common Equity 4,854 Total Capital 11,504 Capital Expenditures 777 Cash Flow 792 Current Ratio 0.7 % Long Term Debt of Capitalization 51.9 % Net Income of Revenue 3.5 % Return on Assets 1.2 % Return on Equity 4.8

20.6 3,411 20,032 4,583 5,944 4,729 12,223 970 937 0.7 48.6 4.2 1.9 7.5

95.4 2,455 18,005 3,393 5,594 5,077 12,234 788 871 0.7 45.7 3.9 1.7 6.2

33.1 2,783 18,157 3,821 5,146 5,014 11,775 637 863 0.7 43.7 4.2 1.7 6.3

69.4 3,061 17,959 3,843 5,271 4,933 11,866 590 829 0.8 44.4 3.6 1.6 5.8

30.1 2,286 16,988 3,602 4,917 4,787 11,448 517 940 0.6 42.9 6.5 2.6 9.3

27.3 2,063 16,624 2,609 6,075 4,416 10,490 575 923 0.8 57.9 6.8 2.5 9.9

56.2 1,869 16,897 4,177 5,448 4,175 11,581 622 1,000 0.4 47.0 6.6 2.5 11.1

128 2,567 17,374 4,729 6,214 3,469 11,515 668 854 0.5 54.0 2.2 1.1 6.2

193 4,918 19,697 6,893 6,148 3,415 11,483 366 521 0.7 53.5 2.4 1.1 6.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 801 East 86th Avenue, Merrillville, IN, USA 46410-6272. Telephone: 877-647-5990. Email: [email protected] Website: http://www.nisource.com

Chrmn: I.M. Rolland Pres & CEO: R.C. Skaggs, Jr. EVP & CFO: S.P. Smith EVP & General Counsel: C.J. Hightman

Chief Admin Officer & CIO: V.G. Sistovaris Investor Contact: D.J. Vajda (877-647-5990) Board Members: R. A. Abdoo, S. C. Beering, D. E. Foster, M. E. Jesanis, M. R. Kittrell, W. L. Nutter, D. S. Parker, I. M. Rolland, R. C. Skaggs, Jr., R. L. Thompson, C. Y. Woo

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1912 Domicile: Delaware Employees: 7,616

Stock Report | October 23, 2010 | NYS Symbol: NBL | NBL is in the S&P 500

Noble Energy Inc S&P Recommendation HOLD

★★★★★

Price $78.24 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $82.00

Investment Style Large-Cap Growth

Summary This independent exploration and production company is engaged in the exploration, development and production of oil and natural gas worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $81.50– 56.23 Trailing 12-Month EPS $3.12 Trailing 12-Month P/E 25.1 $10K Invested 5 Yrs Ago $21,948

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.07 4.05 19.2 174.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.676 0.92 $0.72 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.86 -17 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of NBL's participation in the cyclical, competitive and capital-intensive exploration and production sector, and by U.S. and international oil and gas operations that carry heightened political and operational risk.

100 80 60

40

Quantitative Evaluations Vol. Mil.

S&P Quality Ranking

28

27

12 8 4 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

4

3

STRONG 71

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on October 01, 2010, when the stock traded at $ 75.58. Highlights ➤

➤

Production fell 1% in 2009 on asset sales and slower activity. In 2010, we expect oil volumes to be up more than 9% and we see strength in international gas, mainly from Israel and Equatorial Guinea (EG), offsetting a natural gas decline of 2%. We see total growth of 4% before production start-ups in 2011 boost forecasted volumes by 5%. NBL has expanded its Wattenberg field position in the Rockies DJ Basin, adding two rigs at the play where it owns 700,000 net acres with prospective for the Niobrara oil shale. We see development at the Aseng oil project in EG and the Tamar natural gas field in Israel. NBL recently lowered capex plans due to the drilling moratorium in the Gulf of Mexico. Capex plans for 2010 of $2.2 billion are up 67% from 2009. NBL's GOM Double Mountain exploration well was a dry hole and will be plugged and abandoned. We await results from Niobrara horizontal wells.

Investment Rationale/Risk ➤

➤

➤ ➤

Operating EPS in 2009 was $1.08. Before noncash charges, EPS was $3.36, and we see $4.07 (with $0.56 gain) in 2010 and $4.05 in 2011, on higher prices and production, partly offset by higher operating and exploration costs.

Solid exploration success with an attractive inventory of prospects and large development projects characterizes NBL's portfolio of assets, in our view. We view NBL as geographically balanced with financial flexibility, holding $1 billion in cash with low relative debt levels. NBL appears poised to translate exploration success into development at core areas. We see U.S. gas drilling projects, mainly in the Rockies, shelved in favor of high impact international targets and domestic onshore crude oil opportunities. We see potential catalysts in onshore horizontal drilling in the Niobrara oil shale and production boosts in Israel and EG. NBL's discoveries at Gunflint and Galapagos in the GOM, Tamar in Israel and Aseng in EG are expected to add over 80,000 BOE/d by 2013. Risks to our recommendation and target price include declines in oil and gas prices and production, and exploration and geographic risks. Our 12-month target price of $82 blends our proved NAV estimate ($88) with our DCF ($87; WACC 10.8%; terminal growth 3%) and abovepeer relative metrics.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 733.0 727.0 2009 441.0 491.0 2008 1,025 1,205 2007 742.6 794.2 2006 712.0 772.6 2005 368.2 485.4

3Q -621.0 1,098 813.8 741.3 632.1

4Q -760.0 573.0 921.5 714.2 701.0

Year -2,313 3,901 3,272 2,940 2,187

Earnings Per Share ($) 2010 1.34 1.10 2009 -1.09 -0.33 2008 1.20 -0.84 2007 1.22 1.21 2006 1.26 -0.17 2005 0.92 0.91

E0.78 0.61 5.37 1.28 1.75 0.99

E0.85 0.05 1.72 1.73 0.94 1.18

E4.07 -0.75 7.58 5.45 3.79 4.12

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.180 0.180 0.180 0.180

10/27 01/26 04/26 07/27

11/05 02/04 05/06 08/05

11/09 02/08 05/10 08/09

11/23/09 02/22/10 05/24/10 08/23/10

Dividends have been paid since 1975. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NBL

Noble Energy Inc Business Summary October 01, 2010 CORPORATE OVERVIEW. Noble Energy is a large independent exploration and production concern, engaged in exploration, development, production and marketing of oil and natural gas. In the U.S., NBL operates primarily in the Rocky Mountains, Mid-Continent region and deepwater Gulf of Mexico. International operations are focused on offshore Israel and West Africa. As of December 31, 2009, NBL had estimated proved reserves of 4.92 Bcfe, of which 64% was natural gas and 69% proved developed. This compares with estimated proved reserves of 5.18 Bcfe, 64% natural gas and 69% proved developed, at the end of 2008, a 5% decline, mostly reflecting negative price revisions. The U.S. accounted for 57% of proved reserves. NBL anticipates substantial multi-year growth in reserves beginning in 2010 as it books reserves from discoveries at Tamar (Israel), Belinda (EG), Gunflint (GOM), Galapagos (GOM), Aseng (EG) and Diega/Carmen (EG). CORPORATE STRATEGY. We believe NBL's geographical diversification has reduced dependence on any one operating region and that NBL has successfully executed a niche strategy by agreeing to undertake nontraditional construction projects with various host countries to obtain leases in potentially lucrative hydrocarbon fields. NBL aims to achieve growth in earnings and cash flow through exploration success and the development of a high quality portfolio of assets that is balanced between U.S. and international projects. Exploration success, along with additional capex, in U.S. and international lo-

cations such as Equatorial Guinea and Israel, have resulted in solid growth in the past several years. In addition, occasional strategic acquisitions such as Patina in 2005, combined with the sale of non-core assets, have allowed NBL to enhance its asset portfolio. The result is a company with assets and capabilities in major U.S. basins coupled with a significant portfolio of international properties. NBL has a 2010 capex budget of $2.2 billion, up from $1.3 billion in 2009, with 40% slated for major project development, 20% for exploration, and 40% for maintenance and near-term growth projects. About 55% is to be spent in the U.S. Major project development capex is expected at $1 billion, with the majority directed toward development of Galapagos in the deepwater GOM, Aseng offshore Equatorial Guinea, and Tamar offshore Israel. About $500 million is allocated to exploration, targeting an estimated 700 MMBOE of resource potential with plans to drill seven high-impact offshore wells in the deepwater GOM, Equatorial Guinea and the Mediterranean Sea. The remainder of the budget is focused on liquid-rich and emerging opportunities onshore in the U.S., as well as development projects in Israel, the North Sea and China.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 31.11 7.45 -0.75 -0.84 0.72 NM 74.09 40.33 NM NM

2008 31.95 12.17 7.58 7.52 0.66 9% 105.11 30.89 14 4

2007 23.51 9.65 5.45 5.42 0.44 8% 81.71 46.04 15 8

2006 19.35 7.27 3.79 3.05 0.28 7% 54.64 36.14 14 9

2005 12.68 6.61 4.12 4.08 0.15 4% 48.75 27.78 12 7

2004 12.37 5.26 2.70 2.58 0.10 4% 32.30 21.33 12 8

2003 9.38 3.47 0.78 0.70 0.09 11% 23.00 16.19 29 21

2002 8.80 2.62 0.16 0.08 0.08 52% 20.38 13.33 NM NM

2001 8.86 3.64 1.17 1.08 0.08 7% 25.55 13.75 22 12

2000 7.58 3.72 1.69 NA 0.08 5% 24.19 9.59 14 6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,229 NA 1,420 84.0 -264 50.4% -131 -147

3,901 2,295 791 69.0 2,061 34.5% 1,350 1,340

3,272 2,029 728 130 1,368 31.0% 944 938

2,940 2,019 623 117 1,096 38.1% 678 548

2,187 1,423 391 87.5 969 33.3% 646 640

1,351 884 309 48.2 516 39.2% 314 305

1,011 539 309 47.0 142 36.5% 89.9 81.0

1,444 376 285 47.7 42.6 58.6% 17.7 8.88

1,572 535 284 26.0 225 40.5% 134 123

1,381 550 231 31.6 299 36.0% 192 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,014 Current Assets 1,678 Total Assets 11,807 Current Liabilities 990 Long Term Debt 2,008 Common Equity 6,157 Total Capital 8,165 Capital Expenditures 1,268 Cash Flow 1,289 Current Ratio 1.7 % Long Term Debt of Capitalization 24.6 % Return on Assets NM % Return on Equity NM

1,140 2,158 12,384 1,174 2,241 6,309 10,724 1,971 2,141 1.8 20.9 11.6 24.3

660 1,569 10,831 1,636 1,851 4,809 8,644 1,415 1,672 1.0 21.4 9.2 51.7

153 1,069 9,589 1,184 1,801 4,114 7,673 1,357 1,301 0.9 23.5 7.3 18.8

110 1,176 8,878 1,240 2,031 3,231 5,262 786 1,036 0.9 38.6 10.5 27.5

180 734 3,443 665 880 1,460 2,524 661 623 1.1 34.9 10.0 24.8

62.4 478 2,843 655 776 1,074 2,013 527 399 0.7 38.6 3.2 8.6

15.4 310 2,730 472 977 1,009 2,188 596 303 0.7 44.6 0.7 1.7

73.2 352 2,480 381 837 1,010 2,024 739 418 0.9 41.4 6.1 14.4

23.2 271 1,879 325 525 850 1,492 537 422 0.8 35.2 11.6 25.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Glenborough Drive, Houston, TX 77067. Telephone: 281-872-3100. Email: [email protected] Website: http://www.nobleenergyinc.com

Chrmn & CEO: C.D. Davidson Pres & COO: D.L. Stover SVP & CFO: K.M. Fisher SVP, Secy & General Counsel: A.J. Johnson

Chief Acctg Officer: F. Bruning Auditor: KPMG Investor Contact: D. Larson (281-872-3100) Founded: 1969 Board Members: J. L. Berenson, M. A. Cawley, E. F. Domicile: Delaware Cox, C. D. Davidson, T. J. Edelman, E. P. Grubman, K. L. Hedrick, S. D. Urban, W. T. Van Kleef

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JWN | JWN is in the S&P 500

Nordstrom Inc. S&P Recommendation HOLD

★★★★★

Price $36.89 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Department Stores

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary This specialty retailer of apparel and accessories, widely known for its emphasis on service, operates about 193 stores in 28 states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $46.22– 28.44 Trailing 12-Month EPS $2.33 Trailing 12-Month P/E 15.8 $10K Invested 5 Yrs Ago $12,123

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.60 2.95 14.2 219.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.085 2.17 $0.80 62

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.74 18 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of JWN's improving sales and profit margins, increasing market share in the better department store sector, and healthy balance sheet and cash flow. This is offset by uncertainty over consumer discretionary spending in light of higher interest rates and debt levels.

60

30 20

10

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Jason N. Asaeda on August 17, 2010, when the stock traded at $ 30.12.

➤

➤

➤

Following a 4% decline in FY 10 (Jan.), we look for same-store sales to increase about 5.5% in FY 11. We see JWN weathering the economic downturn by focusing on its most productive brands and improving the value proposition at its full-line stores. We also think the company is meeting the needs of increasingly costconscious shoppers through expansion of its off-price Nordstrom Rack business. JWN opened three full-line and 13 Rack stores in FY 10 and plans to open an additional three fullline and 17 Rack units in FY 11. All told, we project net sales of $9.06 billion in FY 11, versus FY 10's $8.26 billion. We look for the company, by keeping inventory aligned with sales trends, to drive merchandise margin improvement through increased fullprice selling and lower markdowns. We also expect operating margins to expand, supported by cost savings initiatives, expense leverage off projected same-store sales growth, and stronger credit segment performance. Assuming no share repurchase activity, we see EPS of $2.60 in FY 11.

B+

A-

A

A+

MODERATE

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

AB

50

1

2007

B-

Relative Strength Rank

3

2

C

Our hold recommendation is based on valuation. We see JWN benefiting from a return of its core higher-income customer base that had stopped shopping a year ago in response to macroeconomic concerns. We also believe that sharper opening price points and a broader offering of contemporary brands are attracting a growing number of new customers to the company's full-line stores. In addition, we see a consistent customer-focused shopping experience across JWN's store base, expansion of Nordstrom Rack, suspended share repurchases, and a disciplined approach to capital spending as underlying positives to the company. Risks to our recommendation and target price include a loss of business due to lackluster merchandising and uncompetitive pricing. Our 12-month target price of $35 blends two valuation metrics. Applying a peer-median forward P/E multiple of 12.3X to our FY 11 EPS estimate, we arrive at a $32 value. Our historical valuation uses a forward P/E multiple of 14.6X, JWN's 10-year historical median, yielding a $38 value.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 2,087 2,515 2010 1,792 2,232 2009 1,949 2,359 2008 1,954 2,390 2007 1,787 2,270 2006 1,654 2,106

3Q -1,963 1,879 1,970 1,872 1,666

4Q -2,640 2,386 2,514 2,631 2,296

Year -8,627 8,573 8,828 8,561 7,723

Earnings Per Share ($) 2011 0.52 0.66 2010 0.37 0.48 2009 0.54 0.65 2008 0.60 0.65 2007 0.48 0.67 2006 0.38 0.53

E0.50 0.38 0.33 0.68 0.52 0.39

E0.92 0.77 0.31 0.92 0.89 0.69

E2.60 2.01 1.83 2.88 2.55 1.98

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.160 0.160 0.200 0.200

11/18 02/19 05/18 08/19

11/25 02/24 05/26 08/27

11/30 02/26 05/28 08/31

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1971. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: JWN

Nordstrom Inc. Business Summary August 17, 2010 CORPORATE OVERVIEW. In our view, Nordstrom (JWN) is the clear leader in the U.S. better department store sector, reflecting its focus on high-quality, differentiated merchandise; personalized customer service; and a consistent upscale shopping experience across its entire Nordstrom store base. The company derives its revenues from retail, credit and direct sales channels. JWN formerly owned Faconnable, a wholly owned wholesaler and retailer of high-quality men's, women's and boy's apparel and accessories. In FY 10 (Jan.), merchandise category sales were: women's apparel 34%; shoes 22%; men's apparel 15%; women's accessories 12%; cosmetics 11%; children's apparel 3%; and other 3%. IMPACT OF MAJOR DEVELOPMENTS. JWN spends about $150 million annually on information technology (IT). In FY 03, the company invested in a perpetual inventory system that has enabled its merchant teams to more accurately forecast sales trends and to better track and plan store-level inventory and expenses, resulting in improved sales performance and profitability, in our

opinion. In FY 05, JWN put into place a new point of sales system that includes Personal Book, a tool that allows salespeople to tailor service to the needs of each customer by organizing and tracking customer preferences, purchases, and contact information. The company has noted that Personal Book has driven incremental sales volume. In July 2007, JWN agreed to sell Faconnable to M1 Group, a Lebanon-based, family-owned diversified business, for $210 million. As part of the agreement, JWN will continue to buy Faconnable merchandise at historical levels for at least the next three years and will continue to offer Faconnable in Nordstrom stores. The company realized a gain of $33.9 million on the sale ($0.09 per share, after-tax), which closed in the third quarter of FY 08.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 6.98 3.43 2.01 2.01 0.64 32% 2009 38.71 11.19 19 6

2009 5.37 3.21 1.83 1.84 0.64 35% 2008 40.59 6.61 22 4

2008 4.81 3.95 2.88 2.80 0.42 15% 2007 59.70 30.46 21 11

2007 7.90 3.62 2.55 2.55 0.32 13% 2006 51.40 31.77 20 12

2006 7.26 2.98 1.98 1.93 0.24 12% 2005 39.00 22.71 20 11

2005 6.10 2.31 1.39 2.62 0.21 15% 2004 23.68 16.55 17 12

2004 5.40 1.78 0.88 1.67 0.21 23% 2003 17.75 7.50 20 9

2003 4.55 1.24 0.38 0.62 0.19 50% 2002 13.44 7.80 35 20

2002 4.38 1.27 0.46 0.80 0.18 38% 2001 11.49 6.90 25 15

2001 4.06 1.16 0.39 0.83 0.16 41% 2000 17.25 7.06 44 18

8,627 1,147 313 141 696 36.6% 441 441

8,272 1,072 302 145 648 38.1% 401 403

8,828 1,503 269 71.7 1,173 39.1% 715 697

8,561 1,195 285 62.4 1,106 38.7% 678 677

7,723 1,010 276 45.3 885 37.7% 551 536

7,131 817 265 85.4 647 39.2% 393 373

6,492 585 251 91.0 398 39.0% 243 229

5,975 424 234 86.2 196 47.1% 104 83.9

5,634 363 218 73.5 204 39.0% 125 107

5,529 335 203 63.0 167 38.9% 102 109

Balance Sheet & Other Financial Data (Million $) Cash 795 Current Assets 4,054 Total Assets 6,579 Current Liabilities 2,014 Long Term Debt 2,257 Common Equity 1,572 Total Capital 4,185 Capital Expenditures 360 Cash Flow 754 Current Ratio 2.0 % Long Term Debt of Capitalization 53.9 % Net Income of Revenue 5.1 % Return on Assets 7.2 % Return on Equity 31.7

72.0 3,217 5,661 1,601 2,214 1,210 3,435 563 703 2.0 64.5 4.9 7.1 34.5

358 3,361 5,600 1,635 2,236 1,115 3,612 501 984 2.1 61.9 8.1 13.7 43.6

403 2,742 4,822 1,433 624 2,169 2,792 264 963 1.9 22.3 7.9 13.9 31.8

463 2,874 4,921 1,623 628 2,093 2,720 272 828 1.8 23.1 7.1 11.6 28.4

361 2,572 4,605 1,341 929 1,789 2,718 247 658 1.9 34.2 5.5 8.6 23.0

476 2,455 4,466 1,050 1,605 1,634 3,239 258 494 2.3 49.5 3.7 5.7 16.2

208 2,073 4,096 870 1,342 1,372 2,714 328 338 2.4 49.4 1.7 2.5 7.7

331 2,055 4,049 948 1,351 1,314 2,666 390 342 2.2 50.7 2.2 3.3 9.8

25.0 1,813 3,608 951 1,100 1,229 2,329 321 305 1.9 47.2 1.8 3.1 8.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1617 6th Ave, Seattle, WA 98101-1707. Telephone: 206-628-2111. Email: [email protected] Website: http://www.nordstrom.com

Chrmn: E. Hernandez, Jr. Pres & CEO: B.W. Nordstrom EVP & CFO: M. Koppel EVP & Chief Admin Officer: D.F. Little

EVP, Secy & General Counsel: R.B. Sari Founded: 1901 Investor Contact: C. Holloway (206-303-3200) Domicile: Washington Board Members: P. J. Campbell, E. Hernandez, Jr., R. G. Employees: 52,000 Miller, B. W. Nordstrom, E. B. Nordstrom, P. E. Nordstrom, P. G. Satre, R. D. Walter, A. A. Winter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NSC | NSC is in the S&P 500

Norfolk Southern Corp S&P Recommendation BUY

★★★★★

Price $62.10 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Railroads

12-Mo. Target Price $67.00

Investment Style Large-Cap Blend

Summary This railroad operates 21,200 route miles serving 22 eastern states, the District of Columbia, and Ontario, Canada.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $62.71– 45.94 Trailing 12-Month EPS $3.35 Trailing 12-Month P/E 18.5 $10K Invested 5 Yrs Ago $17,809

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.84 4.39 16.2 368.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

30

MEDIUM

HIGH

Quantitative Evaluations

Vol. 51

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S&P Quality Ranking

24 16 8 0

D 4

3

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B-

AB

B+

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Relative Strength Rank

A+

MODERATE 69

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Kevin Kirkeby on September 20, 2010, when the stock traded at $ 58.45. Highlights We forecast revenue growth near 19% in 2010, based on a 12% increase in carloadings, aided by a general improvement in the economy, and a 6% rise in yield. With auto and steel production rising globally, we think volumes of metallurgical coal will stay elevated through the remainder of 2010 and into 2011. Likewise, we see NSC benefiting from added fertilizer volumes, and the opening of ethanol terminals along its network. We expect fuel surcharges to add 5% to yield this year. We expect current trends to prevail into 2011, and contribute to 2.8% volume growth and a 4.5% rise in revenues. We see the operating margin widening into 2011, on improved fixed cost coverage as volumes are forecast to rise. While we see a contractual wage hike and generally higher healthcare costs, we think this will be outweighed by cost control measures and the deployment of new locomotives and higher capacity railcars. Still, we think costs will start to come back into operations in 2011 at a faster pace as excess capacity on existing train sets is filled. Our EPS forecast of $3.84 for 2010 excludes $0.07 in deferred tax charges tied to health care reform, as well as an effective tax rate of 37%.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects what we see as NSC's exposure to economic cycles, regulations, labor costs, significant capital expenditure requirements, and challenges in maintaining system fluidity, offset by our view of a diverse customer base, historically positive free cash flow, and moderate financial leverage.

40

➤

1.08 10 BBB+

Below Avg.

50

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

60

5

$22.891 2.32 $1.44 69

Medium-term trends in NSC's primary markets remain favorable and support rising traffic, in our opinion. We see investments in its network improving capacity on heavily trafficked lanes like the Heartland and Crescent corridors, and leading to greater conversion of truck traffic over to rail, particularly as the economy recovers and truck capacity tightens. With the economy continuing to show improvement, we believe a valuation above the historical average, and generally in line with peers, is warranted. Risks to our recommendation and target price include a slowdown in manufacturing and overall economic activity, unfavorable changes in the regulatory framework, a prolonged period of low natural gas prices that encourages utilities to use less coal in their overall fuel mix, and a slowing in export coal shipments. Blending a P/E of 16.4X our four-quarter forward EPS estimate, which is a premium to the 10-year average, with our DCF model that assumes a 10.8% cost of equity, 8% average free cash flow growth over the next five years, and a 3.5% terminal growth rate (yielding an intrinsic value of $65), we arrive at our 12-month target price of $67.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,238 2,430 2009 1,943 1,857 2008 2,500 2,765 2007 2,247 2,378 2006 2,303 2,392 2005 1,961 2,154

3Q -2,063 2,894 2,353 2,393 2,155

4Q -2,106 2,502 2,454 2,319 2,257

Year -7,969 10,661 9,432 9,407 8,527

Earnings Per Share ($) 2010 0.68 1.04 2009 0.47 0.66 2008 0.76 1.18 2007 0.71 0.98 2006 0.72 0.89 2005 0.47 1.04

E1.07 0.81 1.37 1.02 1.02 0.73

E0.98 0.82 1.21 1.02 0.95 0.87

E3.84 2.76 4.52 3.68 3.57 3.11

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.340 0.340 0.340 0.360

10/27 01/26 04/27 07/27

11/04 02/03 05/05 08/04

11/06 02/05 05/07 08/06

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1901. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NSC

Norfolk Southern Corp Business Summary September 20, 2010 CORPORATE OVERVIEW. Norfolk Southern provides rail transportation service in the eastern U.S., operating over 21,000 miles of road, with an extensive intermodal and coal service network and a significant general freight business, including an automotive business that is the largest in North America. NSC owns 58% of Conrail's shares, with CSX holding the remainder, and holds 50% voting rights. NSC and CSX operate separate portions of Conrail's rail routes and assets. NSC's non-rail activities include real estate and natural resources. NSC's intermodal business represented 19% of 2009 freight revenues. Although it was the second largest contributor to revenues, intermodal was the largest category by volume at 42% of total carloads. Coal, which we believe is NSC's most profitable segment due to its unit train structure, accounted for 29% of 2009 freight revenues, and 24% of carloads. Most of this traffic, which is delivered primarily to power utilities, originates from the Appalachian coal fields. However, the company has been increasing the number of carloads it carries with origins in the Illinois Basin and the Powder River Basin. General merchandise, sensitive to U.S. GDP trends, provided 52% of freight revenues in 2009. This includes the chemicals and automotive categories, representing 13% and 7% of 2009 freight revenues, respectively. We consider NSC to have

considerable exposure to the auto market since it serves 24 assembly plants, fourteen of which belong to the domestic manufacturers Ford, Chrysler and General Motors. It also provides services for Toyota, which in January 2010 initiated a large vehicle recall. COMPETITIVE LANDSCAPE. The U.S. rail industry has an oligopoly-like structure, with over 80% of revenues generated by the four largest railroads: NSC and CSX Corp. operating on the East Coast, and Union Pacific Corp. and Burlington Northern Santa Fe Corp. operating on the West Coast. Railroads simultaneously compete for customers while cooperating by sharing assets, interfacing systems, and completing customer movements. NSC, for example, is a net payer of equipment rents as it takes on more freight originated by other carriers than it hands off to them at its major gateways. Likewise, NSC has formed separate joint ventures with Kansas City Southern and Pan Am Railways that enhance its access along certain corridors in exchange for much needed capital investments.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 28.06 5.05 2.76 2.72 1.36 49% 54.55 26.69 20 10

2008 26.23 6.63 4.52 4.21 1.22 27% 75.53 41.36 17 9

2007 27.12 5.63 3.68 3.48 0.96 26% 59.77 45.38 16 12

2006 24.19 5.50 3.57 3.43 0.68 19% 57.71 39.10 16 11

2005 22.66 5.02 3.11 2.97 0.48 15% 45.81 29.60 15 10

2004 19.98 3.83 2.31 2.13 0.46 20% 36.69 20.38 16 9

2003 17.83 2.40 1.05 0.95 0.30 29% 24.62 17.35 23 17

2002 16.71 2.50 1.18 0.70 0.26 22% 26.98 17.20 23 15

2001 15.78 2.27 0.94 0.41 0.24 26% 24.11 13.41 26 14

2000 15.17 1.80 0.45 NA 0.80 178% 22.75 11.94 51 27

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

7,969 2,807 845 467 1,622 36.3% 1,034 1,011

10,661 3,901 804 457 2,750 37.6% 1,716 1,595

9,432 3,360 775 482 2,237 34.6% 1,464 1,377

9,407 3,307 750 493 2,230 33.6% 1,481 1,417

8,527 2,904 787 500 1,697 24.5% 1,281 1,224

7,312 2,311 609 506 1,302 29.1% 923 849

6,468 1,592 528 497 586 29.9% 411 365

6,270 1,158 515 518 706 34.8% 460 270

6,170 1,521 514 553 553 34.5% 362 155

6,159 1,150 517 551 250 31.2% 172 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,086 Current Assets 2,246 Total Assets 27,369 Current Liabilities 1,789 Long Term Debt 6,679 Common Equity 10,353 Total Capital 17,406 Capital Expenditures 1,299 Cash Flow 1,879 Current Ratio 1.3 % Long Term Debt of Capitalization 38.4 % Net Income of Revenue 13.0 % Return on Assets 3.9 % Return on Equity 10.4

618 1,999 26,297 2,105 6,316 9,597 22,295 1,558 2,520 1.0 28.3 16.1 6.5 17.8

206 1,675 26,144 1,948 6,132 9,727 22,290 1,341 2,239 0.9 27.5 15.5 5.6 15.1

527 2,400 26,028 2,093 6,109 9,615 22,168 1,178 2,231 1.1 27.6 15.7 5.7 15.7

289 2,650 25,861 1,921 6,616 9,289 22,525 1,025 2,068 1.4 29.4 15.0 5.1 14.8

579 1,967 24,750 2,201 6,863 7,990 21,403 1,041 1,532 0.9 32.1 12.6 4.1 12.3

284 1,425 20,596 1,801 6,800 6,976 17,008 720 939 0.8 40.0 6.4 2.0 6.1

184 1,299 19,956 1,853 7,006 6,500 16,561 689 975 0.7 42.3 7.3 2.3 7.3

204 1,047 19,418 2,386 7,027 6,090 15,943 746 876 0.4 44.1 5.9 1.9 6.1

Nil 849 18,976 1,887 7,339 5,824 15,958 731 689 0.4 46.0 2.8 0.9 2.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3 Commercial Pl, Norfolk, VA 23510-2191. Telephone: 757-629-2680. Website: http://www.nscorp.com Chrmn, Pres & CEO: C.W. Moorman, IV

COO & EVP: M.D. Manion EVP & CFO: J.A. Squires EVP & CIO: D.H. Butler Chief Admin Officer: J.P. Rathbone

Investor Contact: M. Parkerson (757-533-4939) Founded: 1980 Board Members: G. L. Baliles, T. D. Bell, Jr., D. A. Domicile: Virginia Carp, G. R. Carter, A. D. Correll, L. Hilliard, K. N. Horn, B. Employees: 28,593 M. Joyce, S. F. Leer, M. D. Lockhart, C. W. Moorman, IV, J. P. Reason

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NU | NU is in the S&P 500

Northeast Utilities S&P Recommendation HOLD

★★★★★

Price $30.85 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $32.00

Investment Style Large-Cap Blend

Summary This utility holding company, which serves Connecticut, western Massachusetts and New Hampshire, has agreed to buy NSTAR, a Boston-based utility.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.09– 22.20 Trailing 12-Month EPS $1.74 Trailing 12-Month P/E 17.7 $10K Invested 5 Yrs Ago $20,330

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.98 2.19 15.6 176.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.434 3.32 $1.03 73

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.54 6 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the steady cash flow we expect from regulated electric and gas utility operations, a generally healthy economy in most of NU's service territories, and a relatively supportive regulatory environment. It also reflects the company's exit from its nonregulated and high-risk wholesale energy marketing and energy services businesses.

32 28 24 20

Vol.

Quantitative Evaluations

45

Mil. 9 6 3 0

S&P Quality Ranking D

5

4

3

2

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE 63

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: Ph

➤

➤

➤

Subject to required approvals, the proposed merger with NSTAR (NST 40, Hold) is expected to close in the second half of 2011 and to result in one of the largest utility companies in the U.S. We believe the transaction would be accretive to combined earnings in the first year and that NST's strong balance sheet will help provide significant investment opportunities for the new company's transmission business. We expect operating EPS in 2010 to increase more than 3% from 2009's $1.91. Although results in the first half of 2010 were hurt by the mild weather in the first quarter, and higher operating costs, the second half was expected to benefit from an abnormally hot July, expectation of strong transmission results, and the rate increases implemented on July 1. We believe the regulated distribution and generating companies will earn about $1.03 a share in 2010, the transmission business about $0.95, and the competitive businesses about $0.05, with the parent company recording a loss of about $0.05. For 2011, we expect EPS to grow about 10% from anticipated results in 2010, driven by higher transmission earnings, new rate hikes, and an improved economic outlook.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on October 20, 2010, when the stock traded at $ 30.96. Highlights

A+

3

The stock is up approximately 19% year to date. This follows a 7.2% gain in 2009 (after a more than 35% rebound from its 2009 low), and reflects, we believe, NU's improved earnings outlook. If completed, the agreed-to merger with NST is expected to result in a nearly 20% increase in the dividend, and to eliminate the need for the previously planned 2012 equity issuance. Although we think the stock has become fairly valued for the near term, we expect it to benefit over the long term from NU's investments in its transmission system. Risks to our recommendation and target price include the possibility of the planned merger with NSTAR being delayed or terminated, a slower-than-expected recovery in the company's service territory economy, and a sharp decrease in the average peer group P/E multiple. Following the recent rise in the shares, the yield from the dividend was around 3.3%, well below the recent peer average yield of approximately 4.6%. However, the merger with NST, if approved, is expected to increase the dividend by nearly 20%. Our 12-month target price is $32, reflecting a premium-to-peers multiple of about 14.6X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,339 1,111 2009 1,593 1,224 2008 1,520 1,325 2007 1,704 1,392 2006 2,147 1,671 2005 2,265 1,551

3Q -1,306 1,507 1,451 1,594 1,755

4Q -1,315 1,448 1,276 1,483 1,878

Year -5,439 5,800 5,822 6,884 7,397

Earnings Per Share ($) 2010 0.49 0.41 2009 0.60 0.47 2008 0.38 0.37 2007 0.50 0.30 2006 -0.13 0.09 2005 -0.91 -0.21

E0.53 0.37 0.47 0.32 0.67 -0.71

E0.55 0.48 0.46 0.47 0.19 -0.08

E1.98 1.91 1.67 1.58 0.82 -1.74

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.256 0.256 0.256 0.256

02/09 04/13 07/12 10/12

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

03/31/10 06/30/10 09/30/10 12/31/10

Dividends have been paid since 1999. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NU

Northeast Utilities Business Summary October 20, 2010 CORPORATE OVERVIEW. Northeast Utilities (NU) is a holding company that provides electricity and gas services through its utility subsidiaries. The company's electric subsidiaries include The Connecticut Light & Power Company, Public Service Company of New Hampshire, and Western Massachusetts Electric Company. NU distributes natural gas through its Yankee Gas Services Company subsidiary. Yankee Gas operates the largest natural gas distribution system in Connecticut. NU Enterprises Inc., the nonregulated subsidiary of NU, owns a number of competitive energy and related businesses. In 2009, the electric distribution segment accounted for 79.7% of consolidated revenues (80.9% in 2008), the transmission segment 10.6% (7.3%), the gas distribution segment 8.2% (9.9%), and the competitive businesses 1.5% (1.9%).

while NST's chairman, president and CEO, Thomas May, would become president and CEO. After a period of 18 months, Mr. May would replace Mr. Shivery as chairman.

IMPACT OF MAJOR DEVELOPMENTS. On October 18, 2010, NU announced a definitive merger agreement with NSTAR (NST 40, Hold), a Bostonheadquartered energy delivery company serving 1.1 million electric distribution customers and about 300,000 natural gas customers in Massachusetts. Under the terms of the stock-for-stock agreement, NSTAR shareholders would receive 1.312 NU shares for each NST share. Upon the completion of the transaction, it is expected that NU shareholders would have a 56% interest in the combined company, which will maintain the Northeast Utilities name, with NST holders 44%. NU's chairman, president and CEO, Charles Shivery, would become the non-executive chairman of the new company,

NU also distributes natural gas to more than 200,000 customers in 71 cities and towns in Connecticut. Residential customers, the largest user segment, contributed 48% of natural gas revenues in 2009 (45% in 2008), followed by the commercial and industrial segments, which contributed 31% (29%) and 18% (23%), respectively, while others accounted for 3% (3%).

MARKET PROFILE. NU provides retail electric services in all major cities and towns in Connecticut, New Hampshire and Massachusetts. The company's electric utilities serve nearly 1.9 million customers in 419 cities and towns in Connecticut, New Hampshire and western Massachusetts. In 2009, residential customers contributed about 58% of NU's electric distribution revenues (55% in 2008); commercial customers 34% (35%); industrial customers 7% (9%); and others 1% (1%).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 18.74 1.91 2.01 0.95 50% 26.48 19.01 14 10

2008 17.54 1.67 1.11 0.83 49% 31.62 17.16 19 10

2007 16.81 1.58 1.55 0.78 49% 33.62 26.21 21 17

2006 16.28 0.82 0.93 0.72 88% 28.90 19.07 35 23

2005 13.98 -1.74 -1.59 0.68 NM 21.95 17.30 NM NM

2004 14.87 0.91 0.96 0.63 69% 20.27 17.17 22 19

2003 14.68 0.95 1.13 0.58 61% 20.32 13.13 21 14

2002 14.20 1.18 -0.77 0.52 44% 20.70 12.66 18 11

2001 13.79 1.96 -3.68 0.45 23% 24.35 16.59 12 8

2000 12.73 1.55 NA 0.40 26% 24.56 18.00 16 12

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

5,439 310 234 2.83 NA 35.3% 330 348

5,800 279 254 2.33 NA 28.8% 261 173

5,822 265 212 2.25 NA 30.3% 251 240

6,884 445 194 1.23 NA NM 126 144

7,397 614 200 -0.26 NA NM -229 -209

6,687 528 188 1.63 NA 30.7% 117 122

6,069 540 232 1.72 NA 33.1% 121 143

5,216 667 263 1.10 NA 35.1% 152 -99.7

6,874 983 259 -0.24 Nil 39.5% 266 -500

5,877 515 256 2.00 Nil 43.0% 205 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 11,682 Capital Expenditures 908 Net Property 8,840 Capitalization:Long Term Debt 5,052 Capitalization:% Long Term Debt 58.5 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 3,578 Capitalization:% Common 41.5 Total Capital 8,696 % Operating Ratio 89.5 % Earned on Net Property 8.8 % Return on Revenue 6.1 % Return on Invested Capital 7.3 % Return on Common Equity 10.0

10,978 1,255 8,208 4,906 61.9 Nil Nil 3,020 38.1 9,175 91.6 7.7 4.5 6.1 8.8

9,892 1,115 7,230 4,517 60.8 Nil Nil 2,914 39.2 8,527 92.6 8.0 4.3 8.6 8.6

8,857 872 6,242 4,254 60.3 Nil Nil 2,798 39.7 8,184 95.4 3.5 1.8 4.6 4.8

8,969 752 6,417 4,494 64.9 Nil Nil 2,429 35.1 8,325 99.3 NM NM 1.1 NM

8,247 644 5,864 4,453 66.0 Nil Nil 2,297 34.0 8,283 96.1 7.3 1.7 4.8 5.1

7,674 532 5,430 4,387 66.0 Nil Nil 2,264 34.0 8,042 93.8 8.3 2.0 4.7 5.4

7,213 492 4,728 4,186 64.3 Nil Nil 2,211 33.9 8,056 96.2 6.1 2.9 5.5 7.0

7,241 443 3,822 4,311 65.9 116 1.78 2,118 32.4 8,156 104.0 NM 3.9 8.2 11.9

10,588 414 3,547 2,228 50.1 Nil Nil 2,219 49.9 6,285 90.9 12.4 3.5 8.4 8.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Federal St Bldg 111-4, Springfield, MA 01105-1192. Telephone: 413-785-5871. Email: [email protected] Website: http://www.nu.com

Chrmn, Pres & CEO: C.W. Shivery COO & EVP: L.J. Olivier EVP & CFO: D.R. McHale SVP & General Counsel: G.B. Butler

Chief Acctg Officer & Cntlr: J.S. Buth Founded: 1927 Investor Contact: J.R. Kotkin (860-665-5154) Domicile: Massachusetts Trustees: R. Booth, J. S. Clarkeson, C. M. Cleveland, S. Employees: 6,078 Cloud, Jr., J. G. Graham, E. T. Kennan, K. R. Leibler, R. Patricelli, C. W. Shivery, J. F. Swope, D. R. Wraase

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: NTRS | NTRS is in the S&P 500

Northern Trust Corp S&P Recommendation HOLD

★★★★★

Price $47.81 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $51.00

Investment Style Large-Cap Growth

Summary Northern Trust is a leading provider of fiduciary, asset management and private banking services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.36– 45.30 Trailing 12-Month EPS $3.05 Trailing 12-Month P/E 15.7 $10K Invested 5 Yrs Ago $10,056

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.95 3.75 16.2 242.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.574 2.34 $1.12 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.76 12 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as solid business fundamentals and a strong customer base. We view NTRS as well diversified geographically and able to withstand an economic downturn.

80

60 50 40

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

50

D

35

15 10 5 0

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ WEAK

25 4

5

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Matthew Albrecht on July 22, 2010, when the stock traded at $ 46.97. Highlights ➤

➤

➤

Growth in assets under custody and management will likely remain uneven, depending on market gains and new customer wins. Securities lending-related fees have picked up somewhat, but won't reach pre-crisis levels for some time, by our estimation. Foreign exchange trading activity has picked up with global economic uncertainty, and will likely increase further once global trade picks up. Interest rates have stabilized and money market fee waivers have declined somewhat, but we don't expect growth in net interest income until the Fed hikes rates, which likely won't happen until mid-2011 at the earliest. We think revenues could decline marginally in 2010 before advancing 8% in 2011. We forecast a 7% increase in non-interest expense this year, as incentive compensation accruals increase. We expect loan charge-offs and new loan loss provisions to remain elevated because non-performing loans continue to rise relative to total loans, although marketwide credit quality has improved somewhat. We look for earnings of $3.09 in 2010 and $3.75 in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We have a positive view of NTRS's product and geographic diversity. We believe the company's leading position in the affluent market will result in above peer-average revenue. We are also encouraged by the defensive positioning of its securities portfolio. We look for the net interest margin to widen once the Fed hikes rates. NTRS's investment portfolio is highly conservative and should result in limited writedowns, by our analysis. However, we think the stock's recent valuation takes into account most of the positives that we foresee. Risks to our opinion and target price include failure to generate new business from existing and new clients, a significant decline in economic activity, and adverse litigation or regulation. Over the past five years, on average, the shares have traded at about 18X NTRS's forward 12-month EPS. Our 12-month target price of $51 is equal to approximately 15X our forward 12-month EPS estimate of $3.39, a discount to the historical average to reflect the poor rate environment, NTRS's shrinking balance sheet and uncertain economic growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 981.8 1,049 2009 1,010 1,140 2008 1,204 1,434 2007 1,250 1,338 2006 1,030 1,134 2005 792.9 902.4

3Q -1,013 1,314 1,385 1,117 912.0

4Q --1,373 1,699 1,192 947.1

Year -3,216 5,678 5,395 4,473 3,554

Earnings Per Share ($) 2010 0.65 0.82 2009 0.61 0.95 2008 1.71 0.96 2007 0.84 0.92 2006 0.74 0.76 2005 0.63 0.68

E0.64 0.77 -0.67 0.93 0.74 0.67

E0.84 0.83 1.47 0.55 0.77 0.67

E2.95 3.19 3.47 3.24 3.00 2.64

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.280 0.280 0.280 0.280

02/16 04/20 07/20 10/19

03/08 06/08 09/08 12/08

03/10 06/10 09/10 12/10

04/01/10 07/01/10 10/01/10 01/03/11

Dividends have been paid since 1896. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: NTRS

Northern Trust Corp Business Summary July 22, 2010 CORPORATE OVERVIEW. Northern Trust Corp. (NTRS) organizes its services globally around its two principal business units: Corporate and Institutional Services (C&IS) and Personal Financial Services (PFS). C&IS is a leading worldwide provider of asset servicing, asset management and related services to corporate and public entity retirement funds, foundation and endowment clients, fund managers, insurance companies and government funds. C&IS also offers a full range of commercial banking services through the bank, placing special emphasis on developing and supporting institutional relationships in two target markets: large and mid-sized corporations and financial institutions (both U.S. and non-U.S.). Asset servicing, asset management and related services encompass a full range of capabilities including: global master trust and custody, trade, settlement, and reporting; fund administration; cash management; and investment risk and performance analytical services.

FSG brought to C&IS expanded capabilities in institutional fund administration, custody, trust and related services as well as new capabilities in hedge fund and private equity administration, in our view. PFS provides personal trust, investment management, custody and philanthropic services; financial consulting; guardianship and estate administration; qualified retirement plans; brokerage services; and private and business banking. PFS focuses on high net worth individuals and families, business owners, executives, professionals, retirees and established privately held businesses in its target markets. PFS also includes the Wealth Management Group, which provides customized products and services to meet the complex financial needs of families and individuals in the U.S. and throughout the world, with assets typically exceeding $200 million.

In 2005, NTRS completed its acquisition of the Financial Services Group Limited (FSG) from Baring Asset Management Holdings Limited. The purchase of Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 24.20 3.19 3.15 1.12 35% 66.08 43.32 21 14

2008 NA 3.47 3.31 1.12 32% 88.92 33.88 26 10

2007 18.04 3.24 3.69 1.03 32% 83.17 56.52 26 17

2006 15.53 3.00 3.04 0.94 31% 61.40 49.12 20 16

2005 14.72 2.64 2.51 0.86 33% 55.00 41.60 21 16

2004 14.14 2.26 2.19 0.78 35% 51.35 38.40 23 17

2003 13.88 1.89 1.63 0.70 37% 48.75 27.64 26 15

2002 13.04 1.97 1.64 0.68 35% 62.67 30.41 32 15

2001 11.97 2.11 1.82 0.64 30% 82.25 41.40 39 20

2000 10.54 2.08 NA 0.56 27% 92.13 46.75 44 22

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

NA 40.2 NA 215 37.6% 1,255 31.2% 864 1.56 744

NA 49.8 3,032 115 32.6% 1,276 37.7% 795 1.76 747

832 62.5 2,326 18.0 77.0% 1,061 31.5% 727 1.67 828

730 64.8 2,018 15.0 69.6% 1,024 35.0% 665 1.73 674

661 60.9 1,783 2.50 69.2% 888 34.2% 584 1.79 561

561 54.4 1,711 -15.0 65.9% 754 33.1% 505 1.66 491

548 52.4 1,542 2.50 68.1% 631 32.9% 423 1.73 365

602 48.7 1,537 37.5 67.2% 669 33.2% 447 1.93 369

595 52.6 1,580 66.5 61.8% 732 33.4% 488 2.02 418

569 53.3 1,537 24.0 62.6% 730 33.6% 485 2.02 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 13,147 Investment Securities 18,346 Commercial Loans 6,312 Other Loans 21,494 Total Assets 82,142 Demand Deposits 9,178 Time Deposits 49,103 Long Term Debt 4,666 Common Equity 6,312 % Return on Assets 1.1 % Return on Equity 15.4 % Loan Loss Reserve 1.1 % Loans/Deposits 48.5 % Equity to Assets 7.7

16,890 15,571 8,254 22,501 82,054 11,824 50,582 5,359 6,389 1.1 14.6 0.7 50.9 6.3

25,051 8,888 7,907 17,433 67,611 10,118 41,095 5,721 4,509 1.1 17.2 0.6 50.5 6.6

16,790 12,365 6,515 16,094 60,712 9,315 34,505 2,421 3,944 1.2 17.6 0.6 51.6 6.6

16,036 11,109 5,064 14,905 53,414 7,427 31,093 2,791 3,601 3.0 42.7 0.6 51.8 7.0

13,168 9,042 4,498 13,445 45,277 6,377 24,681 1,340 3,296 1.2 15.9 0.7 57.8 7.3

9,565 9,471 4,702 13,111 41,450 5,767 20,503 1,341 3,055 1.0 14.2 0.8 67.8 7.3

9,332 6,594 5,137 12,927 39,478 6,602 19,460 1,284 2,880 1.1 16.1 0.9 69.3 7.0

10,546 6,331 5,767 12,213 39,665 7,110 17,909 1,485 2,653 1.3 19.4 0.9 71.9 6.6

5,865 7,270 5,708 12,437 36,022 5,375 17,453 1,356 2,342 1.5 21.8 0.9 79.5 6.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 50 S La Salle St, Chicago, IL 60603-1003. Telephone: 312-630-6000. Website: http://www.northerntrust.com Chrmn, Pres & CEO: F.H. Waddell

COO: J.R. Schreuder EVP & Chief Admin Officer: T.P. Moen EVP & CTO: N. Krishnamurthy EVP, Chief Acctg Officer & Cntlr: A.B. Blake

Investor Contact: S.L. Fradkin Board Members: L. W. Bynoe, N. D. Chabraja, S. M. Crown, D. Jain, R. W. Lane, R. C. McCormack, E. J. Mooney, J. W. Rowe, D. H. Smith, Jr., W. D. Smithburg, E. Sosa, C. A. Tribbett, III, F. H. Waddell

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1889 Domicile: Delaware Employees: 12,400

Stock Report | October 23, 2010 | NYS Symbol: NOC | NOC is in the S&P 500

Northrop Grumman Corp S&P Recommendation HOLD

★★★★★

Price $61.90 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $65.00

Investment Style Large-Cap Blend

Summary This company is the world's third largest producer of military arms and equipment, and also has a large government IT services business.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $69.80– 49.63 Trailing 12-Month EPS $6.69 Trailing 12-Month P/E 9.3 $10K Invested 5 Yrs Ago $13,315

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.70 6.50 9.2 294.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

40

MEDIUM

HIGH

Quantitative Evaluations

Vol. 30

Mil.

S&P Quality Ranking

15 10 5 0

D 4

3

4

C

B-

B+ B

B+

A-

A

Relative Strength Rank

3

A+

MODERATE 56

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Richard Tortoriello on August 16, 2010, when the stock traded at $ 56.24. Highlights We estimate sales growth of 3% this year, following a 4.5% rise in 2009 (restated for the December 2009 sale of the TASC advisory services business). We see strong growth in Technical Services (about 10%) and Aerospace Systems (6%), and moderate growth in Electronic Systems (3%) and Shipbuilding (2.5%). We see growth driven by new contract awards in Technical Services, manned and unmanned aircraft demand in Aerospace, ISR demand for electronics, and higher aircraft carrier and submarine volume in Shipbuilding. We project 2% overall revenue growth in 2011. We expect operating margins to improve to 9.2% in 2010, from 8.7% in 2009, on significantly reduced pension expense and segment operating improvement in all segments except Electronic Systems (NOC's highest margin segment). We project EPS of $6.70 in 2010 (including the $0.73 net effect of a one-time tax benefit), and see growth to $6.50 in 2011. We expect free cash flow (cash flow from operating activities less capital expenditures) per share of about $4.50 in 2010, about even with 2009.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P

➤

LOW

Our risk assessment reflects our view of NOC's typically strong levels of cash flow and a solid balance sheet with a relatively low level of debt. This is offset by NOC's dependence on government spending on defense, which is subject to political and budgetary considerations. .

50

➤

1.10 10 BBB+

Below Avg.

60

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

80

5

$18.212 3.04 $1.88 87

Although NOC's funded backlog fell 7% as of year-end 2009, and was up just 1% as of the second quarter of 2010, we expect growth in Shipbuilding and Aerospace, led by the Virginia Class Submarine and various manned and unmanned aircraft programs. We also expect good results from defense electronics and cybersecurity. However, we see a ballooning U.S. budget deficit and increased social spending leading to low defense-budget growth over the long term. Along these lines, the fiscal 2010 defense budget proposes a slowing in production of several ship-building programs, including the Navy Aircraft Carrier program, for which NOC is the prime contractor. Risks to our recommendation and target price include the potential for large cuts in military budgets, and failure to perform well on existing contracts or to win new contracts. Our 12-month target price of $65 is based on an enterprise value to estimated 2011 EBITDA multiple of 6X. This multiple is below NOC's 20-year average of 8X. We believe the below-average valuation is appropriate due to our view of flat to declining U.S. defense budget growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 8,610 8,826 2009 7,935 8,545 2008 7,724 8,628 2007 7,340 7,926 2006 7,093 7,601 2005 7,453 7,962

3Q -8,350 8,381 7,928 7,433 7,446

4Q -8,925 9,154 8,824 8,021 7,860

Year -33,755 33,887 32,018 30,148 30,721

Earnings Per Share ($) 2010 1.51 2.34 2009 1.10 1.13 2008 0.76 1.40 2007 1.11 1.33 2006 1.03 1.26 2005 1.08 1.00

E1.40 1.45 1.50 1.41 0.87 0.80

E1.44 1.19 -7.76 1.32 1.29 0.92

E6.70 4.87 -3.83 5.16 4.44 3.81

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.430 0.430 0.470 0.470

10/19 02/17 05/19 07/27

11/25 02/25 05/27 08/26

11/30 03/01 06/01 08/30

12/12/09 03/13/10 06/12/10 09/11/10

Dividends have been paid since 1951. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: NOC

Northrop Grumman Corp Business Summary August 16, 2010 CORPORATE OVERVIEW. This $35 billion in estimated 2010 revenues defense electronics, aerospace, and warship-making giant, conducts most of its business with the U.S. government, principally the Department of Defense. NOC also transacts with foreign governments and makes commercial sales both domestically and overseas. In January 2009, the company reorganized its reported business segments into five from a previous seven. The Information & Services segment (24% of 2009 revenue and 20% of 2009 operating income) provides products and services in the areas of command, control, communications, computers, and intelligence (C4I); air and missile defense; airborne reconnaissance; intelligence processing; decision support systems; cybersecurity; information technology (IT); and systems engineering and integration. It consists of three business areas: Defense Systems, Intelligence Systems, and Civil Systems.

a leading provider of logistics, infrastructure, and sustainment support, while also providing a wide array of technical services including training and simulation. It consists of three business areas: Systems Support, Training & Simulation, and Life Cycle Optimization & Engineering. The Aerospace Systems segment (29% and 34%) is a developer, integrator, producer, and supporter of manned and unmanned aircraft, spacecraft, highenergy laser systems, microelectronics and other systems and subsystems critical to maintaining the nation's security and leadership in technology. It consists of four business areas: Strike & Surveillance Systems, Space Systems, Battle Management & Engagement Systems, and Advanced Programs & Technology.

The Technical Services segment (8% of revenue and 5% of operating profit) is Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 7.14 4.87 5.29 1.69 35% 57.32 33.81 12 7

2008 NM -1.71 -3.83 1.44 1.57 NM 83.40 33.96 NM NM

2007 NM 7.09 5.16 4.09 1.48 29% 85.21 66.23 17 13

2006 NM 6.34 4.44 3.67 1.16 26% 71.37 59.10 16 13

2005 NM 5.94 3.81 2.84 1.01 27% 60.26 51.10 16 13

2004 NM 5.01 2.99 2.63 0.89 30% 58.15 46.91 19 16

2003 NM 4.05 2.16 2.42 0.80 37% 50.55 41.50 23 19

2002 NM 5.29 2.86 -0.95 0.80 28% 67.50 43.60 24 15

2001 NM 6.31 2.40 -2.85 0.80 33% 55.28 38.20 23 16

2000 NM 7.08 4.41 NA 0.80 18% 46.94 21.31 11 5

33,755 3,219 736 281 2,266 30.6% 1,573 1,712

33,887 3,920 708 295 -368 NM -1,281 481

32,018 3,716 710 336 2,686 32.9% 1,803 1,426

30,148 3,159 705 347 2,276 31.2% 1,567 1,288

30,721 2,951 773 388 2,044 32.3% 1,383 1,026

29,853 2,740 734 431 1,615 32.3% 1,093 961

26,206 1,538 682 497 1,131 28.6% 808 892

17,206 1,391 525 422 1,009 30.9% 697 -223

13,558 1,649 645 373 699 38.9% 427 -487

7,618 1,479 381 175 975 35.9% 625 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,275 Current Assets 8,635 Total Assets 30,252 Current Liabilities 6,985 Long Term Debt 4,191 Common Equity 12,687 Total Capital 16,969 Capital Expenditures 654 Cash Flow 2,309 Current Ratio 1.2 % Long Term Debt of Capitalization 24.7 % Net Income of Revenue 4.7 % Return on Assets 5.2 % Return on Equity 12.8

1,504 7,189 30,197 7,424 3,443 11,920 15,363 681 -573 1.0 22.4 NM NM NM

963 6,772 33,373 6,432 4,268 17,687 22,285 685 2,513 1.1 19.2 5.6 5.5 10.5

1,015 6,719 32,009 6,753 3,992 16,615 20,957 737 2,272 1.0 19.0 5.2 4.7 9.4

1,605 7,549 34,214 7,974 3,881 16,825 21,651 824 2,156 0.9 17.9 4.5 4.1 8.2

1,230 6,907 33,361 6,223 5,116 16,970 22,942 672 1,827 1.1 22.3 3.7 3.3 6.6

342 5,745 33,009 6,361 5,410 15,785 22,067 635 1,490 0.9 24.5 3.1 2.1 5.4

1,412 15,835 42,266 11,373 9,398 14,322 24,209 538 1,222 1.4 38.8 4.1 2.2 6.4

464 4,589 20,886 5,132 5,033 7,391 13,443 393 1,072 0.9 37.4 3.1 2.8 7.6

319 2,526 9,622 2,688 1,605 3,919 5,800 274 1,006 0.9 27.7 8.2 6.6 17.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1840 Century Park E, Los Angeles, CA 90067-2199. Telephone: 310-553-6262. Email: [email protected] Website: http://www.northropgrumman.com

Chrmn: L.W. Coleman Pres & CEO: W.G. Bush CFO: J.F. Palmer Chief Admin Officer: I.V. Ziskin

CTO: A.C. Livanos Investor Contact: P. Gregory (310-201-1634) Board Members: W. G. Bush, L. W. Coleman, T. B. Fargo, V. Fazio, D. E. Felsinger, S. E. Frank, B. S. Gordon, M. Kleiner, K. J. Krapek, R. B. Myers, A. L. Peters, K. W. Sharer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1939 Domicile: Delaware Employees: 120,700

Stock Report | October 23, 2010 | NNM Symbol: NOVL | NOVL is in the S&P 500

Novell Inc S&P Recommendation HOLD

★★★★★

Price $6.07 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $6.50

Investment Style Large-Cap Blend

Summary This leading vendor of directory-enabled networking software has been seeking strategic alternatives since rejecting a $5.75 a share bid from a hedge fund earlier this year.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$6.53– 3.84 $-0.57 NM $8,163

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.21 0.17 28.9 351.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.131 Nil Nil 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.96 -5 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatile market conditions in the Linux and open source software markets, the continuing decline in sales of NOVL's legacy products, and our belief that NOVL is having difficulty gaining sufficient traction in Linux to offset the decline in other businesses.

8 6

4 3

Quantitative Evaluations Vol.

S&P Quality Ranking

212

Mil. 30 20 10 0

D

C

B-

C B

B+

A-

Relative Strength Rank

5

3 1

A+

MODERATE

45

3

LOWEST = 1

1

A

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on September 20, 2010, when the stock traded at $ 6.18. Highlights ➤

➤

➤

We estimate that revenues will decrease 6.8% and 2.8% in FY 10 (Oct.) and FY 11, respectively, after a 9.9% decline in FY 09. The expected decline reflects our view of a slow recovery in enterprise software and continued weakness in legacy products. We see a 5% drop in its workgroup segment in FY 11. We project a 5% rise in open platform solutions revenue, as NOVL expands its presence in the Linux and open source software markets, but we expect growth in this segment to decelerate from 13% in FY 09, as NOVL adds fewer new customers. We expect gross margins to stay at 78% in both FY 10 and FY 11, the same as in FY 09. Total operating expenses should decrease as a result of further head count reductions and lower research and development expenses, partially offset by increased stock-based compensation. We project operating margins of 10.3% and 9.7% in FY 10 and FY 11, respectively. We estimate EPS of $0.21 and $0.17 in FY 10 and FY 11, respectively, compared to a loss of $0.62 in FY 09, which included $302 million of restructuring charges.

Investment Rationale/Risk ➤

Since rejecting an unsolicited $5.75 a share takeover offer from a hedge fund in March 2010, NOVL has been seeking other strategic alternatives. We think the company is in negotiation with several bidders about splitting itself into two parts and selling each part to different acquirers. We think this type of deal structure seems reasonable because potential strategic acquirers are only interested in NOVL's Linux business, while financial buyers may be interested in its legacy business because of its positive cash flows. Although we believe the takeout price could be above the current stock price, we think the potential gain is offset by the risk that a deal may fall through due to its complexity.

➤

Risks to our opinion and target price include failure to complete a merger deal, slowerthan-expected growth in the Linux products, and a slowdown in the global economy.

➤

Our 12-month target price of $6.50 is based on an enterprise value/sales ratio of 1.6X, which is a blend of a takeout premium of 4.0X for the company's Linux business and 1.0X for its legacy business.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 202.4 204.0 2009 214.9 215.6 2008 230.9 235.7 2007 218.4 232.4 2006 274.4 278.3 2005 290.1 297.1

3Q 199.0 216.1 245.2 236.8 241.4 290.2

4Q -215.6 244.7 244.9 244.9 320.3

Year -862.2 956.5 932.5 967.3 1,198

Earnings Per Share ($) 2010 0.06 0.06 2009 0.03 0.04 2008 0.04 0.04 2007 -0.04 Nil 2006 Nil 0.01 2005 0.90 -0.04

0.04 0.05 -0.04 -0.04 0.03 Nil

E0.04 -0.74 -0.05 -0.03 0.06 -0.01

E0.21 -0.62 -0.04 -0.08 0.02 0.86

Fiscal year ended Oct. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: NOVL

Novell Inc Business Summary September 20, 2010 CORPORATE OVERVIEW. Novell Inc. (NOVL) is a provider of software and services that help customers manage their information technology infrastructure. The company's legacy products are based on its proprietary network operating system, NetWare. Sales of NetWare have been declining, and IDC, an independent market research firm, expects NetWare's market share of the worldwide server installed base to decrease to 0.4% in 2012 from 2.5% in 2008. Meanwhile, Linux's share is forecast to rise to 22% in 2012, from 20% in 2008.

systems and resource management, which includes software to manage multiple infrastructure resources in a virtual environment; and workgroup, which helps customers to collaborate across the enterprise. This segment includes NetWare-related product revenues. In FY 09 (Oct.), the open platform solutions segment accounted for 20% of the total revenues, the identity and security management segment 18%, the systems and resource management segment 21%, and the workgroup segment 39%.

In the past few years, NOVL has embraced and promoted Linux and open source computing. The company is the second largest provider of Linux operating systems and subsystems, capturing 30% of the market by revenue in 2008, according to IDC, up from 15% in 2005. As a result of increased use of open source software in enterprise applications, NOVL has repositioned itself as a solution provider in a mixed operating system environment that includes open source and proprietary technologies, thus reducing reliance on its legacy products, such as NetWare.

CORPORATE STRATEGY. NOVL relies on a series of alliances and partnerships to drive sales growth; its partners include IBM, HP, Dell, Intel, Oracle, SAP, AMD, CA, EMC and Adobe. NOVL believes it has created an ecosystem around it to combine its strengths with those of its partners; however, these partners are also counted among the strategic partners of many other software firms, and we doubt the partnerships provide a significant competitive advantage. In addition, NOVL's go-to market strategy embraces both a direct and indirect sales channel, with the indirect channel including independent distributors, value-added resellers, systems integrators and hardware OEMs.

NOVL has reorganized into four product-related business units and a consulting unit. The four business unit segments are: open platform solutions, which encompasses SUSE Linux operating system; identity and security management, which helps to provide secured logon and protect information assets; Company Financials Fiscal Year Ended Oct. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.56 -0.50 -0.62 -0.11 Nil Nil 4.98 2.97 NM NM

2008 1.32 0.08 -0.04 0.01 Nil Nil 7.59 2.49 NM NM

2007 2.05 0.04 -0.08 -0.09 Nil Nil 8.26 5.76 NM NM

2006 1.86 0.15 0.02 -0.02 Nil Nil 9.83 5.70 NM NM

2005 2.42 0.98 0.86 -0.11 Nil Nil 9.27 4.94 11 6

2004 1.39 0.22 0.08 -0.07 Nil Nil 14.24 5.62 NM NM

2003 1.89 -0.27 -0.44 -0.45 Nil Nil 10.77 2.14 NM NM

2002 2.31 -0.09 -0.28 -0.47 Nil Nil 5.64 1.57 NM NM

2001 2.98 -0.53 -0.79 -1.27 Nil Nil 9.13 2.96 NM NM

2000 3.80 0.39 0.15 NA Nil Nil 44.56 4.88 NM 33

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

862 136 40.7 0.85 -204 NM -215 -39.5

957 90.7 40.4 23.4 22.9 153.9% -12.3 3.64

933 30.4 40.4 25.9 8.40 NM -26.3 -29.5

967 27.8 47.0 8.02 30.9 75.3% 7.63 -8.34

1,198 99.3 56.3 9.63 466 19.2% 377 -52.6

1,166 140 53.5 Nil 75.0 23.7% 57.2 -30.8

1,105 52.3 61.1 Nil -55.0 NM -162 -167

1,134 103 68.8 Nil -92.2 NM -103 -172

1,040 46.1 86.7 Nil -277 NM -262 -384

1,162 98.2 81.9 Nil 70.7 30.0% 49.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 983 Current Assets 1,281 Total Assets 1,903 Current Liabilities 731 Long Term Debt NA Common Equity 935 Total Capital 935 Capital Expenditures 22.1 Cash Flow -174 Current Ratio 1.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,068 1,386 2,269 900 4.00 1,088 1,218 37.7 28.1 1.5 0.4 NM NM NM

1,080 2,154 2,854 822 600 1,158 1,758 25.2 14.1 2.6 34.1 NM NM NM

676 1,761 2,450 686 600 1,105 1,718 26.7 54.6 2.6 34.9 0.8 0.3 0.6

811 2,009 2,762 753 600 1,386 2,004 30.8 433 2.7 29.9 31.5 14.9 32.1

434 1,535 2,292 693 600 963 1,599 27.0 84.6 2.2 37.5 4.9 3.0 3.3

752 1,031 1,568 626 Nil 934 941 39.5 -101 1.6 Nil NM NM NM

636 920 1,665 592 Nil 1,066 1,074 27.6 -34.3 1.6 Nil NM NM NM

705 1,027 1,904 611 Nil 1,271 1,293 33.3 -175 1.7 Nil NM NM NM

698 1,007 1,712 455 Nil 1,245 1,257 57.8 131 2.2 Nil 4.3 2.7 3.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 404 Wyman St Ste 500, Waltham, MA 02451-1212. Telephone: 781-464-8000. Website: http://www.novell.com Chrmn: R.L. Crandall

Pres & CEO: R.W. Hovsepian SVP, CFO & Chief Acctg Officer: D.C. Russell Investor Contact: E.M. Hennessy (781-464-8553) CIO: J. Almandoz

Board Members: A. Aiello, Jr., F. Corrado, R. L. Crandall, G. G. Greenfield, J. H. Hamilton, R. W. Hovsepian, P. Jones, R. L. Nolan, J. W. Poduska

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1983 Domicile: Delaware Employees: 3,600

Stock Report | October 23, 2010 | NNM Symbol: NVLS | NVLS is in the S&P 500

Novellus Systems Inc S&P Recommendation HOLD

★★★★★

Price $27.60 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductor Equipment

12-Mo. Target Price $29.00

Investment Style Large-Cap Growth

Summary This company manufactures, markets, and services automated wafer fabrication systems for the deposition of thin films.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.90– 19.42 Trailing 12-Month EPS $1.41 Trailing 12-Month P/E 19.6 $10K Invested 5 Yrs Ago $12,591

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.75 3.45 10.0 91.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.537 Nil Nil 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 NM NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the historical cyclicality of the semiconductor equipment industry, the lack of visibility in the medium term, the dynamic nature of semiconductor technology, and intense competition. We believe these risks are partially offset by our view of the company's strong market position, size, and financial condition.

30

20 15

10 Vol.

Quantitative Evaluations

Mil. 24 16 8 0

S&P Quality Ranking D

5

3

2

4

3

C

B-

C B

B+

A-

Relative Strength Rank

1

MODERATE

LOWEST = 1

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

We anticipate sales to rise 13% in 2011 following our projection for revenues to more than double in 2010, as we think industry conditions will continue to improve. We believe the memory supply and demand balance remains healthy, and that rising end-market demand and improving customer profitability are leading to advanced technology spending by manufacturers. Although we project soft PC demand, we see sales being held up by rising demand for mobile devices and enterprise spending. We are cautious about falling memory prices but expect customers to stay profitable. We look for the annual gross margin to widen to 51% in 2011 versus our 49% forecast in 2010. Going forward, we expect gross margins to expand, driven by higher system sales from low levels and benefits from cost-cutting efforts. We look for NVLS to maintain tight cost control and refrain from significant increases to operating costs. We see operating expenses running at about 23% to 27% of sales. We project operating EPS of $2.75 in 2010, which excludes $0.04 from non-recurring charges, and $3.45 in 2011. We model a 16%-18% tax rate for both years.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Angelo Zino on September 03, 2010, when the stock traded at $ 24.88. Highlights

A+

70

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

3

We think NVLS will benefit from the transition to copper processes, and see potential for share gain. We believe demand for consumer electronics continues to be driven by emerging mobile devices and new innovations such as the iPad. As a result of improving demand and relatively healthy inventory levels across the supply chain, we foresee greater spending by NAND flash memory customers and stable logic spending. Also, we expect some customers to invest more heavily in capacity expansion. We see the company's industrial segment rebounding as the economy improves, but at a sluggish pace. Risks to our recommendation and target price include a longer-than-expected semiconductor equipment downturn, weaker-than-projected global economic growth, and higherthan-expected R&D expense growth. We derive our 12-month target price of $29 based on a blend of our peer-average P/E and below historical average price-to-sales (P/S) multiples. We obtain a $27 price using a multiple of 7.8X our 2011 EPS estimate. We apply a P/S multiple of 2.0X to our 2011 sales per share estimate of $15.37 to arrive at a $31 price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 276.2 321.4 2009 98.91 119.2 2008 314.7 257.7 2007 397.0 416.3 2006 365.9 410.1 2005 339.7 329.6

3Q -176.9 250.1 393.3 444.0 338.9

4Q -244.2 188.5 363.5 438.5 332.3

Year -639.2 1,011 1,570 1,659 1,340

Earnings Per Share ($) 2010 0.43 0.66 2009 -0.69 -0.52 2008 0.15 -0.02 2007 0.42 0.45 2006 0.18 0.42 2005 0.22 0.24

E0.81 -0.04 0.01 0.41 0.57 0.17

E0.81 0.36 -1.36 0.47 0.34 0.17

E2.75 -0.88 -1.18 1.75 1.49 0.80

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: NVLS

Novellus Systems Inc Business Summary September 03, 2010 CORPORATE OVERVIEW. Novellus is the second largest maker of deposition equipment used to deposit conductive and insulating layers on semiconductor wafers to form integrated circuits (ICs). Novellus operates in two segments, the Semiconductor Group and the Industrial Applications Group. The Semiconductor Group comprised 89% and 83% of total sales in 2009 and 2008. NVLS's product line of deposition equipment includes chemical vapor deposition (CVD), physical vapor deposition (PVD) and electrochemical deposition (ECD), all of which are used to form the layers of wiring and insulation, known as the interconnect, of ICs. High-density plasma CVD (HDP) and plasma-enhanced CVD (PECVD) systems employ chemical plasma to deposit all of the insulating layers and some of the conductive layers on the surface of a wafer. PVD systems deposit conductive layers through a process known as sputtering, where ions of an inert gas such as argon are electrically accelerated in a high vacuum toward a target of pure metal, such as tantalum or copper. ECD systems are used to build the copper conductive layers on wafers.

aluminum, the conductive metal generally used in ICs, offering increased speed and decreased chip size. The company's SABRE tool offers a complete solution for the deposition of copper interconnects and holds the leading market share in copper. Surface preparation products, including photoresist strip and clean, are becoming more important with the industry's migration to copper interconnects. Surface preparation systems remove photoresist and other potential contaminants from a wafer before proceeding with the next deposition step. CMP systems polish the surface of a wafer after a deposition step to create a flat topography before moving on to subsequent manufacturing steps. Since copper is more difficult to polish and smooth than previous generation aluminum interconnects, and low-k dielectrics are much more porous than predecessors, NVLS's products in this category have become very important, in our view.

Although NVLS's original tool sets established it as a leader in CVD, the company has centered its product strategy on the emergence of the copper interconnect market. Copper has lower resistance and capacitance values than Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.67 -0.40 -0.88 -0.89 Nil Nil 26.00 11.43 NM NM

2008 11.73 -0.53 -1.18 -0.11 Nil Nil 27.66 10.26 NM NM

2007 11.98 2.30 1.75 1.71 Nil Nil 34.97 25.40 20 15

2006 12.54 2.05 1.49 1.47 Nil Nil 35.00 22.28 23 15

2005 11.29 1.39 0.80 0.43 Nil Nil 30.77 20.83 38 26

2004 11.06 1.66 1.06 0.74 Nil Nil 44.52 22.89 42 22

2003 12.42 0.43 -0.03 -0.42 Nil Nil 45.50 24.93 NM NM

2002 12.69 0.45 0.15 -0.33 Nil Nil 54.48 19.40 NM NM

2001 13.04 1.32 0.97 0.52 Nil Nil 58.70 25.37 61 26

2000 11.49 2.04 1.75 NA Nil Nil 70.25 24.94 40 14

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

639 -4.57 46.9 2.07 -69.4 NM -85.2 -86.7

1,011 81.1 63.3 7.02 -107 NM -116 -10.0

1,570 329 66.9 6.38 315 32.1% 214 209

1,659 388 69.7 4.29 339 44.2% 189 186

1,340 228 82.8 3.51 159 30.6% 110 59.8

1,357 308 89.3 2.13 223 29.8% 157 108

925 56.5 69.6 0.91 -15.3 NM -5.03 -67.2

840 46.3 44.3 1.02 22.9 NM 22.9 -50.7

1,339 273 51.9 1.15 209 31.0% 144 81.6

1,174 328 40.1 2.34 342 31.0% 236 NA

Balance Sheet & Other Financial Data (Million $) Cash 501 Current Assets 898 Total Assets 1,559 Current Liabilities 171 Long Term Debt 114 Common Equity 1,180 Total Capital 1,294 Capital Expenditures 11.9 Cash Flow -38.4 Current Ratio 5.4 % Long Term Debt of Capitalization 8.8 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

471 1,043 1,638 305 Nil 1,247 1,248 17.9 -52.4 3.4 Nil NM NM NM

593 1,224 2,077 329 143 1,529 1,700 33.2 281 3.7 8.4 13.6 9.6 12.7

58.5 1,505 2,362 361 128 1,835 1,963 39.4 259 4.2 6.5 11.4 8.1 10.5

649 1,364 2,290 344 125 1,779 1,904 44.7 193 4.0 6.6 8.2 4.7 6.0

106 1,369 2,402 324 161 1,862 2,023 31.7 246 4.2 8.0 11.5 6.6 8.0

497 1,572 2,339 221 Nil 2,072 2,072 31.1 64.5 7.1 Nil NM NM NM

616 1,634 2,494 382 Nil 2,056 2,075 26.8 67.2 4.3 Nil 2.7 0.8 1.2

551 2,517 3,010 1,138 Nil 1,872 1,872 80.0 196 2.2 Nil 10.8 5.5 8.2

571 1,827 2,015 505 Nil 1,511 1,511 68.5 276 3.6 Nil 20.1 16.1 20.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4000 North First Street, San Jose, CA 95134-1568. Telephone: 408-943-9700. Email: [email protected] Website: http://www.novellus.com

Chrmn & CEO: R. Hill COO: G. Addiego CFO, Chief Acctg Officer & Cntlr: J.D. Hertz Treas & Secy: K. Rammohan

General Counsel: A. Gottlieb Founded: 1984 Investor Contact: R. Yim (408-943-9700) Domicile: California Board Members: N. R. Bonke, Y. A. El-Mansy, R. Hill, Y. Employees: 2,544 Nishi, G. G. Possley, A. D. Rhoads, W. R. Spivey, D. A. Whitaker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NRG | NRG is in the S&P 500

NRG Energy Inc S&P Recommendation BUY

★★★★★

Price $20.24 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Independent Power Producers & Energy Traders

12-Mo. Target Price $27.00

Investment Style Large-Cap Blend

Summary This wholesale power generation company owns and operates power generation facilities and sells energy, capacity and related products internationally.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $27.56– 20.02 Trailing 12-Month EPS $2.19 Trailing 12-Month P/E 9.2 $10K Invested 5 Yrs Ago $9,691

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.68 2.91 7.6 253.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.124 Nil Nil NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.88 -3 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on our view that the geographic and fuel diversity benefits of NRG's power plants offset the company's exposure to volatile natural gas and power commodity markets.

50 40 30

20

2-for-1

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

81

62

D

24 16 8 0 5

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+ WEAK

16 4

3

3

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Christopher B. Muir on August 31, 2010, when the stock traded at $ 20.32. Highlights ➤

➤

➤

We estimate a 7.0% rise in revenues for 2010, helped by higher realized prices and increased generation volumes. We believe NRG will benefit from stabilizing market conditions in the regions where it operates, which should lead to stable to slightly stronger peak wholesale prices. Higher natural gas prices in 2010 will likely make unsold capacity from baseload plants more valuable, in our view. We see 2011 revenues rising 3.5%. We forecast operating profit margins of 15.5% in 2010, up from 13.9% in 2009, on lower perrevenue cost of operations, depreciation charges, and general, administrative & develoment expenses. We see pretax margins widening to 10.7% in 2010, from 8.7% in 2009. We see lower nonoperating income partly offset by lower interest expense in 2010. In 2011, we look for operating margins of 16.2% and pretax margins of 10.9%. We estimate 2010 EPS of $2.68, down 22% from 2009's $3.45, excluding $0.05 of non-recurring charges. Our 2011 EPS forecast is $2.91, up 8.6%. Excluding mark-to-market adjustments, we see EPS of $2.68 in 2010, versus $1.80 in 2009.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

In May 2009, NRG purchased RRI Energy's (RRI 3, Buy) Reliant retail business for $288 million. We view the acquisition positively, as we think NRG was able to acquire the business at a very favorable price while simultaneously helping ward off what we viewed as an inadequate offer. NRG also recently agreed to purchase three power plants in California, Texas and Maine for far below the cost to build new plants. We continue to like NRG's focus on cost control, its proposed nuclear, repowering and greenfield development efforts, and its share repurchase program. Risks to our recommendation and target price include less favorable energy market conditions, difficulty refinancing maturing debt, and inability to sell certain assets. The stock recently traded at about 7X our 2011 EPS estimate, a 36% discount to independent power producer peers. Our 12-month target price of $27 is 9.3X our 2011 EPS estimate, a 35% discount to our peer target. We think the discount is appropriate given the possibility that nuclear development efforts will turn out to be more costly than projected.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,215 2,133 2009 1,658 2,237 2008 1,302 1,316 2007 1,310 1,548 2006 1,075 1,404 2005 597.0 579.0

3Q -2,916 2,612 1,786 2,000 762.0

4Q -2,141 1,655 1,382 1,144 770.0

Year -8,952 6,885 5,989 5,623 2,708

Earnings Per Share ($) 2010 0.22 0.81 2009 0.70 1.56 2008 0.14 -0.22 2007 0.21 0.51 2006 0.02 0.62 2005 0.10 0.10

E1.17 1.02 2.65 0.93 1.17 -0.26

E0.49 0.11 0.98 0.34 -0.19 0.37

E2.68 3.44 3.66 1.95 1.82 0.33

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: NRG

NRG Energy Inc Business Summary August 31, 2010 CORPORATE OVERVIEW. NRG Energy is a competitive wholesale power generation company that owns, operates, develops and builds generating facilities. As of December 2009, the company owned interests in 44 power projects, mostly in North America, with net generating capacity of 23,475 MW. In the U.S., NRG operates plants in Texas (11,340 MW), the Northeast (7,015 MW), South Central (2,855 MW) and the West (2,150 MW), and thermal capacity (115 MW) in Delaware and Pennsylvania. Internationally, NRG owns 1,005 net MW of generation in Australia and Germany. NRG also owns another 1,021 MW in seven steam and chilled water facilities in the U.S. The sale of capacity and power from baseload power plants accounts for the majority of NRG's revenues and provides a stable source of cash flow. As of December 2009, the company's U.S. generating capacity was fueled 46% by natural gas, 32% by coal, 16% by oil, 5% by nuclear, 1% by wind, and less than 0.1% by solar. About 9% of capacity had ability to use dual or multiple fuels. By dispatch type, 25% of capacity was peaking, 37% baseload, 37% intermediate, and 1% intermittent. In 2009, 88% of NRG's MW hours produced were from coal or nuclear power plants.

sists of the development, construction and operation of new and enhanced power generation facilities at its existing sites, with an emphasis on new baseload capacity that is supported by long-term power sales agreements and financed with limited or non-recourse project financing. The company expects to achieve improved heat rates at existing facilities, lower delivered costs of electricity, increased overall capacity, an improvement in the firm's dispatch curve, better fuel diversity, and environmental enhancements. In September 2007, NRG filed an application with the Nuclear Regulatory Commission (NRC) to build and operate two new advanced boiling water reactors (ABWR) at its South Texas Project nuclear plant. Together, the units will have an operating capacity of 2.7 GW (or 3.0 GW if an amendment to the license is approved), if approved and built. The ABWR design has already been certified for use in the U.S. by the NRC. These new units are part of its broader Repowering NRG strategy. NRG expects the plant to cost $3,229/kW. NRG is also developing renewable and non renewable generation and has made a few small acquisitions to support its renewables efforts.

CORPORATE STRATEGY. NRG is pursuing opportunities to repower existing facilities and develop new generation capacity in markets in which it currently owns assets in an initiative referred to as Repowering NRG. The program conCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.91 7.06 3.44 3.14 Nil Nil 29.26 15.19 9 4

2008 15.89 5.86 3.66 3.67 Nil Nil 45.78 14.39 13 4

2007 9.14 4.08 1.95 1.92 Nil Nil 47.19 23.03 24 12

2006 8.05 3.66 1.82 1.67 Nil Nil 29.74 20.90 16 12

2005 9.60 1.48 0.33 0.45 Nil Nil 24.72 15.15 75 46

2004 11.74 2.34 0.81 0.86 Nil Nil 18.09 9.59 22 12

2003 9.59 0.13 0.05 NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA 1.22 0.68 NA NA NA NA NA NA NA

2000 NA 0.92 0.55 NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,952 NA 1,007 634 1,669 43.6% 942 829

6,885 2,922 649 620 1,729 41.2% 1,016 967

5,989 2,201 658 689 946 39.9% 569 507

5,623 1,438 593 786 880 36.9% 555 460

2,708 445 195 253 120 35.8% 77.0 77.2

2,361 754 308 341 228 28.5% 162 172

152 33.7 14.8 21.6 10.0 NM 10.5 3,357

2,212 NA 287 494 -3,078 5.37% -2,908 -2,781

2,799 NA 212 444 305 11.0% 265 NA

2,158 NA 123 294 287 32.3% 183 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,304 Current Assets 6,208 Total Assets 23,378 Current Liabilities 3,762 Long Term Debt 7,746 Common Equity 7,536 Total Capital 16,239 Capital Expenditures 734 Cash Flow 1,916 Current Ratio 1.7 % Long Term Debt of Capitalization 47.7 % Net Income of Revenue 10.5 % Return on Assets 3.9 % Return on Equity 13.7

1,494 8,492 24,808 6,581 7,704 6,256 16,257 899 1,610 1.3 47.4 14.8 4.6 18.7

1,161 3,562 19,274 2,277 7,895 4,612 14,489 481 1,172 1.6 54.5 9.5 2.7 11.0

795 3,083 19,435 2,032 8,647 5,055 15,396 221 1,098 1.5 56.2 9.9 4.1 14.7

506 2,197 7,431 1,356 2,581 1,825 5,194 106 252 1.6 49.7 2.8 1.0 2.8

1,223 2,118 7,830 1,088 3,254 2,286 6,086 114 470 1.9 53.5 6.9 1.9 6.9

738 2,114 9,261 2,026 1,213 2,437 3,801 10.6 25.2 1.0 31.9 6.9 NA NA

385 1,486 10,884 9,797 1,193 -696 7,720 1,504 -2,621 0.2 NM NM NM NM

186 1,187 12,895 1,951 7,844 2,237 10,649 1,472 478 0.6 74.1 9.5 2.8 14.3

95.2 673 5,979 563 3,651 1,462 5,274 310 306 1.2 69.4 8.5 3.9 15.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 211 Carnegie Ctr, Princeton, NJ 08540-6213. Telephone: 609-524-4500. Website: http://www.nrgenergy.com Chrmn: H.E. Cosgrove

Pres & CEO: D.W. Crane COO & EVP: M. Gutierrez EVP & CFO: C.S. Schade EVP & Chief Admin Officer: D.M. Wilson

Investor Contact: K. Sullivan (612-373-8875) Founded: 1992 Board Members: K. H. Caldwell, J. F. Chlebowski, Jr., L. Domicile: Delaware S. Coben, H. E. Cosgrove, D. W. Crane, S. L. Cropper, W. E. Hantke, P. W. Hobby, G. Luterman, K. A. McGinty, A. Schaumburg, H. H. Tate, Jr., T. H. Weidemeyer, W. R. Young

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NUE | NUE is in the S&P 500

Nucor Corp S&P Recommendation BUY

★★★★★

Price $37.88 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Steel

12-Mo. Target Price $44.00

Investment Style Large-Cap Blend

Summary The largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $50.72– 35.71 Trailing 12-Month EPS $0.47 Trailing 12-Month P/E 80.6 $10K Invested 5 Yrs Ago $15,985

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.49 2.97 77.3 315.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.953 3.80 $1.44 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.10 NM A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that despite Nucor's exposure to cyclical markets such as non-residential construction, the company has a solid share of the markets in which it competes, a very low ratio of total debt to assets, and a very diverse product mix.

80 60

40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

3

3

4

3

2

4

A+ WEAK

21 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for NUE has recently been changed to $44.00 from $50.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on NUE from MarketScope, see below.

➤

10/21/10 04:53 pm ET ... S&P REITERATES BUY OPINION ON SHARES OF NUCOR CORP (NUE 37.89****): NUE posts Q3 EPS of $0.07, vs. a $0.10 loss, on a 33% sales increase, and short of our $0.10 estimate, as severe gross margin compression offset higher than expected sales. To reflect a more conservative assumption for future gross margin, we cut our '10 estimate to $0.49 from $0.85 and reduce our '11 estimate to $2.97 from $3.59. We lower our 12-month target price to $44 from $50, to adjust for the downward revision to '11's estimate. Our projected P/E on our revised '11 estimate represents a premium to the P/E we apply to the company's peers. /L.Larkin

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,655 4,196 2009 2,654 2,478 2008 4,974 7,091 2007 3,769 4,168 2006 3,545 3,806 2005 3,323 3,145

3Q -3,120 7,448 4,259 3,931 3,026

4Q -2,938 4,151 4,397 3,469 3,207

Year -11,190 23,663 16,593 14,751 12,701

Earnings Per Share ($) 2010 -0.10 0.29 2009 -0.60 -0.43 2008 1.41 1.94 2007 1.26 1.14 2006 1.21 1.45 2005 1.10 1.02

E0.10 -0.10 2.31 1.29 1.68 0.93

E0.03 0.18 0.34 1.26 1.35 1.09

E0.49 -0.94 5.98 4.94 5.68 4.13

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.360 0.360 0.360 0.360

12/02 02/24 06/03 09/08

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

02/11/10 05/12/10 08/11/10 11/11/10

Dividends have been paid since 1973. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NUE

Nucor Corp Business Summary September 16, 2010 CORPORATE OVERVIEW. Nucor is the largest U.S. minimill steelmaker. In 2009, production was 14.0 million tons, and outside shipments were 12.1 million tons. CORPORATE STRATEGY. Nucor's growth strategy involves four initiatives. The first is to optimize existing operations. The second is to make strategic acquisitions. The third involves construction of new plants and development of new technologies for markets where the company believes it has a major cost advantage. The fourth initiative is to expand globally through joint ventures that leverage new technologies. MARKET PROFILE. The primary factors affecting demand for steel products are economic growth in general and growth in demand for durable goods in particular. The two largest end markets for steel products in the U.S. are autos and construction. In 2009, these two markets accounted for 28.3% of shipments in the U.S. market. Other end markets include appliances, containers,

machinery, and oil and gas. Distributors, also known as service centers, accounted for 20.6% of industry shipments in the U.S. market in 2009. Distributors are the largest single market for the steel industry in the U.S. Because distributors sell to a wide variety of OEMs, it is impossible to trace the final destination of much of the industry's shipments. Consequently, demand for steel from the auto, construction and other industries may be higher than the shipment data would suggest. In terms of production, the size of the U.S. market was 64.2 million tons in 2009, and Nucor's market share was 21.8%. In the U.S. market, consumption decreased at a compound annual rate (CAGR) of 7.9% from 2000 through 2009. Global steel production was 1.22 billion metric tons in 2009, versus 1.33 billion metric tons in 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 14.88 0.87 -0.94 -0.94 1.41 NM 51.08 29.84 NM NM

2008 16.72 7.78 5.98 6.19 1.59 27% 83.56 25.25 14 4

2007 13.18 6.38 4.94 4.94 0.63 13% 69.93 41.62 14 8

2006 15.56 7.05 5.68 5.68 0.40 7% 67.55 33.63 12 6

2005 13.80 5.43 4.13 4.09 0.30 7% 35.11 22.78 9 6

2004 10.84 4.72 3.51 3.49 0.24 7% 27.74 13.04 8 4

2003 7.45 1.36 0.20 0.15 0.20 100% 14.70 8.76 73 44

2002 7.43 1.50 0.52 0.46 0.19 37% 17.54 9.00 34 17

2001 7.07 1.29 0.36 0.33 0.17 47% 14.13 8.36 39 23

2000 6.87 1.74 0.95 NA 0.15 16% 14.11 7.38 15 8

11,190 372 566 150 -414 42.7% -294 -296

23,663 3,849 549 135 3,104 30.9% 1,831 1,895

16,593 2,980 428 51.1 2,547 30.7% 1,472 1,472

14,751 3,240 364 Nil 2,913 32.1% 1,758 1,758

12,701 2,497 375 4.20 2,127 33.2% 1,310 1,296

11,377 2,216 383 22.4 1,812 33.6% 1,121 1,114

6,266 468 364 24.6 90.8 4.51% 62.8 47.9

4,802 601 307 22.9 310 22.0% 162 143

4,139 469 289 22.0 174 35.0% 113 101

4,586 737 259 24.1 478 35.0% 311 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,242 Current Assets 5,182 Total Assets 12,572 Current Liabilities 1,227 Long Term Debt 3,080 Common Equity 7,391 Total Capital 10,670 Capital Expenditures 391 Cash Flow 273 Current Ratio 4.2 % Long Term Debt of Capitalization 28.9 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

2,355 6,397 13,874 1,854 3,086 7,929 11,523 1,019 2,380 3.5 26.8 7.7 15.5 28.1

1,576 5,073 9,826 1,582 2,250 5,113 7,651 520 1,900 3.2 29.4 8.9 16.6 29.6

786 4,675 7,885 1,450 922 4,826 5,987 338 2,122 3.2 15.4 11.9 23.4 38.6

1,838 4,072 7,139 1,256 922 4,280 5,396 331 1,685 3.2 17.1 10.3 19.7 33.9

779 3,175 6,133 1,066 924 3,456 4,553 286 1,505 3.0 20.3 9.9 21.1 38.7

350 1,621 4,492 630 904 2,342 3,423 215 427 2.6 26.4 1.0 1.4 2.7

219 1,424 4,381 592 879 2,323 3,419 244 469 2.4 25.7 3.4 4.0 5.1

462 1,374 3,759 484 460 2,201 2,946 261 402 2.8 15.6 2.7 3.0 5.2

491 1,381 3,722 558 460 2,131 2,904 415 570 2.5 15.9 6.8 8.3 14.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1915 Rexford Rd, Charlotte, NC 28211-3441. Telephone: 704-366-7000. Email: [email protected] Website: http://www.nucor.com

Chrmn, Pres & CEO: D.R. DiMicco COO: J.J. Ferriola EVP, CFO & Treas: J.D. Frias Chief Acctg Officer & Cntlr: M.D. Keller

Secy: A.R. Eagle Founded: 1940 Board Members: P. C. Browning, C. C. Daley, Jr., D. R. Domicile: Delaware DiMicco, H. B. Gantt, V. F. Haynes, J. D. Hlavacek, B. L. Employees: 20,400 Kasriel, C. J. Kearney, J. H. Walker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: NVDA | NVDA is in the S&P 500

NVIDIA Corp S&P Recommendation SELL

★★★★★

Price $11.80 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $9.00

Investment Style Large-Cap Growth

Summary This company develops and markets graphics processors for personal computers, workstations and mobile devices.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$18.96– 8.65 $0.42 28.1 $11,083

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.24 0.67 49.2 574.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.60 28 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the semiconductor industry and of demand trends for electronics goods that benefit from advanced visual displays, and revenue volatility resulting from wins and losses of deals with big accounts.

40 25 20 15

3-for-2

10

$6.773 Nil Nil 74

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

120 80 40 0 5

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ STRONG

75 3

LOWEST = 1

3

HIGHEST = 99

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Clyde Montevirgen on September 23, 2010, when the stock traded at $ 11.67. Highlights ➤

➤

➤

We see sales rising 7% in FY 11 (Jan.) and 6% in FY 12. We think long-term drivers, such as the growth of graphics-intensive applications and healthy PC demand, remain intact, and with NVDA's strong brand recognition and new product cycles, we believe it will be able to defend its share in the highest-end of the graphics markets while expanding its served available market size. But considering economic uncertainty, increasing lower-end PC sales, and share loss in notebook graphics, we see hurdles to growth over the near-term. We believe that gross margins will widen from a projected 38% in FY 11 to 45% in FY 12 as sales of higher-end graphics chips balance pricing pressure and anticipated inventory writedowns. We expect variable expenses to rise as sales improve, but we believe R&D expenses, as a percentage of sales, will moderate following heavy investments in new products over the last couple of years. All told, we see operating margins widening from 4% in FY 11 to 12% in FY 12. We project a 17% effective tax rate and include around $0.20 per share in stock based compensation.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our sell recommendation reflects our view of overextended multiples and relatively weak fundamentals. We believe that the softening PC demand environment and anticipated market share loss in notebooks will contribute to below-industry sales growth in coming quarters. Although we see margins widening due to an improving sales mix, we still expect profitability and return on equity to remain below their historical averages. Based on these factors, we think NVDA's relative multiples should be below the historical average and closer to the industry average, which is reflected in our valuation. Risks to our opinion and target price include better than anticipated desktop sales, faster than expected inventory digestion, and market share gains. Our 12-month target price of $9 is based on our price-to-earnings (P/E) analysis. We apply a multiple of about 13X, below the historical average and around the industry average to account for its relative profitability, growth, and returns, to our FY 12 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,002 811.2 2010 664.2 776.5 2009 1,153 892.7 2008 844.3 935.3 2007 681.8 687.5 2006 583.9 574.8

3Q -903.2 897.7 1,116 820.6 583.4

4Q -982.5 481.1 1,203 878.9 633.6

Year -3,326 3,425 4,098 3,069 2,376

Earnings Per Share ($) 2011 0.23 -0.25 2010 -0.37 -0.19 2009 0.30 -0.22 2008 0.22 -0.22 2007 0.15 0.15 2006 0.12 0.14

E0.11 0.19 0.11 0.38 0.18 0.12

E0.14 0.23 -0.27 0.42 0.27 0.18

E0.24 -0.12 -0.05 1.32 0.77 0.55

Fiscal year ended Jan. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: NVDA

NVIDIA Corp Business Summary September 23, 2010 CORPORATE OVERVIEW. NVIDIA Corp. designs, develops and markets highperformance graphics processing units (GPUs), media and communications processors (MCPs), handheld GPUs, and related software for PCs and digital entertainment platforms, ranging from professional workstations to video game consoles to handheld electronic devices. The company's products are designed to generate realistic, interactive graphics on consumer and professional computing devices. It aims to be the leading supplier of performance GPUs, MCPs and handheld GPUs. NVDA has four major product line operating segments: the graphics processing units business, the professional solutions business (PSB), the media and communications processor (MCP) business, and the consumer product business (CPB). Interactive 3D graphics displays are an integral part of many computing applications for workstations, consumer and commercial desktop and laptop PCs, personal digital assistants, cellular phones, and gaming consoles. NVDA's products are designed into products offered by nearly all leading PC OEMs.

The company supplied graphics chips for Microsoft's Xbox video game console, but lost to rival AMD/ATI Technologies for the GPU for the nextgeneration Xbox. However, the company presently supplies GPU products for Sony's PlayStation 3 video game console. CORPORATE STRATEGY. NVDA's goal is to become the leading supplier of performance GPUs, MCPs, and handheld GPUs and application processors. The elements behind the strategy include: building award-winning and architecturally compatible graphics and media products for various platforms; targeting leading OEMs, ODMs, and system builders; sustaining technology and product leadership in graphics and media products; increasing market share; creating synergy by combining expertise in graphics and media; and using its intellectual property and resources to enter into license and development contracts.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.87 0.23 -0.12 -0.25 NA Nil 2009 18.95 7.08 NM NM

2009 3.49 0.28 -0.05 -0.05 Nil Nil 2008 34.25 5.75 NM NM

2008 4.35 1.54 1.32 1.31 Nil Nil 2007 39.67 18.69 30 14

2007 3.32 0.95 0.77 0.79 Nil Nil 2006 25.97 11.45 34 15

2006 2.52 0.73 0.55 0.42 Nil Nil 2005 12.83 6.82 23 12

2005 2.08 0.38 0.19 0.03 Nil Nil 2004 9.12 3.10 48 16

2004 1.83 0.30 0.14 -0.00 Nil Nil 2003 9.25 3.11 65 22

2003 1.81 0.29 0.18 -0.22 Nil Nil 2002 24.22 2.40 NM NM

2002 1.52 0.43 0.34 0.10 Nil Nil 2001 23.42 4.71 68 14

2001 0.93 0.24 0.21 0.12 Nil Nil 2000 14.67 2.92 71 14

3,326 29.1 197 3.32 -82.3 17.4% -68.0 -140

3,425 334 185 0.41 -43.0 NM -30.0 -30.4

4,098 976 136 0.05 901 11.5% 798 798

3,069 593 108 0.02 494 9.37% 448 460

2,376 452 98.0 0.07 360 16.0% 303 230

2,010 216 103 0.16 125 20.0% 100 14.6

1,823 172 82.0 12.0 86.7 14.1% 74.4 -1.44

1,909 202 58.2 Nil 151 39.7% 90.8 -104

1,369 299 43.5 16.2 253 30.0% 177 49.4

735 146 15.7 4.85 147 31.9% 100 54.7

Balance Sheet & Other Financial Data (Million $) Cash 1,728 Current Assets 2,481 Total Assets 3,586 Current Liabilities 784 Long Term Debt NA Common Equity 2,665 Total Capital 2,665 Capital Expenditures 77.6 Cash Flow 129 Current Ratio 3.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,255 2,168 3,351 779 25.6 2,395 2,420 408 155 2.8 1.1 NM NM NM

1,809 2,889 3,748 967 Nil 2,618 2,705 188 933 3.0 Nil 19.5 24.8 34.5

1,118 2,032 2,675 639 Nil 2,007 2,007 145 556 3.2 Nil 14.6 19.4 25.6

950 1,549 1,915 439 Nil 1,458 1,466 79.6 401 3.5 Nil 12.7 17.1 23.0

670 1,305 1,629 421 Nil 1,178 1,199 67.3 203 3.1 Nil 5.0 6.6 9.0

604 1,053 1,399 334 0.86 1,051 1,061 128 156 3.2 0.1 4.1 4.9 7.5

1,028 1,352 1,617 379 305 933 1,238 63.1 149 3.6 24.6 4.8 5.8 10.7

791 1,234 1,503 433 306 764 1,070 97.0 220 2.8 28.6 12.9 14.0 30.2

674 930 1,017 110 300 406 706 36.3 114 8.4 42.4 13.4 16.1 36.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2701 San Tomas Expressway, Santa Clara, CA 95050. Telephone: 408-486-2000. Email: [email protected] Website: http://www.nvidia.com

Pres & CEO: J. Huang COO: D. Shoquist EVP, CFO & Chief Acctg Officer: D.L. White EVP, Secy & General Counsel: D.M. Shannon

CSO: B. Dally Founded: 1993 Investor Contact: M. Hara (408-486-2511) Domicile: Delaware Board Members: T. Coxe, J. C. Gaither, J. Huang, H. C. Employees: 5,706 Jones, Jr., W. J. Miller, M. L. Perry, B. Seawell, M. A. Stevens

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NYX | NYX is in the S&P 500

NYSE Euronext S&P Recommendation HOLD

★★★★★

Price $30.29 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized Finance

12-Mo. Target Price $34.00

Investment Style Large-Cap Growth

Summary This holding company operates six cash equities exchanges and six derivatives exchanges in six countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.82– 22.30 Trailing 12-Month EPS $2.34 Trailing 12-Month P/E 12.9 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.49 2.59 12.2 261.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.65 11 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the potential volatility in results due to changes in equity and equity options trading volumes, the impact of current and future regulatory changes, and the integration of a number of recent acquisitions.

100 80 60 40

20

Quantitative Evaluations S&P Quality Ranking

Vol. 74

Mil.

D

30 20 10 0 5

$7.906 3.96 $1.20 67

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+

MODERATE 56

4

4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Rafay Khalid, CFA on August 17, 2010, when the stock traded at $ 29.29. Highlights ➤

➤

We project that revenues will increase 3.7% in 2010. Our outlook reflects our expectation for market share stabilization in the cash equities business in 2010, as the company is making significant progress reducing order execution times. In addition, we believe NYX's new initiatives will continue to generate revenue growth in 2010 and 2011. As a result, we forecast revenue growth of 3.0% in 2011. In 2010, we foresee the company's cost-cutting program helping to reduce fixed expenses, which exclude one-time items, liquidity payments, and routing fees. This should be partially offset by our forecast for an increase in other line items, such as liquidity payments and technology costs related to the new data center and other initiatives. We expect the company to keep a tight control over expenses in 2011. As a result, we see adjusted operating margins of 27.0% in 2010 and 27.6% in 2011, versus 21.4% in 2009.

Investment Rationale/Risk ➤

➤

Revenue/Earnings Data

2010

We believe NYX is taking the right steps to position itself for what we view as a globally competitive exchange environment, including initiatives such as its move to UTP-Direct, a universal trading platform; block trading in the U.S. and Europe; and the shift to the designated market maker model from the specialist model on the NYSE trading floor. We believe incentives to attract liquidity to NYX's exchanges may benefit it in the long term, once it has increased market share. However, we are concerned that NYX is still in a transition phase as more than 50% of the company's transaction volume still comes from lower-margin cash trading. We also see increased uncertainty from proposed government regulations, including stopping deposit-taking banks from proprietary trading. Risks to our recommendation and target price include execution risk related to growth initiatives, and lower than expected trading volumes.

Revenue (Million $) 1Q 2Q 2010 1,020 1,148 2009 1,112 1,125 2008 1,191 1,112 2007 702.0 1,078 2006 478.9 659.5 2005 282.8 262.5

3Q -1,048 1,159 1,198 602.9 301.9

4Q -1,014 1,177 1,180 658.5 301.9

Year -4,299 4,474 3,602 2,376 1,667

Earnings Per Share ($) 2010 0.50 0.71 2009 0.40 -0.70 2008 0.87 0.73 2007 0.43 0.62 2006 0.24 0.39 2005 ---

E0.54 0.48 0.64 0.97 0.43 0.01

E0.76 0.66 -5.08 0.59 0.29 -0.17

E2.49 0.84 -2.81 2.70 1.36 0.58

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.300 0.300 0.300 0.300

05/01 12/03 04/29 07/30

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 2007. Source: Company reports. ➤

Our operating EPS estimates are $2.49 for 2010 and $2.59 for 2011, excluding one-time items. This compares to operating EPS of $2.04 in 2009. Our estimates assume a tax rate of 28% in 2010 and 2011.

➤

Our 12-month target price of $34 is based on a historical average P/E ratio of 13.2X our 2011 EPS forecast.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: NYX

NYSE Euronext Business Summary August 17, 2010 CORPORATE OVERVIEW. NYSE Euronext (NYX) is a holding company created by the combination of NYSE Group and Euronext on April 4, 2007. NYX operates the world's largest and most liquid exchange group and offers a diverse array of financial products and services. The company, which brings together six cash equities exchanges in five countries and six derivatives exchanges in six countries, offers listings, trading in cash equities, equity and interest rate derivatives, bonds and the distribution of market data. As of December 31, 2009, NYX had 3,981 combined listed companies. In addition, there were 326 new listings in 2009, and IPOs raised $87 billion on NYX's markets. NYX generates revenue primarily from transactions, company listing fees, market data, regulatory fees, and exchange licenses. The company also records activity assessment revenue, which is a pass through netted against section 31 fee expense. We have excluded this revenue line item when examining NYX's revenue from operations. Following the combination of the NYSE with Archipelago (now NYSE Arca), transaction fees have become the largest revenue driver for NYX (69% of total revenue in 2009). Transaction revenue is generated from fees paid for trading on NYX's exchanges, and benefits from higher trading volumes. Listing fees (9.1%) include initial fees charged for

companies listing on one of NYX's exchanges and an ongoing annual listing fee. Market data is NYX's third largest revenue contributor (9.0%) and includes real time information related to price, transaction or order data of all instruments traded on the cash and derivatives markets on NYX's exchanges. We view transactional revenue as the key growth driver for NYX moving forward. CORPORATE STRATEGY. We believe NYX is in the middle of a transformational phase as it fully integrates the NYSE Arca assets with the NYSE, transitions the NYSE from a floor-based trading system to a hybrid floor/electronic model, completes its merger with Euronext, and readies for significant regulatory and structural changes in U.S. and European equity and equity options trading. We expect the number and scope of ongoing projects and regulatory changes to likely make for uneven financial performance and difficult historical and peer comparisons over the coming quarters.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.99 0.84 0.83 1.20 143% 31.93 14.52 38 17

2008 NM -1.86 -2.81 0.92 1.15 NM 87.70 16.33 NM NM

2007 NM 3.76 2.70 2.55 0.75 28% 109.50 64.26 41 24

2006 3.51 2.27 1.36 1.28 Nil Nil 112.00 48.62 82 36

2005 NA 1.50 0.58 0.35 NA NA NA NA NA NA

2004 NA NA NA 0.31 NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,299 1,104 301 122 205 NM 219 215

4,474 1,403 253 150 -645 NM -745 244

4,158 1,228 252 129 921 27.5% 643 609

2,376 424 136 Nil 328 36.7% 205 193

1,667 3.18 143 Nil 176 47.6% 90.0 54.1

1,044 130 95.7 NA NA NA NA 42.3

1,034 115 67.6 NA 87.3 41.7% 49.6 NA

1,018 56.6 61.9 NA 42.1 27.8% 28.1 NA

1,035 53.3 60.6 NA 52.8 33.6% 31.8 NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 490 Current Assets 1,520 Total Assets 14,358 Current Liabilities 2,149 Long Term Debt 2,166 Common Equity 6,935 Total Capital 9,101 Capital Expenditures 497 Cash Flow 520 Current Ratio 0.7 % Long Term Debt of Capitalization 23.8 % Net Income of Revenue 5.1 % Return on Assets 1.6 % Return on Equity 3.3

1,013 2,026 13,948 2,582 1,787 6,556 8,770 376 -492 0.8 21.4 NM NM NM

973 2,278 16,618 3,462 522 9,384 12,469 182 895 0.7 4.2 15.5 6.4 11.6

298 1,443 3,466 832 Nil 1,669 1,934 97.8 341 1.7 Nil 8.6 7.2 16.6

328 1,204 3,154 823 Nil 1,366 1,646 NA 233 1.5 Nil 5.4 NA NA

930 1,245 NA 487 NA NA 801 84.6 126 2.6 Nil 2.9 1.6 3.5

880 1,223 1,777 416 NA 952 983 68.5 117 2.9 Nil 4.8 2.8 5.4

963 1,156 1,757 340 NA 896 921 113 89.9 3.4 Nil 2.8 1.6 3.2

963 1,168 1,730 390 NA 882 910 89.0 92.4 3.0 Nil 3.1 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 11 Wall Street, New York, NY 10005. Telephone: 212-656-3000. Website: http://www.nyse.com Chrmn: J.M. Hessels

Pres: D. Cerutti Vice Chrmn: M.N. Carter CEO: D.L. Niederauer COO: L. Leibowitz

Investor Contact: S.C. Davidson (212-656-2183) Board Members: A. Bergen, E. L. Brown, M. N. Carter, P. M. Cloherty, G. Cox, S. M. Hefes, J. M. Hessels, D. M. McFarland, J. J. McNulty, D. L. Niederauer, R. S. Salgado, R. G. Scott, J. Tai, J. Theodore, R. W. Van Tets, B. Williamson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2006 Domicile: Delaware Employees: 3,367

Stock Report | October 23, 2010 | NYS Symbol: OXY | OXY is in the S&P 500

Occidental Petroleum Corp

★★★★★

S&P Recommendation BUY

Price $79.58 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Integrated Oil & Gas

12-Mo. Target Price $96.00

Investment Style Large-Cap Blend

Summary As one of the largest oil and gas companies in the U.S., OXY has global exploration and production operations. Its subsidiary, OxyChem, is one of the largest U.S. merchant marketers of chlorine and caustic soda.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $90.99– 72.13 Trailing 12-Month EPS $5.23 Trailing 12-Month P/E 15.2 $10K Invested 5 Yrs Ago $24,436

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.62 7.24 14.2 812.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$64.638 1.91 $1.52 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 37 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of OXY's strong business profile and modest financial risk profile. The company has a large, geographically diverse reserve base, predictable production, and substantial liquidity. However, we believe its strengths are limited by participation in volatile, competitive, and capital-intensive businesses, and a penchant for debt-financed acquisitions.

100 80

50 40 Vol.

Quantitative Evaluations

Mil. 45 30 15 0 5

S&P Quality Ranking D 3

3

4

4

3

3

C

B-

AB

B+

A-

A

Relative Strength Rank

1

MODERATE

33

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

Third quarter oil and gas production rose 6.5% to 751,000 boe per day, in line with our estimate, reflecting contributions from the Middle East and North Africa. OXY is shifting towards more oil production and is reevaluating 2011 U.S. natural gas drilling plans due to low U.S. natural gas prices. Still, we look for overall volumes to rise about 19% in 2010, averaging 767,000 boe per day, driven by fields in the U.S. (California and Permian Basin) and international regions, and about 9% annual growth between 2010 and 2014. Oil and gas cash production costs rose to $10.25 per boe in the 2010 first nine months, up from $9.37 for the full year 2009, on the expensing of injected carbon dioxide beginning in 2010; we look for fourth quarter levels to be near those of the third quarter. Chemical earnings were hurt by narrowed caustic soda margins in the 2010 first half, but we look for modest improvement in the second half of the year. We expect after-tax operating earnings to rise about 48% in 2010 and 29% in 2011, on expectations of strong production growth and widened margins on improved demand.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Tina J. Vital on October 20, 2010, when the stock traded at $ 81.20. Highlights

A+

4

With an oil focus and no refining, a solid pipeline of development projects, and a strong balance sheet, we expect OXY to benefit in the long term based on our forecast for higher oil prices. Oil and gas operations are the core of OXY's business, driven by strong prospects in long-lived reserves in California (with virtually no royalties) and the Permian Basin, with potential contributions from international developments in Bahrain, Oman, Libya, Argentina, and Iraq. OXY projects U.S. oil and gas production growth of about 10.9% per annum between 2010 and 2014, and international growth of 7.4% over the same period. Risks to our recommendation and target price include negative changes in economic, industry, and operating conditions, including geopolitical risk and difficulty replacing reserves. Blending our discounted cash flow valuation (which is $97 per share, assuming a WACC of 9.6% and terminal growth of 3%) and relative valuations, our 12-month target price is $96 per share, which represents an expected enterprise value of 5.6X our 2011 EBITDA estimate, a premium to the peer average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,771 4,761 2009 3,073 3,687 2008 6,020 7,116 2007 4,015 4,411 2006 4,396 4,599 2005 3,303 3,518

3Q 4,896 4,104 7,060 4,841 4,522 4,057

4Q -4,539 4,021 5,517 4,144 4,330

Year -15,403 24,217 18,784 17,661 15,208

Earnings Per Share ($) 2010 1.32 1.31 2009 0.45 0.84 2008 2.20 2.79 2007 1.38 1.36 2006 1.34 1.39 2005 1.04 1.89

1.47 1.14 2.78 1.57 1.35 2.12

E1.52 1.16 0.55 1.74 1.08 1.40

E5.62 3.59 8.33 6.05 5.15 6.45

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.330 0.380 0.380 0.380

02/11 05/06 07/15 10/14

03/08 06/08 09/08 12/08

03/10 06/10 09/10 12/10

04/15/10 07/15/10 10/15/10 01/15/11

Dividends have been paid since 1975. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: OXY

Occidental Petroleum Corp Business Summary October 20, 2010 CORPORATE OVERVIEW. One of the largest oil and gas companies in the U.S., Occidental Petroleum Corp. (OXY) engages in oil and gas exploration and production in three main regions: the U.S. (61% of 2009 net sales), the Middle East/North Africa (26%), and Latin America (10%). OxyChem, a wholly owned subsidiary, manufactures and markets chlor-alkali products and vinyls, and is one of the largest merchant marketers of chlorine and caustic soda in the U.S. OXY's businesses operate in three segments: Oil and Gas (73% of 2009 net sales; 88% of 2009 earnings), Chemicals (20%; 7%), and Midstream, Marketing and Other (7%; 5%). The Oil and Gas segment explores for, develops, produces and markets crude oil and natural gas. Oil and gas sales volumes rose 6.6%, to 643,000 boe per day (76% liquids), in 2009. Proved oil and gas reserves rose 8.3%, to 3.2 billion barrels of oil equivalent (boe; 77% developed, 73% liquids) at year-end 2009. Using data from John S. Herold, an industry research firm, we estimate OXY's three-year (2006-08) proved acquisition costs at $10.74 per boe, below the peer average; three-year finding and development costs at $27.56 per boe, above peers; three-year reserve replacement costs at $18.35, below peers; and three-year reserve replacement at 168%, below the peer average. We es-

timate OXY's 2009 overall reserve replacement at 206% (organic reserve replacement at 138%). OxyChem manufactures and markets basic chemicals, vinyls, and performance chemicals, focused on the chlorovinyls chain beginning with chlorine. As of year-end 2009, the company owned and operated chemical plants at 22 domestic sites in the U.S., and at three international sites in Brazil, Canada and Chile. In 2009, OxyChem acquired Dow Chemical Co.'s calcium chloride operations, the world's largest. MARKET PROFILE. OXY's oil and gas operations are focused on large, longlived "legacy" oil and gas assets, such as those in Elk Hills in California (OXY is the number one natural gas producer in California, and the number two oil producer, as of year-end 2009) and the Permian Basin (OXY is the largest oil producer in the Permian Basin, as well as in the state of Texas, as of year-end 2009).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 35.82 7.43 3.59 3.63 1.31 36% 85.20 47.50 24 13

2008 33.69 12.31 8.33 8.28 1.21 15% 100.04 39.93 12 5

2007 27.63 8.86 6.05 5.19 0.94 16% 79.25 42.06 13 7

2006 22.84 7.71 5.15 4.97 NA NA NA NA NA NA

2005 18.69 8.26 6.45 5.78 0.65 10% 44.90 27.09 7 4

2004 13.30 4.93 3.25 3.26 0.41 13% 30.38 20.98 9 6

2003 10.25 3.56 2.06 2.03 0.52 25% 21.49 13.59 10 7

2002 8.35 2.87 1.54 1.28 0.50 33% 15.38 11.49 10 7

2001 7.53 2.88 1.59 1.70 0.50 32% 15.55 10.94 10 7

2000 6.45 3.35 2.13 NA 0.50 23% 12.78 7.88 6 4

15,403 NA 3,117 109 4,845 39.6% 2,927 2,954

24,217 14,652 3,267 26.0 11,468 40.4% 6,839 6,803

18,784 10,044 2,356 396 8,660 40.5% 5,078 4,360

17,661 9,664 2,042 291 8,012 43.3% 4,435 4,280

15,208 7,860 1,485 293 7,365 27.4% 5,272 4,729

11,368 5,573 1,303 260 4,389 38.9% 2,606 2,607

9,326 4,281 1,177 332 2,884 42.5% 1,595 1,568

7,338 3,119 1,012 295 1,662 25.4% 1,163 963

13,985 3,638 971 392 1,892 29.8% 1,186 1,273

13,574 3,826 901 518 3,196 45.1% 1,569 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,230 Current Assets 8,086 Total Assets 44,229 Current Liabilities 6,092 Long Term Debt 2,557 Common Equity 29,081 Total Capital 31,955 Capital Expenditures 5,363 Cash Flow 6,044 Current Ratio 1.3 % Long Term Debt of Capitalization Nil % Return on Assets 6.8 % Return on Equity NA

1,777 7,172 41,537 6,134 2,073 27,300 32,058 9,365 10,106 1.2 6.5 17.5 27.3

1,964 8,595 36,519 6,266 1,742 22,823 26,923 3,497 7,434 1.4 6.5 14.7 24.2

1,339 6,006 32,355 4,724 2,619 19,184 24,470 3,005 6,477 1.3 10.7 15.2 25.9

2,189 6,574 26,108 4,280 2,873 15,032 19,207 2,423 6,757 1.5 15.0 22.2 41.2

1,449 4,431 21,391 3,423 3,345 10,550 15,470 1,843 3,909 1.3 21.6 13.2 28.2

683 2,474 18,168 2,526 3,993 7,929 13,235 1,601 2,772 1.0 30.2 9.2 22.4

146 1,873 16,548 2,235 4,452 6,318 12,085 1,236 2,175 0.8 36.8 6.8 19.5

199 1,483 17,850 1,890 4,528 5,634 13,489 1,401 2,157 0.8 33.6 6.4 22.8

97.0 2,067 19,414 2,740 5,658 4,774 13,977 952 2,470 0.8 40.5 9.4 37.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 10889 Wilshire Boulevard, Los Angeles, CA 90024-4201. Telephone: 310-208-8800. Email: [email protected] Website: http://www.oxy.com

Chrmn & CEO: R.R. Irani Pres & COO: S.I. Chazen EVP & CFO: J.M. Lienert EVP, Secy & General Counsel: D.P. de Brier

Chief Acctg Officer & Cntlr: R. Pineci Investor Contact: C.G. Stavros (212-603-8184) Board Members: S. Abraham, H. I. Atkins, J. S. Chalsty, S. I. Chazen, E. P. Djerejian, J. E. Feick, C. M. Gutierrez, R. R. Irani, I. W. Maloney, A. B. Poladian, R. Segovia, A. R. Syriani, R. Tomich, W. L. Weisman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1920 Domicile: Delaware Employees: 10,100

Stock Report | October 25, 2010 | NYS Symbol: ODP | ODP is in the S&P 500

Office Depot Inc S&P Recommendation SELL

★★★★★

Price $4.79 (as of Oct 25, 2010)

GICS Sector Consumer Discretionary Sub-Industry Specialty Stores

12-Mo. Target Price $4.00

Investment Style Large-Cap Growth

Summary Office Depot is a leading operator of office products superstores and mail order catalogs.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.19– 3.36 $-1.78 NM $1,825

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.05 -0.02 NM 276.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.322 Nil Nil 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

3.29 NM B

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the office supply retailing industry, which is highly dependent on consumer and business spending, and the company's considerable exposure to international markets.

40

8

2

Quantitative Evaluations 1/2

S&P Quality Ranking

Vol. Mil.

118

104

D

45 30 15 0

C

B-

C B

B+

A-

Relative Strength Rank

A

A+

MODERATE 64

4

5

3

4

LOWEST = 1

3

HIGHEST = 99

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Souers on July 28, 2010, when the stock traded at $ 4.40. Highlights ➤

➤

➤

We expect sales to fall 3.0% this year, following a 16% decrease in 2009. We forecast a slight decline in same-store sales following a 14% drop in 2009, as spending conditions for consumers and small businesses remain challenging. We look for a modest decrease in sales in the U.S. contract business on weak business spending and our belief that ODP has been more selective in signing accounts in an attempt to increase profitability. We project a modest widening of gross margins in 2010, reflecting inventory optimization, a reduction in promotional activity and increased private label sales, slightly offset by a product mix shift to lower-margin goods. We expect ODP's operating margins to widen slightly on gross margin improvement and cost control, partially offset by expense de-leveraging from weak same-store sales. We estimate a net loss of $0.10 per share in 2010, a modest improvement from the $0.26 loss per share the company incurred in 2009, excluding $2.04 in charges for deferred tax asset valuation and writedowns related to store closures and other restructuring charges. We see a net loss of $0.02 in 2011.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We think the loss of market share and macrorelated challenges have created an overhang of uncertainty. While we believe the company has sufficient liquidity to weather a multi-year economic downturn given current credit availability and the recent cash infusion by private equity firm BC Partners ($350 million of convertible preferred stock), we do not foresee any positive catalyst for the shares. We are also concerned that the retail market for office supply stores has reached saturation levels, providing little opportunity for future growth. We think the significant share price increase from the lows set in early 2009 has been overdone, given the multitude of risks we foresee.

➤

Risks to our recommendation and target price include a greater-than-expected increase in capital spending by businesses, solid samestore sales gains in ODP's North American Retail division, and favorable currency fluctuations.

➤

Our 12-month target price of $4.00 is based on our DCF analysis, which assumes a weighted average cost of capital of 9.7% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 3,072 2,699 2009 3,225 2,824 2008 3,962 3,605 2007 4,094 3,632 2006 3,816 3,495 2005 3,703 3,364

3Q -3,029 3,658 3,935 3,857 3,493

4Q -3,066 3,271 3,867 3,843 3,719

Year -12,144 14,496 15,528 15,011 14,279

Earnings Per Share ($) 2010 0.07 -0.07 2009 -0.20 -0.31 2008 0.25 -0.01 2007 0.55 0.38 2006 0.43 0.41 2005 0.37 0.31

E0.03 -1.51 -0.02 0.43 0.47 -0.15

E-0.08 -0.28 -5.64 0.07 0.48 0.34

E-0.05 -2.30 -5.42 1.43 1.79 0.87

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 25, 2010 | NYS Symbol: ODP

Office Depot Inc Business Summary July 28, 2010 CORPORATE OVERVIEW. Office Depot is a global supplier of office products and services. It generated net sales of $12.1 billion in 2009 from customers and businesses of all sizes through three business segments: the North American Retail division (42% of revenues), the North American Business Solutions division (29%), and the International division (29%). Sales by product group were as follows: supplies 66%; technology 22%; and furniture and other 12%. At January 23, 2010, ODP's North American Retail division operated 1,130 office supply stores in 46 states, the District of Columbia, Puerto Rico and Canada. North American Retail sells a broad assortment of merchandise, including brand name and private brand office supplies, business machines and computers, computer software, office furniture, and other business-related products through its chain of office supply stores. Most stores also contain a copy and print center that offers printing, reproduction, mailing, shipping, and other services. Also, ODP maintains the national availability of a PC support and network installation service that provides customers with in-home, in-office and in-store support for their technology needs. ODP plans to add approximately 20 new retail stores in North America in 2010, after closing 115 net underperforming stores in 2009 (as part of a strategic review initiated during the

fourth quarter of 2008). ODP's North American Business Solutions division provides office supply products and services directly to businesses, selling branded and private label products by means of a dedicated sales force, through catalogs, and electronically through its Internet sites. Its direct business is tailored to serve small- to medium-sized customers, while its contract business serves the office supply needs of predominantly medium-sized to Fortune 100 customers. ODP's International division served customers in 51 countries throughout North America, Europe, Asia and Latin America through 137 wholly owned or majority-owned stores and 195 additional stores operating under licensing and joint venture agreements as of December 31, 2009. It also participates in 100 franchised stores in South Korea, Thailand and the Middle East.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.71 -1.48 -2.30 -2.22 Nil Nil 7.84 0.59 NM NM

2008 4.78 -4.49 -5.42 -0.95 Nil Nil 15.54 1.45 NM NM

2007 6.20 2.46 1.43 1.42 Nil Nil 39.66 13.08 28 9

2006 5.11 2.76 1.79 1.74 Nil Nil 46.52 30.64 26 17

2005 6.26 1.72 0.87 0.86 Nil Nil 31.76 16.50 37 19

2004 6.96 1.92 1.06 1.03 Nil Nil 19.50 13.87 18 13

2003 5.77 1.75 0.96 0.91 Nil Nil 18.50 10.28 19 11

2002 6.61 1.59 0.98 0.92 Nil Nil 21.96 10.60 22 11

2001 5.28 1.27 0.66 0.58 Nil Nil 18.70 7.13 28 11

2000 4.66 0.86 0.16 NA Nil Nil 14.88 5.88 93 37

12,144 212 224 65.6 -311 NM -596 -607

14,496 266 254 68.3 -1,578 NM -1,479 -260

15,528 797 282 63.1 459 13.7% 396 392

15,011 998 279 40.8 727 29.0% 516 500

14,279 750 268 32.4 362 24.3% 274 270

13,565 799 269 61.1 461 27.3% 336 327

12,359 719 248 54.8 445 32.1% 302 286

11,357 707 201 46.2 479 35.0% 311 292

11,154 562 199 44.3 314 36.0% 201 178

11,570 433 206 33.9 92.5 46.6% 49.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 660 Current Assets 3,206 Total Assets 4,890 Current Liabilities 2,428 Long Term Debt 663 Common Equity 786 Total Capital 1,807 Capital Expenditures 131 Cash Flow -403 Current Ratio 1.3 % Long Term Debt of Capitalization 36.7 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

156 3,122 5,268 2,626 689 1,363 1,770 369 -1,225 1.2 38.9 NM NM NM

223 3,716 7,257 2,973 607 3,084 3,707 461 678 1.3 16.4 2.6 5.7 13.9

174 3,455 6,570 2,970 571 2,610 3,197 343 795 1.2 17.9 3.4 8.1 19.3

703 3,530 6,099 2,469 569 2,739 3,308 261 542 1.4 17.2 1.9 4.2 9.2

794 3,916 6,767 2,618 584 3,223 3,957 391 605 1.5 14.8 2.5 5.2 11.2

791 3,577 6,145 2,277 829 2,794 3,868 212 550 1.6 21.4 2.4 5.5 11.9

877 3,210 4,766 1,992 412 2,297 2,774 202 512 1.6 14.9 2.7 6.8 15.0

563 2,806 4,332 2,102 318 1,848 2,230 207 400 1.3 14.2 1.8 4.7 11.7

151 2,699 4,196 1,908 598 1,601 2,200 268 255 1.4 27.2 0.4 1.2 2.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6600 N Military Trl, Boca Raton, FL 33496-2434. Telephone: 561-438-4800. Email: [email protected] Website: http://www.officedepot.com

Chrmn & CEO: S. Odland EVP & CFO: M.D. Newman EVP, Secy & General Counsel: E.D. Garcia SVP, Chief Acctg Officer & Cntlr: M.E. Hutchens

SVP & CIO: T. Toews Founded: 1986 Investor Contact: B. Turcotte (561-438-3657) Domicile: Delaware Board Members: L. A. Ault, III, N. R. Austrian, J. Employees: 41,000 Bateman, D. W. Bernauer, T. J. Colligan, M. J. Evans, D. I. Fuente, B. J. Gaines, M. M. Hart, W. Hedrick, K. Mason, S. Odland, J. S. Rubin, R. Svider

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: OMC | OMC is in the S&P 500

Omnicom Group Inc. S&P Recommendation BUY

★★★★★

Price $43.23 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Advertising

12-Mo. Target Price $47.00

Investment Style Large-Cap Growth

Summary This company owns the DDB Worldwide, BBDO Worldwide and TBWA Worldwide advertising agency networks; and more than 100 marketing and specialty services firms.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.08– 33.50 Trailing 12-Month EPS $2.56 Trailing 12-Month P/E 16.9 $10K Invested 5 Yrs Ago $11,943

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.71 3.06 16.0 301.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.12 13 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment primarily reflects a highly competitive advertising industry, partly offset by OMC's diversified geographic and product revenue sources coupled with its position as the world's largest advertising agency by revenue, and our view of its strong track record of EPS and free cash flow growth.

60

40 30

$13.028 1.85 $0.80 86

2-for-1

20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

24 16 8 0 5

D 4

3

2

1

2

4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

➤

The STARS recommendation for OMC has recently been changed to 4 (buy) from 3 (hold) and the 12-month target price has recently been changed to $47.00 from $41.00. The Highlights section of this Stock Report will be updated accordingly.

A+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

83

1

2007

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on OMC from MarketScope, see below.

➤

10/19/10 09:33 am ET ... S&P UPGRADES OPINION ON SHARES OF OMNICOM GROUP TO BUY FROM HOLD (OMC 40.75****): OMC reports Q3 EPS of $0.57, vs. $0.53, $0.01 below our expectations. Results benefitted as revenue growth of 5.5% was stronger than we estimated on strength in Europe, despite amortization expenses higher than we projected. We believe the company is well positioned to deliver margin expansion in 2011 on improving demand and easing comparisons. Although keeping our 2010 EPS estimate of $2.71, we are raising our 2011 EPS forecast by $0.22 to $3.06 on improving environment. As a result, we are raising our 12-month target price by $8 to $41, based on our EV/EBITDA analyses. /J.Agnese

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,920 3,041 2009 2,747 2,871 2008 3,195 3,477 2007 2,841 3,126 2006 2,563 2,823 2005 2,403 2,616

3Q -2,838 3,316 3,101 2,774 2,523

4Q -3,266 3,371 3,626 3,216 2,939

Year -11,721 13,360 12,694 11,377 10,481

Earnings Per Share ($) 2010 0.53 0.79 2009 0.53 0.75 2008 0.65 0.96 2007 0.55 0.84 2006 0.47 0.71 2005 0.41 0.62

E0.58 0.53 0.69 0.62 0.52 0.45

E0.81 0.73 0.88 0.96 0.81 0.71

E2.71 2.53 3.17 2.95 2.50 2.18

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.200 0.200 0.200

12/04 02/10 05/25 07/21

12/14 03/03 06/11 09/20

12/16 03/05 06/15 09/22

01/04/10 04/02/10 07/12/10 10/06/10

Dividends have been paid since 1986. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: OMC

Omnicom Group Inc. Business Summary July 21, 2010 CORPORATE OVERVIEW. Omnicom Group, a global advertising and marketing services company, is one of the world's largest corporate communications companies. OMC is comprised of more than 1,500 subsidiary agencies, operating in over 100 countries. It operates as three independent global agency networks: the BBDO Worldwide Network, the DDB Worldwide Network, and the TBWA Worldwide Network. Each agency network has its own clients, and the networks compete with each other in the same markets. OMC's companies provide an extensive range of services, which it groups into four disciplines: traditional media advertising (44% of 2009 revenues), customer relationship management (37%), public relations (9.2%), and specialty communications (9.1%). In 2009, the company's 10 and 100 largest clients accounted for approximately 17.8% and 50.4% of consolidated revenue, respectively. The largest client accounted for about 3.1% of 2009 revenues; no other single client accounted for more than 2.5% of revenues. Operations cover the major regions of North America, the U.K., Europe, the Middle East, Africa, Latin America, the Far East and Australia. In 2009, 53% of revenues were derived from the U.S., 22% from euro-denominated markets, 8.9% from the U.K., and 17% from other international markets.

The services in these categories include but are not limited to: advertising, brand consultancy, crisis communications, database management, digital and interactive marketing, direct marketing, directory advertising, experiential marketing, field marketing, health care communications, in-store design, investor relations, marketing research, media planning and buying, organizational communications, product placement, promotional marketing, public relations, recruitment communications, reputation consulting, retail marketing, and sports and event marketing. In our opinion, the breadth, depth and diversity of OMC's business reduces exposure to any single industry, and to an economic reversal in any world region. It also provides the company with significant opportunities to benefit from growth in non-advertising services, such as public relations and event marketing, expenditures for which are growing faster than those for traditional advertising.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.34 2.53 2.57 0.60 24% 39.99 20.09 16 8

2008 NM 3.75 3.17 3.17 0.60 19% 50.16 22.02 16 7

2007 NM 3.45 2.95 2.95 0.50 17% 55.45 45.82 19 16

2006 NM 3.13 2.50 2.50 0.50 20% 53.03 39.38 21 16

2005 NM 2.71 2.18 2.18 0.46 21% 45.74 37.88 21 17

2004 NM 2.40 1.94 1.92 0.45 23% 44.41 33.22 23 17

2003 NM 2.10 1.80 1.69 0.40 22% 43.80 23.25 24 13

2002 NM 2.03 1.72 1.56 0.40 23% 48.68 18.25 28 11

2001 NM 1.88 1.35 1.24 0.39 29% 49.10 29.55 36 22

2000 NM 1.81 1.37 NA 0.35 26% 50.47 34.06 37 25

11,721 1,669 243 122 1,305 33.2% 793 796

13,360 1,872 183 125 1,657 32.8% 1,000 1,000

12,694 1,823 164 107 1,624 33.1% 976 976

11,377 1,674 190 125 1,422 32.8% 864 866

10,481 1,515 175 78.0 1,308 33.3% 791 790

9,747 1,388 172 51.1 1,196 33.1% 724 715

8,621 1,289 124 57.9 1,137 33.5% 676 631

7,536 1,224 120 45.5 1,087 34.5% 643 584

6,889 1,179 211 72.8 908 38.8% 503 456

6,154 1,065 187 76.5 923 40.0% 499 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,595 Current Assets 8,789 Total Assets 17,921 Current Liabilities 10,083 Long Term Debt 2,221 Common Equity 4,195 Total Capital 6,906 Capital Expenditures 131 Cash Flow 1,036 Current Ratio 0.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 6.8 % Return on Assets NA % Return on Equity NA

1,112 8,565 17,318 9,754 3,054 3,523 6,810 212 1,183 0.9 42.9 7.5 5.5 26.3

1,841 10,504 19,272 11,227 3,055 4,092 7,563 223 1,140 0.9 40.4 7.7 5.2 24.5

1,740 9,647 18,164 10,296 3,055 3,871 7,562 178 1,054 0.9 40.4 7.6 5.1 22.1

836 7,967 15,920 8,700 2,357 3,948 6,921 163 966 0.9 34.1 7.5 5.0 19.7

1,166 8,095 16,002 8,744 2,358 4,079 6,949 160 896 0.9 33.9 7.4 4.7 18.8

1,529 7,286 14,499 7,762 2,537 3,466 6,394 141 800 0.9 39.7 7.8 5.1 22.4

667 5,637 11,820 6,840 1,945 2,569 4,687 117 763 0.8 41.5 8.5 5.7 27.1

472 5,234 10,617 6,644 1,340 2,178 3,677 149 714 0.8 36.4 7.3 4.9 27.0

517 5,367 9,891 6,625 1,245 1,548 2,970 150 685 0.8 41.9 8.1 5.3 32.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 437 Madison Ave Bsmt, New York, NY 10022-7000. Telephone: 212-415-3600. Email: [email protected] Website: http://www.omnicomgroup.com

Chrmn: B.A. Crawford Pres & CEO: J. Wren Vice Chrmn: W.T. Love Vice Chrmn: T. Love

Investor Contact: R.J. Weisenburger Founded: 1944 Board Members: A. R. Batkin, R. C. Clark, L. S. Coleman, Domicile: New York Jr., E. M. Cook, B. A. Crawford, S. Denison, M. A. Employees: 63,000 Henning, T. Love, W. T. Love, J. R. Murphy, J. R. Purcell, L. J. Rice, G. L. Roubos, J. Wren

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: OKE | OKE is in the S&P 500

ONEOK Inc. S&P Recommendation STRONG BUY

★★★★★

Price $50.10 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Gas Utilities

12-Mo. Target Price $58.00

Investment Style Large-Cap Value

Summary This Oklahoma-based integrated natural gas company also has an energy marketing and trading business.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $50.85– 29.56 Trailing 12-Month EPS $3.15 Trailing 12-Month P/E 15.9 $10K Invested 5 Yrs Ago $21,383

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.11 3.44 16.1 106.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.332 3.83 $1.92 67

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.08 8 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of steady cash flow from the company's regulated utility and pipeline operations, offset by unregulated trading and gathering and processing operations.

60

40 30

Quantitative Evaluations 20

S&P Quality Ranking Vol.

D

B-

AB

B+

A-

A

A+

26

Mil. 6 4 2 0 5

C

Relative Strength Rank

STRONG 78

LOWEST = 1

5

4

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Highlights ➤

The 12-month target price for OKE has recently been changed to $58.00 from $56.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on OKE from MarketScope, see below.

➤

10/22/10 09:16 am ET ... S&P MAINTAINS STRONG BUY OPINION ON SHARES OF ONEOK INC (OKE 49.2*****): OKE announces that it has authorized a $750MM share repurchase program, subject to a maximum of $300MM per year, that expires at the end of '13. We think that a total of 9MM to 11MM shares will be repurchased under the program and we believe OKE is likely to complete the program by the end of '12. We are raising our '10 EPS estimate by $0.01 to $3.11 and '12's by $0.14 to $3.44, reflecting a lower number of expected shares. We are boosting our target price by $2 to $58. We also like the dividend increase to $1.92, sooner than we anticipated. The shares are yielding 3.9%. /CMuir

Revenue (Million $) 1Q 2Q 2010 3,924 2,807 2009 2,790 2,228 2008 4,902 4,173 2007 3,806 2,876 2006 3,756 2,432 2005 2,707 2,081

3Q -2,365 4,239 2,810 2,641 3,192

4Q -3,729 2,843 3,985 3,068 4,696

Year -11,112 16,157 13,477 11,896 12,676

Earnings Per Share ($) 2010 1.44 0.39 2009 1.16 0.39 2008 1.36 0.40 2007 1.36 0.31 2006 1.17 0.65 2005 0.92 0.16

E0.39 0.45 0.55 0.13 0.21 0.41

E0.89 0.87 0.65 0.98 0.66 2.32

E3.11 2.87 2.95 2.79 2.68 3.73

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.440 0.440 0.460 0.480

01/20 04/22 07/15 10/21

01/27 04/28 07/28 10/27

01/29 04/30 07/30 10/29

02/12/10 05/14/10 08/13/10 11/12/10

Dividends have been paid since 1939. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: OKE

ONEOK Inc. Business Summary August 19, 2010 CORPORATE OVERVIEW. ONEOK is an integrated energy company engaged in gas marketing and trading, transportation and storage, gathering and processing, natural gas liquids and gas utility distribution. The distribution segment is the largest gas utility in Kansas and Oklahoma and the third largest in Texas. PRIMARY BUSINESS DYNAMICS. OKE derives earnings from geographically diverse operations in various segments of the energy and utility sectors. Utility operations include the Distribution segment (24% of total 2009 operating income, or $210 million). Non-utility reporting segments include Energy Services (15%, $76 million) and ONEOK Partners, L.P. (OKS) (61%, $645 million). The Distribution segment serves nearly 2.1 million natural gas utility customers in Oklahoma, Kansas and Texas. We think the regulatory environment appears productive in all the states in which the company operates. In June 2009, Oklahoma Natural Gas (ONG) filed for a base rate increase of $66.1 million, which includes existing riders that would effectively reduce the requested rate increase to a net amount of $37.6 million. In December 2009, the company received approval to raise rates by $54.5 million including riders. Performance-based rates and a more streamlined regulatory process were approved in May 2009.

In November 2006, Kansas Gas Service (KGS) received approval for a settlement that included a $52.0 million increase. Since then, KGS has received an authorization to recover costs related to system reliability. In December 2009, KGS filed a request to become an efficiency loan program utility partner, contingent upon the commission approving a rate mechanism that would recover losses from declining sales and an energy conservation rider to recover program costs. Texas Gas Service (TGS) files rate cases with individual municipalities in Texas and has received approvals for rate increases totaling $14.8 million since the beginning of 2006. In February 2009, TGS filed for a $3.6 million rate increase in central Texas. In June 2009, regulators approved a $1.1 million rate increase. In August 2009, the cities of the Rio Grande Valley service area approved an increase in base rates of $1.3 million. In December 2009, TGS submitted its intent to file for a $7.3 million rate increase in El Paso.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.11 2.87 2.97 1.64 57% 44.97 18.10 16 6

2008 10.01 2.95 2.66 1.56 53% 51.33 21.56 17 7

2007 8.90 2.79 2.89 1.40 50% 55.27 39.26 20 14

2006 10.52 2.68 2.07 1.22 46% 44.48 26.35 17 10

2005 11.38 3.73 2.11 1.09 29% 35.85 26.30 10 7

2004 13.26 2.30 2.19 0.88 38% 28.99 19.69 13 9

2003 10.67 2.13 2.12 0.69 32% 22.44 16.00 11 8

2002 20.60 1.30 1.08 0.62 48% 23.14 14.62 18 11

2001 19.19 0.85 0.45 0.62 73% 24.34 14.17 29 17

2000 37.73 1.46 NA 0.62 42% 25.31 10.88 17 7

11,112 289 NA 3.06 NA 29.7% 305 316

16,157 244 NA 3.61 NA 24.4% 312 281

13,477 228 NA 3.31 NA 27.0% 305 315

11,896 236 NA 3.53 NA 26.8% 307 237

12,676 183 NA 7.16 NA 37.6% 403 229

5,988 189 NA 4.79 NA 38.2% 242 231

2,999 161 NA 3.50 NA 37.9% 214 181

2,104 148 NA 2.54 NA 39.7% 156 71.8

6,803 157 NA 1.67 NA 33.3% 104 8.23

6,643 143 NA 2.26 NA 38.6% 143 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 10,146 Capital Expenditures 791 Net Property 7,794 Capitalization:Long Term Debt 4,334 Capitalization:% Long Term Debt 66.3 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 2,207 Capitalization:% Common 33.7 Total Capital 8,048 % Operating Ratio 93.9 % Earned on Net Property 11.8 % Return on Revenue 2.8 % Return on Invested Capital 9.3 % Return on Common Equity 14.2

9,477 1,473 7,264 4,113 66.3 Nil Nil 2,088 33.7 8,171 95.5 14.0 1.9 9.6 15.4

7,893 884 5,845 4,215 68.2 Nil Nil 1,969 31.8 7,667 95.3 15.4 2.3 8.6 14.6

6,725 376 4,845 4,031 64.5 Nil Nil 2,216 35.5 7,755 95.4 24.0 2.6 13.0 15.3

5,575 250 3,994 2,024 53.0 Nil Nil 1,795 47.0 4,423 97.7 19.7 3.2 14.0 23.7

5,406 264 3,787 1,543 49.0 Nil Nil 1,606 51.0 3,793 94.3 13.1 4.0 9.6 17.0

5,180 215 3,692 1,979 61.4 Nil Nil 1,241 38.6 3,635 89.5 13.3 7.1 9.1 14.6

4,216 0.21 3,015 1,620 54.3 0.20 0.01 1,365 45.7 3,461 87.2 12.3 7.4 7.7 9.0

4,508 342 3,273 1,620 56.1 Nil Nil 1,266 43.9 3,385 96.4 9.3 1.5 7.5 5.4

4,207 311 3,096 1,473 54.6 1.00 0.04 1,226 45.4 3,082 96.3 12.8 2.2 9.8 8.9

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 West Fifth Street, Tulsa, OK 74103. Telephone: 918-588-7000. Website: http://www.oneok.com Chrmn: D.L. Kyle

Pres & CEO: J.W. Gibson COO: R.F. Martinovich EVP, CFO & Treas: C.L. Dinan EVP & General Counsel: J.R. Barker

Investor Contact: D. Harrison (918-588-7950) Founded: 1906 Board Members: J. C. Day, J. H. Edwards, W. L. Ford, J. Domicile: Oklahoma W. Gibson, D. L. Kyle, B. H. Mackie, J. W. Mogg, P. L. Employees: 4,758 Moore, G. D. Parker, E. Rodriguez, G. B. Smith, D. J. Tippeconnic

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ORCL | ORCL is in the S&P 500

Oracle Corp S&P Recommendation BUY

★★★★★

Price $28.99 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $31.00

Investment Style Large-Cap Growth

Summary This leading supplier of enterprise database management systems and business applications added hardware with the 2010 acquisition of Sun Microsystems.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.24– 20.65 Trailing 12-Month EPS $1.25 Trailing 12-Month P/E 23.2 $10K Invested 5 Yrs Ago $24,013

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.90 2.10 15.3 5,027.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$145.749 0.69 $0.20 60

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.06 15 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects acquisition integration risks following a series of large deals over the past few years. This is offset by our favorable view of ORCL's balance sheet, free cash flow and depth of management.

30 24 20 16

Quantitative Evaluations S&P Quality Ranking

Vol. Mil. 240 160 80 0

D

C

B-

AB

B+

A-

A

Relative Strength Rank 5

4

5

4

3

5

A+ STRONG

85 4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Zaineb Bokhari on September 24, 2010, when the stock traded at $ 26.95. Highlights ➤

➤

➤

We expect non-GAAP sales to rise nearly 28% in FY 11 (May), to $34.5 billion, including $7.6 billion of projected hardware systems and support sales gained through acquisition. We think ORCL is well positioned due to its product breadth. We see new software license sales rising 7% in FY 11, reflecting ongoing strength in database and middleware amid a gradual improvement in global economic conditions. We see 10% growth for software license updates and support, which we consider to be more stable than licenses. In FY 12, we see sales rising 8%, to about $37 billion. In view of ORCL's success in integrating past acquisitions, we expect targeted synergies from the purchase of Sun Microsystems to be achieved. We project FY 11 non-GAAP operating margins will narrow to 42%, from 46% in FY 10, reflecting a full year's impact of Sun and what we expect to be stepped-up R&D investment, and variable compensation rising with sales. We expect non-GAAP operating margins to widen modestly in FY 12, to about 43%. We estimate non-GAAP EPS of $1.90 in FY 11 and $2.10 in FY 12, excluding amortization and other items.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

The acquisition of Sun Microsystems has transformed ORCL into a software and systems vendor. While not without risk, we see the potential for earnings accretion as ORCL streamlines Sun's supply chain and refines its sales approach. For customers, we see benefits in the form of integrated and optimized hardware and software offerings and lower implementation risk. Execution remains key, in our view, but we are inclined to give ORCL the benefit of the doubt in view of its acquisition track record. We think successes with Exadata foreshadow longterm success with an integrated offering, and we view favorably the recent hire of Mark Hurd, former CEO of Hewlett-Packard (HPQ 41, Buy). Risks to our recommendation and target price include acquisition integration risk, pricing pressure, and adverse currency movement. We blend relative and intrinsic valuation metrics to derive our 12-month target price of $31. For our discounted cash flow model, we assume an 8% weighted average cost of capital and 2% terminal growth, which yields a value of $35. For our P/E analysis, we apply a 14.4X fiveyear average multiple to our FY 11 EPS estimate, resulting in a $27 value.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 7,502 -2010 5,054 5,858 2009 5,331 5,607 2008 4,529 5,313 2007 3,591 4,163 2006 2,768 3,292

3Q -6,404 5,453 5,349 4,414 3,470

4Q -9,505 6,861 7,239 5,828 4,851

Year -26,820 23,252 22,430 17,996 14,380

Earnings Per Share ($) 2011 0.27 E0.44 2010 0.22 0.29 2009 0.21 0.25 2008 0.16 0.25 2007 0.13 0.18 2006 0.10 0.15

E0.46 0.23 0.26 0.26 0.20 0.14

E0.60 0.46 0.38 0.39 0.31 0.24

E1.90 1.21 1.09 1.06 0.81 0.64

Fiscal year ended May 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

12/17 03/25 06/23 09/16

01/14 04/12 07/12 10/04

01/19 04/14 07/14 10/06

02/09/10 05/05/10 08/04/10 11/03/10

Dividends have been paid since 2009. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: ORCL

Oracle Corp Business Summary September 24, 2010 CORPORATE OVERVIEW. Oracle Corp., a leading provider of enterprise software, added hardware to its product portfolio via the acquisition of Sun Microsystems, completed on January 26, 2010. Its software business consists of new software licenses and software license updates (28% of non-GAAP revenues in FY 10 (May)), and product support (49%). The services business comprises consulting (10%), on demand (3%) and education (1%). Oracle's software products fall into two broad categories: database and middleware (68% of software revenues in FY 10), and application software. In FY 10, hardware and related support revenues comprised 9% of non-GAAP revenues; we see this rising to 22% in FY 11. MARKET PROFILE. Enterprises scaled back spending on information technology in 2009, and we expect continued caution as the global economy stabilizes. With some exceptions, we expect developed regions outside the U.S. to recover at a pace that lags the U.S. somewhat. We also think companies that operate globally will continue to be affected by shifts in foreign exchange rates. We expect corporate spending on software to rise in 2010, likely in the

low single digits, mainly due to maintenance contracts. Large enterprise software deals are sporadic and tend to be susceptible to delays and disruptions due to long sales cycles and the greater number of approvals needed to close such deals. We think the economic climate has improved from the depths of the economic crisis seen in late 2008/early 2009, but we think the specter of increased regulation and the consensus outlook for a moderate economic recovery and weak jobs growth will keep buyers cautious. We see this accruing to the benefit of technology vendors that provide solutions that support and maintain mission critical systems, including database and storage-related technology assets. We see growth in applications tied more closely to an economic recovery. We still expect visibility on large deals to be limited, and we think software vendors face intense competition and pricing pressure as they close deals.

Company Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 0.29 1.66 1.21 1.21 NA NA 2009 25.11 13.80 21 11

2009 NM 1.48 1.09 1.09 0.05 5% 2008 23.62 15.00 22 14

2008 NM 1.34 1.06 1.05 Nil Nil 2007 23.31 15.97 22 15

2007 NM 1.03 0.81 0.80 Nil Nil 2006 19.75 12.06 24 15

2006 0.13 0.79 0.64 0.62 Nil Nil 2005 14.51 11.25 23 18

2005 0.09 0.63 0.55 0.52 Nil Nil 2004 15.51 9.78 28 18

2004 1.55 0.55 0.50 0.46 Nil Nil 2003 14.03 10.64 28 21

2003 1.21 0.49 0.43 0.37 Nil Nil 2002 17.50 7.25 41 17

2002 1.13 0.45 0.39 0.34 Nil Nil 2001 35.00 10.16 90 26

2001 1.12 0.50 0.44 0.36 Nil Nil 2000 46.47 21.50 NM NM

26,820 12,109 2,271 754 8,243 NA 6,135 6,135

23,252 10,531 1,976 630 7,834 28.6% 5,593 5,593

22,430 9,489 1,480 24.0 7,834 29.5% 5,521 5,481

17,996 726 1,127 343 5,986 28.6% 4,274 4,224

14,380 5,764 806 169 4,810 29.7% 3,381 3,237

11,799 4,802 425 135 4,051 28.8% 2,886 2,750

10,156 4,098 234 21.0 3,945 32.0% 2,681 2,459

9,475 3,767 327 16.0 3,425 32.6% 2,307 2,049

9,673 3,934 363 20.0 3,408 34.7% 2,224 1,923

10,860 4,124 347 24.0 3,971 35.5% 2,561 2,119

Balance Sheet & Other Financial Data (Million $) Cash 18,469 Current Assets 27,004 Total Assets 61,578 Current Liabilities 14,691 Long Term Debt 11,510 Common Equity 31,199 Total Capital 45,854 Capital Expenditures 230 Cash Flow 8,406 Current Ratio 1.8 % Long Term Debt of Capitalization 25.1 % Net Income of Revenue 22.9 % Return on Assets 11.3 % Return on Equity 21.8

12,624 18,581 47,416 9,149 9,237 25,090 35,682 529 7,569 2.0 25.9 24.1 11.8 23.3

11,043 18,103 47,268 10,029 10,234 23,025 34,628 243 7,001 1.8 29.7 24.6 13.5 27.6

7,020 12,883 34,572 9,387 6,235 16,919 24,275 319 5,401 1.4 25.7 22.7 13.4 26.8

7,605 11,974 29,029 6,930 5,735 15,012 21,311 236 4,187 1.7 26.9 23.5 13.6 26.2

4,802 8,479 20,687 8,063 159 10,837 12,006 188 3,311 1.1 1.3 24.4 17.3 30.7

4,138 11,336 12,763 4,272 163 7,995 8,217 189 2,915 2.7 2.0 26.4 22.6 37.5

4,737 9,227 11,064 4,158 175 6,320 6,681 291 2,634 2.2 2.6 24.3 21.1 37.1

3,095 8,728 10,800 3,960 298 6,117 6,619 278 2,587 2.2 4.5 23.0 20.4 35.9

4,449 8,963 11,030 3,917 301 6,278 6,906 313 2,908 2.3 4.4 23.6 21.2 40.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 500 Oracle Parkway, Redwood Shores, CA 94065-1675. Telephone: 650-506-7000. Email: [email protected] Website: http://www.oracle.com

Chrmn: J.O. Henley CEO: L.J. Ellison EVP & CFO: J. Epstein SVP, Chief Acctg Officer & Cntlr: W.C. West

SVP, Secy & General Counsel: D. Daley Founded: 1977 Investor Contact: K. Bond (650-607-0349) Domicile: Delaware Board Members: J. S. Berg, H. R. Bingham, M. J. Employees: 105,000 Boskin, S. A. Catz, B. R. Chizen, G. H. Conrades, L. J. Ellison, H. Garcia-Molina, J. O. Henley, M. V. Hurd, D. L. Lucas, N. Seligman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ORLY | ORLY is in the S&P 500

O'Reilly Automotive Inc

★★★★★

S&P Recommendation HOLD

Price $54.02 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Automotive Retail

12-Mo. Target Price $55.00

Investment Style Large-Cap Growth

Summary This company is one of the largest U.S. retailers of car parts and accessories.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $54.42– 33.61 Trailing 12-Month EPS $2.55 Trailing 12-Month P/E 21.2 $10K Invested 5 Yrs Ago $20,158

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.85 3.18 19.0 138.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.43 13 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclical nature of the auto parts retailing industry. However, what we see as the company's stronger-than-average balance sheet and its large opportunity for continued domestic expansion offset the industry risk, in our opinion.

50 40

25 20

Quantitative Evaluations

Vol.

S&P Quality Ranking

41

Mil. 12 8 4 0 5

$7.496 Nil Nil 96

D

C

B-

B+ B

B+

A-

Relative Strength Rank 4

3

4

3

A

A+

MODERATE 66

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Michael Souers on August 02, 2010, when the stock traded at $ 49.28. Highlights ➤

➤

➤

We look for sales to increase 9.5% in 2010, following a 36% advance in 2009, which included a full year contribution from the July 2008 acquisition of CSK Auto. We expect 2010 sales to be bolstered by the opening of about 150 net new stores and by a same-store sales increase of 6%-7%. We believe challenging macro conditions will lead consumers to defer vehicle maintenance when possible, but that industry tailwinds such as the increasing age of vehicles and a recent uptick in miles driven should support continued growth. We think operating margins will widen significantly in 2010, as the conversion of CSK Auto stores should drive increased cost synergies. Also, we see continued efficiency improvements from current distribution centers and increased buying power with vendors. Lastly, we expect strong comp-store growth to leverage SG&A expenses in 2010. Excluding a $0.10 charge related to a legal investigation over former CSK Auto practices, we forecast 2010 EPS of $2.85, a 26% increase from 2009's $2.26, which excludes $0.03 of acquisition-related charges. We see 2011 EPS of $3.18.

Investment Rationale/Risk ➤

➤

➤

We expect ORLY to outpace the industry in terms of square footage, sales and EPS growth over the next few years, and we like its dual sales strategy focused on commercial as well as retail customers. In addition, we think strong recent execution bodes well for continued market share gains in a fragmented industry. We also favor the acquisition of CSK Auto, and expect significant revenue and cost benefits to accrue over the longer term. However, despite these favorable drivers, we think the shares are fairly valued, following a strong recent rise in price, trading at over 15X our 2011 EPS estimate, a significant premium to peers. Risks to our recommendation and target price include an increase in new car sales and declines in miles driven. Our concerns with regard to corporate governance include ORLY's board of directors being controlled by a large percentage of insiders as well as a nonshareholder-approved "poison pill" antitakeover plan. Our 12-month target price of $55 is based on our DCF model, which assumes a weighted average cost of capital of 10.3% and a terminal growth rate of 3.5%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,280 1,381 2009 1,164 1,251 2008 646.2 704.4 2007 613.2 643.1 2006 536.6 591.2 2005 466.2 521.2

3Q -1,258 1,111 661.8 597.1 542.9

4Q -1,174 1,115 604.3 558.3 515.0

Year -4,847 3,577 2,522 2,283 2,045

Earnings Per Share ($) 2010 0.70 0.71 2009 0.46 0.62 2008 0.40 0.48 2007 0.42 0.45 2006 0.35 0.43 2005 0.30 0.38

E0.74 0.63 0.31 0.46 0.42 0.42

E0.61 0.52 0.32 0.35 0.35 0.35

E2.85 2.23 1.49 1.67 1.55 1.45

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: ORLY

O'Reilly Automotive Inc Business Summary August 02, 2010 CORPORATE OVERVIEW. O'Reilly Automotive is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States, with 3,421 stores in 38 states, as of December 31, 2009. This includes the July 2008 acquisition of CSK Auto, one of the largest specialty retailers of auto parts in the Western U.S. At the time of acquisition, CSK was comprised of 1,342 stores operating under four brand names: Checker Auto Parts, Schuck's Auto Supply, Kragen Auto Parts, and Murray's Discount Auto Parts. As of December 31, 2009, ORLY had converted 405 CSK stores to O'Reilly systems, merged 41 CSK stores with existing O'Reilly locations, closed 13 stores and opened five new stores in CSK historical markets. ORLY stores carry, on average, about 22,000 SKUs, and average approximately 7,000 total square feet in size. The company's stores carry an extensive product line of new and remanufactured automotive hard parts (alternators, starters, fuel pumps, water pumps, brake shoes and pads), maintenance items (oil, antifreeze, fluids, filters, lighting, engine additives, appearance products), accessories (floor mats, seat covers), and a complete line of autobody paint, automotive tools, and professional service equipment. Merchandise consists of nationally recognized brands and a wide variety of private label products. ORLY offers engine machining services through its stores, but does not sell tires nor does it perform automotive repairs or installations.

fornia, Georgia, Indiana, Iowa, Michigan, Minnesota, Missouri, Montana, North Carolina, Oklahoma, Tennessee,Texas and Washington. Inventory management and distribution systems electronically link each of ORLY's stores to a distribution center, providing for efficient inventory control and management. The distribution system provides each of the stores with same day or overnight access to over 118,000 SKUs, many of which are hard-to-find items. CORPORATE STRATEGY. The company has a dual market strategy, targeting do-it-yourself (DIY) customers as well as professional installers. ORLY believes this gives it a competitive advantage, allowing the company to target a larger base of consumers of automotive aftermarket parts; capitalize on existing retail and distribution infrastructure; operate profitably not only in large metropolitan markets but also in less densely populated areas, which typically attract fewer competitors; and enhance service levels to the DIY market by offering a broad selection of products and extensive product knowledge required by professional installers. In 2009, 53% of sales were to the DIY market, and 47% to professional installers. O'Reilly seeks to aggressively add new stores to achieve greater penetration in existing markets and to expand into new, contiguous ones. In 2010, ORLY plans on opening approximately 150 net new stores.

ORLY currently operates 21 distribution centers, in Alabama, Arkansas, CaliCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.82 3.30 2.23 2.23 Nil Nil 42.93 26.47 19 12

2008 11.16 2.41 1.49 1.48 Nil Nil 32.68 20.00 22 13

2007 13.38 2.35 1.67 1.67 Nil Nil 38.84 30.43 23 18

2006 11.97 2.11 1.55 1.55 Nil Nil 38.30 27.49 25 18

2005 10.19 1.95 1.45 1.27 Nil Nil 32.53 21.98 22 15

2004 8.56 1.54 1.05 1.97 Nil Nil 23.54 18.03 22 17

2003 7.18 1.31 0.92 1.67 Nil Nil 22.45 11.46 24 12

2002 6.10 1.11 0.77 1.39 Nil Nil 18.63 12.05 24 16

2001 5.27 0.92 0.63 1.15 Nil Nil 19.22 7.75 31 12

2000 4.50 0.74 0.50 NA Nil Nil 13.63 4.13 27 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,847 686 148 45.2 497 38.1% 308 307

3,577 462 117 28.5 303 38.4% 186 186

2,522 384 78.9 6.28 307 36.9% 194 194

2,283 347 64.9 4.32 282 36.9% 178 178

2,045 310 57.2 5.06 251 34.6% 164 143

1,721 245 54.3 4.70 188 37.3% 118 110

1,512 208 42.4 6.86 160 37.5% 100 90.9

1,312 175 36.9 9.25 131 37.4% 82.0 74.8

1,092 144 30.5 9.09 107 37.8% 66.4 60.9

890 65.2 24.8 8.36 83.2 37.8% 51.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 26.9 Current Assets 2,227 Total Assets 4,781 Current Liabilities 1,231 Long Term Debt 684 Common Equity 2,686 Total Capital 3,370 Capital Expenditures 415 Cash Flow 456 Current Ratio 1.8 % Long Term Debt of Capitalization 20.3 % Net Income of Revenue 6.3 % Return on Assets 6.9 % Return on Equity 12.4

31.3 1,875 4,193 1,054 718 2,282 3,000 342 303 1.8 24.1 5.2 5.8 9.6

58.4 1,102 2,280 529 75.2 1,592 1,695 283 273 2.1 4.4 7.7 9.1 13.1

29.9 1,001 1,977 434 110 1,364 1,512 229 243 2.3 7.3 7.8 9.6 14.2

31.4 911 1,714 486 25.5 1,181 1,249 205 221 1.9 2.0 8.0 10.4 15.3

69.0 813 1,432 334 100 973 1,112 173 172 2.4 9.0 6.8 9.1 13.3

21.1 687 1,188 246 121 784 935 136 142 2.8 12.9 6.6 9.1 14.0

29.3 631 1,009 147 190 651 857 102 119 4.3 22.2 6.2 8.8 13.6

15.0 551 857 121 166 556 731 68.5 96.9 4.5 22.7 6.1 8.4 13.0

9.20 449 716 153 90.5 464 558 82.0 76.5 2.9 16.2 5.8 7.8 11.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 233 S Patterson Ave, Springfield, MO 65802. Telephone: 417-862-6708. Website: http://www.oreillyauto.com Chrmn: D. O'Reilly

Vice Chrmn: C.H. O'Reilly, Jr. Vice Chrmn: L.P. O'Reilly CEO & Co-Pres: G.L. Henslee COO & Co-Pres: T.F. Wise

Investor Contact: T.G. McFall Founded: 1957 Board Members: J. D. Burchfield, T. T. Hendrickson, P. Domicile: Missouri R. Lederer, J. R. Murphy, D. O'Reilly, L. P. O'Reilly, C. H. Employees: 44,822 O'Reilly, Jr., R. O'Reilly-Wooten, R. Rashkow

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: OI | OI is in the S&P 500

Owens-Illinois Inc.

★★★★★

S&P Recommendation HOLD

Price $28.96 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Metal & Glass Containers

12-Mo. Target Price $33.00

Investment Style Large-Cap Blend

Summary This company is a large global maker of glass bottles and containers.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.97– 24.92 Trailing 12-Month EPS $1.14 Trailing 12-Month P/E 25.4 $10K Invested 5 Yrs Ago $16,044

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.10 3.60 9.3 163.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.736 Nil Nil 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.10 13 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects ongoing asbestos claims and volatile commodity costs, offset by our view of sound corporate governance practices and an improving balance sheet.

60

30 20

Quantitative Evaluations 10

S&P Quality Ranking

Vol.

D

B-

BB

B+

A-

A

A+

46

Mil.

31

15 10 5 0 5

C

Relative Strength Rank

MODERATE

52 LOWEST = 1 4

3

3

4

3

2

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Stewart Scharf on August 02, 2010, when the stock traded at $ 27.98. Highlights ➤

➤

➤

We expect net sales to decline modestly in 2010, as soft glass container shipments in North America and Europe driven by weak beer demand offsets growth in South American and Asia. Additionally, sales and earnings will likely continue to be negatively impacted by a stronger U.S. dollar primarily against the euro. Sales growth should return in 2011 as markets gradually recover. In our view, gross margins will expand in 2010, from 21% in 2009, reflecting contractual price hikes in North America and a better product mix, which should offset slightly higher input costs. We believe operating (EBITDA) margins will expand slightly in 2010, from 19.7% in 2009, as strategic footprint initiatives and increased capacity utilization offset higher production costs. However, pension and interest expense are likely to rise. We forecast an effective tax rate of about 26% for 2010, and estimate operating EPS of $3.10 (before at least $0.10 of charges), advancing to $3.60 in 2011. OI expects a negative $0.10 to $0.15 per share impact from a change in the method of reporting its Venezuelan results.

Investment Rationale/Risk ➤

➤

➤

We recently lowered our recommendation on the shares to Hold, from Buy, based on our view that global markets will gradually rebound during 2010, but beer demand in North America and Europe will remain challenging. Additionally, our valuation metrics indicate the shares are fairly valued. Longer term, we expect OI to benefit from growth in emerging markets and new strategic initiatives geared toward improving its footprint. Risks to our recommendation and target price include a prolonged global market downturn, a stronger U.S. dollar versus the euro and the Australian dollar, another sharp rise in commodity prices, more inventory de-stocking, and fewer long-term contract extensions. Based on our relative valuation, we apply a multiple of near 10X our 2010 EPS estimate, a discount to other companies in S&P's Metal & Glass group as well as to our projected P/E for the S&P 500, which values the shares at $30. Our DCF model, assuming a 9.5% weighted average cost of capital and 4% terminal growth rate, derives intrinsic value of $37. Blending these metrics, we arrive at our 12-month target price of $33.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,583 1,711 2009 1,519 1,807 2008 1,961 2,211 2007 1,684 1,997 2006 1,688 1,946 2005 1,663 1,853

3Q -1,875 2,009 1,928 1,912 1,808

4Q -1,866 1,705 1,957 1,877 1,756

Year -7,067 7,885 7,567 7,422 7,090

Earnings Per Share ($) 2010 0.50 0.85 2009 0.27 0.88 2008 1.02 1.33 2007 0.31 0.92 2006 0.12 0.24 2005 0.73 0.53

E1.10 0.74 0.46 0.45 0.02 0.34

E0.60 -0.95 -1.38 0.06 -0.71 -5.86

E3.10 0.95 1.48 1.78 -0.32 -4.26

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: OI

Owens-Illinois Inc. Business Summary August 02, 2010 CORPORATE OVERVIEW. In 2005, Owens-Illinois began operating under the name O-I as part of a transformation strategy begun in 2004 to leverage its global capabilities, broaden its market base, and focus on its core glass container business. OI believes it is the world's largest manufacturer of glass packaging products. It has 78 glass manufacturing plants and 156 furnaces in 22 countries, and has acquired 18 glass container businesses since 1990, in regions that include Europe, South America and Asia/Pacific. In 2009, geographic sales were: Europe 41%; North America 29%; South America 16%; and Asia/Pacific 13%. The company accounts for about 50% of the glass containers produced worldwide. In July 2010, OI invested $132 million in a plant in China and a joint venture in Southeast Asia. We expect the company to focus on improving its operational and capital performance, while integrating operations in Europe. OI maintains a hedging program, with about 50% of natural gas hedged in North America. In Europe, the company enters into fixed-price contracts for 50% of its energy spend. In late 2009, OI entered into contracts with several large North American customers, which included provisions for more rapid pass-throughs of volatile commodity

costs such as energy. As of mid-2010, 25% of North American volume was sold under customer contracts that include clauses for OI to quickly pass through costs. In 2009, currency translation cut sales by $344 million and operating EPS by $0.16, based on a stronger U.S. dollar mainly against the euro and the Australian dollar. However, a weaker U.S. dollar in the 2009 fourth quarter resulted in a positive $183 million effect on sales and a $0.13 boost to operating EPS, versus the year-earlier period. In the second quarter of 2010, a stronger U.S. dollar negatively impacted sales by $81 million, year to year, and operating EPS by $0.08. In 2009, OI incurred pretax restructuring and impairment charges of $214 million ($1.07 a share, after tax), asbestos-related charges of $180 million ($1.06) and Venezuelan currency remeasurement charges of nearly $18 million ($0.10), and a non-cash tax benefit of $48 million ($0.28).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.27 0.95 0.95 Nil Nil 39.56 9.53 42 10

2008 NM 3.99 1.48 0.39 Nil Nil 60.60 15.20 8 2

2007 NM 4.18 1.78 1.47 Nil Nil 50.97 18.48 29 10

2006 NM 2.53 -0.32 0.36 Nil Nil 22.60 13.10 NM NM

2005 NM -0.99 -4.26 -0.89 Nil Nil 27.50 17.50 NM NM

2004 NM 3.91 1.00 1.22 Nil Nil 23.89 10.80 24 11

2003 NM -3.67 -6.89 0.04 Nil Nil 15.50 7.51 NM NM

2002 NM 2.84 -0.08 -1.45 Nil Nil 19.19 9.55 NM NM

2001 NM 5.08 2.33 -0.92 Nil Nil 10.08 3.62 4 2

2000 NM 0.83 -2.00 NA Nil Nil 24.88 2.50 NM NM

7,067 1,315 396 222 325 39.2% 162 161

7,885 1,529 431 253 558 42.4% 252 60.3

7,567 1,432 423 339 507 29.2% 299 226

7,422 -1,100 469 488 143 NM -27.5 55.4

7,090 1,297 480 467 -219 NM -622 -134

6,128 1,185 436 475 210 2.81% 172 185

6,059 1,175 473 491 -1,091 NM -991 5.85

5,640 1,281 428 422 16.6 NM 9.40 -213

5,403 1,173 403 434 667 42.9% 361 -135

5,552 245 413 487 -392 NM -270 NA

Balance Sheet & Other Financial Data (Million $) Cash 813 Current Assets 2,797 Total Assets 8,727 Current Liabilities 2,034 Long Term Debt 3,258 Common Equity 1,538 Total Capital 4,994 Capital Expenditures 428 Cash Flow 558 Current Ratio 1.4 % Long Term Debt of Capitalization 65.2 % Net Income of Revenue 2.3 % Return on Assets 1.9 % Return on Equity 12.6

405 2,445 7,977 2,003 2,940 1,041 4,311 362 677 1.2 68.2 3.2 2.9 18.1

448 2,695 9,325 2,530 3,014 1,735 5,562 293 701 1.1 54.2 4.0 3.0 33.9

223 2,433 9,321 2,366 4,719 -83.9 5,407 320 420 1.0 87.3 NM NM NM

247 2,282 9,522 1,822 5,019 271 6,110 404 -163 1.3 82.1 NM NM NM

278 2,401 10,737 1,907 5,168 1,092 7,065 437 586 1.3 73.1 2.8 1.7 18.3

163 2,122 9,531 1,363 5,333 551 6,617 432 -539 1.6 80.6 NM NM NM

126 1,887 9,869 1,297 5,268 1,218 7,359 496 416 1.5 71.6 0.2 0.1 0.6

156 1,987 10,107 1,232 5,330 1,699 8,106 365 742 1.6 65.8 6.7 3.5 21.7

230 2,082 10,343 1,318 5,730 1,428 8,005 481 121 1.6 71.6 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Michael Owens Way, Perrysburg, OH 43551-2999. Telephone: 567-336-5000. Website: http://www.o-i.com Chrmn, Pres & CEO: A.P. Stroucken

COO & CTO: R.E. Lachmiller SVP & CFO: E.C. White SVP, Secy & General Counsel: J.W. Baehren Chief Acctg Officer: T. Caracciolo

Investor Contact: S. Sekpeh (567-336-2355) Founded: 1903 Board Members: G. F. Colter, J. Geldmacher, P. S. Domicile: Delaware Hellman, D. H. Ho, A. D. Kelly, J. J. McMackin, Jr., C. A. Employees: 22,000 McNeill, Jr., H. H. Roberts, A. P. Stroucken, H. H. Wehmeier, D. K. Williams, T. L. Young

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: PCAR | PCAR is in the S&P 500

PACCAR Inc S&P Recommendation HOLD

★★★★★

Price $50.77 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Farm Machinery & Heavy Trucks

12-Mo. Target Price $52.00

Investment Style Large-Cap Blend

Summary This heavy-duty truck manufacturer produces the well-known Peterbilt and Kenworth brand heavy-duty highway trucks.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $51.71– 33.45 Trailing 12-Month EPS $0.62 Trailing 12-Month P/E 81.9 $10K Invested 5 Yrs Ago $20,760

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.06 2.20 47.9 364.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.33 10 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Paccar reflects the highly cyclical nature of the heavy-duty (Class 8) truck market, offset by our view of a strong balance sheet with a relatively low amount of manufacturing debt and a geographical sales mix that is increasingly diversified.

60

40 30

3-for-2

20

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

$18.507 0.95 $0.48 59

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

A+ STRONG

79

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Corridore on July 28, 2010, when the stock traded at $ 45.62. Highlights ➤

➤

We project truck revenues will rise about 10% in 2010 after a 48% decrease in 2009, and see finance revenues rising about 5% after a 20% decline last year. We look for the North American market for heavy trucks to start improving in mid-2010, driven by fleet owners replacing older vehicles and positioning their fleets ahead of more stringent emission standards. We expect a recovery in Europe in late 2010, lagging the North American economy by about six months. We forecast that margins within the truck division will benefit from the leverage of fixed costs over an improving revenue base as well as more efficient capacity utilization and ongoing benefits from recent cost-cutting actions. Within the financial services segment, we believe operating margins will continue to be pressured by rising provisions for credit losses and reduced finance margins.

Investment Rationale/Risk ➤

➤

➤ ➤

We estimate EPS of $1.06 for 2010, versus $0.31 in 2009. For 2011, we see EPS of $2.20, based on our view that the U.S. truck market should be significantly stronger.

We believe weak demand in both the North American and international truck markets has likely bottomed and should begin to show improvement. Along with demand, we think earnings have also troughed and should show improvement during the next economic upcycle, though the timing of that recovery is still uncertain. We view favorably the company's ability to remain profitable in 2009 on a 48% decline in truck sales. However, the shares are already trading above the high end of their historical P/ E range based on our 2011 EPS estimate, which we think will limit upside potential. Risks to our recommendation and target price include a longer duration to the economic downturn than we are currently forecasting, potential supply disruptions, foreign exchange volatility, and potential increases in raw material costs. Our 12-month target price of $52 values the shares at 24X our 2011 EPS estimate of $2.20, above the high end of PCAR's historical P/E range, reflecting our view that earnings are at a trough and should improve over the next several years.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,231 2,464 2009 1,985 1,846 2008 3,938 4,113 2007 3,985 3,716 2006 3,852 3,937 2005 3,422 3,555

3Q -2,000 4,005 3,762 3,959 3,541

4Q -2,240 2,917 3,759 3,968 3,426

Year -8,087 14,973 15,222 16,454 14,057

Earnings Per Share ($) 2010 0.19 0.27 2009 0.07 0.07 2008 0.79 0.86 2007 0.97 0.79 2006 0.90 0.98 2005 0.69 0.62

E0.29 0.04 0.82 0.81 1.07 0.79

E0.31 0.13 0.31 0.71 1.01 0.81

E1.06 0.31 2.78 3.29 3.97 2.92

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.090 0.090 0.090 0.120

12/07 04/20 07/13 09/14

02/17 05/17 08/17 11/17

02/19 05/19 08/19 11/19

03/05/10 06/07/10 09/07/10 12/06/10

Dividends have been paid since 1943. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: PCAR

PACCAR Inc Business Summary July 28, 2010 CORPORATE OVERVIEW. Originally incorporated in 1924 as the Pacific Car and Foundry Company, and tracing its roots back to the Seattle Car Manufacturing Company, PACCAR has grown into a multinational company with principal businesses that include the design, manufacture and distribution of highquality light, medium and heavy-duty commercial trucks and related aftermarket parts. The company's heavy-duty (Class 8) diesel trucks are marketed under the Peterbilt, Kenworth, DAF and Foden names. In addition, through its Peterbilt and Kenworth divisions, PCAR competes in the North American medium-duty (Class 6/7) markets and the European light/medium (6 to 15 metric ton) commercial vehicle market with DAF cab-over-engine trucks.

2000, 1999 and 1998, segment profit margins were 6.9%, 9.0% and 7.4%, respectively. Like other big truck makers, the company aims to capitalize on a growing trend toward truck leasing and financing. The Finance Services segment accounted for 12% of 2009 revenues, but generated 55% of pretax income; it posted operating margins of 8.4%, 17%, 24%, and 26% in 2009, 2008, 2007 and 2006, respectively. In 2009, 2008, 2007, 2006 and 2005, provisions for loan losses were $104 million, $103 million, $41 million, $34 million, and $40 million, respectively.

In 2009, the company's truck production and related aftermarket parts distribution businesses accounted for 88% of revenues and 45% of pretax income. Segment profit margins in 2009, 2008, 2007 and 2006 were 0.96%, 8.5%, 9.7%, 1.9%, and 11.5%, respectively; in the previous cycle, during the boom years of Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 14.02 2.06 0.31 0.18 0.54 174% 40.26 20.38 NM NM

2008 13.36 4.56 2.78 2.63 0.82 29% 55.54 21.96 20 8

2007 13.66 4.70 3.29 3.24 0.83 25% 65.75 42.15 20 13

2006 11.98 5.12 3.97 3.97 0.64 16% 46.17 30.12 12 8

2005 10.27 3.87 2.92 2.92 0.39 13% 36.17 28.13 12 10

2004 9.61 3.09 2.29 2.25 0.33 15% 36.19 22.05 16 10

2003 7.36 2.00 1.33 1.32 0.46 35% 25.95 12.37 20 9

2002 6.08 1.50 0.95 0.89 0.29 30% 15.70 9.09 17 10

2001 5.64 0.91 0.45 0.37 0.24 53% 13.68 8.44 31 19

2000 5.64 1.54 1.13 NA 0.24 21% 10.72 7.16 9 6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,087 812 638 12.8 175 36.1% 112 64.5

14,973 2,859 649 NA 1,464 30.5% 1,018 962

15,222 2,932 526 737 1,764 30.4% 1,227 1,208

16,454 3,136 435 573 2,175 31.2% 1,496 1,496

14,057 2,572 370 445 1,774 36.1% 1,133 1,134

11,396 1,972 315 331 1,368 33.7% 907 889

8,195 1,313 268 3.50 806 34.6% 527 523

7,219 1,012 218 249 574 35.2% 372 349

6,089 672 180 275 255 32.0% 174 145

7,437 1,122 156 294 665 33.6% 442 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,056 Current Assets 10,040 Total Assets 14,569 Current Liabilities 5,286 Long Term Debt 172 Common Equity 5,104 Total Capital 5,276 Capital Expenditures 971 Cash Flow 750 Current Ratio 1.3 % Long Term Debt of Capitalization 3.3 % Net Income of Revenue 1.4 % Return on Assets 0.7 % Return on Equity 2.3

2,075 3,643 16,250 1,829 19.3 4,847 4,866 1,550 1,667 2.0 0.3 6.8 6.1 20.7

1,948 3,919 17,228 2,503 3,039 5,013 8,052 1,267 1,754 1.6 37.7 8.1 7.4 25.9

2,628 4,200 16,107 2,738 498 4,456 4,954 312 1,931 1.5 10.1 9.1 10.0 35.8

2,290 3,508 13,715 2,182 936 3,901 4,837 300 1,503 1.6 19.3 8.1 8.7 29.6

2,220 3,332 12,228 2,151 2,314 3,762 6,077 232 1,222 1.5 38.1 8.0 8.2 25.9

1,724 2,599 9,940 1,482 1,557 3,246 4,803 111 794 1.8 32.4 6.4 5.6 18.0

1,308 2,102 8,703 1,258 1,552 2,601 4,152 78.8 590 1.7 37.4 5.2 4.5 15.3

1,062 1,834 7,914 1,134 1,547 2,253 3,800 83.9 354 1.6 40.7 2.9 2.1 7.7

910 1,861 8,271 1,268 1,655 2,249 3,904 143 598 1.5 42.4 5.9 5.5 20.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 777 106th Avenue NE, Bellevue, WA 98004-5027. Telephone: 425-468-7400. Website: http://www.paccar.com Chrmn & CEO: M.C. Pigott

Pres: J. Cardillo Vice Chrmn & CFO: T.E. Plimpton Chief Acctg Officer & Cntlr: M.T. Barkley Secy: J.M. D'Amato

Investor Contact: R. Easton Founded: 1905 Board Members: A. J. Carnwath, J. Fluke, Jr., K. S. Domicile: Delaware Hachigian, S. F. Page, R. T. Parry, J. M. Pigott, M. C. Employees: 15,200 Pigott, T. E. Plimpton, W. G. Reed, Jr., G. M. Spierkel, W. R. Staley, C. R. Williamson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PTV | PTV is in the S&P 500

Pactiv Corp S&P Recommendation HOLD

★★★★★

Price $33.17 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Metal & Glass Containers

12-Mo. Target Price $33.00

Investment Style Large-Cap Growth

Summary This company is a leading provider of specialty packaging and consumer products. In August 2010, it definitively agreed to be acquired by Reynolds Group Holdings.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.22– 21.55 Trailing 12-Month EPS $2.15 Trailing 12-Month P/E 15.4 $10K Invested 5 Yrs Ago $19,500

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.20 2.50 15.1 133.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.411 Nil Nil 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.90 3 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects a customer shift to private-label products due to the soft economy, supplier and customer consolidation, pension plan costs, and volatile raw material costs. However, we believe the balance sheet is strong, and the company is generating cash for acquisitions and share buybacks.

30

20 15

10

Quantitative Evaluations

Vol. 168

Mil. 35

15 10 5 0 5

S&P Quality Ranking D

4

3

2

4

3

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Stewart Scharf on August 19, 2010, when the stock traded at $ 32.51.

➤

➤

➤

We expect sales for 2010 to rise at least 8% (including 4% from the PWP acquisition), on improving demand for foodservice products and new store brand waste bags. Demand for disposable cookware, cups and cutlery, and produce packaging and trays should continue to grow. We look for gross margins (before $200 million of D&A), as adjusted for a change to FIFO accounting, to narrow to near 28.5% in 2010, from 33% in 2009, based on an unfavorable price/ cost spread and lost volume due to sequentially falling raw material costs. We see EBITDA margins also narrowing somewhat from 2009's 22.7%, as the negative price spread and product mix and higher advertising expenses outweigh lower SG&A expenses resulting from productivity improvement programs and lower incentive compensation accruals. We expect a relatively steady effective tax rate of 36.5% in 2010, and we see adjusted operating EPS of $2.20 (including $0.23 of pension income and $0.05 of accretion from PWP, but before a $0.02 charge), rising 14% to $2.50 in 2011.

BB

B+

A-

Relative Strength Rank

A

A+

MODERATE

Investment Rationale/Risk ➤

Our hold opinion is based on our valuation metrics and PTV's recent agreement to be acquired for about $33 a share, along with still soft demand for Hefty consumer products and a competitive pricing environment.

➤

Risks to our recommendation and target price include sharp increases in resin and other commodity prices, and a loss of market share as customers continue to purchase lower-priced packaging products. Regarding corporate governance, we are somewhat concerned that the positions of chairman and CEO are held by the same person.

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

Highlights

B-

55

1

2007

C

Our 12-month target price of $33 is derived from a blend of our DCF and relative valuations. Our DCF model, which assumes a 3% terminal growth rate and an 8.5% weighted average cost of capital (WACC), produces an intrinsic value of $35. Based on relative metrics, we apply a multiple of 14X to our 2010 EPS estimate, a premium to peers, and arrive at a value of $31. Our target price also approximates the offering price of $33.25 per share.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 777.0 973.0 2009 766.0 901.0 2008 808.0 951.0 2007 677.0 828.0 2006 680.0 750.0 2005 613.0 707.0

3Q -839.0 925.0 872.0 749.0 695.0

4Q -854.0 883.0 876.0 738.0 741.0

Year -3,360 3,567 3,253 2,917 2,756

Earnings Per Share ($) 2010 0.36 0.56 2009 0.58 0.61 2008 0.27 0.49 2007 0.43 0.52 2006 0.35 0.49 2005 0.14 0.24

E0.58 0.59 0.40 0.45 0.75 0.28

E0.69 0.53 0.52 0.45 0.39 0.30

E2.20 2.31 1.67 1.84 1.98 0.96

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: PTV

Pactiv Corp Business Summary August 19, 2010 CORPORATE OVERVIEW. Pactiv Corp., a global supplier of specialty packaging and consumer products, derives more than 80% of its sales from markets in which it holds the No. 1 or No. 2 market share position. It operates 43 manufacturing plants in North America and one in Germany. It also has a 62.5%-owned joint venture corrugated-converting facility and a 51%-owned folding carton operation in China. In 2009, 96% of sales were generated in North America (91% in the U.S.). Wal-Mart accounted for 21% of total sales. After discontinuing the protective and flexible packaging division during 2005, PTV operated two units: Hefty Consumer Products and Foodservice/Food Packaging. Consumer products sales accounted for 38% of total sales in 2009 ($297 million of operating income), and foodservice/food packaging 62% ($300 million). In June 2007, PTV acquired Prairie Packaging Inc., a manufacturer of disposable tableware products with sales of over $500 million, broadening its cups and cutlery business.

Hearty Meals, E-Z Foil and Easy Grip. The company expects new product innovations to generate $100 million in annual retail sales over the next few years. In late 2009, the company added private-label waste bags to its product mix, signing a multi-year contract with Wal-Mart to be their exclusive supplier of value waste bags. PTV makes food packaging products for the food processing industry, including molded fiber egg cartons, foam meat trays and aluminum containers. The company also offers tableware products such as plates, bowls, cups, and takeout-service containers made from microwaveable plastic, foam, molded fiber, paperboard and aluminum. The company estimates that a 1% change in resin costs equates to a $0.03 effect on EPS on an annualized basis, assuming no pricing actions. PTV incurred a $2.5 million ($0.02 a share) tax charge in the first quarter of 2010 related to health care legislation.

The company manufactures consumer products such as plastic storage bags and waste bags; foam and molded fiber disposable tableware; and disposable aluminum cookware. It sells many products under recognized brand names such as Hefty, Baggies and Kordite. Hefty products include One-Zip, Zoo Pals, Odor Block, The Gripper, Cinch Sak, Ultra Flex, Kitchen Fresh, Elegantware, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.69 2.31 2.06 Nil Nil 27.71 10.62 12 5

2008 NM 3.04 1.67 0.14 Nil Nil 29.52 18.97 18 11

2007 NM 3.08 1.84 1.51 Nil Nil 36.91 22.79 20 12

2006 0.68 3.02 1.98 1.71 Nil Nil 36.53 21.50 18 11

2005 0.23 1.94 0.96 0.56 Nil Nil 25.58 16.50 27 17

2004 0.98 2.10 1.01 0.64 Nil Nil 25.73 19.80 25 20

2003 0.77 2.24 1.21 1.00 Nil Nil 24.03 17.55 20 15

2002 1.79 2.35 1.37 -0.23 Nil Nil 24.47 15.35 18 11

2001 4.91 2.14 1.03 -0.57 Nil Nil 18.10 11.26 18 11

2000 3.79 1.84 0.70 NA Nil Nil 13.31 7.50 19 11

3,360 763 184 94.0 486 36.4% 308 274

3,567 649 181 108 342 35.1% 221 18.5

3,253 644 165 98.0 381 35.4% 244 200

2,917 568 145 73.0 391 29.2% 277 239

2,756 452 146 82.0 224 36.2% 143 82.3

3,382 954 169 101 244 36.9% 155 96.9

3,138 630 163 96.0 314 37.6% 195 160

2,880 617 158 96.0 367 39.8% 220 -36.1

2,812 574 177 107 284 41.5% 165 -91.1

3,134 570 185 134 207 44.0% 113 NA

Balance Sheet & Other Financial Data (Million $) Cash 46.0 Current Assets 832 Total Assets 3,574 Current Liabilities 417 Long Term Debt 1,275 Common Equity 985 Total Capital 2,276 Capital Expenditures 111 Cash Flow 492 Current Ratio 2.0 % Long Term Debt of Capitalization 56.0 % Net Income of Revenue 9.2 % Return on Assets 8.4 % Return on Equity 37.9

80.0 785 3,692 333 1,345 640 2,000 136 402 2.4 67.3 6.2 5.9 23.7

95.0 797 3,765 460 1,574 1,226 3,032 151 409 1.7 51.9 7.5 7.5 23.5

181 838 2,758 549 771 853 1,753 78.0 422 1.5 44.0 9.5 9.9 33.1

172 820 2,820 456 869 820 1,802 121 289 1.8 48.2 5.2 4.4 15.0

222 1,079 3,741 984 869 1,083 2,209 100 324 1.1 39.3 4.6 4.2 14.5

140 982 3,706 474 1,336 1,061 2,617 112 358 2.1 51.1 6.2 5.5 19.9

127 904 3,412 501 1,224 897 2,282 126 378 1.8 53.6 7.6 5.9 17.0

41.0 740 4,060 459 1,211 1,689 3,502 145 342 1.6 34.6 5.9 4.0 10.2

26.0 900 4,341 512 1,560 1,539 3,595 135 298 1.8 43.4 3.6 2.5 7.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1900 West Field Court, Lake Forest, IL 60045-4828. Telephone: 847-482-2000. Email: [email protected] Website: http://www.pactiv.com

Chrmn, Pres & CEO: R.L. Wambold SVP & CFO: E.T. Walters Chief Acctg Officer & Cntlr: D.E. King Secy & General Counsel: J.E. Doyle

Investor Contact: C. Hanneman (847-482-2429) Board Members: L. D. Brady, II, K. D. Brooksher, R. J. Darnall, M. R. Henderson, N. T. Linebarger, R. B. Porter, R. L. Wambold, N. H. Wesley

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1965 Domicile: Delaware Employees: 12,000

Stock Report | October 23, 2010 | NYS Symbol: PLL | PLL is in the S&P 500

Pall Corp S&P Recommendation BUY

★★★★★

Price $43.43 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $46.00

Summary This company is a leading producer of filters for the health care, aerospace, microelectronics, and other industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $44.65– 30.74 Trailing 12-Month EPS $2.03 Trailing 12-Month P/E 21.4 $10K Invested 5 Yrs Ago $18,517

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.50 2.80 17.4 115.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.019 1.47 $0.64 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.15 14 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the historically cyclical semiconductor sector, PLL's exposure to foreign markets, and a pending settlement with the IRS and other civil lawsuits related to understating tax payments, even though the SEC inquiry and restatements have been completed. Also, an IRS audit and U.S. Attorney inquiry are still pending. This is offset by our view of PLL's reduced debt levels and positive cash generation.

50 40

25 20

Vol. Mil.

Quantitative Evaluations

9 6 3 0 5

S&P Quality Ranking 4

3

4

3

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

78 LOWEST = 1

HIGHEST = 99

Options: CBOE, Ph

Analysis prepared by Stewart Scharf on September 16, 2010, when the stock traded at $ 40.13. Highlights ➤

➤

➤

We expect sales in FY 11 (Jul.) to rise at least 7% (before modest negative foreign currency effect), driven by favorable global order trends in both segments. In our view, life sciences will benefit from increased demand for biotech drugs and vaccines, while the food & beverage market is drvien by tighter regulations. The industrial segment should see strong aerospace sales and growth in machinery & equipment, and microelectronics, while energy orders pick up, and municipal water demand strengthens mainly in the U.S. We see gross margins widening to at least 50.5% in FY 11, from 50.2% in FY 10, based on absorption of manufacturing costs, a better product mix, pricing initiatives, and cost savings. In our view, operating margins (EBITDA) will expand by about 50-basis points to 20.5% in FY 11, on improved productivity and efficiencies, as PLL implements its strategic plan and information technology system. We forecast a lower effective tax rate of 27% for FY 11, and see operating EPS of $2.50 (including a $0.03 negative foreign exchange headwind), rising 12% to $2.80 in FY 12.

Investment Rationale/Risk ➤

Our buy opinion is based on signs of a pick up in global orders, and our valuation metrics. Additionally, Millipore was acquired in July 2010 by Germany-based Merck KGZaA, which we think adds to PLL's appeal as a potential takeover candidate. Also, some Millipore customers may defect to PLL.

➤

Risks to our recommendation and target price include a weaker economy, negative foreign currency translations, and a significant rise in raw material costs. We have some corporate governance concerns based on financial reporting errors that led to seven years of restated earnings, although we think internal controls are now more solid.

➤

Our relative valuation results in a value of $44 using a multiple of 17.5X our FY 11 EPS estimate, a modest premium to our projected P/E (adjusted for FY end) for S&P's Industrial Machinery sub-industry group. Our intrinsic value estimate of $48 is based on our DCF model, which assumes a terminal growth rate of 3.5% and a weighted average cost of capital of 8.5%. Blending these metrics, our 12-month target price is $46.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 546.9 560.4 2009 578.0 543.3 2008 561.0 625.8 2007 499.3 544.9 2006 431.2 478.4 2005 414.7 469.5

3Q 616.0 555.9 661.7 559.4 510.0 493.5

4Q 678.6 652.0 723.2 646.3 597.3 524.5

Year 2,402 2,329 2,572 2,250 2,017 1,902

Earnings Per Share ($) 2010 0.56 0.42 2009 0.36 0.33 2008 0.29 0.39 2007 0.13 0.36 2006 0.20 0.26 2005 0.17 0.26

0.58 0.37 0.51 0.40 0.20 0.35

0.46 0.58 0.57 0.57 0.50 0.34

2.03 1.64 1.76 1.03 1.16 1.12

Fiscal year ended Jul. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.160 0.160 0.160 0.160

01/21 04/23 07/15 09/23

02/05 05/05 08/04 10/06

02/09 05/07 08/06 10/08

02/23/10 05/14/10 08/20/10 10/29/10

Dividends have been paid since 1974. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PLL

Pall Corp Business Summary September 16, 2010 CORPORATE OVERVIEW. Pall Corp. is a global producer of filters for health care, aerospace and industrial markets. Pall divides these markets into the following subsegments: Medical, BioPharmaceuticals and Food & Beverage (the Life Sciences segment), Energy & Water, Aeropower and Microelectronics (the Industrial segment). The Industrial group includes machinery and equipment, aerospace, fuels & chemicals, power generation and municipal water. System sales in the fourth quarter of FY 10 (Jul.) accounted for 12% of sales, with PLL expecting an increase to 13% to 14% of sales in FY 11, driven by double-digit system sales growth. The Industrial segment (49% of revenues in FY 10 and $165 million of profits) makes filters and separation products for three markets. Aerospower (36% of the segment's sales) includes both commercial and military markets. Energy & Water (41%) produces filters for the aluminum, paper, automobile, oil, gas, chemical, petrochemical and power industries. Microelectronics (23%) makes products for the semiconductor, data storage and photographic film industries. Consumer electronics accounted for over 40% of segment sales in FY 10, up from 25% in 2000. Main competitors in the Energy & Water group include 3M's CUNO, General Electric's GE Infrastructure unit, Siemens's U.S. Filter, Rohm & Haas (acquired by Dow Chemical in 2009), and Parker-Hannifin. More than 90% of systems sales are in this segment. PLL sees a potential market for

this group of $39 billion. The Life Sciences segment contributed 51% of total revenues ($280 million in operating profits) in FY 10. The BioPharmaceuticals division makes filter products used in the development of drugs and vaccines, while food and beverage filters help produce yeast- and bacteria-free water. The rapidly expanding blood division offers hospitals and blood centers blood filters that reduce leukocyte (white cells) and other bloodborne viral contaminants, such as bacteria. Biopharmaceutical sales accounted for 50% of the segment's total sales in FY 10, while medical products (blood and cardiovascular filtration) accounted for 32% and food & beverage 18%. New products accounted for 30% of medical sales in FY 10. PLL projects the medical market potential size at $6.8 billion by FY 13. In FY 10, the Western Hemisphere accounted for 33% of sales, Europe for 39%, and Asia for 28%. In FY 10, pro forma EPS was $2.12, excluding $0.48 of restructuring and other charges. Foreign currency added $0.10 to EPS.

Company Financials Fiscal Year Ended Jul. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 7.19 2.82 2.03 2.11 0.61 30% 44.65 31.84 22 16

2009 6.57 2.38 1.64 1.55 0.42 26% 37.25 18.20 23 11

2008 6.94 2.51 1.76 1.67 0.50 28% 43.19 21.61 25 12

2007 6.14 1.78 1.03 1.05 0.35 34% 49.00 33.23 48 32

2006 7.21 1.92 1.16 1.22 0.53 46% 35.57 25.26 31 22

2005 6.73 1.85 1.12 1.13 0.38 34% 31.52 25.21 28 23

2004 6.21 1.90 1.20 1.16 0.27 23% 29.80 22.00 25 18

2003 5.16 1.51 0.83 0.70 0.36 43% 27.00 15.01 33 18

2002 NM 1.19 0.59 0.42 0.52 88% 24.48 14.68 41 25

2001 6.29 1.53 0.95 0.83 0.68 71% 26.25 17.50 28 18

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,402 484 93.6 14.3 328 NA 241 250

2,329 419 89.2 36.9 271 27.8% 196 185

2,572 483 93.2 50.9 326 33.3% 217 205

2,250 419 94.0 56.8 261 51.1% 128 131

2,017 341 95.7 23.0 210 30.8% 145 153

1,902 337 90.9 26.0 181 22.2% 141 142

1,771 320 88.9 20.5 198 23.4% 152 148

1,614 299 83.9 24.4 143 27.9% 103 87.4

1,291 215 74.0 14.3 100.0 26.7% 73.2 52.1

1,235 256 71.5 16.6 150 21.5% 118 102

Balance Sheet & Other Financial Data (Million $) Cash 499 Current Assets 1,703 Total Assets 2,999 Current Liabilities 637 Long Term Debt 741 Common Equity 1,182 Total Capital 1,924 Capital Expenditures 136 Cash Flow 335 Current Ratio 2.7 % Long Term Debt of Capitalization 38.5 % Net Income of Revenue 10.0 % Return on Assets 8.3 % Return on Equity 21.0

414 1,570 2,841 717 578 1,115 1,692 133 285 2.2 34.1 8.4 6.8 17.4

454 1,660 2,957 574 747 1,139 1,890 124 310 2.9 39.4 8.5 7.7 19.8

443 1,606 2,709 832 592 1,061 1,654 97.8 221 1.9 35.8 5.7 4.9 11.4

318 1,377 2,553 531 640 1,179 1,826 96.0 241 2.6 35.0 7.2 6.0 12.5

165 1,160 2,265 457 510 1,140 1,660 86.2 232 2.5 30.7 7.4 6.3 12.8

199 1,070 2,140 419 489 1,054 1,559 61.3 241 2.6 31.3 8.6 7.3 15.2

127 938 2,017 421 490 935 1,439 62.2 187 2.2 34.0 6.4 5.1 11.8

105 916 2,027 438 620 820 1,478 69.9 147 2.1 41.9 5.7 4.1 9.2

54.9 779 1,549 314 359 770 1,149 77.8 190 2.5 31.2 9.6 7.7 15.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 25 Harbor Park Dr, Port Washington, NY 11050. Telephone: 516-484-5400. Email: [email protected] Website: http://www.pall.com

Chrmn, Pres & CEO: E. Krasnoff COO: R. Perez SVP, Secy & General Counsel: S. Marino CFO & Treas: L. McDermott

CTO: M. Egholm Investor Contact: J. Conenello (516-801-9850) Board Members: A. E. Alving, D. J. Carroll, Jr., R. B. Coutts, C. W. Grise, U. Haynes, Jr., R. L. Hoffman, E. Krasnoff, D. N. Longstreet, E. W. Martin, Jr., K. L. Plourde, E. L. Snyder, E. Travaglianti

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1946 Domicile: New York Employees: 10,400

Stock Report | October 23, 2010 | NYS Symbol: PH | PH is in the S&P 500

Parker-Hannifin Corp S&P Recommendation BUY

★★★★★

Price $76.31 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $88.00

Investment Style Large-Cap Blend

Summary This company is a global maker of industrial pumps, valves, pneumatics, and hydraulics. Its products are used in everything from jet engines to trucks and autos and utility turbines.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $78.71– 52.46 Trailing 12-Month EPS $3.40 Trailing 12-Month P/E 22.4 $10K Invested 5 Yrs Ago $20,251

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

5.72 5.95 13.3 161.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.41 22 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly cyclical nature of the company's industrial and aviation markets, volatile energy and materials costs, and a competitive environment. This is offset by our view of PH's favorable earnings and dividend track record, as exemplified by an S&P Quality Ranking of A-.

80 60

40 30

$12.299 1.42 $1.08 81

3-for-2

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 3

4

4

3

5

4

3

4

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

➤

The STARS recommendation for PH has recently been changed to 4 (buy) from 4 (buy) and the 12-month target price has recently been changed to $88.00 from $78.00. The Highlights section of this Stock Report will be updated accordingly.

B-

B

B+

A-

A

A+

Relative Strength Rank

STRONG 87

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

Highlights

C

A

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on PH from MarketScope, see below.

➤

10/19/10 11:11 am ET ... S&P RAISES RECOMMENDATION ON SHARES OF PARKER-HANNIFIN TO BUY FROM HOLD (PH 75.99****): SepQ EPS of $1.51, vs. $0.45, were well above our $0.89 estimate, as sales rose 27%. Also, total orders rose 29% in the Sep-Q, with strength in all segments. Operating margins reached 15.5% vs. 13.9% in the Sep-Q. On results and order strength, we are raising our FY 11 EPS estimate by $1.77 to $5.72, above FY 08 (Jun) peak EPS of $5.53, and lifting FY 12's by $1.70 to $5.95. We up our 12-month target price by $10 to $88, on our revised earnings outlook. We see PH benefitting from strong execution, U.S. economic growth, and a good position in Asia and Latin America. /R.Tortoriello

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,237 2,355 2009 3,065 2,689 2008 2,787 2,829 2007 2,552 2,511 2006 2,114 2,158 2005 1,947 1,943

3Q 2,615 2,345 3,183 2,781 2,498 2,142

4Q 2,786 2,211 3,347 2,874 2,617 2,211

Year 9,993 10,309 12,146 10,718 9,386 8,215

Earnings Per Share ($) 2010 0.45 0.64 2009 1.50 0.96 2008 1.33 1.23 2007 1.17 1.09 2006 0.79 0.71 2005 0.74 0.63

0.94 0.33 1.49 1.19 0.97 0.79

1.35 0.31 1.47 1.23 1.03 0.89

3.40 3.13 5.53 4.67 3.52 3.03

Fiscal year ended Jun. 30. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.260 0.270

10/28 01/28 04/15 08/12

11/17 02/16 05/18 08/19

11/19 02/18 05/20 08/23

12/04/09 03/05/10 06/04/10 09/03/10

Dividends have been paid since 1949. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PH

Parker-Hannifin Corp Business Summary August 05, 2010 CORPORATE OVERVIEW. Parker-Hannifin is one of the world's largest makers of components that control the flow of industrial fluids. It is also a major global maker of components that move and/or control the operation of a variety of machinery and equipment. In addition to motion control products, PH also produces fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding, and thermal management products and systems. PH's offerings include a wide range of valves, pumps, hydraulics, filters and related products. The company's components are used in everything from jet engines to medical devices, farm tractors and utility turbines. Although U.S. markets still account for most of the company's revenues, PH has been expanding its overseas presence in recent years. International sales accounted for 41% of total revenue in FY 09 (Jun.), and 45% in FY 08. PH's Industrial business (74% of FY 09 sales and 74% of segment operating earnings) makes valves, pumps, filters, seals and hydraulic components for a broad range of industries, as well as pneumatic and electromechanical components and systems. The company's industrial components are sold to manufacturers (as part of original equipment) and to end users (as replacement

parts). Replacement part sales are generally more profitable than original equipment sales. PH's industrial components are designed for both standard and custom specifications. Custom-made components are typically more profitable than standard components. The industrial business is reported as two segments: Industrial North America (36% of sales and 39% of operating profits) and Industrial International (38% and 35%). Sales through distributors account for about half of PH's total industrial business. Aerospace (18% of sales and 26% of segment operating profits) primarily makes hydraulic, pneumatic and fuel equipment used in civilian and military airframes and jet engines. It also makes aircraft wheels and brakes for small planes and military aircraft. PH sells aircraft components to aircraft manufacturers as new equipment, and to end-users (such as airlines) as replacement parts. As with industrial components, aircraft-related replacement parts sales are generally more profitable than are original equipment sales.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 2.68 5.63 3.40 3.76 1.01 30% 78.71 53.50 23 16

2009 0.07 5.32 3.13 2.71 1.00 32% 59.36 27.69 19 9

2008 8.59 7.43 5.53 5.10 0.84 15% 86.91 31.29 16 6

2007 10.69 6.45 4.67 4.77 0.69 15% 86.56 50.41 19 11

2006 9.75 5.07 3.52 3.83 0.61 17% 58.67 43.44 17 12

2005 9.23 4.50 3.03 3.08 0.52 17% 50.82 37.87 17 12

2004 9.39 3.34 1.94 2.00 0.51 26% 52.28 34.49 27 18

2003 7.63 2.57 1.12 0.61 0.49 44% 39.87 23.88 36 21

2002 8.18 2.37 0.75 0.37 0.48 64% 36.59 23.01 49 31

2001 8.95 3.53 1.99 1.19 0.47 23% 33.40 20.27 17 10

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

9,993 1,232 363 104 755 NA 554 613

10,309 1,196 358 112 681 25.4% 509 441

12,146 1,773 325 99.0 1,327 28.4% 949 876

10,718 1,513 295 83.4 1,159 28.4% 830 846

9,386 1,263 281 75.8 900 NM 638 694

8,215 1,100 265 67.0 756 27.6% 548 557

7,107 817 253 73.4 494 30.0% 346 357

6,411 639 259 81.6 297 34.0% 196 107

6,149 628 282 82.0 218 40.3% 130 65.0

5,980 836 265 90.4 534 35.5% 344 204

Balance Sheet & Other Financial Data (Million $) Cash 576 Current Assets 3,589 Total Assets 9,910 Current Liabilities 2,205 Long Term Debt 1,414 Common Equity 4,368 Total Capital 5,873 Capital Expenditures 129 Cash Flow 917 Current Ratio 1.6 % Long Term Debt of Capitalization 24.1 % Net Income of Revenue 5.5 % Return on Assets 5.6 % Return on Equity 12.8

188 3,124 9,856 2,006 1,840 4,280 6,393 271 866 1.6 28.8 4.9 5.0 10.7

326 4,096 10,387 2,183 1,952 5,259 7,374 280 1,274 1.9 26.5 7.8 10.1 19.1

173 3,386 8,441 1,925 1,087 4,712 5,913 238 1,125 1.8 18.4 7.7 10.0 18.5

172 3,139 8,173 1,681 1,059 4,241 5,419 198 919 1.9 19.6 6.8 8.5 16.8

336 2,786 6,899 1,336 938 3,340 4,314 157 813 2.1 21.8 6.7 8.3 17.3

184 2,537 6,257 1,260 954 2,982 4,015 142 599 2.0 23.8 4.9 5.6 12.6

246 2,397 5,986 1,424 966 2,521 3,508 158 455 1.7 27.5 3.1 3.3 7.7

46.0 2,236 5,733 1,360 1,089 2,584 3,750 207 412 1.6 29.0 2.1 2.3 5.1

23.7 2,196 5,338 1,413 857 2,529 3,518 345 609 1.6 24.4 5.8 6.9 14.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6035 Parkland Boulevard, Cleveland, OH 44124-4141. Telephone: 216-896-3000. Website: http://www.parker.com Chrmn, Pres & CEO: D.E. Washkewicz

CFO & Chief Admin Officer: T.K. Pistell CTO: M.C. Maxwell Chief Acctg Officer & Cntlr: J.P. Marten Investor Contact: P.J. Huggins (216-896-2240)

Board Members: R. G. Bohn, L. Harty, W. E. Kassling, R. Founded: 1924 J. Kohlhepp, G. Mazzalupi, K. Muller, C. M. Obourn, J. Domicile: Ohio M. Scaminace, W. R. Schmitt, A. Svensson, M. I. Employees: 54,794 Tambakeras, J. L. Wainscott, D. E. Washkewicz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: PDCO | PDCO is in the S&P 500

Patterson Companies Inc S&P Recommendation HOLD

★★★★★

Price $27.92 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Distributors

12-Mo. Target Price $30.00

Investment Style Large-Cap Growth

Summary This company is one of the largest distributors of dental supplies in North America and also sells veterinary supplies and rehabilitative equipment.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.84– 24.13 Trailing 12-Month EPS $1.85 Trailing 12-Month P/E 15.1 $10K Invested 5 Yrs Ago $7,060

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.95 2.15 14.3 124.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.462 1.43 $0.40 71

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.83 11 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on our view of PDCO's strong long-term record of earnings growth, offset by the impact that the economy and consumer confidence (both currently weak) can have on consumer demand for the services of the company's dental, medical and veterinary clients.

40

30

20

15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

9 6 3 0 5

D 4

4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Herman B. Saftlas on September 01, 2010, when the stock traded at $ 25.27. Highlights We project sales growth of about 6% in FY 11 (Apr.), to over $3.4 billion. We look for a slight uptick in dental consumable and equipment sales, as the market appears to have stabilized somewhat amid a still weak U.S. economy. We think basic dental equipment sales, while still soft, will benefit from dentists' need to replace aging equipment, while high-tech equipment sales benefit from their need to improve productivity. Elsewhere, we expect rehab sales growth to accelerate from FY 10 levels, with a recent acquisition in Ireland, while veterinary sales benefit slightly from a partnership with a small firm into which PDCO recently made an equity investment. We expect gross margins to widen slightly in FY 11, partly on an improved sales mix. We also assume the SG&A cost ratio will narrow modestly, on several cost-reduction initiatives and the completion of acquisition-integration efforts. We estimate EPS of $1.95 in FY 11, aided by an additional week of sales in the July quarter that should add an indicated $0.03 to the bottom line, versus FY 10's $1.78. We look for $2.15 in FY 12.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, Ph

➤

B+ B

35 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

PDCO appears to us to be maintaining or gaining market share in high-tech dental equipment sales, likely because dentists view its products as offering rapid rates of return on investment. Nonetheless, we believe meaningful sales growth will be dependent on promotional activities, including financing. While we expect continued weakness in basic dental equipment persisting over the next few quarters, we believe comparisons will get easier. Meanwhile, the veterinary business continues to realize better organic growth than we expected, with sales in the July 2010 quarter rising 6%. Elsewhere, we see the rehab business benefiting over time from an aging baby-boomer population and more active lifestyles, and we are encouraged by PDCO's expanding position in the global rehab market. Risks to our recommendation and target price include intensified competition and further deterioration of the economy. Our 12-month target price of $30 assumes a multiple of 15.4X our FY 11 EPS estimate of $1.95, which approximates the company's historical average P/E over the past three years.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 849.8 -2010 789.6 815.0 2009 743.9 759.5 2008 701.4 742.0 2007 655.5 694.3 2006 595.9 641.7

3Q -820.1 811.0 777.0 709.5 682.4

4Q -812.8 779.9 778.4 739.1 695.2

Year -3,237 3,094 2,999 2,798 2,615

Earnings Per Share ($) 2011 0.45 E0.44 2010 0.38 0.41 2009 0.39 0.40 2008 0.39 0.39 2007 0.30 0.35 2006 0.31 0.32

E0.52 0.47 0.45 0.45 0.43 0.39

E0.54 0.52 0.46 0.51 0.44 0.41

E1.95 1.78 1.69 1.69 1.51 1.43

Fiscal year ended Apr. 30. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100

03/16 06/15 09/15

03/30 07/07 10/06

04/02 07/09 10/11

04/20/10 07/27/10 10/28/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: PDCO

Patterson Companies Inc Business Summary September 01, 2010 CORPORATE OVERVIEW. Patterson Companies (formerly Patterson Dental), one of two large distributors of dental products in North America, is a fullservice supplier to dentists, dental laboratories, institutions, physicians, and other health care professionals. Through the July 2001 acquisition of J.A. Webster, PDCO became the second largest U.S. distributor of companion-pet veterinary supplies. Also, through the August 2003 acquisition of AbilityOne Products Corp. (now Patterson Medical), PDCO became the largest distributor of non-wheelchair assistive products for patient rehabilitation in the U.S. and the U.K. PDCO's Patterson Dental subsidiary, 67.0% of FY 10 (Apr.) sales, versus 70.3% in FY 09, provides a broad range of consumables (X-ray film, restorative materials, and sterilization products), advanced technology dental equipment, practice management software, and office forms and stationery. It has a 35% share of a $6 billion market.

brushes, and other dental accessories. Printed products include insurance and billing forms, stationery, appointment books, and other stock office supply products. PDCO offers a wide range of dental equipment, which accounted for 32.7% of dental supply sales in FY 10, down from 33.6% in FY 09. The product line includes X-ray machines, sterilizers, dental chairs, dental lights and diagnostic equipment. Two of PDCO's fastest growing product lines are the CEREC chairside ceramic dental-restorative system and digital radiography (X-ray) systems. CEREC sales slowed in FY 07 and FY 08's first half, but picked up afterward. However, sales of digital radiography systems slowed sharply in FY 08's final quarter. Other products, which accounted for 11.2% of dental supply sales in FY 10 and 10.4% in FY 09, include software services, equipment installation and repair, dental office design, and equipment financing.

Consumables and printed products accounted for 56.1% of dental supply sales in FY 10, slightly above FY 09's 56.0%. The company offers its own private label line of anesthetics, instruments, preventative and restorative products, as well as brand name supplies, including X-ray film, protective clothing, toothCompany Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.53 2.11 1.78 1.78 Nil Nil 2009 28.34 16.08 16 9

2009 1.79 1.88 1.69 1.69 Nil Nil 2008 37.78 15.75 22 9

2008 1.01 1.84 1.69 1.69 Nil Nil 2007 40.08 28.32 24 17

2007 3.70 1.70 1.51 1.51 Nil Nil 2006 38.28 29.61 25 20

2006 2.73 1.60 1.43 1.39 Nil Nil 2005 53.85 33.21 38 23

2005 1.95 1.52 1.32 1.30 Nil Nil 2004 44.20 29.70 33 22

2004 0.76 1.27 1.09 1.08 Nil Nil 2003 35.75 17.71 33 16

2003 3.66 0.94 0.85 0.84 Nil Nil 2002 27.56 19.00 32 22

2002 2.85 0.80 0.70 0.70 Nil Nil 2001 21.03 13.75 30 20

2001 2.64 0.65 0.57 0.57 Nil Nil 2000 17.25 8.13 31 14

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,237 395 39.5 25.7 339 NA 212 212

3,094 369 22.9 30.2 320 37.6% 200 200

2,999 379 19.5 0.12 357 37.1% 225 225

2,798 361 25.5 14.2 330 36.8% 208 208

2,615 347 23.7 13.4 317 37.4% 198 194

2,421 329 26.9 15.1 293 37.4% 184 180

1,969 262 19.4 9.60 240 37.6% 150 147

1,657 192 12.8 0.07 186 37.6% 116 115

1,416 161 14.3 0.11 152 37.4% 95.3 95.3

1,156 391 11.1 0.12 122 37.4% 76.5 76.5

Balance Sheet & Other Financial Data (Million $) Cash 341 Current Assets 1,134 Total Assets 2,423 Current Liabilities 348 Long Term Debt 525 Common Equity 1,442 Total Capital 1,967 Capital Expenditures 29.8 Cash Flow 252 Current Ratio 3.3 % Long Term Debt of Capitalization 26.7 % Net Income of Revenue 6.6 % Return on Assets 9.3 % Return on Equity 16.2

158 938 2,129 334 525 1,186 1,250 32.3 223 2.8 42.0 6.5 9.5 18.2

308 985 2,076 466 525 1,005 1,660 36.0 244 2.1 33.1 7.5 11.2 18.9

242 886 1,940 377 130 1,379 1,563 19.5 234 2.3 8.3 7.4 10.8 15.9

224 847 1,912 410 210 1,243 1,502 49.2 222 2.1 14.0 7.6 11.0 17.6

233 800 1,685 322 302 1,015 1,363 31.5 211 2.5 22.1 7.6 11.2 20.2

287 778 1,589 264 480 802 1,325 19.6 169 2.9 36.2 7.6 12.4 20.8

195 606 824 184 0.13 634 634 11.4 129 3.3 Nil 7.0 15.1 20.3

126 529 718 198 Nil 514 514 11.1 110 2.7 Nil 6.7 15.0 20.7

160 443 549 133 Nil 409 409 10.0 87.6 3.3 Nil 6.6 15.3 20.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1031 Mendota Heights Road, St Paul, MN 55120. Telephone: 651-686-1600. Email: [email protected] Website: http://www.pattersoncompanies.com

Chrmn: P.L. Frechette Pres & CEO: S.P. Anderson COO: D.H. Peckskamp EVP, CFO, Chief Acctg Officer & Treas: R.S. Armstrong

Secy & General Counsel: M.L. Levitt Founded: 1877 Board Members: S. P. Anderson, J. D. Buck, R. E. Domicile: Minnesota Ezerski, P. L. Frechette, A. B. Lacy, C. Reich, E. A. Employees: 6,890 Rudnick, H. C. Slavkin, B. Tyler, L. C. Vinney, J. W. Wiltz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: PAYX | PAYX is in the S&P 500

Paychex Inc S&P Recommendation HOLD

★★★★★

Price $28.00 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $28.00

Investment Style Large-Cap Growth

Summary Paychex provides payroll accounting services to small- and medium-sized concerns throughout the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.88– 24.65 Trailing 12-Month EPS $1.34 Trailing 12-Month P/E 20.9 $10K Invested 5 Yrs Ago $8,781

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.38 1.49 20.3 361.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.82 4 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as the company's strong balance sheet and regular cash inflows, offset by the highly competitive nature of the outsourcing industry as well as the threat of new entrants into the human resources segment.

50 40

25 20

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

$10.127 4.43 $1.24 70

D

C

B-

A B

B+

A-

A

Relative Strength Rank 4

3

3

2

1

2

3

MODERATE 58

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Dylan Cathers on September 28, 2010, when the stock traded at $ 27.11. Highlights ➤

➤

The first fiscal quarter brought another increase in average checks per client, and the pace of client losses decreased. Still, given the weakness in the employment market and the economy in general, we look for the company to continue to be affected by problems among its clients, and we look for revenue growth of 3.5% in FY 11 (May), before improving to 5% in FY 12. For the full fiscal year, we expect PAYX to experience growth of a modest 1% in its core payroll services business. We think HR services growth will return this fiscal year, and we look for a gain of about 9%. Interest on funds held for clients should remain weak due to low short-term interest rates.

Investment Rationale/Risk ➤

➤

We think operating margins will rebound in FY 11 after narrowing in FY 10. We believe expenses from rising personnel levels, increased sales efforts, and investments in the business will be offset by solid cost controls, reduced attrition levels, improving customer retention rates, and increased checks per client.

We recently raised our opinion on the shares to hold from strong sell. Although we think the small and mid-sized business segment that PAYX caters to will be slow to turn around, we think the worst is behind the company. There have been some improvements in PAYX's fundamentals, and we expect some traction on efforts to revitalize the sales force. We view the balance sheet as strong with no debt and over $270 million in cash. Further, we think the over 4% dividend will drive interest in the shares. Risks to our recommendation and target price stem from volatility in the small- to mediumsized business environment, and the impact of competition on pricing and margins. Automatic Data Processing (ADP 41, Buy) is the leader in the payroll processing space, and is promoting a payroll processing and tax filing software solution coupled with Microsoft's small business software. Separately, the employment environment could remain weak for an extended period of time.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 518.3 -2010 500.2 496.6 2009 534.1 524.2 2008 507.1 307.8 2007 459.4 455.0 2006 403.7 399.8

3Q -507.8 528.6 532.2 485.3 430.6

4Q -496.2 495.9 519.2 487.4 440.5

Year -2,001 2,083 2,066 1,887 1,675

Earnings Per Share ($) 2011 0.36 E0.34 2010 0.34 0.35 2009 0.41 0.39 2008 0.40 0.40 2007 0.35 0.35 2006 0.30 0.30

E0.35 0.31 0.36 0.39 0.33 0.30

E0.33 0.32 0.32 0.38 0.32 0.32

E1.38 1.32 1.48 1.56 1.39 1.22

Fiscal year ended May 31. Next earnings report expected: Mid December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.310 0.310 0.310 0.310

01/08 04/08 07/07 10/13

01/28 04/29 07/29 10/28

02/01 05/03 08/02 11/01

02/16/10 05/17/10 08/16/10 11/15/10

Dividends have been paid since 1988. Source: Company reports. ➤

After operating EPS of $1.35 in FY 10, excluding a litigation charge, we look for EPS of $1.38 in FY 11 and $1.49 in FY 12.

➤

We arrive at our 12-month target price of $28 by applying a roughly peer-average P/E of 19.7X to our calendar 2011 EPS estimate of $1.42.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: PAYX

Paychex Inc Business Summary September 28, 2010 CORPORATE OVERVIEW. Paychex is a leading provider of payroll processing, human resources and benefits services. The company was founded in 1971, and began by serving the payroll accounting services of businesses with fewer than 200 employees. It currently has more than 100 locations and serves over 536,000 clients throughout the U.S. The company's payroll segment prepares payroll checks, earnings statements, internal accounting records, all federal, state and local payroll tax returns, and provides collection and remittance of payroll obligations. PAYX's tax filing and payment services provide automatic tax filing and payment, preparation and submission of tax returns, plus deposit of funds with tax authorities. Employee Payment Services provides a variety of ways for businesses to pay employees. In our opinion, PAYX has shown an ability to expand its client base and increase the use of ancillary services, which we believe will lead to consistent growth for its mainstay payroll segment.

vices. The Paychex Administrative Services (PAS) product offers businesses a bundled package that includes payroll, employer compliance, and human resource and employee benefit administration. PAYX also offers 401(k) plan services. MARKET PROFILE. The worldwide market for HR services totaled $102.3 billion in calendar 2009, according to market researcher IDC. Between 2009 and 2014, IDC expects this area to post a compound annual growth rate (CAGR) of 4.6%, with the market in the U.S. increasing at a CAGR of 4.3% from $50.2 billion in 2009. For the more narrow U.S. payroll services market, where we believe Automatic Data Processing is the market leader, IDC sees a CAGR of 3.7% between 2009 and 2014. In contrast, in the U.S. market for business process outsourcing (BPO) services, IDC expects a CAGR of 4.9% over the same time frame.

The Human Resources/Professional Employer Organization (HRS/PEO) segment provides employee benefits, management and human resources serCompany Financials Fiscal Year Ended May 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 2.54 1.56 1.32 1.34 NA NA 2009 32.88 20.31 25 15

2009 2.30 1.72 1.48 1.48 1.20 81% 2008 37.47 23.22 25 16

2008 1.91 1.78 1.56 1.55 0.79 51% 2007 47.14 35.96 30 23

2007 3.87 1.54 1.39 1.41 0.61 44% 2006 42.37 32.98 30 24

2006 3.12 1.39 1.22 1.17 0.51 42% 2005 43.37 28.60 36 23

2005 2.40 1.13 0.97 0.93 0.47 48% 2004 39.12 28.83 40 30

2004 1.88 1.02 0.80 0.80 0.44 55% 2003 40.54 23.76 51 30

2003 1.55 0.89 0.78 0.72 0.33 56% 2002 42.15 20.39 54 26

2002 2.43 0.80 0.73 0.66 0.33 45% 2001 51.00 28.27 70 39

2001 2.00 0.75 0.68 0.65 0.22 32% 2000 61.25 24.17 90 36

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,001 811 86.4 NA 729 NA 477 486

2,083 891 85.8 Nil 812 34.3% 534 533

2,066 909 80.6 Nil 855 32.6% 576 572

1,887 775 73.4 Nil 743 30.7% 515 537

1,675 716 66.5 Nil 675 31.1% 465 445

1,445 596 62.0 Nil 546 32.5% 369 353

1,294 516 82.8 Nil 450 32.6% 303 304

1,099 444 43.4 Nil 432 32.0% 293 272

955 393 29.5 Nil 395 30.5% 275 252

870 700 26.4 Nil 364 30.0% 255 243

Balance Sheet & Other Financial Data (Million $) Cash 367 Current Assets 4,159 Total Assets 5,226 Current Liabilities 3,742 Long Term Debt NA Common Equity 1,402 Total Capital 1,402 Capital Expenditures 61.3 Cash Flow 563 Current Ratio 1.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 23.8 % Return on Assets 9.2 % Return on Equity 34.8

492 4,240 5,127 3,702 Nil 1,341 1,341 64.7 619 1.2 Nil 25.6 10.2 42.0

393 4,466 5,310 4,037 Nil 1,197 1,197 82.3 657 1.1 Nil 27.9 10.0 36.6

79.4 4,861 6,247 4,237 Nil 1,985 1,994 79.0 589 1.1 Nil 27.3 8.7 28.2

137 4,444 5,549 3,838 Nil 1,670 1,686 81.1 531 1.2 Nil 27.8 9.1 30.2

281 3,689 4,379 2,942 Nil 1,411 1,429 70.7 431 1.3 Nil 25.5 8.9 27.9

219 3,280 3,950 2,722 Nil 1,235 1,249 50.6 386 1.2 Nil 23.4 7.9 26.2

79.9 3,033 3,691 2,588 Nil 1,077 1,084 60.2 337 1.2 Nil 26.7 8.8 29.3

61.9 2,815 2,953 2,023 Nil 924 924 54.4 304 1.4 Nil 28.7 9.4 32.6

45.8 2,791 2,907 2,144 Nil 745 745 45.3 281 1.3 Nil 29.3 9.5 38.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 911 Panorama Trail South, Rochester, NY 14625-2396. Telephone: 585-385-6666. Website: http://www.paychex.com Chrmn: B.T. Golisano

Pres & CEO: M. Mucci SVP, CFO, Chief Acctg Officer & Secy: J.M. Morphy General Counsel: S.L. Schaeffer Investor Contact: T.J. Allen (585-383-3406)

Board Members: J. G. Doody, D. J. Flaschen, B. T. Golisano, G. M. Inman, P. A. Joseph, J. J. Judge, M. Mucci, J. M. Tucci, J. M. Velli

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1979 Domicile: Delaware Employees: 12,200

Stock Report | October 23, 2010 | NYS Symbol: BTU | BTU is in the S&P 500

Peabody Energy Corp S&P Recommendation BUY

★★★★★

Price $51.04 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Coal & Consumable Fuels

12-Mo. Target Price $60.00

Investment Style Large-Cap Blend

Summary BTU is the world's largest publicly traded coal company, with 9 billion tons of coal reserves. Its coal fuels about 10% of the electricity generated in the U.S. and 2% worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.73– 34.89 Trailing 12-Month EPS $2.00 Trailing 12-Month P/E 25.5 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.13 4.50 16.3 269.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.738 0.67 $0.34 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.38 8 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the industry's cyclicality and extensive regulation, the potential for geological difficulties with mines, transportation problems, volatility in the prices of competing fuels, and a narrow customer focus. This is offset by the company's leading market position and geographically well diversified coal holdings.

100 80 60 40

20

Vol.

45 30 15 0

Quantitative Evaluations

92

Mil.

S&P Quality Ranking 5

4

5

3

4

D

5 3

2

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

STRONG 71

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

➤

➤

After a nearly 5% decline in volume and a 4% decrease in pricing that led to a 9% drop in 2009 revenue, we estimate that 2010 revenue will increase more than 16% on a greater-than-2% rise in coal volumes and a nearly 14% gain in pricing. Our 2010 coal volume forecast is based on higher expected production across all of BTU's operating regions, while our pricing outlook assumes an increase in metallurgical and thermal coal pricing. For 2011, we project that revenue will advance more than 13% on further volume and pricing increases. Following a nearly seven percentage point decline in 2009's EBITDA margin, we think that higher coal volumes and pricing will lead to improved operating leverage and better overall EBITDA margins this year. Our forecast assumes that production costs per ton will increase more than 7%. For 2011, we project a further increase in BTU's EBITDA margin, mainly due to continued improvement in operating leverage. On projected effective tax rates of about 25% in both periods, we estimate EPS of $3.13 in 2010 and $4.50 in 2011.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Mathew Christy, CFA on October 21, 2010, when the stock traded at $ 51.33. Highlights

A+

4

3

Our buy recommendation is based on our belief that thermal coal inventories at utilities will move into better balance on higher overall demand, and that metallurgical coal will remain in high demand globally, as steel production is expected to remain strong. In addition, we think BTU's focus on western U.S. and international assets increases the company's growth profile and provides direct access to Asian seaborne markets. We view BTU's valuation as compelling, with the stock recently trading at about 6.3X our 2011 EBITDA estimate, below its fiveyear historical average. Risks to our recommendation and target price include declines in coal and natural gas prices, lower productivity and production, higher production costs, and higher coal market inventories. Our 12-month target price of $60 is based on our relative peer valuation analysis. We apply an EV/EBITDA multiple of about 7.3X to our 2011 EBITDA per share estimate, ahead of peer multiples due to the company's size, diversity, historical valuation premium and international growth strategy.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,516 1,661 2009 1,453 1,338 2008 1,276 1,531 2007 1,365 1,322 2006 1,312 1,316 2005 1,077 1,109

3Q -1,667 1,906 1,494 1,265 1,224

4Q -1,554 1,881 1,212 1,363 1,235

Year -6,012 6,593 4,575 5,256 4,644

Earnings Per Share ($) 2010 0.50 0.77 2009 0.50 0.32 2008 0.26 0.89 2007 0.33 0.40 2006 0.48 0.57 2005 0.20 0.36

E0.88 0.41 1.38 0.12 0.53 0.42

E0.87 0.41 1.11 0.71 0.65 0.61

E3.13 1.68 3.63 1.56 2.23 1.58

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.070 0.070 0.070 0.085

01/27 05/04 07/23 10/21

02/08 05/14 08/04 11/02

02/10 05/18 08/06 11/04

03/03/10 06/03/10 08/27/10 11/26/10

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: BTU

Peabody Energy Corp Business Summary October 21, 2010 CORPORATE OVERVIEW. Peabody Energy Corp. (BTU) was founded in 1883 as Peabody, Daniels and Co., a retail coal supplier. BTU is currently the world's largest private sector coal company. In 2009, it produced nearly 211 million tons of coal, down from 225 million tons produced in 2008, with U.S. operations producing more than 188 million tons, or about a 17.4% share of U.S. production, by our calculation, and 21.7 million tons produced in Australia. BTU sold nearly 244 million tons of coal to 345 electricity generating and industrial plants in 23 countries. At December 31, 2009, BTU had 9 billion tons of proven and probable coal reserves. BTU owns majority interests in 28 coal operations located in the Western and Midwestern U.S. coal producing regions and in Australia. In addition, the company owns a 50% interest in Mongolian coal and mineral interests and also owns purchase rights for up to 15% of its Mongolian joint venture partner, Polo Resources Limited. It also owns a minority interest in one Venezuelan mine through a joint venture agreement. In 2009, 83% of the U.S. mining operation's coal sales were shipped from the U.S. West, and the remaining 17% from the Midwest. Most production in the West is low sulfur coal from the Powder River Basin, which has seen the fastest growth of all U.S. coal regions, according to the Energy Information Administration (EIA). In the West, the company owns and operates mines in Arizona,

Colorado, New Mexico and Wyoming. In the Midwest, BTU owns and operates mines in Illinois and Indiana. In 2009, 81% of sales were to U.S. electricity generators, 2% to the U.S. industrial sector, and 17% to foreign customers. About 93% of 2009 coal sales were under long-term contracts, with terms ranging from one to 17 years. As of January 26, 2010, the company had 11 million to 13 million and 18 million to 20 million tons of its planned Australian production unpriced for 2010 and 2011, respectively. In the company's U.S. operations, all of the planned production in 2010 is priced, while 30% of planned production in 2011 is unpriced. In addition to its mining operations, BTU markets and trades coal and emission allowances. Total tons traded amounted to 29.4 million in 2009 as compared to 31.2 million tons in 2008. Other energy-related businesses include coalbed methane production, transportation services, and the development of coalfueled generation plants.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 13.98 3.17 1.68 1.60 0.25 15% 48.21 20.17 29 12

2008 10.96 5.31 3.63 3.36 0.24 7% 88.69 16.00 24 4

2007 9.33 2.91 1.56 1.42 0.24 15% 62.55 36.20 40 23

2006 7.95 3.63 2.23 2.00 0.24 11% 76.29 32.94 34 15

2005 8.27 2.76 1.58 1.43 0.17 11% 43.48 18.37 28 12

2004 3.33 0.88 0.70 0.63 0.13 19% 21.70 9.10 31 13

2003 5.18 1.26 0.19 0.11 0.11 59% 10.75 6.13 57 32

2002 5.16 1.57 0.49 0.27 0.10 20% 7.69 4.38 16 9

2001 4.98 0.96 0.10 -0.03 0.05 53% 9.51 5.55 NM NM

2000 5.72 3.12 0.74 NA 0.05 7% NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

6,012 NA 405 201 652 29.7% 443 431

6,593 1,774 454 226 1,177 15.8% 985 910

4,575 827 362 237 341 NM 421 383

5,256 884 377 143 531 NM 601 541

4,644 703 316 103 426 0.23% 423 382

3,632 519 270 96.8 153 NM 178 160

2,829 385 234 98.5 -3.18 NM 41.5 23.9

2,717 390 232 102 78.8 NM 106 58.5

2,027 276 175 89.0 29.0 12.9% 19.0 -5.74

2,670 405 241 198 153 27.9% 103 NA

Balance Sheet & Other Financial Data (Million $) Cash 989 Current Assets 2,189 Total Assets 9,955 Current Liabilities 1,312 Long Term Debt 2,738 Common Equity 3,756 Total Capital 6,508 Capital Expenditures 441 Cash Flow 848 Current Ratio 1.7 % Long Term Debt of Capitalization 42.1 % Net Income of Revenue 7.4 % Return on Assets 4.5 % Return on Equity 13.3

450 1,971 9,822 1,856 3,139 2,904 6,061 486 1,439 1.1 51.9 14.9 10.1 36.3

45.3 1,927 9,668 2,187 3,139 2,520 5,975 649 783 0.9 52.5 9.2 4.4 17.3

327 1,274 9,514 1,368 3,168 2,339 5,735 478 978 0.9 55.2 11.4 7.3 26.6

503 1,325 6,852 1,023 1,383 2,178 3,902 384 739 1.3 35.4 9.1 6.5 21.7

390 1,055 6,179 774 1,406 1,725 3,526 267 448 1.4 39.9 4.9 3.1 12.5

118 683 5,280 632 1,173 1,132 2,742 156 276 1.1 42.8 NM NM NM

71.2 550 5,140 632 982 1,081 2,599 209 338 0.9 37.8 3.9 2.1 10.0

39.0 527 5,151 684 985 1,040 2,590 194 194 0.8 38.0 0.1 0.3 2.3

67.7 630 5,209 777 1,369 631 2,613 151 344 0.8 52.4 3.8 1.9 18.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 701 Market St, St. Louis, MO 63101-1826. Telephone: 314-342-3400. Email: [email protected] Website: http://www.peabodyenergy.com

Chrmn & CEO: G.H. Boyce Pres: R.A. Navarre COO & EVP: E. Ford EVP & CFO: M.C. Crews

EVP & Chief Admin Officer: S.D. Fiehler Founded: 1883 Investor Contact: C. Morrow (314-342-7900) Domicile: Delaware Board Members: G. H. Boyce, W. A. Coley, W. E. Employees: 7,300 James, R. B. Karn, III, M. F. Keeth, H. E. Lentz, Jr., R. A. Malone, W. C. Rusnack, J. F. Turner, S. A. Van Trease, A. H. Washkowitz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JCP | JCP is in the S&P 500

J. C. Penney Company Inc. S&P Recommendation HOLD

★★★★★

Price $32.55 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Department Stores

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary This company is the leading mall-based family department store operator in the U.S., with over 1,100 retail locations and catalog/Internet operations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $36.54– 19.42 Trailing 12-Month EPS $1.27 Trailing 12-Month P/E 25.6 $10K Invested 5 Yrs Ago $7,228

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.55 2.00 21.0 236.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.696 2.46 $0.80 NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.84 30 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of JCP's strong brand and increasing market share in the moderate department store sector, offset by a challenging macroeconomic environment that has led to weakening sales and profit trends in recent quarters.

80 50 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

122

Mil. 45 30 15 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

4

3

4

3

STRONG 94

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Jason N. Asaeda on October 08, 2010, when the stock traded at $ 31.64. Highlights ➤

➤

We see net sales reaching $17.8 billion in FY 11 (Jan.), supported by a same-store sales increase of about 2%. In our view, middle-income consumers, JCP's target demographic, continue to spend cautiously due to macroeconomic concerns. However, we look for the company to achieve higher sales through the delivery of differentiated merchandise, the continued rollout of the "Sephora inside JCPenney" concept (215 locations as of July 31), and customer service initiatives such as the new JCP Rewards program. Despite the elimination of higher-margin "big book" catalog sales in FY 11, we anticipate 90 bps of operating margin improvement, to 4.7%, supported by good sell-through of "wear now" apparel at regular and promotional prices, reduced clearance sales through disciplined inventory management, well-controlled SG&A expense growth, and lower projected non-cash pension expense of $221 million versus FY 10's $298 million.

Investment Rationale/Risk ➤

➤

We recently lowered our recommendation on the shares to hold from buy, based on valuation. However, our near-term outlook for the company remains positive. We see quarterly samestore sales growth strengthening this fall, supported by appointment shopping events such as back-to-school and holiday promotions, the company's new Red Zone Clearance strategy, which gives customers clearer pricing on inseason merchandise, closer alignment of assortments between stores and jcpenney.com, and new marketing initiatives across traditional, online, and mobile media. We also expect the company to attract new customers with the Liz Claiborne and MNG by Mango exclusive brand launches. Risk to our recommendation and target price include sales shortfalls due to unforeseen shifts in fashion trends and cost-conscious consumers trading down to discounters such as Wal-Mart Stores (WMT 54, Strong Buy) for basic apparel and home merchandise.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 3,929 3,938 2010 3,884 3,943 2009 4,127 4,282 2008 4,350 4,391 2007 4,220 4,238 2006 4,192 3,981

3Q -4,179 4,318 4,729 4,781 4,479

4Q -5,550 5,759 6,390 6,664 6,203

Year -17,556 18,486 19,860 19,903 18,781

Earnings Per Share ($) 2011 0.25 0.06 2010 -0.11 Nil 2009 0.54 0.52 2008 1.04 0.52 2007 0.90 0.75 2006 0.63 0.46

E0.19 0.11 0.55 1.17 1.26 0.94

E1.05 0.83 0.93 1.93 2.00 1.92

E1.55 1.07 2.54 4.91 4.88 3.83

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.200 0.200 0.200

12/09 03/26 05/21 09/17

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

02/01/10 05/03/10 08/02/10 11/01/10

Dividends have been paid since 1922. Source: Company reports. ➤

Also factoring in $393 million of debt that matured in March 2010, which should reduce the company's interest expense, we see EPS rising 44% in FY 11, to $1.55.

➤

Our 12-month target price of $30 is based on a peer-median forward price-to-sales multiple of 0.4X applied to our FY 11 sales per share estimate of $75.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: JCP

J. C. Penney Company Inc. Business Summary October 08, 2010 CORPORATE OVERVIEW. In our view, JCP is the leading mall-based family department store operator, with 1,107 JCPenney stores in 49 states and Puerto Rico, as of August 13, 2010. We think the company is also adeptly addressing the needs of time-strapped shoppers with the shopping convenience afforded by its direct business, comprised of JCPenney specialty catalogs and the jcpenney.com web site, as well as its growing off-mall retail presence. JCP discontinued publishing its twice-yearly "big book" catalogs in FY 11. CORPORATE STRATEGY. From FY 01 (Jan.) to FY 06, JCP executed a turnaround plan to improve the profitability of its JCPenney stores. The company focused on delivering competitive, fashionable merchandise assortments; developing a compelling and appealing marketing program; improving store environments; reducing its expense structure; and attracting and retaining an experienced and professional work force. In support of these objectives, JCP moved from decentralized to centralized merchandising, marketing and operating functions, and invested in a new store distribution network and in new

merchandise planning, allocation and replenishment systems. With what we view as the success of its turnaround, JCP has mapped out a new long-range plan for making JCPenney the preferred shopping choice for "Middle America," which it defines as customers aged 35 to 54 with annual household incomes of $35,000 to $85,000. Key strategies include offering styles that make an emotional connection with the customer; making it easier for the customer to shop seamlessly across store/catalog/Internet channels; creating and sustaining a customer-focused culture; and using the off-mall store format to expand the company's presence in high-potential markets. JCP sees the potential for up to 400 new stores, relocations or expansions on a longterm basis.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 19.49 3.19 1.07 1.70 0.80 75% 2009 37.21 13.71 35 13

2009 18.09 4.65 2.54 1.15 0.80 75% 2008 51.42 13.95 20 5

2008 23.93 6.80 4.91 4.37 0.72 15% 2007 87.18 39.98 18 8

2007 18.97 6.57 4.88 4.66 0.50 10% 2006 82.49 54.18 17 11

2006 17.20 5.79 3.83 3.77 0.50 13% 2005 57.99 40.26 15 11

2005 17.92 3.33 2.23 2.26 0.50 22% 2004 41.82 25.29 19 11

2004 18.54 2.68 1.21 1.24 0.50 41% 2003 26.42 15.57 22 13

2003 12.04 3.45 1.25 0.66 0.50 40% 2002 27.75 14.07 22 11

2002 11.46 3.00 0.32 0.15 0.50 156% 2001 29.50 10.50 92 33

2001 NM 0.36 -2.29 -2.47 0.50 NM 2000 22.50 8.63 NM NM

17,556 1,187 495 255 403 38.2% 249 396

18,486 1,579 469 268 910 37.7% 567 258

19,860 2,268 426 278 1,723 35.9% 1,105 986

19,903 2,277 389 270 1,792 36.7% 1,134 1,081

18,781 1,949 372 169 1,444 32.3% 977 960

18,424 1,680 368 233 1,020 34.6% 667 662

17,786 1,184 394 261 546 33.3% 345 345

32,347 1,681 667 388 584 36.5% 371 171

32,004 1,473 717 386 203 43.8% 114 41.0

31,846 873 695 427 -886 NM -568 -650

Balance Sheet & Other Financial Data (Million $) Cash 3,011 Current Assets 6,652 Total Assets 12,581 Current Liabilities 3,249 Long Term Debt 2,999 Common Equity 4,778 Total Capital 8,170 Capital Expenditures 600 Cash Flow 744 Current Ratio 2.1 % Long Term Debt of Capitalization 36.7 % Net Income of Revenue 1.4 % Return on Assets 2.0 % Return on Equity 5.6

2,352 6,220 12,011 2,794 3,505 4,155 7,659 969 1,036 2.2 45.8 3.1 4.3 12.0

2,471 6,751 14,309 3,338 3,505 5,312 10,280 1,243 1,531 2.0 34.1 5.6 8.2 23.0

2,747 6,648 12,673 3,492 3,010 4,288 8,504 772 1,523 1.9 41.2 5.7 9.0 27.3

3,016 6,702 12,461 2,762 3,444 4,007 8,738 535 1,349 2.4 39.4 5.2 7.3 22.0

4,687 8,427 14,127 3,447 3,464 4,856 9,638 412 1,023 2.4 35.9 3.6 4.1 13.1

2,994 6,515 18,300 3,754 5,114 5,121 11,756 373 733 1.7 43.5 2.0 2.0 6.1

2,474 8,353 17,867 4,159 4,940 6,037 12,701 658 1,011 2.0 38.9 1.1 2.1 5.8

2,840 8,677 18,048 4,499 5,179 5,766 12,539 631 802 1.9 41.3 0.4 0.1 1.9

944 7,257 19,742 4,235 5,448 5,860 12,843 648 94.0 1.7 42.4 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6501 Legacy Drive, Plano, TX 75024-3698. Telephone: 972-431-1000. Website: http://www.jcpenney.net Chrmn & CEO: M. Ullman, III

EVP & CFO: R.B. Cavanaugh EVP & Chief Admin Officer: M.T. Theilmann EVP, Secy & General Counsel: J.L. Dhillon EVP & CIO: T.M. Nealon

Investor Contact: P. Sanchez (972-431-5575) Founded: 1902 Board Members: C. C. Barrett, M. A. Burns, T. J. Domicile: Delaware Engibous, K. B. Foster, G. B. Laybourne, B. Osborne, L. Employees: 147,000 H. Roberts, J. G. Teruel, R. G. Turner, M. Ullman, III, M. B. West

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NNM Symbol: PBCT | PBCT is in the S&P 500

People's United Financial Inc S&P Recommendation STRONG BUY

★★★★★

Price $12.66 (as of Oct 25, 2010)

GICS Sector Financials Sub-Industry Thrifts & Mortgage Finance

12-Mo. Target Price $20.00

Investment Style Large-Cap Blend

Summary This company provides a full range of banking and financial service products to individuals, corporations and municipal customers in the U.S. Northeast.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.16– 12.56 Trailing 12-Month EPS $0.22 Trailing 12-Month P/E 57.6 $10K Invested 5 Yrs Ago $9,610

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.36 0.47 35.2 370.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.695 4.90 $0.62 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.19 18 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the good credit quality of PBCT's loan portfolio and its history of profitability, offset by execution risk, mostly stemming from the investment of the proceeds from the company's second-step conversion.

22 20 18 16 14

Quantitative Evaluations Vol.

30 20 10 0 5

S&P Quality Ranking

118

Mil.

D

4

3

5

5

4

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ WEAK

17 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Rafay Khalid, CFA on October 25, 2010, when the stock traded at $ 12.61. Highlights ➤

➤

➤

We forecast revenue growth of 12% in 2010, reflecting our outlook for a modest increase in average earning assets and a widening of the net interest margin. In addition, we believe the recently completed Financial Federal Corporation (FFC) acquisition will help boost revenue growth. FFC will continue to be managed as a separate wholly owned subsidiary. Our 2010 estimates include a net interest margin of 3.64%, up 45 basis points from 3.19% in 2009. We expect revenue growth of 7% in 2011. We see expenses increasing on a dollar basis in 2010, following the FFC acquisition. We forecast expenses as a percentage of revenues will increase to 77.9% in 2010, from 76.5% in 2009, but then decrease to 73.5% in 2011. We do not expect any special FDIC assessments in 2010. We believe loan loss provisions will continue to decline to $56 million in 2010 and $34 million in 2011, from $57 million in 2009. Our view assumes a gradual economic recovery in 2010. Our EPS forecasts are $0.36 in 2010 and $0.47 in 2011. This compares to $0.30 in 2009. Our EPS estimates assume a 32% effective tax rate.

Investment Rationale/Risk ➤

➤

➤

We believe the FFC acquisition gives PBCT additional exposure to the high-yielding equipment leasing business. We think the FFC deal will be accretive to the company's 2010 earnings. We view the proposed acquisitions of Smithtown Bancorp. and LSB Corp. favorably, as they should increase PBCT's market share in the Northeast region. In addition, we expect further deals to follow, as PBCT will likely continue to put its excess liquidity to work. We view the company's balance sheet as solid, given its $3.3 billion in cash and cash equivalents and $437 million of debt as of September 30, 2010. Risks to our recommendation and target price include possible integration problems related to the FFC acquisition, higher-than-expected loan loss provisions, and significant deterioration in the macroeconomic environment. Our 12-month target price of $20 is based on a historical average tangible book value ratio of 1.88X applied to our 2011 tangible book value per share forecast of $10.65.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 264.2 283.7 2009 267.4 277.2 2008 337.2 300.9 2007 193.0 233.0 2006 179.5 183.5 2005 157.2 164.3

3Q 283.4 272.1 296.6 239.6 161.4 172.7

4Q -259.2 286.1 226.8 195.9 185.5

Year -1,076 1,221 892.4 729.5 679.7

Earnings Per Share ($) 2010 0.04 0.05 2009 0.08 0.08 2008 0.05 0.13 2007 0.11 0.05 2006 0.11 0.11 2005 0.10 0.10

0.07 0.08 0.14 0.20 0.05 0.11

E0.11 0.08 0.11 0.16 0.13 0.11

E0.36 0.30 0.42 0.51 0.40 0.42

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.153 0.155 0.155 0.155

01/21 04/15 07/15 10/21

01/28 04/28 07/28 10/28

02/01 05/01 08/01 11/01

02/15/10 05/15/10 08/15/10 11/15/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 25, 2010 | NNM Symbol: PBCT

People's United Financial Inc Business Summary October 25, 2010 CORPORATE OVERVIEW. People's United Financial (formerly People's Bank of Connecticut), formed in 1842, is a state-chartered stock savings bank headquartered in Bridgeport, CT. As of December 31, 2009, assets totaled roughly $21.3 billion. The company offers a full range of financial services to individual, corporations, and municipal customers. In addition to traditional banking activities, People's provides specialized services tailored to specific markets, including personal, institutional and employee benefits; cash management; and municipal banking and finance. PBCT offers brokerage, financial advisory services and life insurance through its People's Securities subsidiary and Chittenden Securities; equipment financing through People's Capital and Leasing (PCLC) and Financial Federal Corp (FFC); and other insurance services through R.C. Knox and Company, Inc. and Chittenden Insurance Group, LLC. Services are delivered through a network of over 300 branches in Connecticut, Massachusetts, New Hampshire, Vermont, Maine and New York, including 79 full-service supermarket branches, 43 investment and brokerage offices, nine PCLC offices, 16 commercial banking offices, and over 400 ATMs.

tains a sales presence in six states to support its equipment financing operations outside of New England. Within the Commercial Banking division, PBCT maintains a national credits group, which has participated in commercial loans and real estate loans to borrowers in various industries on a national scale. PRIMARY BUSINESS DYNAMICS. As of December 31, 2009, total loans of $14.2 billion were 38% commercial real estate loans (34%); 28% commercial loans (29%); 18% residential real estate loans (versus 22% in 2008); and 16% consumer loans (15%). As of December 31, 2009, deposits comprised 97.8% of funding costs, versus 97.5% at December 31, 2008. At year-end 2009, deposits consisted of noninterest 22% (versus 22% in 2008); low interest 45% (44%); and time deposits 33% (34%).

PBCT has increased its residential mortgage and home equity lending activities in the contiguous markets of New York and Massachusetts. In addition, PBCT maintains a loan production office in Massachusetts, and PCLC mainCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.68 0.30 0.29 0.61 NM 18.54 14.72 62 49

2008 10.87 0.42 0.37 0.58 138% 21.76 13.92 52 33

2007 15.06 0.51 0.51 0.52 102% 22.81 14.78 45 29

2006 8.68 0.40 0.41 0.46 115% 21.62 14.29 54 36

2005 3.98 0.42 0.41 0.41 96% 16.07 11.43 38 27

2004 5.53 -0.02 -0.01 0.45 NM 14.12 6.88 NM NM

2003 4.55 0.22 0.22 0.32 148% 7.20 5.13 33 23

2002 2.83 0.19 0.16 0.30 158% 5.94 4.37 31 23

2001 2.82 0.30 0.09 0.28 96% 6.01 4.37 20 15

2000 2.61 0.37 NA 0.25 68% 5.71 3.47 15 9

Income Statement Analysis (Million $) Net Interest Income Loan Loss Provision Non Interest Income Non Interest Expenses Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

577 57.0 309 685 144 29.9% 101 3.19 98.4

636 26.2 303 654 208 32.8% 140 3.62 124

487 8.00 180 439 225 33.6% 149 4.12 147

382 3.40 175 347 180 32.2% 122 3.87 124

370 8.60 172 343 190 33.7% 126 3.68 124

327 13.3 155 479 -14.2 NM -5.60 3.33 -4.16

320 48.6 252 436 86.9 26.6% 63.8 2.95 63.9

351 77.7 251 441 80.4 31.1% 55.4 3.40 46.6

354 101 339 441 133 34.8% 86.7 4.33 27.2

385 59.9 290 453 166 34.5% 108 4.47 NA

Balance Sheet & Other Financial Data (Million $) Total Assets 21,256 Loans 14,061 Deposits 15,446 Capitalization:Debt 341 Capitalization:Equity 5,101 Capitalization:Total 5,442 % Return on Assets 0.5 % Return on Equity 2.0 % Loan Loss Reserve 1.2 % Risk Based Capital 14.1 Price Times Book Value:High 1.7 Price Times Book Value:Low 1.4

20,168 14,408 14,269 368 5,176 5,544 0.8 2.9 1.1 13400.0 2.0 1.3

13,555 8,877 8,881 65.4 4,445 4,511 1.2 5.2 0.8 33.4 1.5 1.0

10,687 9,298 9,083 65.3 1,340 1,405 1.1 9.3 0.8 16.1 2.5 1.6

10,933 8,498 9,083 109 1,289 1,398 1.2 10.1 0.9 16.4 4.0 2.9

10,718 7,861 8,862 122 1,200 1,322 NM NM 0.9 16.7 2.6 1.2

11,672 8,122 8,714 1,162 1,002 2,164 0.5 6.6 1.4 13.1 1.6 1.1

12,261 7,336 8,426 1,165 940 2,104 0.5 5.9 1.5 12.5 2.1 1.5

11,891 6,931 7,983 1,478 935 2,413 0.7 9.5 1.6 12.3 2.1 1.6

11,571 7,345 7,761 1,824 882 2,706 1.0 13.0 1.4 11.6 2.2 1.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 850 Main St, Bridgeport, CT 06604-4904. Telephone: 203-338-7171. Website: http://www.peoples.com Chrmn: G.P. Carter

Pres & CEO: J.P. Barnes COO: M.K. Vitelli EVP & CFO: P.D. Burner EVP & Chief Admin Officer: L.C. Powlus

Investor Contact: J. Shaw Board Members: J. P. Barnes, C. P. Baron, G. P. Carter, J. K. Dwight, J. Franklin, E. S. Groark, J. M. Hansen, R. M. Hoyt, M. W. Richards, J. A. Thomas

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1842 Domicile: Connecticut Employees: 4,534

Stock Report | October 23, 2010 | NYS Symbol: POM | POM is in the S&P 500

Pepco Holdings Inc. S&P Recommendation HOLD

★★★★★

Price $19.41 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $18.00

Investment Style Large-Cap Blend

Summary This energy holding company for three regulated utilities and an unregulated energy services business recently sold its Conectiv Energy power generation business.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.80– 14.34 Trailing 12-Month EPS $0.66 Trailing 12-Month P/E 29.4 $10K Invested 5 Yrs Ago $12,323

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.98 1.25 19.8 223.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.346 5.56 $1.08 54

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.57 -13 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that with the completion of the sale of Conectiv Energy, whose earnings and cash flows were highly volatile, there will be much greater financial stability, with the regulated electric transmission and distribution businesses accounting for at least 90% of earnings and cash flows.

30

20 15

10

Quantitative Evaluations

Vol. 31

Mil.

31

31

S&P Quality Ranking

15 10 5 0 5

D 4

3

B-

B B

B+

A-

A

Relative Strength Rank

3

A+

MODERATE 68

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Justin McCann on October 13, 2010, when the stock traded at $ 19.17. Highlights ➤

With the sale of Conectiv Energy (completed on July 1, 2010), we believe POM's earnings volatility will be greatly reduced as the regulated utility operations are now expected to account for at least 90% of consolidated earnings.

➤

We view 2010 as a transition year for POM, and expect much stronger results in 2011. Operating EPS from continuing operations in the first half of 2010 benefited from rate increases and the more favorable weather in the second quarter. Results were also aided by higher transmission revenues due to the accrual of rate adjustments for the prior rate year. These factors were partially offset by restoration costs related to two severe storms in the first quarter. We expect the sale of Conectiv Energy to result in a one-time reported GAAP after-tax loss of $0.27 to $0.40 per share. For 2011, we expect operating EPS from continuing operations to grow more than 25% from anticipated results in 2010, driven by rate increases, a sharp decline in interest expense, and a gradual recovery in the economy. We see EPS growth over the next five years being driven by expansion of the rate base through infrastructure investments.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: Ph

➤

C

The stock is up around 13% year to date, reflecting, in our view, the recent investor shift to the utility sector and POM's well above-peers yield from the dividend. This follows a 5.1% decline in 2009. The sale of Conectiv Energy has greatly reduced POM's exposure to the energy commodity market and its earnings volatility, in our view. We think that with the proceeds from the transaction to be used for debt reduction, POM's balance sheet and credit profile will be strengthened, eliminating the need to issue new equity through at least 2012.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,359 1,636 2009 2,520 2,065 2008 2,641 2,518 2007 2,179 2,084 2006 1,952 1,917 2005 1,805 1,712

3Q -2,539 3,060 2,770 2,590 2,489

4Q -2,135 2,481 2,333 1,905 2,063

Year -9,259 10,700 9,366 8,363 8,066

Earnings Per Share ($) 2010 0.16 0.34 2009 0.21 0.11 2008 0.49 0.07 2007 0.27 0.30 2006 0.29 0.27 2005 0.24 0.34

E0.37 0.56 0.59 0.87 0.54 0.90

E0.11 0.19 0.32 0.29 0.19 0.43

E0.98 1.06 1.47 1.72 1.30 1.91

Risks to our recommendation and target price include much weaker than expected earnings from the unregulated Pepco Energy Services unit, unfavorable regulatory rulings, and the potential for a sharp decline in the average P/E of the group as a whole.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

POM believes the sale of Conectiv Energy will support its renewed commitment to the dividend, whose recent yield (around 5.6%) was still well above the average peer yield of about 4.7%. Our 12-month target price is $18, reflecting a premium-to-peers P/E of 14.4X our operating EPS estimate for 2011.

0.270 0.270 0.270 0.270

10/22 01/28 04/22 07/22

12/08 03/08 06/08 09/08

12/10 03/10 06/10 09/10

12/31/09 03/31/10 06/30/10 09/30/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1904. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: POM

Pepco Holdings Inc. Business Summary October 13, 2010 CORPORATE OVERVIEW. Pepco Holdings (POM) is an energy holding company involved in the power delivery business, which provides transmission and distribution of electricity and distribution of natural gas. These operations are conducted through POM's three regulated utility subsidiaries: Potomac Electric Power Company (Pepco), Delmarva Power & Light Company (DPL), and Atlantic City Electric Company (ACE). POM is also involved in the competitive energy business, but with the July 2010 sale of the bulk of Conectiv Energy, which provided non-regulated generation and the marketing and supply of electricity and natural gas, this segment of POM's operations was reduced to the energy management services provided by its Pepco Energy Services (PES) subsidiary. In 2009, the power delivery business contributed 49.3% of POM's consolidated operating revenues; PES, 24.9%; Conectiv Energy, 22.6%; and other, 0.5%.

pleted the sale (announced on April 21, 2010) of its Conectiv Energy power generation business to Calpine Corporation (CPN) for $1.63 billion, after adjustments. The sale did not include Conectiv's power supply contracts, its energy hedging portfolio, and other non-core assets, which POM expects to have liquidated by the end of April 2011. The estimated $2 billion in proceeds from the sales (which includes the return of related collateral, working capital and the liquidation of the supply contracts) are expected to be used for the payment of $300 million of projected taxes, and the reduction of $1.75 billion of POM debt. With the completion of the transaction, the regulated operations are now expected to account for 90% to 95% of POM's consolidated operating income, compared to 71% in 2009.

IMPACT OF IMPORTANT DEVELOPMENTS. On July 1, 2010, the company comCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.82 1.06 1.25 0.54 51% 18.71 10.07 18 9

2008 12.69 1.47 1.08 0.54 37% 29.64 15.27 20 10

2007 13.01 1.72 1.60 1.04 60% 30.71 24.20 18 14

2006 11.48 1.30 1.28 1.04 80% 26.99 21.79 21 17

2005 11.34 1.91 1.37 1.00 52% 24.46 20.26 13 11

2004 10.28 1.47 1.38 1.00 68% 21.71 16.94 15 12

2003 9.12 0.63 0.87 1.00 159% 20.56 16.10 33 26

2002 9.20 1.61 1.31 0.92 57% 23.83 15.37 15 10

2001 17.01 1.50 1.20 1.17 78% 24.90 20.08 17 13

2000 16.77 2.96 NA 1.66 56% 27.88 19.06 9 6

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

9,259 391 NA 1.82 NA 31.9% 235 279

10,700 377 NA 2.42 NA 35.9% 300 219

9,366 366 NA 2.41 NA 36.0% 334 311

8,363 413 NA 2.25 NA 39.4% 248 246

8,066 423 NA 2.37 NA 41.3% 362 259

7,222 441 NA 2.06 NA 40.1% 259 241

7,271 422 NA 1.43 NA 38.0% 108 147

4,325 240 NA 2.47 NA 37.1% 211 171

2,503 171 NA 3.06 NA 33.1% 168 130

2,624 248 NA 4.32 NA 49.2% 352 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 13,717 Capital Expenditures 864 Net Property 8,863 Capitalization:Long Term Debt 4,947 Capitalization:% Long Term Debt 53.8 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 4,256 Capitalization:% Common 46.2 Total Capital 9,752 % Operating Ratio 95.8 % Earned on Net Property 5.8 % Return on Revenue 2.5 % Return on Invested Capital 5.8 % Return on Common Equity 5.6

12,926 781 8,314 5,378 56.2 Nil Nil 4,190 43.8 11,883 94.4 9.5 2.8 5.5 7.3

12,307 623 7,877 4,735 54.1 Nil Nil 4,018 45.9 10,903 93.7 10.0 3.6 6.0 8.8

11,820 475 7,577 4,367 54.7 Nil Nil 3,612 45.3 10,134 93.2 9.3 3.0 6.2 6.9

11,384 467 7,312 4,885 57.7 Nil Nil 3,584 42.3 10,455 92.4 12.6 4.5 8.0 10.5

11,045 517 7,088 5,128 60.4 Nil Nil 3,366 39.6 10,532 91.6 11.0 3.6 6.7 8.1

10,747 564 6,965 5,373 63.7 63.2 0.75 3,003 35.6 8,439 92.6 18.6 1.5 8.3 3.4

10,625 504 6,798 5,122 62.2 111 1.35 2,996 36.4 9,833 90.3 16.4 4.9 6.4 8.7

4,367 245 2,758 1,722 45.9 210 5.59 1,823 48.5 4,282 87.1 27.5 6.7 9.6 8.9

4,339 226 2,776 1,985 50.4 90.3 2.29 1,863 47.3 4,384 91.9 16.0 13.4 11.8 18.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 701 Ninth Street N.W., Washington, DC 20068. Telephone: 202-872-2000. Email: [email protected] Website: http://www.pepcoholdings.com

Chrmn, Pres & CEO: J.M. Rigby SVP & CFO: P.H. Barry Chief Acctg Officer & Cntlr: R. Clark Treas: K.M. McGowan

Secy: E.S. Rogers Investor Contact: E.J. Bourscheid (202-872-2797) Board Members: J. B. Dunn, IV, T. C. Golden, P. Harker, F. O. Heintz, B. J. Krumsiek, G. F. MacCormack, L. C. Nussdorf, P. A. Oelrich, J. M. Rigby, F. K. Ross, P. A. Schneider, L. Silverman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1896 Domicile: Delaware Employees: 5,110

Stock Report | October 23, 2010 | NYS Symbol: PEP | PEP is in the S&P 500

PepsiCo Inc S&P Recommendation BUY

★★★★★

Price $65.01 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Soft Drinks

12-Mo. Target Price $71.00

Investment Style Large-Cap Growth

Summary This company is a major international producer of branded beverage and snack food products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $68.11– 58.75 Trailing 12-Month EPS $3.97 Trailing 12-Month P/E 16.4 $10K Invested 5 Yrs Ago $12,771

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.14 4.59 15.7 1,584.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

50

MEDIUM

HIGH

Quantitative Evaluations

Vol. Mil.

105

S&P Quality Ranking

45 30 15 0

D 4

3

4

4

3

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

28

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Esther Y. Kwon, CFA on October 18, 2010, when the stock traded at $ 66.68. Highlights In 2010, we see net sales advancing more than 30% from 2009's $43.2 billion, largely on the acquisitions of anchor bottlers Pepsi Bottling Co. and PepsiAmericas, completed in February 2010. We see beverage volumes in the Americas continuing to struggle but expect better performance from Gatorade as the brand is refreshed. We also think PEP will improve sales in the convenience and gas and food service channels. For 2011, we forecast sales growth of over 6%. We expect operating margins to decline on investments in infrastructure and product and packaging innovation, offset somewhat by acquisition synergies, which we estimate will boost income by about $150 million, and lower commodity costs. On a higher tax rate of about 27%, compared to 2009's effective tax rate of 25.6%, and higher interest expense, we estimate 2010 operating EPS of $4.14, up from 2009's $3.71. In March, PEP's directors reinstated the company's share repurchase program upon the close of the bottler acquisitions, and PEP said it plans to repurchase about $4.4 billion of stock in 2010. For 2011, we see EPS of $4.59.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

LOW

Our risk assessment reflects the relatively stable nature of the company's end markets, its strong cash flow, leading global market positions, corporate governance practices that we view as favorable versus peers, and an S&P Quality Ranking of A+, reflecting superior long-term earnings and dividend growth.

60

➤

0.54 8 A

Below Avg.

70

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

80

5

$103.031 2.95 $1.92 66

We view favorably PEP's international growth opportunities and healthy cash flow growth. Although we remain cautious about sluggish Americas beverage trends, we think new product introductions and new marketing initiatives in 2010 will drive improvement, while we see exposure to stronger international markets as a potential offset. In addition to the company's leading market positions, we view PEP's product innovation strategy as trend-setting for the industry. Its focus on health and wellness should continue to drive the top line, and we look for strong returns to shareholders in the form of dividends and share repurchases. Risks to our recommendation and target price include unfavorable weather conditions in the company's markets and increased competitive activity. As PEP boosts its exposure to foreign markets, political and currency risks also increase. Our relative valuation model, derived from analysis of peer and historical P/E multiples, indicates a value of $71, which is our 12-month target price. This reflects a multiple of projected 2011 EPS below the recent historical range of 19X to 27X.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 9,368 14,801 2009 8,263 10,592 2008 8,333 10,945 2007 7,350 9,607 2006 7,205 8,599 2005 6,585 7,697

3Q 15,514 11,080 11,244 10,171 8,950 8,184

4Q -13,297 12,729 12,346 10,383 10,096

Year -43,232 43,251 39,474 35,137 32,562

Earnings Per Share ($) 2010 0.89 0.98 2009 0.72 1.06 2008 0.70 1.05 2007 0.65 0.94 2006 0.60 0.80 2005 0.53 0.70

1.19 1.09 0.99 1.06 0.88 0.51

E1.06 0.91 0.46 0.77 1.06 0.65

E4.14 3.77 3.21 3.41 3.34 2.39

Fiscal year ended Dec. 31. Next earnings report expected: Mid February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.450 0.450 0.480 0.480

11/13 02/09 03/15 07/16

12/02 03/03 06/02 09/01

12/04 03/05 06/04 09/03

01/04/10 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1952. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PEP

PepsiCo Inc Business Summary October 18, 2010 CORPORATE OVERVIEW. Originally incorporated in 1919, PepsiCo is a leader in the global snack and beverage industry. The company manufactures, markets and sells a variety of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages, and foods. PepsiCo is organized into three business units with six reportable segments: PepsiCo Americas Foods (PAF), which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), and Latin America Foods (LAF); PepsiCo Beverages America (PAB), which includes PepsiCo Beverages North America and all of its Latin American beverage businesses; and PepsiCo International, which includes all of PepsiCo businesses in Europe and Asia, the Middle East and Africa (AMEA). FLNA (31% of 2009 net revenue, 24.6% of operating profits before corporate overhead) produces the best-selling line of snack foods in the U.S., including Fritos brand corn chips, Lay's and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese-flavored snacks, SunChips multigrain snacks, and Quaker Chewy granola bars. FLNA branded products are sold to independent distributors and retailers. Products are transported from Frito-Lay's manufacturing plants to major distribution centers, principally in company-owned trucks.

QFNA (4.4%, 33.3%) manufactures, markets and sells Cap'n Crunch and Life ready-to-eat cereals, Quaker hot cereals, Rice-A-Roni, Near East and Pasta Roni side dishes, Aunt Jemima mixes and syrups and Quaker grits. LAF (13%, 15.9%) manufactures, markets and sells snack foods under the brands Gamesa, Doritos, Cheetos, Ruffles, Lay's and Sabritas as well as many Quaker branded products. PAB (23%, 21.5%) manufactures or uses contract manufacturers, markets and sells beverage concentrates, fountain syrups and finished goods, under the brands Pepsi, Mountain Dew, Gatorade, 7UP (outside the U.S.), Tropicana Pure Premium, Sierra Mist, SoBe Lifewater, Tropicana juice drinks, Amp Energy, Naked juice and Izze. PBNA also manufactures, markets and sells readyto-drink tea and coffee products through joint ventures with Lipton and Starbucks. In addition, it markets the Aquafina water brand and licenses it to its bottlers.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.95 4.73 3.77 3.77 1.77 47% 64.48 43.78 17 12

2008 3.36 4.14 3.21 2.99 1.65 51% 79.79 49.74 25 15

2007 6.80 4.27 3.41 3.38 1.43 42% 79.00 61.89 23 18

2006 1.93 4.30 3.34 3.30 1.16 35% 65.99 56.00 20 17

2005 2.17 3.25 2.39 2.37 1.01 42% 60.34 51.34 25 21

2004 1.96 2.45 2.41 2.44 0.85 35% 55.71 45.30 23 19

2003 3.82 2.75 2.05 2.03 0.63 31% 48.88 36.24 24 18

2002 2.37 2.47 1.85 1.54 0.60 32% 53.50 34.00 29 18

2001 1.90 2.07 1.47 1.20 0.58 39% 50.46 40.25 34 27

2000 1.91 2.13 1.48 NA 0.56 38% 49.94 29.69 34 20

43,232 9,596 1,635 397 8,079 26.0% 5,946 5,945

43,251 8,964 1,486 329 7,021 26.8% 5,142 4,781

39,474 8,596 1,426 224 7,631 25.8% 5,658 5,602

35,137 7,845 1,406 239 6,989 19.3% 5,642 5,565

32,562 7,230 1,308 256 6,382 36.1% 4,078 4,028

29,261 6,673 1,264 167 5,546 24.7% 4,174 4,191

26,971 6,208 1,221 163 4,992 28.5% 3,568 3,543

25,112 6,066 1,112 178 4,868 31.9% 3,313 2,749

26,935 5,490 1,082 219 4,029 33.9% 2,662 2,164

20,438 4,185 960 221 3,210 32.0% 2,183 NA

Balance Sheet & Other Financial Data (Million $) Cash 4,135 Current Assets 12,571 Total Assets 39,848 Current Liabilities 8,756 Long Term Debt 7,400 Common Equity 16,908 Total Capital 24,842 Capital Expenditures 2,128 Cash Flow 7,461 Current Ratio 1.4 % Long Term Debt of Capitalization 29.8 % Net Income of Revenue 13.8 % Return on Assets 15.7 % Return on Equity 40.9

2,277 10,806 35,994 8,787 7,858 12,203 20,190 2,446 6,626 1.2 38.9 11.9 14.6 34.8

910 10,151 34,628 7,753 4,203 17,325 22,174 2,430 7,084 1.3 18.9 14.3 17.5 34.6

1,651 9,130 29,930 6,860 2,550 15,327 18,446 2,068 7,047 1.3 13.8 16.1 18.3 38.2

1,716 10,454 31,727 9,406 2,313 14,210 17,998 1,736 5,384 1.1 12.9 12.5 13.7 29.4

1,280 8,639 27,987 6,752 2,397 13,572 17,226 1,387 4,109 1.3 13.9 14.3 15.7 22.3

820 6,930 25,327 6,415 1,702 11,896 14,837 1,345 4,786 1.1 11.5 13.2 14.6 33.3

1,638 6,413 23,474 6,052 2,187 9,250 13,196 1,437 4,421 1.1 16.6 13.2 14.7 37.0

683 5,853 21,695 4,998 2,651 8,648 12,821 1,324 3,744 1.2 20.7 9.9 12.5 32.8

864 4,604 18,339 3,935 2,346 7,249 10,956 1,067 3,143 1.2 21.4 10.7 12.2 30.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 700 Anderson Hill Road, Purchase, NY 10577. Telephone: 914-253-2000. Website: http://www.pepsico.com Chrmn, Pres & CEO: I. Nooyi

COO & CFO: H.F. Johnston SVP, Chief Acctg Officer & Cntlr: P.A. Bridgman SVP & Treas: T. Hilado SVP, Secy & General Counsel: L.D. Thompson

Board Members: S. Brown, I. M. Cook, D. Dublon, V. J. Founded: 1916 Dzau, R. L. Hunt, A. Ibarguen, A. C. Martinez, I. Nooyi, S. Domicile: North Carolina P. Rockefeller, J. J. Schiro, L. G. Trotter, D. L. Vasella Employees: 203,000

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PKI | PKI is in the S&P 500

PerkinElmer Inc. S&P Recommendation BUY

★★★★★

Price $23.43 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Life Sciences Tools & Services

12-Mo. Target Price $28.00

Investment Style Large-Cap Value

Summary This diversified technology company provides advanced scientific and technical products and services worldwide to pharmaceutical and industrial markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.45– 18.22 Trailing 12-Month EPS $1.15 Trailing 12-Month P/E 20.4 $10K Invested 5 Yrs Ago $12,052

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.27 1.60 18.4 117.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.763 1.20 $0.28 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.83 13 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects PKI's broad product mix and diverse global client base. However, the company has been actively restructuring its business units and product portfolio and pursuing acquisitions, which we believe could increase operating risks.

40 30

20 15

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

3

MODERATE

4

3

A+

62 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Jeffrey Loo, CFA on September 15, 2010, when the stock traded at $ 22.58. Highlights ➤

➤

➤

We see sales increasing 10% in 2010 and 7% in 2011, to $1.98 billion and $2.12 billion, respectively, as several of PKI's end-markets stabilize, particularly food and environmental safety. However, we continue to see only modest instrument sales within health care end-markets due to capital constraints, particularly within the pharmaceutical sector. We see robust growth of over 20% in China and India on increased adoption of pre-natal and neo-natal genetic tests, as well as expanded compliance regulations for food and water safety driving industrial sales. But we expect sales in the U.S. and Europe to remain challenging. We look for improvements of 55 and 40 basis points (bps) in operating margins in 2010 and 2011. In August 2010, PKI agreed to sell its Illumination and Detection Solutions (IDS) unit to Veritas Capital for $482 million, subject to approvals. IDS is a provider of specialty lighting and sensor components for health, environmental and security applications and has annual sales of about $300 million. PKI will account for IDS as discontinued operations. Excluding intangible amortization, we estimate operating EPS of $1.27 in 2010 and $1.60 in 2011.

Investment Rationale/Risk ➤

➤

➤

We believe the shares, recently trading at 14.0X our 2011 EPS forecast and at a 1.1X P/ E-to-growth ratio, both slightly below peers, are undervalued. We see signs that PKI's endmarkets are stabilizing, and we believe growth will be more robust than we had initially anticipated. We also believe PKI is benefiting from its years-long portfolio restructuring and strategic efforts of international expansion, significant R&D investments, and strategic acquisitions to supplement organic growth. We believe PKI's expanding geographic presence in developing countries, particularly in India and China, where it has made acquisitions and built new facilities, will benefit both its Human and Environmental Health units and enable it to increase its market share. Risks to our recommendation and target price include a greater-than-anticipated decline in instrument sales, and slowing growth in industrial end-markets. Our 12-month target price of $28 is based on our relative valuation analysis, using a 13% projected three-year EPS growth rate, our 2011 EPS estimate and a P/E-to-growth ratio of 1.35X, in line with peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 465.1 497.8 2009 435.2 438.3 2008 482.3 528.6 2007 402.9 437.3 2006 355.5 377.0 2005 358.2 368.0

3Q -440.5 505.1 435.7 386.9 360.0

4Q -498.3 495.0 511.5 427.0 387.7

Year -1,812 1,937 1,787 1,546 1,474

Earnings Per Share ($) 2010 0.22 0.46 2009 0.13 0.20 2008 0.20 0.27 2007 0.12 0.28 2006 0.17 0.21 2005 0.12 0.23

E0.21 0.14 0.37 0.26 0.23 0.20

E0.38 0.33 0.29 0.46 0.33 -0.05

E1.27 0.80 1.06 1.11 0.94 0.51

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.070 0.070 0.070 0.070

10/21 01/24 06/03 07/30

01/20 04/14 07/21 10/20

01/22 04/16 07/23 10/22

02/12/10 05/07/10 08/13/10 11/12/10

Dividends have been paid since 1965. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PKI

PerkinElmer Inc. Business Summary September 15, 2010 CORPORATE OVERVIEW. PerkinElmer is a global technology company with operations in more than 125 countries. It develops, manufactures and provides scientific instruments, consumables and services to the pharmaceutical, biomedical, environmental testing, food and consumer safety testing, and general industrial markets. Collectively, these markets are commonly referred to as the health sciences and industrial sciences markets. In 2005, PKI operated three business segments within its end markets: Life and Analytical Sciences, Optoelectronics, and Fluid Sciences. However, in 2005 and 2006, PKI divested its Fluid Sciences unit in an effort to focus on the health sciences market, which PKI believes has greater growth and profitability potential. The health sciences market includes all of the businesses in the Life and Analytical Sciences unit and the medical imaging, medical sensors and lighting business in the Optoelectronics unit. The industrial sciences market includes the remaining businesses in Optoelectronics. In 2009, PKI again realigned its business units to Human Health and Environmental Health and plans to divest its specialty lighting business, which includes xenon flashtubes, ceramic xenon light sources, and laser pump sources.

ables and services. Its instruments are used for scientific research and clinical applications. For drug discovery, PKI offers a wide range of instrumentation, software and consumables, including reagents, based on its core expertise in fluorescent, chemiluminescent and radioactive labeling, and the detection of nucleic acids and proteins. For genetic screening laboratories, it provides software, reagents and analysis tools to test for various inherited disorders. For chemical analysis, the company offers analytical tools employing technologies such as molecular and atomic spectroscopy, high-pressure liquid chromatography, gas chromatography and thermal analysis. Environmental Health unit makes products for environmental safety and security and includes digital imaging, sensor and specialty lighting components to customers in biomedical, consumer products and other specialty endmarkets. PKI supplies amorphous silicon digital X-ray detectors, a technology for medical imaging and radiation therapy.

Human Health provides drug discovery, genetic screening, reagents, consumCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.58 0.80 0.84 0.28 35% 21.09 10.88 26 14

2008 NM 1.81 1.06 0.91 0.28 26% 29.95 12.70 28 12

2007 NM 1.76 1.11 1.03 0.28 25% 30.00 21.28 27 19

2006 0.45 1.52 0.94 0.91 0.28 30% 24.17 16.31 26 17

2005 1.91 1.03 0.51 0.40 0.28 55% 24.02 17.92 47 35

2004 NM 1.35 0.75 0.63 0.28 37% 23.28 15.05 31 20

2003 NM 1.07 0.43 0.25 0.28 65% 18.71 7.22 44 17

2002 NM 0.58 -0.03 -0.34 0.28 NM 36.30 4.28 NM NM

2001 NM 0.77 -0.01 -0.68 0.28 NM 52.31 21.28 NM NM

2000 NM 1.62 1.32 NA 0.28 21% 60.50 19.00 46 14

1,812 261 91.8 17.2 131 29.0% 92.7 96.7

1,937 287 88.3 25.2 147 14.4% 126 109

1,787 249 78.0 15.3 151 11.5% 134 124

1,546 221 69.2 9.16 151 21.5% 118 114

1,474 229 67.0 74.3 66.7 0.19% 66.5 53.8

1,687 253 76.2 38.0 137 28.2% 98.3 81.3

1,535 211 80.2 Nil 80.9 32.0% 55.0 31.2

1,505 131 76.6 Nil -8.55 NM -4.14 -43.1

1,330 196 80.5 Nil 34.2 NM -0.62 -71.3

1,695 263 79.1 Nil 144 40.4% 86.1 NA

Balance Sheet & Other Financial Data (Million $) Cash 180 Current Assets 884 Total Assets 3,064 Current Liabilities 496 Long Term Debt 558 Common Equity 1,629 Total Capital 2,187 Capital Expenditures 31.7 Cash Flow 185 Current Ratio 1.8 % Long Term Debt of Capitalization 25.5 % Net Income of Revenue 5.1 % Return on Assets 3.1 % Return on Equity 5.8

179 831 2,935 516 509 1,568 2,077 43.3 214 1.6 24.5 6.5 4.3 8.0

203 843 2,949 548 516 1,575 2,159 47.0 212 1.5 23.9 7.5 4.9 8.5

199 745 2,510 477 152 1,578 1,730 44.5 188 1.6 8.8 7.7 4.5 7.3

502 999 2,693 495 243 1,651 1,894 25.1 134 2.0 12.8 4.5 2.5 4.3

208 748 2,576 446 365 1,460 1,825 19.0 174 1.7 20.0 5.8 3.8 7.0

202 766 2,608 452 544 1,349 1,893 16.6 135 1.7 28.7 3.6 2.0 4.2

317 991 2,836 698 614 1,252 1,866 37.8 72.4 1.4 32.9 NM NM NM

138 997 2,919 708 598 1,364 1,962 88.7 79.9 1.4 30.5 NM NM NM

126 893 2,260 718 583 728 1,312 70.6 165 1.2 44.5 5.1 4.3 13.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 940 Winter St, Waltham, MA 02451-1457. Telephone: 781-663-6900. Website: http://www.perkinelmer.com Chrmn, Pres & CEO: R. Friel

SVP, CFO & Chief Acctg Officer: F.A. Wilson SVP & CSO: D.R. Marshak SVP, Secy & General Counsel: J.S. Goldberg Treas: S. Delahunt

Board Members: R. Friel, N. A. Lopardo, A. P. Michas, J. C. Mullen, V. L. Sato, G. Schmergel, K. J. Sicchitano, P. J. Sullivan, G. R. Tod

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1947 Domicile: Massachusetts Employees: 8,200

Stock Report | October 23, 2010 | NYS Symbol: PFE | PFE is in the S&P 500

Pfizer Inc S&P Recommendation BUY

★★★★★

Price $17.50 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $19.00

Investment Style Large-Cap Blend

Summary The world's largest pharmaceutical company, Pfizer produces a wide range of drugs across a broad therapeutic spectrum. In October 2009, PFE acquired rival drugmaker Wyeth for some $68 billion in cash and stock.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $20.36– 14.00 Trailing 12-Month EPS $1.06 Trailing 12-Month P/E 16.5 $10K Invested 5 Yrs Ago $10,463

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.20 2.28 8.0 8,038.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$140.670 4.11 $0.72 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.70 5 AA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects PFE's leading position in the global pharmaceutical market, which we believe affords important competitive operating and financial advantages. While we believe PFE's 2009 acquisition of Wyeth will bolster sales and margins ahead of major patent expirations in 2011, we remain uncertain whether PFE will be able to realize all of its key strategic objectives from the deal.

25 20 16

12

Vol. Mil.

Quantitative Evaluations

300 200 100 0 5

S&P Quality Ranking 4

3

4

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 58

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Herman B. Saftlas on October 13, 2010, when the stock traded at $ 17.73. Highlights ➤

➤

➤

Investment Rationale/Risk

We project sales (excluding the planned acquisition of King Pharmaceuticals) of $66 billion in 2011, down from $68 billion that we estimate for 2010. The decline should largely reflect anticipated generic erosion in Lipitor, whose U.S. patent expires in October 2011. We also project declines in the Norvasc, Xalatan and Effexor lines, primarily due to increased generic competition as well. On the plus side, we see growth in newer products such as Lyrica neuropathic pain drug, Enbrel treatment for rheumatoid arthritis and Prevnar vaccines. We also look for modest growth in animal health and consumer product lines.

➤

We forecast 2011 adjusted gross margins close to the 81% that we estimate for 2010, supported by productivity efficiencies. We also see improvement in SG&A and R&D cost ratios, driven by aggressive cost streamlining measures. Net interest expense should also be somewhat lower, in our opinion.

➤

After a projected effective tax rate in 2011 of about 30.0%, versus an estimated 30.4% in 2010, we see adjusted operating EPS increasing to $2.28, from $2.20 that we forecast for 2010.

➤

In October 2010, PFE agreed to acquire specialty drugmaker King Pharmaceuticals (KG 14 Hold) for $3.6 billion in cash ($3.3 billion net of KG's cash), equal to $14.25 per KG share, subject to approvals. We view KG's portfolio of novel pain treatments, and large animal health division, as a good strategic fit with PFE, with future growth of these products expected to accelerate via an expanded sales force. We see especially strong potential for KG's pain patch and abuse deterrent pain products. PFE expects KG to be accretive to EPS by $0.02 annually in 2011 and 2012, and by $0.03-$0.04 in 2013-2015, on $200 million in cost synergies.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 16,750 17,327 2009 10,867 10,984 2008 11,848 12,129 2007 12,474 11,084 2006 11,747 11,741 2005 13,091 12,425

3Q -11,621 11,973 11,990 12,280 12,189

4Q -16,537 12,346 12,870 12,603 13,592

Year -50,009 48,296 48,418 48,371 51,298

Earnings Per Share ($) 2010 0.25 0.31 2009 0.40 0.33 2008 0.41 0.41 2007 0.48 0.19 2006 0.55 0.31 2005 0.04 0.47

E0.51 0.43 0.33 0.12 0.44 0.22

E0.48 0.10 0.03 0.40 0.21 0.37

E2.20 1.23 1.19 1.18 1.52 1.09

Risks to our recommendation and target price include an inability to achieve planned synergies from Wyeth and King, and possible pipeline setbacks.

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Our 12-month target price of $19 applies a below-peers multiple of 8.3X to our 2011 EPS estimate. Our target price is also close to our calculation of intrinsic value, derived from our DCF model, which assumes slowing cash flow growth over the next few years, a WACC of 9.3%, and a terminal growth rate of 1%.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.160 0.180 0.180 0.180

10/22 12/14 04/22 06/24

11/04 02/03 05/05 08/04

11/06 02/05 05/07 08/06

12/01/09 03/02/10 06/01/10 09/01/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1901. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PFE

Pfizer Inc Business Summary October 13, 2010 CORPORATE OVERVIEW. Pfizer stands out above its peers in the $780 billion global pharmaceutical sector, in our opinion. Growth over the past 10 years was largely augmented by two major acquisitions -- Warner-Lambert Co. in 2000 and Pharmacia Corp. in 2003 -- as well as by in-licensed products. The business was significantly further expanded with the acquisition of Wyeth in October 2009.

continence ($1.2 billion); Sutent ($964 million) for kidney and other cancers; Genotropin ($887 million), a human growth hormone; and Chantix ($700 million) for smoking cessation. The animal health division ($2.8 billion) offers one of the largest-selling and broadest product lines in the field. Principal products include feed additives, vaccines, antibiotics, antihelmintics, and other veterinary products.

Pfizer's drug portfolio is unmatched in terms of breadth and depth in the global drug market, by our analysis. Principal cardiovasculars include Lipitor, the world's largest-selling cholesterol-lowering agent as well as the biggest drug in any therapeutic category in 2009 (sales of $11.4 billion in 2009), antihypertensives such as off-patent Norvasc ($2.0 billion), and Caduet ($548 million), a combination of Lipitor and Norvasc. Key central nervous system medicines include Lyrica, a treatment for nerve pain and epileptic seizures ($2.8 billion); and Geodon, an antipsychotic ($1.0 billion). Infectious disease drugs consist of Zyvox ($1.1 billion), a treatment for severe bacterial infections, and Vfend ($743 million), an anti-fungal. Foreign sales accounted for 57% of total revenues in 2009.

MARKET PROFILE. The dollar value of the global drug market is projected to grow about 4%-6% in 2010, from $837 billion in 2009 (in constant currency), according to IMS Health. Worldwide pharmaceutical industry growth from 2009 through 2014 is expected to expand at a CAGR (compound annual growth rate) of 5%-8%, based on IMS projections. Key drivers should be strong growth projected for worldwide emerging markets, and continued strong patient demand for cost-effective pharmaceutical therapies. These factors will likely more than offset the negative effects of patent expiration losses, and tighter reimbursement in major developed markets, by our analysis. Sales in both North America and Europe are expected to grow 3%-5% in 2010, according to IMS.

Other key drugs sold include Celebrex COX-2 inhibitor for arthritis and pain (sales of $2.4 billion); Viagra for male erectile dysfunction ($1.9 billion); Xalatan/Xalcom, for glaucoma ($1.7 billion); Detrol and LA/Detrol, treatments for inCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.90 1.23 1.35 0.80 65% 18.99 11.62 15 9

2008 2.71 1.94 1.19 1.42 1.28 108% 24.24 14.26 20 12

2007 4.93 1.93 1.18 1.14 1.16 98% 27.73 22.24 23 19

2006 3.65 2.24 1.52 1.53 0.96 63% 28.60 22.16 19 15

2005 1.91 1.84 1.09 1.02 0.76 70% 29.21 20.27 27 19

2004 1.48 2.16 1.49 1.45 0.68 46% 38.89 21.99 26 15

2003 0.85 0.78 0.22 0.29 0.60 273% 36.92 27.90 NM NM

2002 3.04 1.64 1.47 1.35 0.52 35% 42.46 25.13 29 17

2001 2.64 1.39 1.22 1.09 0.44 36% 46.75 34.00 38 28

2000 2.26 0.74 0.59 NA 0.36 61% 49.25 30.00 83 51

50,009 21,268 4,757 1,233 10,827 20.3% 8,621 9,377

48,296 21,925 5,090 562 9,694 17.0% 8,026 9,538

48,418 19,983 5,200 440 9,278 11.0% 8,213 7,963

48,371 19,575 5,293 488 13,028 15.3% 11,024 11,048

51,298 20,501 5,576 488 11,534 29.7% 8,094 7,588

52,516 22,117 5,093 359 14,007 19.0% 11,332 11,030

45,188 17,061 4,078 290 3,263 49.7% 1,639 2,147

32,373 13,436 1,036 279 11,796 22.1% 9,181 8,441

32,259 12,147 1,068 432 10,329 24.8% 7,752 6,862

29,574 9,758 968 401 5,781 35.4% 3,718 NA

Balance Sheet & Other Financial Data (Million $) Cash 25,969 Current Assets 61,670 Total Assets 212,949 Current Liabilities 37,225 Long Term Debt 43,218 Common Equity 89,953 Total Capital 133,691 Capital Expenditures 1,205 Cash Flow 13,376 Current Ratio 1.7 % Long Term Debt of Capitalization Nil % Net Income of Revenue 17.2 % Return on Assets NA % Return on Equity NA

23,731 43,076 111,148 27,009 7,963 57,483 66,640 1,701 13,113 1.6 11.6 16.6 7.1 13.1

25,475 46,849 115,268 21,835 7,314 64,917 80,134 1,880 13,409 2.2 9.1 17.0 7.1 12.1

1,827 46,949 114,837 21,389 5,546 71,217 84,919 2,050 16,317 2.2 6.5 22.8 9.5 16.1

2,247 41,896 117,565 28,448 6,347 65,458 82,214 2,106 13,661 1.5 7.7 15.8 6.7 12.1

1,808 39,694 123,684 26,458 7,279 68,085 88,189 2,601 16,417 1.5 8.3 21.6 9.4 17.0

1,520 29,741 116,775 23,657 5,755 65,158 84,370 2,641 5,710 1.3 6.8 3.6 2.0 3.8

1,878 24,781 46,356 18,555 3,140 19,950 23,454 1,758 10,217 1.3 13.4 28.4 21.5 48.0

1,036 18,450 39,153 13,640 2,609 18,293 21,354 2,203 8,820 1.4 12.2 24.0 21.3 45.1

1,099 17,187 33,510 11,981 1,123 16,076 17,579 2,191 4,686 1.4 6.4 12.6 11.5 24.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 235 East 42nd Street, New York, NY 10017-5703. Telephone: 212-733-2323. Website: http://www.pfizer.com Chrmn & CEO: J.B. Kindler

COO & CFO: F.A. D'Amelio SVP, Chief Acctg Officer & Cntlr: L.V. Cangialosi SVP, Secy & General Counsel: A.W. Schulman CSO: M. Ehlers

Investor Contact: J. Davis (212-733-0717) Founded: 1849 Board Members: D. A. Ausiello, M. S. Brown, M. A. Domicile: Delaware Burns, R. N. Burt, W. D. Cornwell, F. D. Fergusson, W. Employees: 116,500 H. Gray, III, C. J. Horner, S. N. Johnson, J. M. Kilts, J. B. Kindler, G. A. Lorch, J. P. Mascotte, S. W. Sanger, W. C. Steere, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PCG | PCG is in the S&P 500

PG&E Corp S&P Recommendation HOLD

★★★★★

Price $47.66 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $47.00

Investment Style Large-Cap Blend

Summary This energy holding company is the parent of Pacific Gas & Electric Co., which serves northern and central California.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.34– 34.95 Trailing 12-Month EPS $3.08 Trailing 12-Month P/E 15.5 $10K Invested 5 Yrs Ago $15,880

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.43 3.71 13.9 390.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.623 3.82 $1.82 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.33 8 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong and steady cash flow from the regulated Pacific Gas & Electric subsidiary, its much improved balance sheet and credit profile, a healthy economy in its service territory, and a greatly improved regulatory environment.

45 40 35 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 58

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Justin McCann on October 18, 2010, when the stock traded at $ 47.34. Highlights ➤

➤

Excluding one-time charges of $0.16, we expect operating EPS in 2010 to grow nearly 7% from 2009's $3.21, which excluded a one-time net loss of $0.01. In the first half of 2010, operating EPS was driven by higher electric revenues resulting from Pacific Gas & Electric's (PG&E) pre-approved rate base transmission and generation investments, and through the realization of energy efficiency incentive revenues. Operating EPS for full-year 2010 should reflect the final year of PG&E's four-year general rate case, which authorized a net 4.5% increase in electric and gas rates. We expect operating EPS in 2011 to rise approximately 7% from anticipated results in 2010. The utility is expected to receive a final decision for the 2011 general rate case in the fourth quarter of 2010.

Investment Rationale/Risk ➤

➤

➤ ➤

On October 15, 2010, the California Public Utility Commission appointed an independent panel to look for any systemic problems within PG&E that could have led to the explosion of a gas pipeline on September 9, 2010, in San Bruno, California. On September 13, 2010, the utility announced that it was establishing a $100 million fund for the victims of the explosion that killed 8 people and destroyed 37 homes.

The stock is up about 6% year to date, reflecting, we believe, the recent rebound in the utility sector. This follows an increase of 15% in 2009, which underperformed PCG's gas utility peers, but outperformed its electric utility peers. With the authorized decoupling of Pacific Gas & Electric's revenues from electric demand (so as to promote energy efficiencies), earnings are not impacted by the decline in demand. Over the next 12 months, we expect the stock to trade at a modest discount to PCG's peers (based on our EPS estimates for 2011). Risks to our recommendation and target price include a much worse-than-expected earnings performance, and/or a major decline in the average P/E multiple of the peer group. The recent yield from the dividend was around 3.9%, below the peer yield for combined electric and gas utilities of about 4.5%. However, with the projected dividend payout ratio at 53% of our operating EPS estimate for 2010 being below the peer ratio of 59%, we believe PCG has the financial flexibility for additional increases in the payment. Our 12-month target price is $47, reflecting an approximate peers P/ E of 12.7X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,475 3,232 2009 3,431 3,194 2008 3,733 3,578 2007 3,356 3,187 2006 3,148 3,017 2005 2,669 2,498

3Q -3,235 3,674 3,279 3,168 2,804

4Q -3,539 3,643 3,415 3,206 3,732

Year -13,399 14,628 13,237 12,539 11,703

Earnings Per Share ($) 2010 0.66 0.86 2009 0.65 1.02 2008 0.62 0.80 2007 0.71 0.74 2006 0.60 0.65 2005 0.54 0.70

E0.99 0.83 0.83 0.77 1.09 0.62

E0.74 0.71 0.97 0.56 0.43 0.49

E3.43 3.20 3.22 2.78 2.76 2.34

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.455 0.455 0.455

12/17 02/19 06/16 09/15

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PCG

PG&E Corp Business Summary October 18, 2010 CORPORATE OVERVIEW. PG&E Corporation (PCG) is an energy-based holding company that conducts its business through Pacific Gas and Electric Company (PG&E), a public utility operating in northern and central California. The utility's business consists of four main operational units: electricity and natural gas distribution, electricity generation, gas transmission, and electricity transmission. The utility is primarily regulated by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). CORPORATE STRATEGY. To support anticipated customer growth and the improvement of its existing services, Pacific Gas & Electric plans to make major capital additions to its infrastructure. The utility is also devoting substantial resources to the building and expansion of its transmission lines, which has become the fastest-growing part of its business. It has proposed constructing additional gas and electric transmission arteries so as to create access to new supplies of renewable energy and new sources of natural gas. California law requires its electric utilities to purchase 30% of their power from renewable resources by 2017. In addition to maintaining its ongoing investment in its existing hydroelectric and nuclear facilities, the company brought into service

a new state-of-the-art power plant in 2009, and expects to bring into operation two more during the third and fourth quarters of 2010. The three plants are expected to generate enough power for approximately 950,000 homes. MARKET PROFILE. PG&E's electricity and gas distribution network covers 70,000 square miles and 47 of the 58 counties in California. The utility served approximately 5.1 million electricity distribution customers and about 4.3 million natural gas distribution customers as of December 31, 2009. In 2009, commercial customers accounted for about 39% of electricity deliveries, residential 36%, industrial 17%, and agricultural and other 8%. Transport-only customers accounted for about 62% of natural gas deliveries in 2009, residential 27%, and commercial 11%. As of December 31, 2009, the company had $42.7 billion of total assets.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 27.69 3.20 3.65 1.68 52% 45.80 34.50 14 11

2008 25.97 3.22 1.91 1.56 48% 45.68 26.67 14 8

2007 25.80 2.78 2.53 1.44 52% 52.17 42.58 19 15

2006 20.89 2.76 2.64 1.32 48% 48.17 36.25 17 13

2005 19.67 2.34 2.45 1.23 53% 40.10 31.83 17 14

2004 20.60 8.97 9.00 Nil Nil 34.46 25.90 4 3

2003 10.11 1.96 2.05 Nil Nil 27.98 11.69 14 6

2002 8.92 -0.15 -1.08 Nil Nil 23.75 8.00 NM NM

2001 11.87 2.99 1.59 Nil Nil 20.94 6.50 7 2

2000 8.74 -9.18 NA 1.20 NM 31.81 17.00 NM NM

13,399 1,947 NA 3.34 NA 27.4% 1,220 1,391

14,628 1,863 NA 3.21 NA 26.4% 1,184 720

13,237 1,770 NA 3.03 NA 34.9% 1,006 940

12,539 1,709 NA 3.09 NA 35.9% 991 972

11,703 1,735 NA 3.48 NA 37.6% 904 974

11,080 1,497 NA 2.75 NA 39.2% 3,820 3,828

10,435 1,222 NA 2.23 NA 36.7% 791 830

12,495 1,309 NA 2.94 NA NM -57.0 -404

22,959 1,068 NA 2.48 NA 35.8% 1,090 580

26,232 3,659 NA 3.01 NA NM -3,324 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 43,080 Capital Expenditures 3,958 Net Property 28,892 Capitalization:Long Term Debt 11,460 Capitalization:% Long Term Debt 52.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 10,333 Capitalization:% Common 47.4 Total Capital 22,521 % Operating Ratio 86.3 % Earned on Net Property 8.3 % Return on Revenue 9.1 % Return on Invested Capital 8.9 % Return on Common Equity 12.4

39,833 3,628 26,261 10,786 53.5 Nil Nil 9,377 46.5 23,654 87.4 9.1 8.1 8.4 13.2

36,584 2,769 23,656 10,005 53.9 Nil Nil 8,553 46.1 21,710 88.1 9.3 7.6 8.6 12.3

34,214 2,402 21,785 8,885 53.2 Nil Nil 7,811 46.8 19,642 87.6 10.1 7.9 8.7 13.2

32,030 1,804 19,955 9,794 57.5 Nil Nil 7,240 42.5 20,238 87.8 10.1 7.7 7.3 11.4

30,509 1,559 18,989 8,311 49.0 Nil Nil 8,633 51.0 20,596 102.2 38.4 34.5 15.6 59.5

29,222 1,698 18,107 9,924 70.2 Nil Nil 4,215 29.8 15,122 80.4 14.6 7.6 13.9 20.2

31,179 3,032 16,928 11,590 76.2 Nil Nil 3,613 23.8 16,786 67.2 31.2 NM 22.8 NM

33,012 2,665 19,167 9,527 68.8 Nil Nil 4,322 31.2 15,668 90.3 15.0 4.7 16.7 29.1

28,469 1,758 16,591 5,516 63.5 Nil Nil 3,172 36.5 10,536 84.1 34.7 NM 29.1 NM

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Market Spear Tower, Suite 2400, San Francisco, CA 94105-1126. Telephone: 415-267-7000. Email: [email protected] Website: http://www.pgecorp.com

Chrmn, Pres & CEO: P.A. Darbee SVP & CFO: K.M. Harvey SVP & General Counsel: H. Park Chief Acctg Officer & Cntlr: D.B. Mistry

Treas: N. Bijur Founded: 1995 Investor Contact: L.Y. Cheng (415-267-7070) Domicile: California Board Members: D. R. Andrews, L. Chew, C. L. Cox, P. Employees: 19,425 A. Darbee, M. C. Herringer, R. H. Kimmel, R. Meserve, F. E. Miller, R. G. Parra, B. L. Rambo, B. L. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PM | PM is in the S&P 500

Philip Morris International Inc S&P Recommendation BUY

★★★★★

Price $58.13 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Tobacco

12-Mo. Target Price $61.00

Investment Style Large-Cap Blend

Summary This company, comprising the international operations spun off by Altria in early 2008, is the largest publicly traded manufacturer and marketer of tobacco products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $58.78– 42.94 Trailing 12-Month EPS $3.69 Trailing 12-Month P/E 15.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.82 4.24 15.2 1,832.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$106.545 4.40 $2.56 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.84 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the geographic diversity of the company's operations and end-markets and its participation in a generally stable industry, producing ample free cash flow. Health concerns, excise tax increases, extensive regulation and, to some extent, litigation have limited the growth prospects for the industry, but have also kept barriers to entry high.

60

45 40 35

Vol.

Quantitative Evaluations

Mil. 60 40 20 0

S&P Quality Ranking D

C

B-

NR B

B+

A-

A

Relative Strength Rank

1

STRONG 72

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

Highlights

➤

➤

Investment Rationale/Risk

For 2010, we see net revenue rising about 7% on positive pricing. In 2011, we project revenues to climb 8%, boosted somewhat by foreign exchange. With growing health concerns, smoking bans and higher taxes, we look for a mid- single digit percentage decline in consumption in Western Europe, offset by low single digit or faster growth in emerging markets. While we still see some downtrading persisting in Greece, Spain and Germany, we believe these negative trends will moderate and be offset by growth in other countries, such as Indonesia, Korea, and Russia.

➤

After embarking on an extensive three-year cost reduction program, which we calculate will widen operating margins on net savings of about $1 billion, we expect further savings on continued rationalization of less dynamic brands offset by investments in new and existing markets in 2011. We see synergies from PM's venture in the Philippines with Fortune Tobacco, which we forecast will be accretive to earnings in 2011 after being neutral in 2010.

➤

On a 29% effective tax rate, we estimate 2010 EPS of $3.82, up about 15% from 2009 operating EPS of $3.31. For 2011, we forecast EPS of $4.24.

➤

HIGHEST = 99

2010

Analysis prepared by Esther Y. Kwon, CFA on October 22, 2010, when the stock traded at $ 57.88.

➤

A+

4

5

Separated from operations in the U.S. and the regulatory and litigation risk of that market, PM will, in our view, be better positioned to innovate, tailor offerings to higher-growth emerging markets, achieve cost savings, and incentivize managers. We think PM's low penetration of markets with potentially high cigarette consumption, such as China, India and Vietnam, also provides attractive opportunities. In addition, the spinoff provided PM with currency for acquisitions. We believe its high cash flow generation is supportive of regular stock repurchases and its dividend, which yields about 4.5%. Risks to our recommendation and target price include execution risk, higher-than-expected excise taxes or regulatory constraints, greaterthan-expected price competition, and commodity cost inflation. Our 12-month target price of $61 is based on a blend of comparative and historical forward P/ E. Considering PM's scale, growth prospects and brand equity, we believe a premium to its domestic tobacco comparables is appropriate. We assign a multiple of 14.5X to our 2011 EPS estimate of $4.24 which is slightly above historical average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,496 7,061 2009 5,597 6,134 2008 6,330 6,709 2007 5,549 5,835 2006 5,228 5,346 2005 ---

3Q -6,587 6,953 5,916 5,412 --

4Q -6,717 6,122 5,498 4,926 --

Year -25,035 25,705 55,096 20,794 20,013

Earnings Per Share ($) 2010 0.90 1.07 2009 0.74 0.79 2008 0.89 0.80 2007 0.69 -2006 --2005 ---

E1.00 0.93 1.01 ----

E0.92 0.80 0.71 ----

E3.82 3.24 3.32 2.75 ---

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.580 0.580 0.580 0.640

12/09 03/11 06/09 09/10

12/23 03/23 06/22 09/22

12/28 03/25 06/24 09/24

01/11/10 04/09/10 07/09/10 10/08/10

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PM

Philip Morris International Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. Philip Morris International is the world's largest publicly traded manufacturer and marketer of tobacco products, with a 15.4% share of 2009 international market volumes, down from 15.7% in 2008 and 15.6% in 2007, according to Philip Morris estimates. Excluding China, PM's estimated market share was 26.0%, 25.8% and 25.2% in 2009, 2008 and 2007, respectively. PM sold 864.0 billion cigarettes in 2009, with the Marlboro brand contributing about 35% of total PM volume. Other brands include Merit, Parliament and Virginia Slims in the premium category; L&M and Chesterfield in the mid-price category; Bond Street, Lark, Muratti, Next, Philip Morris, and Red & White in the value category; and local brands such as A Mild, Diana, Optima, f6, Assos and Delicados. The geographic breakdown of 2009 revenue was as follows: European Union 46.0%; Eastern Europe, Middle East & Africa 22.3%; Asia 20.0%; and Latin America and Canada 11.7%. Adjusted operating income (on revenues minus excise taxes) from the European Union was 43.9% of the company total, followed by Eastern Europe, Middle East & Africa (25.9%), Asia (23.7%), and Latin America and Canada (6.5%).

Bangladesh and Vietnam -- where it has little or no presence and which account for approximately 40% of total international cigarette consumption as opportunities. We estimate China alone accounts for about one-third of the total market. In addition, PM plans to spend about half of its R&D budget to develop next-generation products that meet consumer preferences and that could cause less harm than traditional tobacco products. PM also plans to evaluate potential acquisitions and other business development opportunities. In September 2009, PM acquired Swedish Match South Africa for approximately $256 million, while in July 2009, it agreed to acquire Colombian cigarette manufacturer Productora Tabacalera de Colombia, Protabaco Ltda. for $452 million, with an expected close in 2010. In February 2009, it acquired Petteroes, which sells fine cut tobacco products in Norway and Sweden. Also in February 2009, PM entered into a joint venture with Swedish Match AB to develop the market for Swedish style snus and other smokeless tobacco products, outside of Sweden and the U.S. In September 2008, PM acquired Rothmans Inc., Canada's second largest tobacco company, for C$2.0 billion.

CORPORATE STRATEGY. Philip Morris International seeks to grow organically as well as through acquisitions. Using its existing brands, PM plans to introduce new packaging, new blends and other line extensions across its portfolio and in existing and new markets. It sees four major markets -- China, India, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.69 3.24 3.27 2.24 69% 52.35 32.04 16 10

2008 NM 3.72 3.32 3.30 1.54 46% 56.26 33.30 17 10

2007 2.31 3.10 2.75 2.91 Nil Nil NA NA NA NA

2006 NA NA NA 2.81 NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

25,035 10,922 853 905 9,243 29.1% 6,342 6,368

25,705 11,174 842 528 9,937 28.1% 6,890 6,852

55,096 9,685 748 209 8,572 28.9% 5,821 6,153

20,794 8,664 658 371 8,226 22.2% 6,146 5,904

20,013 8,352 527 325 7,641 24.0% 5,620 NA

17,583 7,235 459 191 6,478 27.2% 4,570 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 1,540 Current Assets 14,682 Total Assets 34,552 Current Liabilities 11,178 Long Term Debt 13,672 Common Equity 5,716 Total Capital 19,899 Capital Expenditures 715 Cash Flow 7,195 Current Ratio 1.3 % Long Term Debt of Capitalization 68.7 % Net Income of Revenue 25.3 % Return on Assets 18.8 % Return on Equity 96.0

1,531 14,939 32,972 10,144 11,377 7,500 19,086 1,099 7,732 1.5 59.6 26.8 21.2 60.2

1,284 14,423 31,414 8,465 5,578 14,700 21,481 1,072 6,569 1.7 26.0 10.6 NA NA

1,676 11,925 26,120 6,989 2,222 14,267 16,634 886 6,804 1.7 13.4 29.6 25.0 50.0

1,209 10,025 23,135 6,334 4,141 10,307 14,593 736 6,147 1.6 28.4 28.1 NA NA

NA NA NA NA NA NA NA 711 5,029 NA Nil 26.0 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Data prior to 2008 are pro forma. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 120 Park Avenue, New York, NY 10017-5592. Telephone: 917-663-2000. Website: http://www.pmi.com Chrmn & CEO: L.C. Camilleri

Vice Chrmn: M. Cabiallavetta COO: A. Calantzopoulos EVP & CFO: H.G. Waldemer SVP & General Counsel: D. Bernick

Board Members: H. Brown, M. Cabiallavetta, L. C. Camilleri, J. D. Fishburn, J. Li, G. MacKay, S. Marchionne, L. Noto, C. S. Slim Helu, S. M. Wolf

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1987 Domicile: Virginia Employees: 77,300

Stock Report | October 23, 2010 | NYS Symbol: PNW | PNW is in the S&P 500

Pinnacle West Capital Corp S&P Recommendation HOLD

★★★★★

Price $42.18 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $41.00

Investment Style Large-Cap Value

Summary This utility holding company is the parent of Arizona Public Service (APS), Arizona's largest electric utility.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $42.68– 31.08 Trailing 12-Month EPS $2.57 Trailing 12-Month P/E 16.4 $10K Invested 5 Yrs Ago $13,802

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.01 3.05 14.0 108.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

Our risk assessment reflects the steady cash flow that we project from the electric utility operations of Arizona Public Service, which has one of the fastest-growing service territories in the U.S. While the regulatory environment has often been difficult, we do not expect to see the general strength of the utility significantly impeded by regulatory rulings. This should help offset the less-predictable earnings stream from the real estate business and the power marketing and trading operations.

30 25

Vol. Mil. 9 6 3 0

Quantitative Evaluations 3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

B B

B+

Analysis prepared by Justin McCann on October 12, 2010, when the stock traded at $ 41.04. Highlights

➤

Excluding net one-time charges of $0.12, we expect ongoing operating EPS in 2010 to grow nearly 30% from 2009's $2.33, which excluded $1.66 of one-time charges. Operating EPS in the first half of 2010 was aided by the electric base rate increase that was implemented for Arizona Public Service (APS) in January 2010 and by a 13% decline in its fuel and purchased power costs. This was partially offset by the unusually mild weather in April and May. For the second half of 2010, we expect earnings to reflect the benefit of the electric base rate increase and APS's cost reduction program, partially offset by the absence of the much hotter than normal third quarter in 2009. For 2011, we expect operating EPS to reflect only a modest increase over anticipated results in 2010. APS will not be able to file for a new rate increase before June 2011, with the new rates not to be implemented before the end of 2012. The company decided to restructure a significant portion of its SunCor real estate assets in 2009 due to the distressed conditions in the local real estate and credit markets. As of June 30, 2010, all of SunCor's assets had been reclassified as discontinued operations.

Investment Rationale/Risk ➤

➤

➤

The stock is up nearly 13% year to date. This follows a 15.6% gain in 2009, on a more than 60% rebound from its 2009 low, reflecting the expectation and ultimate authorization of a favorable regulatory ruling on APS's base rate case, the recovery in the broader market, and the well-above-peers yield (which had risen to above 9%) from the dividend, to which PNW had confirmed its commitment. We believe the stock was hurt earlier by the weak local economy and real estate market and uncertainty as to whether regulators would authorize a rate increase that would enable APS to recover the costs of its infrastructure expansion. Risks to our recommendation and target price include extended weakness in the local economy, and/or a sharp decline in the average P/E multiple of the group as a whole. The company discontinued its long-standing policy of raising the annual dividend $0.10 a year with the December 2007 payment. Despite the strong rebound in the shares, the yield from the dividend (recently at 5.1%) was still above peers (4.7%). Our 12-month target price of $41 reflects a premium-to-peers multiple of 13.4X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

A-

A

Relative Strength Rank

A+

MODERATE 58

Options: P

➤

HIGH

Below Avg.

40

➤

0.60 1 BBB-

Qualitative Risk Assessment

50

5

$4.583 4.98 $2.10 75

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 633.6 820.6 2009 625.9 836.0 2008 736.7 926.2 2007 695.1 863.4 2006 670.2 925.0 2005 585.4 755.3

3Q -1,142 1,080 1,206 1,076 955.6

4Q -693.1 624.2 759.1 730.1 691.7

Year -3,297 3,367 3,524 3,402 2,988

Earnings Per Share ($) 2010 -0.06 0.83 2009 -1.50 0.70 2008 -0.05 1.13 2007 0.16 0.78 2006 0.12 1.11 2005 0.32 0.88

E2.09 1.85 1.49 1.99 1.84 0.86

E-0.02 -0.29 -0.46 -0.03 0.10 0.24

E3.01 0.81 2.12 2.96 3.17 2.31

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.525 0.525 0.525 0.525

01/20 04/21 06/22 10/20

01/28 04/29 07/29 10/28

02/01 05/03 08/02 11/01

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1993. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PNW

Pinnacle West Capital Corp Business Summary October 12, 2010 CORPORATE OVERVIEW. Pinnacle West Capital, formed in 1985, is the holding company for Arizona Public Service (APS), which, with about 1.1 million customers, is Arizona's largest electric utility. PNW's other major subsidiaries are APS Energy Services, which provides competitive energy services, including wholesale marketing and trading, and SunCor, which is engaged in real estate development and investment activities. In 2009, the regulated electricity segment accounted for 95.5% of PNW's consolidated revenues (compared to 94.5% in 2008); the real estate segment 3.1% (2.2%); the marketing and trading segment 0.0% (2.0%); and other 1.4% (1.3%). MARKET PROFILE. APS provides vertically integrated retail and wholesale electric service to the entire state of Arizona, with the exception of Tucson and about 50% of the Phoenix area. In 2009, residential customers accounted for 47.5% of the utility's total electric revenues (46.4% in 2008); commercial customers 40.3% (39.4%); industrial customers 5.6% (6.0%); off-system sales 1.8% (2.8%); and other wholesale and other 4.8% (5.4%). APS has a 29.1% owned or leased interest in the Palo Verde Nuclear Generating Station's Units 1 and 3, and about 17% in Unit 2. It has a 100% interest in Units 1, 2 and 3 and a 15% interest in Units 4 and 5 of the coal-fueled Four Corners Steam Generating Station; and a 14.0% interest in Units 1, 2 and 3 of the coal-fueled Navajo Steam Generating Station (NGS). Consolidated fuel sources for APS in 2009

were: coal, 36.3% (37.4% in 2008); nuclear, 25.9% (24.2%); purchased power, 20.6% (20.3%); and gas, oil and other, 17.2% (18.1%). With APS dependent on purchased power for so much of its fuel sources, we believe that its earnings can be significantly affected by the price of natural gas and by the time lags involved in being authorized to recover the difference between its actual fuel costs and the rates the company is allowed to charge its customers. SunCor develops residential, commercial and industrial real estate projects in Arizona, Idaho, New Mexico and Utah. The company, which had total assets of $166 million at the end of 2009, has been hurt by the impact of the housing crisis in Arizona. The decline in 2009 from total assets of $547 million at the end of 2008 was primarily due to impairment charges of $266 million and asset sales. In 2009, SunCor had operating revenues of about $103 million, compared to $75 million in 2008 and $190 million in 2007, and a net loss of about $279 million, compared to a net loss of $26 million in 2008 and net income of $24 million in 2007. Certain components of SunCor's real estate sales activities are now reported as discontinued operations.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 31.07 0.81 0.54 2.10 NM 37.96 22.32 47 28

2008 32.85 2.12 1.76 2.10 99% 42.92 26.27 20 12

2007 34.11 2.96 2.71 2.10 71% 51.67 36.79 17 12

2006 34.48 3.17 3.00 2.03 64% 51.00 38.31 16 12

2005 34.58 2.31 2.00 1.93 83% 46.68 39.81 20 17

2004 30.99 2.57 2.15 1.83 71% 45.84 36.30 18 14

2003 29.81 2.52 2.43 1.73 68% 40.48 28.34 16 11

2002 28.23 2.53 1.65 1.63 64% 46.68 21.70 18 9

2001 29.46 3.85 3.00 1.53 40% 50.70 37.65 13 10

2000 28.09 3.56 NA 1.43 40% 52.69 25.69 15 7

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

3,297 443 NA 2.63 15.0 36.0% 82.0 54.6

3,367 424 NA 2.68 18.6 23.5% 214 178

3,524 373 NA 3.37 21.2 33.6% 299 273

3,402 359 NA 3.23 14.3 33.0% 317 300

2,988 348 NA 2.77 11.2 36.2% 223 193

2,900 401 NA 2.75 4.89 35.4% 235 197

2,818 438 NA 2.43 14.2 31.4% 231 223

2,637 425 NA 2.64 NA 39.1% 215 140

4,551 428 NA 3.80 NA 39.5% 327 255

3,690 394 NA 3.95 NA 42.5% 302 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 13,958 Capital Expenditures 775 Net Property 9,258 Capitalization:Long Term Debt 3,371 Capitalization:% Long Term Debt 50.4 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 3,316 Capitalization:% Common 49.6 Total Capital 6,994 % Operating Ratio 83.5 % Earned on Net Property 6.4 % Return on Revenue 2.5 % Return on Invested Capital 8.0 % Return on Common Equity 2.4

13,396 954 8,917 3,032 46.8 Nil Nil 3,446 53.2 7,881 86.2 6.1 6.3 5.9 6.1

12,762 919 8,437 3,127 47.0 Nil Nil 3,532 53.0 7,902 86.7 7.6 8.5 6.2 8.6

11,679 738 7,882 3,233 48.4 Nil Nil 3,446 51.6 7,905 85.6 8.0 9.3 7.2 9.2

11,200 634 7,577 2,608 43.2 Nil Nil 3,425 56.8 7,259 82.4 6.8 7.5 8.0 7.0

18,280 538 14,914 2,585 46.7 Nil Nil 2,950 53.3 6,763 85.8 3.4 8.1 6.9 8.1

10,470 693 7,310 2,898 50.6 Nil Nil 2,830 49.4 7,057 86.6 6.8 8.2 6.2 8.4

16,316 896 12,842 2,882 51.8 Nil Nil 2,686 48.2 6,777 81.7 4.2 8.2 7.7 8.3

9,285 1,041 5,907 2,673 51.7 Nil Nil 2,499 48.3 6,237 89.9 24.6 7.2 7.9 13.4

8,383 659 5,133 1,955 45.1 Nil Nil 2,383 54.9 5,481 87.7 13.6 8.2 8.2 13.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 400 N 5th St Frnt, Phoenix, AZ 85004-3903. Telephone: 602-250-1000. Website: http://www.pinnaclewest.com Chrmn, Pres & CEO: D.E. Brandt

EVP, Secy & General Counsel: D.P. Falck SVP & CFO: J.R. Hatfield Chief Acctg Officer & Cntlr: D.R. Danner Treas: L.R. Nickloy

Investor Contact: R. Hickman (602-250-5668) Founded: 1920 Board Members: E. N. Basha, Jr., D. E. Brandt, S. Domicile: Arizona Clark-Johnson, D. A. Cortese, M. L. Gallagher, P. Employees: 7,200 Grant, R. A. Herberger, Jr., D. E. Klein, H. S. Lopez, K. L. Munro, B. J. Nordstrom, W. D. Parker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PXD | PXD is in the S&P 500

Pioneer Natural Resources Co S&P Recommendation BUY

★★★★★

Price $72.61 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $87.00

Investment Style Large-Cap Blend

Summary This company explores for and produces oil and natural gas in the U.S., Canada and Africa.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $74.49– 39.13 Trailing 12-Month EPS $3.94 Trailing 12-Month P/E 18.4 $10K Invested 5 Yrs Ago $15,893

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.88 2.49 18.7 116.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.422 0.11 $0.08 96

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.78 10 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's participation in a volatile and capital-intensive segment of the energy industry.

80 60 40

Quantitative Evaluations 20

S&P Quality Ranking D

C

B-

B B

B+

A-

A

A+

Vol. 31

Mil.

Relative Strength Rank

15 10 5 0 5

STRONG 83

LOWEST = 1 4

3

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Kay on October 22, 2010, when the stock traded at $ 71.98. Highlights ➤

Production rose 3% in 2009, to 115 MBOE/day, despite major drilling curtailments and downtime at PXD's plant in South Africa, reflecting its slow-decline Spraberry oil field assets. PXD expects to drill 440 Spraberry wells in 2010 and boost production at a 25% compound annual rate through 2013. PXD is running 24 rigs at Spraberry and expects to ramp to 40 rigs by 2012. In South Texas, PXD has drilled eight successful horizontal wells in the Eagle Ford Shale, where PXD is running seven rigs and completing three wells. PXD expects to ramp Eagle Ford to 10 rigs and drill 70 wells in 2011; it closed on a $1.2 billion JV with India-based Reliance Industries at the play in June. We see 2010 production flat on asset sales, but we expect double-digit growth starting in 2011.

Investment Rationale/Risk ➤

➤ ➤

For 2010, capex is budgeted at $1.2 billion. Drilling capex of $960 million is 100% oilfocused, up from $313 million in 2009 on a severely curtailed drilling program.

➤

We see EPS of $3.88 (after a $2.11 non-cash gain) in 2010 and $2.49 in 2011, as production and prices rise. This compares to a $1.66 per share operating loss in 2009 (after a $0.95 noncash charge), as prices fell.

➤

After a lengthy restructuring, PXD is now an onshore producer with, we believe, strong liquids production growth prospects and impending project start-ups. We see PXD focusing on core Spraberry properties and the Eagle Ford Shale in 2010, which should drive overall production growth; the oil focus of these assets is helping returns. We expect near-term asset sales at mature properties to reduce debt. In 2009, PXD severely curtailed activity at the Raton field in the Rockies and saw natural declines in the Edwards Trend in South Texas. We think investors will focus on PXD's accelerated activity at Eagle Ford, where the $1.2 billion JV with Reliance involved selling a 45% stake in 212,000 net acres, alleviating its drilling costs. Risks to our recommendation and target price include negative changes to economic, industry and operating conditions, such as rising costs or increased geopolitical risk. PXD stock has performed well in 2010 as higher oil prices and Eagle Ford success have acted as catalysts. We blend our proved reserve NAV estimate of $97 with DCF ($80; WACC 13%, terminal growth 3%) and premium relative metrics to arrive at our 12-month target price of $87.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 507.8 462.1 2009 373.8 370.7 2008 584.2 653.3 2007 367.3 444.7 2006 396.5 413.9 2005 550.9 592.6

3Q -410.0 612.2 490.4 432.6 568.2

4Q -461.5 453.4 530.9 389.8 622.2

Year -1,610 2,277 1,833 1,633 2,216

Earnings Per Share ($) 2010 2.08 1.18 2009 -0.13 -0.82 2008 1.07 1.32 2007 0.25 0.29 2006 -0.01 0.52 2005 0.58 0.72

E0.39 -0.17 -0.02 0.77 0.64 0.74

E0.47 -0.17 -0.54 0.71 0.22 1.07

E3.88 -1.24 1.86 1.99 1.36 3.02

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040

02/17 08/30

03/29 09/28

03/31 09/30

04/14/10 10/14/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PXD

Pioneer Natural Resources Co Business Summary October 22, 2010 CORPORATE OVERVIEW. This independent oil and gas exploration and production company has an asset base anchored by the Spraberry oil field in West Texas, the Hugoton gas field in Kansas, the West Panhandle gas field in the Texas Panhandle, and the Raton gas field in southern Colorado. Complementing these areas, PXD has oil and gas exploration, development and production activities in the onshore Gulf Coast area, Alaska, South Africa and Tunisia. As of December 31, 2009, PXD had estimated proved reserves of 898.6 MMBOE, of which 54% consisted of crude oil and natural gas liquids, and 46% natural gas. This compares to estimated proved reserves of 959.6 MMBOE, of which 52% was natural gas, and 48% crude oil and natural gas liquids, at year-end 2008. We estimate PXD's year-end 2009 reserve life to be 19.9 years, compared to 21.5 years at the end of 2008. The decline in reserves was a result of negative price revisions attributable to natural gas assets. CORPORATE STRATEGY. PXD believes it offers significant upside potential from its exposure to oil with a large drilling inventory; an aggressive Spraberry program and early Eagle Ford Shale success. Over the next five years, PXD expects liquids production to go from 45% to 60% of its production portfolio.

On development of Eagle Ford and Spraberry, PXD is forecasting double-digit production growth between 2011 and 2015. In 2010, PXD is planning a capex budget of $1.2 billion, $960 million for drilling, with 100% allocated to oil activity. Like many operators, PXD drastically curtailed drilling activity early in 2009 due to plummeting oil and gas prices, high costs and a global economic recession. As costs have realigned with prices, PXD appears poised to boost rig counts, capex and activity levels in 2010, as oil prices have risen nearly 80% since early 2009. In October 2009, PXD initiated production from its most prolific well at the South Coast Gas Project in Africa and drilled its first two wells in the Pierre Shale in the Rocky Mountains. At Oooguruk in Alaska's North Slope, drilling results have been better than expected. In 2009, PXD curtailed activity at the Raton field in the Rockies, given weakening returns, and we expect weak activity in the Edwards Trend, where drilling is dependent on natural gas prices.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 28.21 4.74 -1.24 -1.25 0.08 NM 50.00 11.88 NM NM

2008 28.56 6.66 1.86 1.82 0.30 16% 82.21 14.03 44 8

2007 24.38 5.40 1.99 1.57 0.27 14% 54.87 35.51 28 18

2006 22.01 4.17 1.36 1.34 0.25 18% 54.46 36.43 40 27

2005 14.82 7.01 3.02 2.00 0.22 7% 56.35 32.91 19 11

2004 19.55 6.96 2.46 2.41 0.20 8% 37.50 29.27 15 12

2003 14.75 6.63 3.33 3.26 Nil Nil 32.90 22.76 10 7

2002 11.73 2.32 0.43 0.32 Nil Nil 27.50 16.10 64 37

2001 12.37 3.27 1.04 0.93 Nil Nil 23.05 12.62 22 12

2000 9.19 3.82 1.65 NA Nil Nil 20.63 6.75 12 4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,610 NA 684 173 -180 26.7% -142 -142

2,277 1,256 569 154 448 45.9% 221 217

1,833 1,019 415 168 355 31.7% 242 192

1,633 757 360 107 309 44.2% 172 170

2,216 1,262 568 128 715 40.8% 424 280

1,833 1,191 575 103 479 34.7% 313 307

1,299 804 391 91.4 331 NM 395 386

702 351 216 95.8 54.1 9.35% 49.1 36.4

847 433 223 132 108 3.73% 104 92.2

853 475 215 162 158 NM 164 NA

Balance Sheet & Other Financial Data (Million $) Cash 27.4 Current Assets 616 Total Assets 8,867 Current Liabilities 571 Long Term Debt 2,761 Common Equity 3,643 Total Capital 6,404 Capital Expenditures 437 Cash Flow 541 Current Ratio 1.1 % Long Term Debt of Capitalization 43.1 % Return on Assets NM % Return on Equity NM

48.3 487 9,163 695 2,964 3,582 8,083 1,403 790 0.7 36.7 2.5 6.7

12.2 765 8,617 994 2,755 3,043 7,028 2,204 657 0.8 39.2 3.0 8.0

7.03 537 7,355 887 1,497 2,985 5,654 1,499 532 0.6 26.5 2.3 6.6

18.8 624 7,329 1,033 2,058 2,217 4,276 1,123 992 0.6 48.1 6.0 16.8

7.26 312 6,647 544 2,569 2,832 5,927 616 888 0.6 43.3 5.9 13.6

19.3 205 3,952 430 1,604 1,760 3,376 688 786 0.5 47.5 10.7 25.2

8.49 147 3,455 275 1,669 1,375 3,052 615 265 0.5 54.7 1.5 3.7

14.3 256 3,271 228 1,577 1,285 2,876 530 326 1.1 54.8 3.3 9.5

26.2 191 2,954 217 1,579 905 2,512 300 379 0.9 62.8 5.6 19.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5205 North O Connor Boulevard, Suite 200, Irving, TX 75039. Telephone: 972-444-9001. Email: [email protected] Website: http://www.pxd.com

Chrmn & CEO: S.D. Sheffield Pres & COO: T.L. Dove EVP & CFO: R.P. Dealy EVP & General Counsel: M.S. Berg

Chief Admin Officer: L.N. Paulsen Founded: 1997 Investor Contact: F.E. Hopkins (972-969-4065) Domicile: Delaware Board Members: T. D. Arthur, E. Buchanan, A. F. Employees: 1,888 Cates, R. H. Gardner, A. Lundquist, C. E. Ramsey, Jr., S. J. Reiman, F. A. Risch, S. D. Sheffield, J. A. Watson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PBI | PBI is in the S&P 500

Pitney Bowes Inc. S&P Recommendation HOLD

★★★★★

Price $22.11 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Office Services & Supplies

12-Mo. Target Price $21.00

Investment Style Large-Cap Growth

Summary PBI, the world's largest maker of mailing systems, also provides production and document management equipment and facilities management services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.00– 19.06 Trailing 12-Month EPS $1.65 Trailing 12-Month P/E 13.4 $10K Invested 5 Yrs Ago $6,630

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.17 2.30 10.2 206.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.570 6.60 $1.46 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.01 4 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of PBI's steady cash flow, recurring revenue streams, consistent dividend increases and share buybacks. However, we think these factors are offset by a lackluster rate of revenue growth and integration risk associated with recent acquisitions.

50 40 30 25 20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 4

3

4

3

3

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Thomas W. Smith, CFA on September 07, 2010, when the stock traded at $ 19.87. Highlights We look for revenues to decrease 3% in 2010, and then increase 2% in 2011. The company reported soft spots in demand toward the end of the second quarter of 2010, and we believe that office products related to mail processing face a protracted recovery after a general economic downturn in 2009. New products, including the new IntelliJet 30 Printing System, should help to offset demand weakness. We believe several product partnerships are helping the company expand sales opportunities and extend its marketing reach into Asia.

Investment Rationale/Risk ➤

➤

➤

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

On December 15, 2009, the company announced a set of transformation initiatives including a cut of up to 10% of the workforce, enterprise-wide systems and common platforms, enhanced procurement processes, and more outsourcing relationships. We expect operating margins to widen in 2011 as cost savings from restructurings are more fully realized. The company has been paying down total debt in recent quarters. We estimate operating EPS, excluding restructuring charges, at $2.17 for 2010 and $2.30 for 2011.

➤

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, P, Ph

➤

B-

51

1

➤

C

PBI has a large recurring revenue stream and a leadership position within its market, in our view. We project weak demand for office equipment to limit near-term sales potential, although we expect some synergies from acquisitions, and from new product introductions focusing on digital technology, to aid long-term growth. The cash dividend yield is near 7%, which is over twice the yield for Industrials sector peers, but we think a high payout ratio may limit financial flexibility. Risks to our recommendation and target price include a slower economic recovery and more competition in the document management outsourcing market than we project. Cash flows might weaken more than we expect in a period of slow demand. Our 12-month target price of $21 is based mainly on our P/E analysis. We apply a target P/E multiple of 9.5X, a discount to Industrials sector peers in the S&P 500 Index and toward the low end of a historical range for PBI, to reflect sluggish near-term revenue growth that we foresee, to our 12-month forward operating EPS estimate of $2.22.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,348 1,297 2009 1,380 1,378 2008 1,574 1,588 2007 1,414 1,543 2006 1,362 1,389 2005 1,318 1,360

3Q -1,357 1,548 1,508 1,433 1,356

4Q -1,454 1,553 1,664 1,546 1,458

Year -5,569 6,262 6,130 5,730 5,492

Earnings Per Share ($) 2010 0.40 0.31 2009 0.49 0.54 2008 0.58 0.63 2007 0.66 0.69 2006 0.60 0.54 2005 0.64 0.60

E0.52 0.51 0.48 0.59 0.64 0.62

E0.62 0.54 0.45 -0.32 0.73 0.41

E2.17 2.08 2.13 1.63 2.51 2.27

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.360 0.365 0.365 0.365

11/06 02/04 04/12 07/12

11/18 02/17 05/12 08/11

11/20 02/19 05/14 08/13

12/12/09 03/12/10 06/12/10 09/12/10

Dividends have been paid since 1934. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PBI

Pitney Bowes Inc. Business Summary September 07, 2010 CORPORATE OVERVIEW. In business since 1920, Pitney Bowes is a major global provider of mail processing equipment and integrated mail solutions. The company's postage meters and other offerings help business customers optimize the flow of physical and electronic mail, documents and packages. The company operates seven business units within two business groups known as Mailstream Solutions and Mailstream Services. The Mailstream Solutions segment, which accounted for 68% of 2009 revenue (70% in 2008), is comprised of four units. The first, U.S. Mailing, includes U.S. revenue and related expenses from the sale, rental and financing of mail finishing, mail creation, shipping equipment and software, services, and payment solutions. The second, International Mailing, includes non-U.S. revenue and related expenses from activities similar to those of the first unit. The third unit, Production Mail, includes the worldwide sales, service and financing of high-speed production mail systems and sorting equipment. The fourth unit, Software, includes the worldwide sales and support services of nonequipment-based mailing and customer communication and location intelligence software.

The Mailstream Services segment (32%, 30%) is made up of three units. The first, Management Services, includes worldwide facilities management services, secure mail services, reprographic, document management, litigation support, eDiscovery and other services. The second, Mail Services, offers presort mail services and cross-border mail services. The third, Marketing Services, focuses on direct marketing campaign services, web-tools for customization of promotional mail, and other marketing consulting services. Reviewing revenue sources by product category, Business Services is the largest area, representing 32% of 2009 revenues (31% in 2008), following by Equipment Sales 18% (20%), Support Services 13% (12%), Financing 12% (12%), Rentals 12% (12%), Software 7% (7%), and Supplies 6% (6%).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.72 2.08 2.10 1.44 69% 27.46 17.62 13 8

2008 NM 3.60 2.13 1.67 1.40 66% 39.98 20.83 19 10

2007 NM 3.37 1.63 1.61 1.32 81% 49.70 36.40 30 22

2006 NM 4.21 2.51 2.50 1.28 51% 47.97 40.18 19 16

2005 NM 3.70 2.27 2.09 1.24 55% 47.50 40.34 21 18

2004 NM 3.36 2.05 1.94 1.22 60% 46.97 38.88 23 19

2003 NM 3.32 2.10 1.87 1.20 57% 42.75 29.45 20 14

2002 0.10 2.98 1.81 1.34 1.18 65% 44.41 28.55 25 16

2001 1.05 3.44 2.08 0.81 1.16 56% 44.70 32.00 21 15

2000 4.34 3.55 2.18 NA 1.14 52% 54.13 24.00 25 11

5,569 1,187 339 111 693 34.7% 432 435

6,262 1,437 307 229 713 34.3% 447 352

6,130 1,549 383 251 661 42.4% 361 357

5,730 1,487 363 228 914 36.6% 566 564

5,492 1,435 332 214 867 39.3% 527 485

4,957 1,352 307 172 699 31.3% 481 456

4,577 1,291 289 168 721 31.4% 495 440

4,410 1,276 264 185 619 29.3% 438 324

4,122 1,046 317 193 766 32.9% 514 199

3,881 1,316 321 201 803 29.9% 563 NA

Balance Sheet & Other Financial Data (Million $) Cash 427 Current Assets 2,971 Total Assets 8,551 Current Liabilities 2,566 Long Term Debt 4,214 Common Equity 12.8 Total Capital 4,524 Capital Expenditures 167 Cash Flow 770 Current Ratio 1.2 % Long Term Debt of Capitalization 93.2 % Net Income of Revenue 7.8 % Return on Assets 5.0 % Return on Equity NM

398 3,033 8,827 3,243 3,935 -189 4,405 237 754 0.9 89.3 7.2 4.9 NM

440 3,320 9,550 3,556 3,802 642 5,302 265 744 0.9 71.7 5.9 4.0 53.9

239 2,919 8,480 2,747 4,232 698 5,287 328 929 1.1 80.0 9.9 5.9 54.9

244 2,742 10,621 2,911 3,850 1,301 7,074 292 858 0.9 54.4 11.2 5.1 40.7

316 2,693 9,821 3,294 3,109 1,289 4,399 317 787 0.8 70.7 9.7 5.1 40.5

294 2,513 8,891 2,647 3,151 1,086 5,898 286 784 0.9 53.4 10.8 5.6 51.1

315 2,553 8,732 3,350 2,317 852 4,706 225 702 0.8 49.2 9.9 5.1 50.3

232 2,557 8,318 3,083 2,419 890 4,584 256 832 0.8 52.8 12.5 6.3 47.3

198 2,627 7,901 2,882 2,192 1,283 4,704 269 884 0.9 46.6 14.5 7.0 38.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Elmcroft Rd, Stamford, CT 06926-0700. Telephone: 203-351-6858. Email: [email protected] Website: http://www.pb.com

Chrmn, Pres & CEO: M. Martin EVP & CFO: M. Monahan EVP & General Counsel: D.J. Goldstein EVP & CIO: G.E. Buoncontri

SVP & CTO: J.E. Wall Investor Contact: C.F. McBride (203-351-6349) Board Members: R. C. Adkins, L. G. Alvarado, A. M. Busquet, A. S. Fuchs, E. Green, J. H. Keyes, M. Martin, J. McFarlane, E. R. Menasce, M. I. Roth, D. L. Shedlarz, D. B. Snow, Jr., R. E. Weissman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1920 Domicile: Delaware Employees: 33,004

Stock Report | October 23, 2010 | NYS Symbol: PCL | PCL is in the S&P 500

Plum Creek Timber Co Inc. S&P Recommendation HOLD

★★★★★

Price $37.09 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $42.00

Investment Style Large-Cap Blend

Summary Plum Creek Timber Co., a real estate investment trust (REIT), is the largest private timberland owner in the United States, with more than 7 million acres of timberland in 19 states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $43.75– 30.71 Trailing 12-Month EPS $1.04 Trailing 12-Month P/E 35.7 $10K Invested 5 Yrs Ago $12,817

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.45 1.60 25.6 161.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.994 4.53 $1.68 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.07 6 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that Plum Creek operates in a cyclical industry, with demand for its products tied to residential construction and paper manufacturing. It is subject to movements in interest rates, economic conditions and currency, and prices for its products have historically been volatile. However, it is a major landowner, and its debt levels are relatively low.

60 50 40 30

Vol.

Quantitative Evaluations

Mil. 24 16 8 0 5

S&P Quality Ranking D 4

3

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE

52

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: CBOE, P, Ph

➤

S&P projects that housing starts will rise by about 16% in 2010, followed by a nearly 50% rebound in 2011. We expect this to support increases in sawlog prices, and pulpwood demand is forecast to remain fairly strong. However, sawlog harvest levels at Plum Creek are likely to remain flat in anticipation of higher prices. Moreover, rural land sales are expected to decline due to lower sales of large tracts in Montana. Overall, we expect revenues to fall about 5% this year, before rebounding 4%-6% in 2011.

Investment Rationale/Risk ➤

➤ ➤

➤

We think that average wood product prices in 2010 will be above those of 2009, as demand from the housing market improves gradually. Margins are expected to widen in the timberland operations in 2010, and we look for a return to profitability in wood products. We see PCL capturing improved prices for its higher and better use land sales over the long term. Our 2010 operating EPS estimate is $1.45, and we project EPS of $1.60 for 2011. We note that the timing of real estate transactions will likely create quarterly volatility.

➤

HIGHEST = 99

2010

Analysis prepared by Stuart J. Benway, CFA on July 28, 2010, when the stock traded at $ 37.36. Highlights

A+

3

We believe PCL has significant value in its land holdings, and we expect real estate to become a rising source of earnings in coming years. It plans to develop 150,000 acres of land over the next 15 years, and we estimate that these properties can be sold at high margin levels. Before year end, PCL plans to sell 70,000 acres in Montana. However, demand and prices for timber in the near term are likely to remain below historical averages due to expected sustained weakness in the housing market. Risks to our recommendation and target price include renewed declines in log demand and prices due to weakness in the U.S. housing market, and lower-than-projected profits on sales of higher and better use land. Using a sum-of-the-parts analysis, which recognizes the value of PCL's land holdings, we value the shares at $43. Our dividend discount model, which assumes a $1.68 payout in 2011, a required rate of return of 8.5%, and constant dividend growth of 4.5%, indicates that PCL has an intrinsic value of $42. Our 12-month target price of $42 is based on these two measures.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 317.0 258.0 2009 470.0 272.0 2008 363.0 376.0 2007 369.0 395.0 2006 414.0 380.0 2005 400.0 358.0

3Q -294.0 414.0 407.0 454.0 427.0

4Q -258.0 461.0 504.0 379.0 391.0

Year -1,294 1,614 1,675 1,627 1,576

Earnings Per Share ($) 2010 0.47 0.22 2009 0.95 0.19 2008 0.22 0.18 2007 0.25 0.33 2006 0.50 0.34 2005 0.56 0.37

E0.33 0.12 0.40 0.34 0.51 0.52

E0.50 0.17 0.57 0.68 0.39 0.34

E1.45 1.44 1.37 1.60 1.74 1.79

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.420 0.420 0.420 0.420

11/03 02/09 05/04 08/03

11/12 02/17 05/12 08/12

11/16 02/19 05/14 08/16

11/30/09 03/05/10 05/28/10 08/31/10

Dividends have been paid since 1989. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PCL

Plum Creek Timber Co Inc. Business Summary July 28, 2010 CORPORATE OVERVIEW. Plum Creek Timber Co., a real estate investment trust (REIT), is the largest private timberland owner in the United States, with more than 7 million acres of timberlands in 19 states. In addition, the trust operates several wood products manufacturing facilities and is actively involved in land purchases and sales. The company conducts operations through four business segments: the timber operation accounted for 42% of 2009 revenues, manufacturing (19%), real estate (38%), and other (1%). The Northern Resources portion of the timber segment encompasses 3.5 million acres of timberlands, in Maine, Michigan, Montana, New Hampshire, Oregon, Vermont, Washington, West Virginia, and Wisconsin. The Southern Resources portion of the timber segment consists of 3.5 million acres of timberlands in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, and Texas. MARKET PROFILE. The timber industry provides raw materials and manages resources for the paper and forest products industry. Harvested logs are marketed and either as sawlogs to lumber and other wood products manufacturers or as pulplogs to pulp and paper manufacturers or producers of oriented strand board. Over time, timberlands may become more valuable for purposes other than growing timber. In these circumstances, timberlands may be sold to realize these values. There are six primary end markets for most of the tim-

ber harvested in the United States: new housing construction, home repair and remodeling, products for industrial uses, raw material for the manufacture of pulp and paper, wood fiber for energy production, and logs for export. The demand for timber is directly related to the underlying demand for pulp and paper products, lumber, panels, and other wood products. The demand for pulp and paper is largely driven by population growth, per-capita income levels, and industry capacity. The demand for lumber and manufactured wood products is primarily affected by the level of new residential construction activity and repair and remodeling activity, which, in turn, is affected by changes in general economic and demographic factors, including population growth and interest rates for home mortgages and construction loans. The market for wood fiber used in paper production and wood products manufacturing is very diverse, with many manufacturers of various sizes. We therefore believe that Plum Creek has only limited control over the prices that it can charge for timber and wood products.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NA NA 1.44 1.47 1.68 117% 38.69 22.88 27 16

2008 9.47 2.10 1.37 1.35 1.26 2% 65.00 27.33 47 20

2007 12.06 2.37 1.60 1.61 1.68 105% 48.45 37.13 30 23

2006 11.80 2.45 1.74 1.67 1.60 92% 40.00 31.21 23 18

2005 12.62 1.92 1.79 1.78 1.52 85% 39.63 33.40 22 19

2004 12.19 2.46 1.84 1.82 1.42 77% 39.45 27.30 21 15

2003 11.57 1.63 1.04 1.04 1.40 135% 30.75 20.88 30 20

2002 12.04 1.82 1.26 1.24 1.49 118% 31.98 18.92 25 15

2001 12.21 3.00 2.58 2.57 2.85 110% 30.00 23.30 12 9

2000 7.46 2.47 1.91 NA 2.28 119% 29.81 21.50 16 11

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,294 NA 99.0 147 205 NM 236 241

1,614 453 125 148 206 NM 233 229

1,675 558 134 147 277 NM 280 281

1,627 571 128 133 328 3.90% 315 301

1,576 561 113 109 339 2.30% 331 329

1,528 586 114 111 366 7.40% 339 336

1,196 410 107 117 186 NM 192 193

1,137 443 105 103 235 0.85% 233 229

598 305 55.0 54.0 196 NM 338 336

209 166 38.9 46.8 132 NM 132 NA

Balance Sheet & Other Financial Data (Million $) Cash 299 Current Assets NA Total Assets 4,448 Current Liabilities NA Long Term Debt 2,728 Common Equity 1,466 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 2.8 % Long Term Debt of Capitalization 64.2 % Net Income of Revenue 18.2 % Return on Assets 5.1 % Return on Equity 15.5

369 699 4,780 307 2,807 1,572 4,383 189 358 2.3 64.0 14.4 4.9 13.4

240 456 4,664 303 2,376 1,901 4,297 Nil 414 1.5 55.3 16.7 6.0 14.0

301 513 4,661 281 1,617 2,089 3,731 86.0 443 1.8 43.3 19.3 6.6 14.2

395 574 4,812 375 1,524 2,325 3,888 89.0 444 1.5 39.1 21.0 7.2 14.5

376 499 4,378 184 1,853 2,240 4,138 70.0 453 2.7 44.8 22.2 7.7 15.6

260 405 4,387 168 2,031 2,119 4,187 246 299 2.4 48.5 16.1 4.4 8.8

246 378 4,289 155 1,839 2,222 4,105 231 338 2.4 44.8 20.5 5.5 10.4

193 306 4,122 149 1,667 2,247 3,952 59.0 393 2.1 42.2 56.5 11.8 28.3

181 195 1,250 180 560 507 1,066 21.7 171 1.1 52.5 63.1 10.5 25.4

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 999 3rd Ave Ste 4300, Seattle, WA 98104-4096. Telephone: 206-467-3600. Email: [email protected] Website: http://www.plumcreek.com

Chrmn: J.F. Morgan Pres & CEO: R.R. Holley COO & EVP: T.M. Lindquist SVP & CFO: D.W. Lambert

SVP, Secy & General Counsel: J.A. Kraft Investor Contact: J. Hobbs (800-858-5347) Board Members: R. R. Holley, R. Josephs, J. G. McDonald, R. B. McLeod, J. F. Morgan, M. F. Racicot, J. H. Scully, S. C. Tobias, M. A. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1989 Domicile: Delaware Employees: 1,252

Stock Report | October 23, 2010 | NYS Symbol: PNC | PNC is in the S&P 500

PNC Financial Services Group Inc. S&P Recommendation BUY

★★★★★

Price $54.72 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $61.00

Investment Style Large-Cap Value

Summary This bank holding company conducts regional banking, wholesale banking and asset management in 13 eastern states, with concentration in Pennsylvania and Ohio.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $70.45– 48.83 Trailing 12-Month EPS $5.27 Trailing 12-Month P/E 10.4 $10K Invested 5 Yrs Ago $10,759

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.49 6.05 10.0 525.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$28.750 0.73 $0.40 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.22 7 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of PNC's large-cap valuation and history of profitability.

80 60

Quantitative Evaluations

40

S&P Quality Ranking

B+

20

D Vol. 122

97

B

B+

A-

A

MODERATE

LOWEST = 1

4

4

4 2

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

2010 Options: ASE, CBOE, Ph

Highlights The 12-month target price for PNC has recently been changed to $61.00 from $74.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

➤

HIGHEST = 99

Revenue/Earnings Data

4

1

2007

A+

36

45 30 15 0

➤

B-

Relative Strength Rank

Mil.

5

C

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on PNC from MarketScope, see below. 10/21/10 12:50 pm ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF PNC FINANCIAL SERVICES GROUP (PNC 53.91****): Q3 EPS of $1.45, vs. $0.96, exceeds our $1.11 estimate, on a lower than expected loan loss provision. On Q3 results, we are raising our '10 EPS estimate to $5.49 from $5.15. We see credit quality, as measured by net chargeoff trends and new nonperforming loans, as stable, but improving more slowly than at many peers. However, based on Q3 results and outlook, we reiterate our '11 EPS estimate of $6.05. Based on our relative peer group analysis, we think PNC should trade at about a 10.1X multiple on our '11 estimate, which leads us to lower our target price by $13 to $61. /E. Oja

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 4,289 4,350 2009 4,625 4,610 2008 2,586 2,639 2007 2,306 1,721 2006 2,251 2,356 2005 1,777 1,826

3Q -4,517 2,228 1,757 4,146 2,108

4Q -5,479 2,227 1,634 2,186 2,185

Year -19,231 9,680 10,083 10,939 7,896

Earnings Per Share ($) 2010 0.61 1.43 2009 1.01 0.11 2008 1.09 1.45 2007 1.46 1.22 2006 1.19 1.28 2005 1.24 0.98

E1.45 0.96 0.71 1.19 5.01 1.14

E1.25 2.16 -0.77 0.51 1.27 1.20

E5.49 4.36 2.46 4.35 8.73 4.55

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

01/07 04/01 07/01 10/07

01/13 04/09 07/12 10/13

01/15 04/13 07/14 10/15

01/24/10 04/24/10 07/24/10 10/24/10

Dividends have been paid since 1865. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PNC

PNC Financial Services Group Inc. Business Summary August 10, 2010 CORPORATE OVERVIEW. PNC Financial Services Group is a bank holding company that operates businesses engaged in retail banking, corporate and institutional banking, asset management, and global fund processing services. PNC currently has six primary reportable business segments: Retail Banking, Corporate and Institutional Banking, Asset Management, Residential Mortgage Banking, the Distressed Assets Portfolio (largely from NCC), and Other. Effective July 1, 2010, PNC's Global Investment Servicing unit, which until then had been PNC's seventh business segment, was sold to Bank of New York Mellon Corp (BK 26, Buy) for $2.3 billion cash.

banking regulators, on February 10, 2010, PNC redeemed all 75,792 shares of Series N Preferred Stock held by the U.S. Treasury for $7.6 billion in cash. In February 2010, PNC issued 63.9 million shares of common stock in an underwritten offering at $54 per share, resulting in a $3.4 billion increase in total shareholders' equity. Common shares outstanding were 526 million at June 30, 2010, up from 462 million at December 31, 2009. In May 2009, PNC raised $624 million in common equity through the issuance of 15 million shares of common stock.

IMPACT OF MAJOR DEVELOPMENTS. On December 31, 2008, PNC issued $7.6 billion of Fixed Rate Cumulative Perpetual Preferred Shares, Series N, and a related warrant for common stock to the U.S. Treasury under the U.S. Treasury's Troubled Asset Relief Program (TARP) Capital Purchase Program. As approved by the Federal Reserve Board, the U.S. Treasury and PNC's other Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 24.50 4.36 2.79 0.96 22% 57.86 16.20 13 4

2008 13.13 2.46 1.83 2.61 106% 87.99 39.09 36 16

2007 15.55 4.35 4.47 2.44 56% 76.41 63.54 18 15

2006 23.02 8.73 8.63 2.15 25% 75.15 61.78 9 7

2005 13.98 4.55 4.43 2.00 44% 65.66 49.35 14 11

2004 14.55 4.21 4.00 2.00 48% 59.79 48.90 14 12

2003 14.22 3.65 3.53 1.94 53% 55.55 41.63 15 11

2002 14.78 4.20 3.83 1.92 46% 62.80 32.70 15 8

2001 12.19 1.26 0.92 1.92 152% 75.81 51.14 60 41

2000 13.37 4.09 NA 1.83 45% 75.00 36.00 18 9

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

9,083 36.0 7,934 3,930 53.3% 3,324 27.7% 2,447 3.82 1,277

3,823 36.0 3,306 1,517 62.0% 1,243 29.0% 882 3.37 639

2,915 27.0 3,795 315 64.0% 2,094 29.9% 1,467 3.00 1,503

2,245 25.0 6,534 124 50.5% 4,005 34.0% 2,595 2.92 2,565

2,154 33.0 4,203 21.0 48.6% 1,962 30.8% 1,325 3.00 1,294

1,969 NA 3,508 52.0 68.2% 1,745 30.8% 1,197 3.22 1,134

1,996 NA 3,141 177 67.7% 1,600 33.7% 1,029 3.64 993

2,197 NA 3,108 309 60.8% 1,858 33.4% 1,200 3.99 1,093

2,262 NA 2,412 903 71.4% 564 33.2% 377 3.84 270

2,164 18.0 2,871 136 60.8% 1,848 34.3% 1,214 3.64 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 2,390 Investment Securities 56,027 Commercial Loans 61,020 Other Loans 96,523 Total Assets 269,863 Demand Deposits 44,384 Time Deposits 142,538 Long Term Debt 26,310 Common Equity 21,968 % Return on Assets 0.9 % Return on Equity 12.4 % Loan Loss Reserve 3.2 % Loans/Deposits 84.3 % Equity to Assets 7.0

1,856 43,473 99,516 75,973 291,081 43,212 149,653 47,087 17,504 0.4 5.5 2.2 91.0 7.5

2,729 30,225 39,956 28,363 138,920 19,440 63,256 21,157 14,854 1.2 11.4 1.2 79.5 10.7

1,763 31,651 27,672 22,433 101,820 16,070 50,231 10,266 10,788 2.7 26.8 1.1 79.1 10.0

350 23,253 26,115 23,821 91,954 14,988 45,287 6,797 8,563 1.5 16.5 1.2 123.7 9.3

1,635 18,609 19,418 24,077 79,723 12,915 40,354 8,684 7,548 1.6 16.8 1.3 84.8 9.7

50.0 16,409 15,987 18,093 68,168 11,505 33,736 7,667 6,735 1.5 15.0 1.8 78.4 10.2

3,658 17,421 22,335 13,115 66,377 9,538 35,444 9,112 6,943 1.8 18.7 1.8 82.4 9.4

1,335 15,243 23,134 14,840 69,568 10,124 37,180 8,922 5,822 0.5 5.9 1.5 89.1 8.9

1,151 7,053 28,635 21,966 69,844 8,490 39,174 7,266 6,649 1.7 19.0 1.3 109.6 9.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 249 5th Ave, 1 PNC Plz, Pittsburgh, PA 15222-2707. Telephone: 412-762-2000. Email: [email protected] Website: http://www.pnc.com

Chrmn & CEO: J.E. Rohr Pres: J.C. Guyaux EVP & CFO: R.J. Johnson EVP & General Counsel: H.P. Pudlin

SVP, Chief Acctg Officer & Cntlr: S.R. Patterson Founded: 1922 Investor Contact: W. Callihan (800-843-2206) Domicile: Pennsylvania Board Members: R. O. Berndt, C. E. Bunch, P. W. Employees: 55,820 Chellgren, K. C. James, R. B. Kelson, B. C. Lindsay, A. A. Massaro, J. G. Pepper, J. E. Rohr, D. J. Shepard, L. K. Steffes, D. F. Strigl, S. G. Thieke, T. J. Usher, G. H. Walls, Jr., H. H. Wehmeier

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RL | RL is in the S&P 500

Polo Ralph Lauren Corp S&P Recommendation STRONG BUY

★★★★★

Price $94.03 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel, Accessories & Luxury Goods

12-Mo. Target Price $105.00

Investment Style Large-Cap Growth

Summary This company designs, markets and distributes men's and women's clothing and other premium lifestyle products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $95.98– 71.12 Trailing 12-Month EPS $5.18 Trailing 12-Month P/E 18.2 $10K Invested 5 Yrs Ago $18,276

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

5.11 5.69 18.4 95.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.115 0.43 $0.40 NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.55 10 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of RL's strong balance sheet, with $865 million in cash net of debt as of April 3, 2010, offset by its exposure to the consolidating and contracting department store channel.

100 80 60

40

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

12 8 4 0 5

C

B-

AB

B+

A-

A

Relative Strength Rank

STRONG 75

5

4

3

A+

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Marie Driscoll, CFA on August 13, 2010, when the stock traded at $ 80.81. Highlights ➤

➤

➤

We believe the global luxury market has stabilized at a pre-2007 level, but is trending positively, with some aspirational shoppers cautiously nibbling. RL, however, is bucking industry dynamics, and its recently reported June quarter results speak to its healthy brand with significant global opportunities. We see incremental growth in FY 11 (Mar.), driven by further extension of the Asian business (brand sales approximate $850 million, concentrated in Japan and South Korea) as RL assumes direct control of South Korea in January 2011, the European ecommerce site launch in October, and domestically, the Lauren handbag launch at 150 better department stores.

Investment Rationale/Risk ➤

➤

We estimate FY 11 sales of $5.4 billion, up 8.4%, driven by store expansion, a mid-single digit comp store gain and a 20%+ gain in ecommerce. We see retail up 12%, wholesale up 4%, and licensing revenues down 9%. We see the EBIT margin flat at 14.2% despite strategic investments internationally and in the direct channel as we see supply chain and sourcing initiatives and well controlled inventories (-4%, excluding the Asian increment in the June quarter) offsetting margin pressure.

➤

Revenue/Earnings Data

2010

We think geographic expansion and strong brand positioning provide RL with attractive long-term growth opportunities. RL's assumption of direct control of its Southeast Asia business should better align the region with RL's global brand positioning while providing substantial long-term growth opportunities given the strong demographic underpinnings; ultimately RL seeks to have this region comprise a third of sales. As of June 2010, trailing 12-month (TTM) ROE and ROI were 18% and 35%, respectively. Risks to our recommendation and target price include integration risk from recent licensee acquisitions, execution risk in Asia, and a sharp decline in consumer discretionary spending. Regarding corporate governance, we are concerned that chairman, CEO and founder Ralph Lauren controls approximately 83% of the voting shares. Our 12-month target price of $105 is about 21X our FY 11 EPS estimate of $5.11, in line with the median five-year peer forward multiple. RL added $255 million to its existing share repurchase program, which had $319 million available at the end of the June quarter.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,153 -2010 1,024 1,374 2009 1,114 1,429 2008 1,070 1,299 2007 953.6 1,167 2006 751.9 964.8

3Q -1,244 1,252 1,270 1,144 995.5

4Q -1,337 1,224 1,241 1,031 971.6

Year -4,979 5,019 4,880 4,295 3,746

Earnings Per Share ($) 2011 1.21 E1.69 2010 0.76 1.75 2009 0.93 1.58 2008 0.82 1.09 2007 0.74 1.28 2006 0.48 0.97

E1.24 1.10 1.05 1.08 1.03 0.84

E0.97 1.13 0.44 1.00 0.68 0.58

E5.11 4.73 4.01 3.99 3.73 2.87

Fiscal year ended Mar. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

11/04 03/22 06/22 09/20

12/22 03/30 06/30 09/29

12/24 04/02 07/02 10/01

01/08/10 04/16/10 07/16/10 10/15/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: RL

Polo Ralph Lauren Corp Business Summary August 13, 2010 CORPORATE OVERVIEW. Since its modest beginnings in men's ties in 1967, Polo Ralph Lauren has grown into one of America's leading lifestyle brands encompassing multiple permutations targeted at specific demographics, usage occasions and price points, with merchandise available at approximately 9,000 retail locations throughout the world. Licensor relationships extend the brand to fragrance, eyewear, jewelry, and an extensive home merchandise offering. All told, we believe the Polo Ralph Lauren brand generates about $12 billion at retail worldwide. MARKET PROFILE. The domestic men's, women's and children's apparel market represented an estimated $189 billion at retail in 2009, according to NPD Fashionworld consumer estimated data. S&P forecasts a 2% to 3% increase in 2010 apparel sales, which compares with a 5% decline in 2009, a 3% drop in 2008 and 4% increases for both 2006 and 2007. The apparel market is fragmented, with national brands marketed by 20 companies accounting for about 30% of total apparel sales, and the remaining 70% comprised of smaller and/ or private label "store" brands. The market is mature, and subject to pricing pressure due to channel competition and production steadily moving offshore to low-cost producers in India, Asia and China.

COMPETITIVE LANDSCAPE. By channel, specialty stores account for the largest share of apparel sales (31% in 2009, according to NPD). Mass merchants (Wal-Mart and Target) came in second, at 22%, and department stores, RL's primary channel, came in third, at 14%, down about 600 basis points since 2003. National chains (Sears and JC Penney) captured 13% of 2009 apparel sales, and off-price retailers (TJX and Ross Stores) 9%. The remaining 11% is divided among factory outlets and direct and e-mail pure plays. RL holds leading market shares in department stores with seven key department stores accounting for about 50% of its wholesale volume and Macy's the largest wholesale account at 19%. RL competes with Jones Apparel Group, Liz Claiborne and VF Corp., as well as private label offerings, which garner about a third of total apparel purchases and are an important differentiator for retailers. RL also sells directly to consumers through 350 specialty retail locations globally as of April 2010 spanning the luxury, mid-market and factory channels and at RalphLauren.com and Rugby.com.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 18.33 6.52 4.73 4.73 0.30 6% 2009 83.50 31.64 18 7

2009 14.41 5.83 4.01 4.01 0.20 5% 2008 82.02 31.22 20 8

2008 10.71 5.90 3.99 3.99 0.20 5% 2007 102.58 60.41 26 15

2007 11.99 5.07 3.73 3.75 0.20 5% 2006 83.15 45.65 22 12

2006 10.35 4.06 2.87 2.80 0.20 7% 2005 56.84 34.19 20 12

2005 10.38 2.83 1.83 2.32 0.20 11% 2004 42.83 27.28 23 15

2004 10.56 2.52 1.69 1.53 Nil Nil 2003 31.52 19.30 19 11

2003 8.93 2.55 1.76 1.55 Nil Nil 2002 30.82 16.49 18 9

2002 7.38 2.60 1.75 1.54 Nil Nil 2001 31.34 17.80 18 10

2001 5.76 1.41 0.61 0.44 Nil Nil 2000 23.25 12.75 38 21

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,979 898 181 22.2 689 NA 480 479

5,019 859 184 26.6 588 30.9% 406 406

4,880 860 201 25.1 644 34.5% 420 420

4,295 802 145 21.6 659 36.8% 401 403

3,746 663 127 12.5 516 37.7% 308 299

3,305 406 104 11.0 298 36.0% 190 242

2,650 377 83.2 10.0 266 35.7% 171 154

2,439 382 78.6 13.5 274 36.5% 174 154

2,364 393 83.9 19.0 276 37.5% 173 151

2,226 319 78.6 25.1 98.0 39.5% 59.3 43.1

Balance Sheet & Other Financial Data (Million $) Cash 1,147 Current Assets 2,276 Total Assets 4,649 Current Liabilities 747 Long Term Debt 282 Common Equity 3,117 Total Capital 3,399 Capital Expenditures 201 Cash Flow 661 Current Ratio 3.1 % Long Term Debt of Capitalization 8.3 % Net Income of Revenue 9.6 % Return on Assets 10.7 % Return on Equity 16.4

820 2,057 4,357 674 406 2,735 3,142 185 590 3.1 12.9 8.1 9.3 15.8

626 1,894 4,366 909 546 2,390 2,966 217 621 2.1 18.4 8.6 10.3 17.8

564 1,686 3,758 640 399 2,335 2,734 184 546 2.6 14.6 9.3 11.7 18.3

286 1,379 2,089 844 Nil 2,050 2,070 159 435 1.6 Nil 8.2 12.8 16.5

350 1,414 2,727 622 291 1,676 1,967 174 294 2.3 14.8 5.8 7.6 12.3

343 1,271 2,270 501 277 1,422 1,699 123 254 2.5 16.3 6.5 7.9 13.0

344 1,166 2,039 500 248 1,209 1,457 98.7 253 2.3 17.1 7.1 9.2 15.8

239 1,008 1,749 392 285 998 1,284 88.0 256 2.6 22.2 7.3 10.2 19.1

102 902 1,626 440 297 809 1,106 105 138 2.1 26.8 2.7 3.7 7.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 650 Madison Ave, New York, NY 10022-1062. Telephone: 212-318-7000. Website: http://www.ralphlauren.com Chrmn & CEO: R. Lauren

Pres & COO: R.N. Farah SVP, CFO & Chief Acctg Officer: T.T. Travis SVP, Secy & General Counsel: A.S. Fischer Investor Contact: J. Hurley (212-318-7000)

Board Members: J. R. Alchin, A. H. Aronson, F. A. Bennack, Jr., J. F. Brown, R. N. Farah, J. L. Fleishman, H. Joly, R. Lauren, S. P. Murphy, J. Nemerov, R. C. Wright

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Delaware Employees: 19,000

Stock Report | October 23, 2010 | NYS Symbol: PPG | PPG is in the S&P 500

PPG Industries Inc. S&P Recommendation STRONG BUY

★★★★★

Price $76.43 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Diversified Chemicals

12-Mo. Target Price $90.00

Investment Style Large-Cap Blend

Summary This company is a leading manufacturer of coatings and resins, flat and fiber glass, and industrial and specialty chemicals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $77.95– 55.89 Trailing 12-Month EPS $3.62 Trailing 12-Month P/E 21.1 $10K Invested 5 Yrs Ago $15,596

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.00 5.60 15.3 165.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.622 2.88 $2.20 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.28 10 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's diversified business mix, large market shares in key products, and what we see as its healthy balance sheet, offset by the cyclical nature of the commodity chemicals business and the auto and construction-related end markets.

80 60

40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

B-

B

B+

A-

A

Relative Strength Rank

5

4

3

C

B+ A+ STRONG 72

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Richard O'Reilly, CFA on October 22, 2010, when the stock traded at $ 76.67. Highlights ➤

➤

➤

We expect sales in 2011 to rise about 8%, versus a 9% increase projected for 2010. We think the coatings, silicas, fiberglass and commodity chemicals businesses will continue to be boosted by the stronger global auto, industrial and electronics-related markets, but currency should remain a headwind in the near term. Optical products sales should continue to rebound in 2011 assuming stronger consumer spending. We forecast that margins for the coatings units will be helped by price increases designed to offset higher raw material costs seen in 2010. We expect commodity chemicals profits to be greater in late 2010 and early 2011 on favorable price comparisons, and see the fiberglass business remaining healthy on strong demand, but flat glass to stay at about breakeven on the downturn in commercial construction activity. We see the effective tax rate, before special items, staying at 27.0%. Our EPS estimate for 2010 excludes a special tax charge of $0.51.

Investment Rationale/Risk ➤

➤

➤

Our strong buy opinion on the shares is based on our expectation that business conditions will continue to recover in 2011. The purchase of SigmaKalon greatly expanded PPG's less capital intensive coatings business in both size and geographic diversity. We view PPG's liquidity as healthy, with the balance sheet showing more than $900 million of cash at the end of September 2010, which should allow it to consider making acquisitions in coatings while repurchasing common stock.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,126 3,458 2009 2,783 3,115 2008 3,962 4,474 2007 2,917 3,173 2006 2,638 2,824 2005 2,493 2,656

3Q -3,225 4,225 2,823 2,802 2,547

4Q -3,116 3,188 2,874 2,773 2,505

Year -12,239 15,849 11,206 11,037 10,201

Earnings Per Share ($) 2010 0.18 1.63 2009 -0.68 0.89 2008 0.53 1.51 2007 1.17 1.50 2006 1.11 1.68 2005 0.55 1.34

E1.02 0.96 0.70 1.29 0.54 0.92

E1.09 0.85 0.43 1.17 0.94 0.68

E5.00 2.03 3.25 4.91 4.27 3.49

Risks to our recommendation and target price include slower-than-projected industrial activity, unplanned production outages and interruptions, higher raw materials costs, and unexpected weakness in selling prices for commodity chemicals.

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $90 assumes that the stock's forward P/E multiple, based on our EPS estimate for 2011, will expand to its historical average high level of about 16X as a result of the cyclical recovery in earnings that we foresee. The dividend was recently increased for the 39th consecutive year, and the yielded about 50% above the level of the S&P 500.

0.540 0.540 0.550 0.550

01/21 04/15 07/15 10/22

02/17 05/06 08/06 11/08

02/19 05/10 08/10 11/10

03/12/10 06/11/10 09/10/10 12/10/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1899. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PPG

PPG Industries Inc. Business Summary October 22, 2010 CORPORATE OVERVIEW. PPG Industries is a diversified producer of coatings, chemicals and glass products. International operations contributed 58% of sales and 47% of operating profits in 2009. PPG Industries is one of the world's leading producers of protective and decorative coatings. Industrial coatings (25% of sales in 2009 and 13% of operating profits) is comprised of original automotive, industrial (used in appliance and industrial equipment), and packaging (container) coatings. PPG also produces adhesives and sealants for the automotive industry and metal pretreatments. Performance coatings (34%, 46%) consists of automotive and industrial refinish coatings, aerospace coatings, marine and specialty industrial coatings, and a major North American supplier of architectural coatings (Pittsburgh, Olympic, Porter and Lucite brands). The architectural finishes business at the end of 2009 operated 400 company-owned service centers in North America and 50 stores in Australia. The company is a global supplier of aircraft coatings, sealants, and transparencies to OEM, maintenance and aftermarket customers. The European Architectural coatings (16%, 11%) segment consists of the majority of the sales of the former SigmaKalon acquired in January 2008. The coatings industry is highly competitive and consists of a few large firms

with a global presence and many smaller firms serving local or regional markets. PPG's commodity chemicals business (10%, 13%) is the fourth largest U.S. producer of chlorine and caustic soda (used in a wide variety of industrial applications), vinyl chloride monomer (for use in polyvinyl chloride resins), calcium hypochlorite, and chlorinated solvents. These commodity chemicals are highly cyclical; PPG's volumes declined 9% in 2009, following increases of 9% and 1% in 2007 and 2008, respectively. The company's electrochemical unit (ECU) average price declined in 2009 after rising 28% in 2008. Optical and specialty materials (8%, 20%) consists of optical resins (Transitions photochromic lenses, sun lenses, and polarized film), silica compounds, and Teslin synthetic printing sheet. A fine chemicals business was sold in late 2007 (reported as discontinued operations). The optical products business declined in 2009 from 2008, which was aided by the introduction of the newest version of Transitions in early 2008.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 4.93 2.03 2.61 2.13 105% 62.31 28.16 31 14

2008 NM 6.55 3.25 2.62 2.09 64% 71.00 35.94 22 11

2007 55.71 7.20 4.91 5.28 2.04 42% 82.42 64.01 17 13

2006 7.59 6.61 4.27 4.78 1.91 45% 69.80 56.53 16 13

2005 8.46 5.66 3.49 4.57 1.86 53% 74.73 55.64 21 16

2004 10.81 6.19 3.95 4.42 1.79 45% 68.79 54.81 17 14

2003 7.36 5.23 2.92 3.48 1.73 59% 64.42 42.61 22 15

2002 3.49 1.99 -0.36 1.76 1.70 NM 62.86 41.39 NM NM

2001 9.10 4.93 2.29 1.17 1.68 73% 59.75 38.99 26 17

2000 8.57 6.20 3.57 NA 1.60 45% 65.06 36.00 18 10

12,239 1,376 480 193 617 31.0% 336 432

15,849 1,924 546 262 908 31.3% 538 434

11,206 1,698 380 104 1,243 28.6% 815 877

11,037 1,703 380 83.0 1,060 26.2% 711 797

10,201 1,648 372 81.0 947 29.8% 596 780

9,513 1,496 388 90.0 1,063 30.3% 683 765

8,756 1,367 394 107 843 34.8% 500 597

8,067 1,309 398 128 -28.0 NM -60.0 300

8,169 1,371 447 169 666 37.1% 387 197

8,629 1,649 447 161 1,017 36.3% 620 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,057 Current Assets 5,981 Total Assets 14,240 Current Liabilities 3,577 Long Term Debt 3,044 Common Equity 3,753 Total Capital 6,968 Capital Expenditures 239 Cash Flow 816 Current Ratio 1.7 % Long Term Debt of Capitalization Nil % Net Income of Revenue 2.8 % Return on Assets NA % Return on Equity NA

1,021 6,348 14,698 4,210 3,009 3,333 6,923 383 1,084 1.5 43.5 3.4 3.9 14.4

2,232 7,136 12,629 4,661 1,201 4,151 5,649 353 1,195 1.5 21.3 7.8 7.2 22.1

455 4,592 10,021 2,787 1,155 3,234 4,673 372 1,091 1.6 24.7 6.4 7.6 22.6

466 4,019 8,681 2,349 1,169 3,053 4,420 288 968 1.7 26.4 5.8 6.8 18.0

709 4,054 8,932 2,221 1,184 3,572 4,997 244 1,071 1.8 23.7 7.2 7.9 21.1

499 3,537 8,424 2,139 1,339 2,911 4,475 217 894 1.7 29.9 5.7 6.1 19.8

117 2,945 7,863 1,920 1,699 2,150 4,044 238 338 1.5 42.0 NM NM NM

108 2,703 8,452 1,955 1,699 3,080 5,453 291 834 1.4 31.2 4.7 4.4 12.5

111 3,093 9,125 2,543 1,810 3,097 5,578 561 1,067 1.2 32.4 7.2 6.9 20.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 PPG Pl, Pittsburgh, PA 15272. Telephone: 412-434-3131. Website: http://www.ppg.com Chrmn & CEO: C.E. Bunch

SVP, CFO & Chief Acctg Officer: R.J. Dellinger SVP & General Counsel: G.E. Bost, II CTO: C.F. Kahle, II Treas: A.S. Giga

Investor Contact: V. Morales (412-434-3740) Founded: 1883 Board Members: J. G. Berges, C. E. Bunch, H. Grant, V. Domicile: Pennsylvania F. Haynes, M. J. Hooper, R. Mehrabian, M. H. Employees: 39,900 Richenhagen, R. Ripp, T. J. Usher, D. R. Whitwam

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PPL | PPL is in the S&P 500

PPL Corp S&P Recommendation HOLD

★★★★★

Price $26.91 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $28.00

Investment Style Large-Cap Blend

Summary This holding company for PPL Utilities and a utility in the U.K. has agreed to acquire the holding company for Louisville Gas & Electric and Kentucky Utilities.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.05– 23.75 Trailing 12-Month EPS $1.34 Trailing 12-Month P/E 20.1 $10K Invested 5 Yrs Ago $10,941

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.89 2.51 9.3 482.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.990 5.20 $1.40 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.45 16 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the steady cash flow we expect from the regulated Pennsylvania and U.K. distribution segments, which operate within supportive regulatory environments. This is offset by the highly profitable but less predictable earnings and cash flow from the power supply segment, as well as the currency risks related to the U.K. and Latin American businesses.

50

35 30 25

Vol. 145

Mil. 24 16 8 0 5

Quantitative Evaluations S&P Quality Ranking D

4

C

B-

AB

B+

A-

A

Relative Strength Rank

1

WEAK

27

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: CBOE, P, Ph

Highlights ➤

Subject to required approvals, we expect PPL's acquisition of the holding company for the Kentucky-headquartered utilities LG&E and KU to close by the end of 2010. We expect it to be modestly dilutive in the first full year following its completion and not accretive until 2013.

➤

Excluding $0.68 of one-time charges, we expect operating EPS in 2010 to grow nearly 50% from 2009's $1.95, which was before $0.87 of net onetime charges. We expect sharply higher earnings in the power supply segment, as expired energy contracts were replaced by highermargin contracts. We believe this will be partially offset by lower earnings from the Pennsylvania and International delivery segments. We expect the power supply segment to earn about $2.10 a share in 2010 (compared to $0.88 in 2009), the Pennsylvania delivery segment around $0.25 ($0.35), and the International delivery segment about $0.54 ($0.72). For 2011, we expect operating EPS to decline about 13% from anticipated results in 2010, largely reflecting a full year of the 103.5 million new shares issued at the end of June 2010.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on August 10, 2010, when the stock traded at $ 26.40.

➤

A+

3

After a 5.3% increase in 2009, the shares are down about 18% year to date. The shares fell more than 13% during the week PPL announced its agreement to acquire the Kentucky utilities, which is not expected to be accretive until 2013. Earlier this year, the shares had been hurt, in our view, by the weakness in the power markets and by the investor shift away from utility stocks. In 2009, the stock had recovered about 22% from its year low, reflecting, we think, the recovery in the broader market and the increased market focus on the strong earnings advance projected for 2010. Risks to our recommendation and target price include potentially unfavorable regulatory rulings, significantly lower results from the unregulated operations, and a major shift in the average P/E multiple of the peer group as a whole. Our 12-month target price is $28. While we expect PPL's earnings to improve significantly in 2010, we believe the shares will continue to reflect the still depressed state of the wholesale power markets and trade at a discountto-peers P/E of 11.2X our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,033 1,503 2009 2,359 1,673 2008 1,526 1,024 2007 1,638 1,613 2006 1,781 1,642 2005 1,602 1,476

3Q -1,805 2,981 1,763 1,752 1,643

4Q -1,727 2,513 1,606 1,724 1,498

Year -7,556 8,044 6,498 6,899 6,219

Earnings Per Share ($) 2010 0.66 0.22 2009 0.64 0.07 2008 0.65 0.50 2007 0.58 0.63 2006 0.73 0.52 2005 0.44 0.47

E0.79 0.12 0.55 0.72 0.58 0.51

E0.56 0.37 0.74 0.57 0.47 0.50

E2.89 1.18 2.45 2.63 2.29 1.92

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.345 0.350 0.350 0.350

11/20 02/26 05/19 08/27

12/08 03/08 06/08 09/08

12/10 03/10 06/10 09/10

01/01/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1946. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PPL

PPL Corp Business Summary August 10, 2010 CORPORATE OVERVIEW. PPL Corporation is an energy and utility holding company organized into three operating segments: the supply segment, the Pennsylvania delivery segment, and the international delivery segment. PPL's subsidiaries PPL Generation and PPL EnergyPlus comprise the supply segment. These units are involved in electricity generation and marketing of electricity and other power purchases to deregulated wholesale and retail markets. The Pennsylvania delivery segment operates through its PPL Electric subsidiary, which provides electric utility services in the regulated Pennsylvania market. In October 2008, PPL completed the sale of its natural gas distribution unit PPL Gas Utilities and its propane unit Penn Fuel Propane for proceeds of $303 million. IMPACT OF MAJOR DEVELOPMENTS. On April 28, 2010, PPL announced a definitive agreement under which it would acquire, for $7.625 billion, E.ON U.S. LLC, the parent company of Kentucky's two major utilities, Louisville Gas & Electric Company (LG&E) and Kentucky Utilities Company (KU). LG&E and KU, which have combined power generating capacity of about 8,000 megawatts (mw), provide electricity service to 941,000 customers, mostly in Kentucky, with some customers in Virginia and Tennessee. LG&E also provides natural gas delivery service to 321,000 customers in Kentucky. PPL will pay for the

transaction with $6.7 billion of cash and through the assumption of $925 million of tax-exempt debt. Including the projected tax benefits with a present value of approximately $450 million, the company has effectively valued the transaction at $7.125 billion. Subject to required approvals, the transaction is expected to close by the end of 2010. CORPORATE STRATEGY. The company's business strategy is to achieve stable growth in the regulated delivery business. It plans to achieve long-term growth in delivery through efficient and low-cost operations while working to enhance strong customer and regulatory relations. In the unregulated supply business, PPL intends to reduce the volatility in both its cash flows and earnings and to ensure disciplined growth. The company's strategy for its electricity generation and marketing business is to build an effective risk management framework to handle energy price risk and counterparty risk. It will work to reduce risk by entering into supply contracts of varying duration, which should reflect fluctuations in demand.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.80 1.18 1.23 1.38 117% 34.42 24.25 29 21

2008 9.93 2.45 1.86 1.34 55% 55.23 26.84 23 11

2007 11.33 2.63 2.61 1.22 47% 54.58 34.43 21 13

2006 9.35 2.29 2.33 1.10 48% 37.34 27.83 16 12

2005 7.73 1.92 1.87 1.21 63% 33.68 25.52 18 13

2004 7.50 1.89 1.74 0.82 43% 27.08 19.92 14 11

2003 5.53 2.08 1.95 0.77 37% 22.17 15.83 11 8

2002 5.87 1.17 0.79 0.68 57% 19.98 13.00 17 11

2001 6.98 0.58 0.90 0.53 92% 31.18 15.50 54 27

2000 6.65 1.68 NA 0.53 32% 23.06 9.19 14 5

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

7,556 556 NA 2.60 NA 21.8% 447 466

8,044 551 NA 3.86 NA 32.3% 922 705

6,498 756 NA 3.61 NA 20.7% 1,013 1,007

6,899 446 NA 3.46 NA 23.5% 885 897

6,219 420 NA 2.70 NA 14.0% 737 716

5,812 412 NA 2.72 NA 21.6% 700 645

5,587 380 NA 2.72 NA 18.5% 748 674

5,429 367 314 2.49 NA 29.5% 425 240

5,725 254 269 3.08 NA 54.4% 221 262

5,683 261 261 2.95 NA 36.3% 513 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 21,385 Capital Expenditures 1,225 Net Property 13,174 Capitalization:Long Term Debt 7,143 Capitalization:% Long Term Debt 55.2 Capitalization:Preferred 301 Capitalization:% Preferred 2.30 Capitalization:Common 5,496 Capitalization:% Common 42.5 Total Capital 12,958 % Operating Ratio 89.0 % Earned on Net Property 7.5 % Return on Revenue 5.9 % Return on Invested Capital 6.9 % Return on Common Equity 8.5

20,299 1,429 12,416 7,151 57.1 301 2.40 5,077 40.5 14,311 82.9 14.5 11.5 9.6 17.3

20,377 1,685 12,605 6,890 54.1 301 2.40 5,556 43.5 14,958 78.3 13.6 15.6 12.1 19.0

20,079 1,394 12,069 6,728 55.4 301 2.50 5,122 42.1 14,241 80.8 13.9 12.8 10.3 18.6

18,615 811 10,916 6,044 57.5 51.0 0.50 4,418 42.0 12,766 80.3 12.2 11.9 9.5 17.0

18,692 703 11,209 6,881 61.6 51.0 0.46 4,239 37.9 13,653 79.5 12.7 12.0 9.0 18.6

17,775 771 10,446 8,145 71.1 51.0 0.45 3,259 28.5 13,710 78.9 13.4 13.4 10.0 26.2

16,406 648 9,566 6,562 74.0 82.0 0.92 2,224 25.1 11,274 76.8 17.5 7.8 12.6 17.5

12,477 565 6,135 5,906 75.3 82.0 1.05 1,857 23.7 9,332 81.1 14.2 3.9 12.4 8.7

11,418 460 5,948 4,717 69.1 97.0 1.42 2,012 29.5 6,880 84.0 28.6 9.0 14.3 28.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2 N 9th St, Allentown, PA, USA 18101-1170. Telephone: 610-774-5151. Email: [email protected] Website: http://www.pplweb.com

Chrmn, Pres & CEO: J.H. Miller COO & EVP: W.H. Spence EVP & CFO: P. Farr SVP, Secy & General Counsel: R.J. Grey

Treas: J.E. Abel Founded: 1920 Investor Contact: T.J. Paukovits (610-774-4124) Domicile: Pennsylvania Board Members: F. Bernthal, J. W. Conway, E. A. Employees: 10,489 Deaver, L. Goeser, S. E. Graham, S. Heydt, J. H. Miller, C. A. Rogerson, N. Von Althann, K. H. Williamson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PX | PX is in the S&P 500

Praxair Inc. S&P Recommendation HOLD

★★★★★

Price $92.18 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Industrial Gases

12-Mo. Target Price $90.00

Investment Style Large-Cap Growth

Summary This company is the largest producer of industrial gases in North and South America, and the second largest worldwide. It also provides ceramic and metallic coatings.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $92.95– 72.70 Trailing 12-Month EPS $4.33 Trailing 12-Month P/E 21.3 $10K Invested 5 Yrs Ago $21,632

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.65 5.00 19.8 306.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$28.213 1.95 $1.80 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.90 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relatively stable growth and cash flow of the industrial gases industry versus commodity chemicals, and PX's superior S&P Quality Ranking of A+, offset by the company's exposure to volatile energy costs.

100

80

60

Quantitative Evaluations

50

S&P Quality Ranking

Vol. Mil.

D

15 10 5 0

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 61

5

3

2

3

2

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Richard O'Reilly, CFA on August 03, 2010, when the stock traded at $ 87.80. Highlights ➤

We expect sales to rebound by about 12% in 2010 after a decline of 17% in 2009, on stronger global demand for industrial gases from strengthening manufacturing markets, start-ups of new projects and applications, and about 2% from favorable currency exchange rates. Underlying sales (excluding currency and the pass-through of energy costs) were 8% lower in 2009, but have increased sequentially quarterly since mid-2009.

Investment Rationale/Risk ➤

➤ ➤

➤

We look for Surface Technologies' sales (6% of total) to be stronger in the second half of 2010 on expected greater demand for coatings services for industrial equipment and jet engines. We forecast that operating margins in 2010 will be about 21.5%, up from the record 21.0% in 2009, on the volumes leverage and cost and productivity improvements since late 2008 and despite the adverse impact from the passthrough of higher energy costs. We expect increased interest expense in 2010 on higher average rates, and an effective tax rate of 28% in 2010, versus 27.6% in 2009. Our EPS estimate for 2010 excludes an $0.08 charge in the first quarter resulting from Venezuela currency exchange.

➤

Revenue/Earnings Data

2010

Our hold opinion is based on valuation, as the shares were recently trading at 19X our 2010 EPS estimate of $4.65. We believe the global manufacturing sector is now showing continued sequential recovery, which should result in strengthening demand for industrial gases. The scheduled start-up through 2012 of new gases plants will also contribute to revenue growth over the next few years. Risks to our recommendation and target price include an unexpected decline in industrial activity, especially in general manufacturing and metal-related markets; higher-than-projected power and natural gas costs; and, an inability to rapidly develop and successfully introduce new products and applications for industrial gases. Our 12-month target price of $90 assumes a modest widening of the multiple to a peer-level 19.5X, reflecting our view of the company's improved EPS outlook. The quarterly dividend was raised in early 2010 for the 17th consecutive year.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,428 2,527 2009 2,123 2,138 2008 2,663 2,878 2007 2,175 2,332 2006 2,026 2,076 2005 1,827 1,919

3Q -2,288 2,852 2,372 2,099 1,890

4Q -2,407 2,403 2,523 2,123 2,020

Year -8,956 10,796 9,402 8,324 7,656

Earnings Per Share ($) 2010 1.01 1.19 2009 0.93 0.96 2008 0.96 1.08 2007 0.81 0.89 2006 0.68 0.75 2005 0.59 0.63

E1.16 1.04 1.11 0.94 0.75 0.33

E1.21 1.09 0.64 0.98 0.82 0.67

E4.65 4.01 3.80 3.62 3.00 2.22

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.400 0.450 0.450 0.450

10/28 01/27 04/28 07/28

12/03 03/03 06/03 09/02

12/07 03/05 06/07 09/07

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1992. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PX

Praxair Inc. Business Summary August 03, 2010 CORPORATE OVERVIEW. Since its 1992 spin-off from Union Carbide Corp., Praxair Inc. (PX), the largest producer of industrial gases in North and South America, has expanded its operations more than 30 countries. Foreign sales accounted for 59% of the total in 2009, with Brazil alone providing 15%. PX conducts its industrial gases business through four operating segments: North America (52% of sales and 56% of profits in 2009); South America (18%, 19%); Europe (14%,14%); and Asia (10%, 7%). The capital-intensive industrial gases business involves the production, distribution and sale of atmospheric gases (oxygen, nitrogen, argon and rare gases), carbon dioxide, hydrogen, helium, acetylene, and specialty and electronic gases. Atmospheric gases are produced through air separation processes, primarily cryogenic, while other gases are produced by various methods. PX also produces specialty products (sputtering targets, mechanical planarization slurries and polishing pads, and coatings) for use in semiconductor manufacturing. In addition, the business includes the construction and sale of equipment to produce industrial gases.

site/pipeline (24% of total 2009 sales, sold under long-term contracts), merchant (29%, with three- to five-year contracts) and packaged (31%). At the end of 2009, the company had 250 major production facilities (air separation, hydrogen and carbon dioxide plants) in North America and five major pipeline complexes; more than 50 facilities and three pipeline complexes in Europe; more than 40 plants in South America, primarily in Brazil; and more than 25 plants in Asia, mainly in China, Korea and India. S.A. White Martins is the largest producer of industrial gases in South America. The Surface Technologies business (6%, 4%) applies metallic and ceramic coatings and powders to parts and equipment provided by customers, including aircraft engine, printing, power generation and other industrial markets, and manufactures electric arc, plasma and oxygen fuel spray equipment.

Industrial gases are supplied to customers through three basic methods: onCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 10.12 6.72 4.01 4.62 1.60 40% 86.07 53.35 21 13

2008 6.45 6.48 3.80 3.60 1.50 39% 99.74 4740 26 12

2007 9.64 6.01 3.62 3.55 1.20 33% 92.12 57.97 25 16

2006 8.91 5.12 3.00 2.99 1.00 33% 63.70 50.36 21 17

2005 7.05 4.23 2.22 2.16 0.72 32% 54.31 41.06 24 18

2004 6.08 3.85 2.10 2.02 0.60 29% 46.25 34.52 22 16

2003 6.00 3.33 1.77 1.67 0.46 26% 38.26 25.02 22 14

2002 4.03 3.12 1.66 1.38 0.38 23% 30.56 22.28 18 13

2001 7.59 2.84 1.32 1.04 0.34 26% 27.96 18.25 21 14

2000 3.97 2.59 1.13 NA 0.31 28% 27.47 15.16 24 13

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,956 2,449 846 138 1,466 11.5% 1,254 1,441

10,796 2,892 850 247 1,721 27.0% 1,211 1,145

9,402 2,557 774 208 1,639 25.6% 1,177 1,154

8,324 2,183 696 155 1,312 27.1% 988 983

7,656 1,948 665 163 1,145 32.8% 732 711

6,594 1,681 578 155 959 24.2% 697 671

5,613 1,444 517 151 735 23.7% 585 552

5,128 1,358 483 206 726 21.8% 548 454

5,158 1,333 499 224 585 23.1% 432 343

5,043 1,220 471 224 493 20.9% 363 NA

Balance Sheet & Other Financial Data (Million $) Cash 45.0 Current Assets 2,223 Total Assets 14,317 Current Liabilities 1,813 Long Term Debt 4,757 Common Equity 5,315 Total Capital 10,476 Capital Expenditures 1,352 Cash Flow 2,100 Current Ratio 1.2 % Long Term Debt of Capitalization 45.4 % Net Income of Revenue 14.0 % Return on Assets 9.2 % Return on Equity 26.9

32.0 2,301 13,054 2,979 3,709 4,009 8,551 1,611 2,061 0.8 43.4 11.2 9.2 26.5

17.0 2,408 13,382 2,650 3,364 5,142 8,506 1,376 1,951 0.9 39.5 12.5 9.6 24.3

36.0 2,059 11,102 1,758 2,981 4,554 7,757 1,100 1,684 1.2 38.4 11.9 9.2 23.4

173 2,133 10,491 2,001 2,926 3,902 6,828 877 1,397 1.1 42.9 9.6 7.2 19.5

25.0 1,744 9,878 1,875 2,876 3,608 6,709 668 1,275 0.9 42.9 10.6 7.7 20.8

50.0 1,449 8,305 1,117 2,661 3,088 5,944 983 1,102 1.3 44.8 10.4 7.4 21.6

39.0 1,286 7,401 1,100 2,510 2,340 5,014 498 1,031 1.2 50.1 10.7 7.3 22.8

39.0 1,276 7,715 1,194 2,725 2,477 5,363 595 931 1.1 50.8 8.4 5.6 17.9

31.0 1,361 7,762 1,439 2,641 2,357 5,156 704 834 0.9 51.2 7.2 4.7 15.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 39 Old Ridgebury Rd, Danbury, CT 06810-5113. Telephone: 203-837-2000. Website: http://www.praxair.com Chrmn, Pres & CEO: S.F. Angel

EVP & CFO: J.S. Sawyer SVP & CTO: R.P. Roberge SVP, Secy & General Counsel: J.T. Breedlove Chief Acctg Officer & Treas: M.J. White

Investor Contact: E.T. Hirsch (203-837-2354) Board Members: S. F. Angel, O. D. Bernardes, N. K. Dicciani, E. G. Galante, C. W. Gargalli, I. D. Hall, R. W. Leboeuf, L. D. McVay, W. T. Smith, R. L. Wood

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1988 Domicile: Delaware Employees: 26,164

Stock Report | October 23, 2010 | NYS Symbol: PCP | PCP is in the S&P 500

Precision Castparts Corp. S&P Recommendation STRONG BUY

★★★★★

Price $139.52 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $160.00

Investment Style Large-Cap Growth

Summary This company is a provider of complex metal components used primarily in the manufacture of jet engines and industrial gas turbines, and in the oil and gas, chemicals and automotive industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $140.63– 93.00 Trailing 12-Month EPS $6.42 Trailing 12-Month P/E 21.7 $10K Invested 5 Yrs Ago $29,323

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

7.10 8.50 19.7 142.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$19.846 0.09 $0.12 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.57 12 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Precision Castparts operates in a cyclical and capital-intensive industry and is subject to swings in commodity prices. However, due to PCP's large market share in most markets, we believe the company has significant pricing power for its products. We also consider its financial condition to be solid, including a relatively low debt level (total debt was 4% of capital as of June 2010).

160 120

80 60

Vol.

Quantitative Evaluations

Mil. 12 8 4 0 5

S&P Quality Ranking 4

3

4

4

3

5

D

C

B-

B B

B+

A-

A

Relative Strength Rank

1

STRONG 85

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

➤

The 12-month target price for PCP has recently been changed to $160.00 from $146.00. The Highlights section of this Stock Report will be updated accordingly.

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

Highlights

A+

3

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on PCP from MarketScope, see below.

➤

10/21/10 11:33 am ET ... S&P MAINTAINS STRONG BUY RECOMMENDATION ON SHARES OF PRECISION CASTPARTS (PCP 138.36*****): Sep-Q EPS of $1.70, vs. $1.54, is $0.06 above our estimate, as sales rose 17%, vs. our 7% forecast. PCP sees demand for 787 pushed out 1 quarter, to begin in Mar-Q, so we lower our FY 11 (Mar) EPS estimate $0.20 to $7.10, but increase FY 12's by $0.20 to $8.50. We also raise our target price by $14 to $160, or 11X our FY 12 EBITDA estimate, on our strong sales outlook and view of cont'd cost containment. We see 3 trends supporting earnings growth: the 787 production ramp; A320, 737, and 777 production rate increases; global economic improvement aiding industrial and IGT demand. /R.Tortoriello

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 1,447 -2010 1,376 1,298 2009 1,810 1,799 2008 1,660 1,727 2007 1,112 1,318 2006 854.6 874.9

3Q -1,372 1,615 1,697 1,385 864.4

4Q -1,441 1,604 1,791 1,547 952.6

Year -5,487 6,828 6,852 5,361 3,546

Earnings Per Share ($) 2011 1.65 E1.70 2010 1.70 1.54 2009 1.94 1.88 2008 1.61 1.67 2007 0.83 1.03 2006 0.58 0.60

E1.83 1.61 1.69 1.73 1.15 0.67

E1.92 1.66 1.87 1.88 1.44 0.74

E7.10 6.50 7.38 6.89 4.45 2.57

Fiscal year ended Mar. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.030 0.030 0.030 0.030

11/12 02/11 05/20 08/11

12/02 03/03 06/02 09/01

12/04 03/05 06/04 09/03

12/28/09 03/29/10 06/28/10 09/27/10

Dividends have been paid since 1978. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PCP

Precision Castparts Corp. Business Summary August 20, 2010 CORPORATE OVERVIEW. Precision Castparts, a manufacturer of jet engine and industrial gas turbine (IGT) engine components, conducts business through three operating units. The aerospace market accounted for 54% of FY 10 (Mar.) sales, power generation for 27%, and general industrial and automotive for the remaining 19%. General Electric accounted for 14% of FY 10 sales. Although no other customer accounted for more than 10% of sales, the Pratt & Whitney division of United Technologies, Rolls-Royce and Boeing are all key customers. PCP's Investment Cast Products segment (34% and 36% of FY 10 revenues and operating earnings, respectively) includes Aerospace Structural Castings, Aerospace Airfoil Castings, IGT Castings, and the Specialty Materials and Alloys Group (SMAG). These operations manufacture investment castings for aircraft engines, IGT engines, and airframes. PCP also makes metal castings for medical prostheses, unmanned aerial vehicles, satellites, and armament systems (such as howitzers). Investment casting involves a technical, multistep process that uses ceramic molds in the manufacture of metal components with more complex shapes, closer tolerances and finer surface finishes than parts manufactured using other casting methods. PCP is the world's largest maker of jet engine structural castings used to strengthen sections of a jet engine, and makes castings for every jet engine program in production or

under development. It is also the leading supplier of investment casts for industrial gas turbine (IGT) engines, used in power generation. The company emphasizes low-cost, high-quality products and timely delivery. SMAG principally provides metal alloys to the company's investment casting operations, as well as to other companies with investment casting or other foundry operations. The Forged Products segment (41% and 35%) is a large maker of forged components for the aerospace and power generation markets. Forged Products segment aerospace and IGT sales are primarily derived from the same large engine customers served by the Investment Cast segment, with additional aerospace sales to manufacturers of landing gear and airframes. In addition, Forged Products manufactures high performance nickel-based alloys used to produce forged components for aerospace and non-aerospace markets, which includes products for oil and gas, chemical processing and pollution control applications.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 18.13 7.60 6.51 6.49 0.12 2% 2009 115.60 47.71 18 7

2009 16.42 8.37 7.38 6.95 0.12 2% 2008 142.94 47.08 19 6

2008 12.28 7.81 6.89 6.87 0.12 2% 2007 160.73 77.51 23 11

2007 5.37 5.27 4.45 4.47 0.11 2% 2006 80.90 48.80 18 11

2006 3.56 3.30 2.57 2.51 0.06 2% 2005 53.91 31.15 21 12

2005 1.51 2.53 1.80 1.79 0.06 3% 2004 34.19 20.68 19 11

2004 0.62 1.73 1.18 1.21 0.06 5% 2003 22.97 10.61 19 9

2003 0.74 2.28 1.51 1.17 0.06 4% 2002 19.00 8.43 13 6

2002 NM 1.37 0.41 0.63 0.06 15% 2001 24.75 9.00 61 22

2001 NM 2.23 1.23 1.22 0.06 5% 2000 22.78 5.92 19 5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,487 1,576 155 16.2 1,411 34.4% 924 924

6,828 1,739 139 18.1 1,578 34.2% 1,038 978

6,852 1,639 128 81.0 1,463 33.9% 966 963

5,361 1,086 113 52.2 918 33.2% 615 618

3,546 656 99.2 41.4 513 31.6% 349 341

2,919 517 97.0 56.6 360 33.7% 240 237

2,175 380 88.2 54.1 212 35.7% 136 140

2,117 390 82.5 56.4 242 34.5% 159 123

2,557 448 101 66.2 135 68.6% 42.4 65.4

2,326 401 102 81.0 209 40.1% 125 124

Balance Sheet & Other Financial Data (Million $) Cash 112 Current Assets 2,522 Total Assets 7,661 Current Liabilities 894 Long Term Debt 235 Common Equity 5,889 Total Capital 6,142 Capital Expenditures 170 Cash Flow 1,080 Current Ratio 2.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 16.9 % Return on Assets NA % Return on Equity NA

554 2,785 6,721 1,061 251 4,860 5,222 205 1,177 2.6 4.8 15.2 16.3 23.3

221 2,372 6,050 1,205 335 4,045 4,400 226 1,094 2.0 7.6 14.1 17.1 28.1

150 2,037 5,259 1,658 319 2,836 3,182 222 727 1.2 10.0 11.5 13.6 24.7

59.9 1,234 3,751 768 600 2,244 2,844 99.2 448 1.6 21.1 9.8 9.5 17.0

154 1,213 3,625 780 799 1,780 2,579 61.7 337 1.6 31.0 8.2 6.5 13.7

80.3 1,188 3,756 913 823 1,715 2,538 65.5 224 1.3 32.4 6.2 4.4 9.8

28.7 786 2,467 625 532 1,062 1,594 70.5 242 1.3 33.4 7.5 6.3 15.8

38.1 878 2,565 727 697 952 1,649 125 143 1.2 42.3 1.7 1.7 4.6

40.1 863 2,573 657 838 902 1,740 90.2 227 1.3 48.2 5.4 5.0 14.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4650 SW Macadam Ave Ste 400, Portland, OR 97239-4262. Telephone: 503-417-4850. Email: [email protected] Website: http://www.precast.com

Chrmn, Pres & CEO: M. Donegan SVP, CFO & Chief Acctg Officer: S.R. Hagel SVP, Secy & General Counsel: R.A. Cooke Treas: S.C. Blackmore

Investor Contact: W.D. Larsson Board Members: M. Donegan, D. R. Graber, L. L. Lyles, D. J. Murphy, Jr., V. E. Oechsle, S. G. Rothmeier, U. Schmidt, R. L. Wambold, T. A. Wicks

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1949 Domicile: Oregon Employees: 17,950

Stock Report | October 23, 2010 | NNM Symbol: PCLN | PCLN is in the S&P 500

priceline.com Inc S&P Recommendation HOLD

★★★★★

Price $363.50 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Internet Retail

12-Mo. Target Price $350.00

Investment Style Large-Cap Growth

Summary This company is a leading provider of online travel services, primarily in the U.S. and Europe.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $364.93– 154.12 Trailing 12-Month EPS $11.09 Trailing 12-Month P/E 32.8 $10K Invested 5 Yrs Ago $178,888

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

8.25 10.60 44.1 48.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.589 Nil Nil 100

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.10 22 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of a very competitive online travel segment, with relatively low barriers to entry.

300

150

Quantitative Evaluations

100

S&P Quality Ranking

50

D

C

B-

BB

B+

A-

A

A+

Vol. Mil.

20

19

Relative Strength Rank

9 6 3 0 5

STRONG 91

LOWEST = 1

3

3

3

3

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Scott H. Kessler on September 26, 2010, when the stock traded at $ 344.27. Highlights ➤

➤

➤

We estimate revenues will increase 27% in 2010 and 16% in 2011, due to market share gains, healthy volumes, and stable-to-improving pricing, offset somewhat by relative Europe-related weakness. We expect international and merchant operations to drive growth, reflecting PCLN's past acquisitions of Active Hotels and Bookings B.V., providers of Internet hotel reservation services in Europe, which have enabled the company to become an overseas leader in online hotel reservations. We believe PCLN will continue to build on its user and supplier bases in Europe, largely reflecting the benefits of efficient marketing efforts and the "network effect" (where more users beget more suppliers, etc.). In particular, we see PCLN's opaque travel offerings (where some details are not disclosed until the transaction is completed), especially in the U.S., as attractive in light of relatively high retail pricing. In March 2010, PCLN issued $575 million of convertible debt. It also announced a $500 million stock buyback, and immediately repurchased $100 million of shares. We see the company's financial position as strong and flexible.

Investment Rationale/Risk ➤

While we believe PCLN has established itself as a global leader in online travel services, we do not think it is widely known that over half of PCLN's gross bookings and revenues are derived from international businesses (mostly focused on Europe). Although we have concerns about the euro and European economies, we think positive secular trends are intact, such as a growing percentage of travel purchases being effected online. PCLN hopes it can replicate its European success in Asia, with the acquisition of Agoda. Given current conditions and uncertainties, we believe the stock is fairly valued at recent levels.

➤

Risks to our recommendation and target price include possible negative impacts from weak global economies (especially related to Europe) and leisure travel demand, and less success than we expect with regard to new offerings and/or acquisitions.

➤

Our DCF model (which assumes a WACC of 10.3%, annual free cash flow growth averaging 19% from 2010 to 2014, and a terminal growth rate of 3%) yields an intrinsic value of about $350, which is our 12-month target price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 584.4 767.4 2009 462.1 603.7 2008 403.2 514.0 2007 301.4 355.9 2006 241.9 307.7 2005 233.4 266.6

3Q -730.7 561.6 417.3 313.5 258.8

4Q -541.8 406.0 334.9 260.1 203.9

Year -2,338 1,885 1,409 1,123 962.7

Earnings Per Share ($) 2010 1.06 2.26 2009 0.53 1.38 2008 0.37 1.08 2007 -0.44 0.79 2006 -0.02 0.28 2005 0.21 0.29

E3.06 6.42 1.81 2.27 1.05 3.71

E1.86 1.55 0.73 0.68 0.33 0.09

E8.25 9.88 3.98 3.42 1.68 4.21

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: PCLN

priceline.com Inc Business Summary September 26, 2010 CORPORATE OVERVIEW. Priceline.com is an online travel company that provides a broad range of travel services, including airline tickets, hotel rooms, car rentals, vacation packages, cruises, and destination services. PCLN offers customers a choice of purchasing certain travel services in a traditional, price-disclosed manner (retail products), or of using its proprietary Name Your Own Price service, which allows users to make offers for travel services at discounted prices (opaque products). Internationally, PCLN offers hotel room reservations in over 84 countries and 32 languages. PCLN enables customers to make hotel reservations on a worldwide basis primarily under the Booking.com and Agoda brands internationally, and the priceline.com brand in the U.S. In the U.S., PCLN also allows users to purchase many other types of travel offerings. Interestingly, even though PCLN is best known in the U.S. for its Name Your Own Price system, 61% of its gross bookings and three-quarters of its operating income in 2009 were derived from its international (primarily European) operations. PCLN expects these

percentages to increase in 2010 and beyond. The U.S. business consists of Name Your Own Price offerings (provided via a unique e-commerce pricing system intended to enable consumers to use the Internet to save money on products and services, while allowing sellers to generate incremental revenue and retail offerings) and retail services (whereby customers can choose specific suppliers and/or itineraries when making purchases of airline tickets and hotel and rental car reservations, and travel packages). The company has provided retail offerings since 2003, and believes that offering both opaque and retail products enables it to serve a broad array of value-conscious travelers, while providing diversified revenues.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.53 10.68 9.88 9.91 Nil Nil 231.49 64.95 23 7

2008 5.13 4.86 3.98 3.99 Nil Nil 144.34 45.15 36 11

2007 3.43 4.24 3.42 4.19 Nil Nil 120.67 41.80 35 12

2006 NM 2.41 1.68 1.70 Nil Nil 44.28 21.06 26 13

2005 0.53 4.70 4.21 4.13 Nil Nil 27.08 18.20 6 4

2004 0.79 1.03 0.96 0.53 Nil Nil 29.52 17.42 31 18

2003 3.44 0.56 0.27 -0.49 Nil Nil 39.81 6.78 NM NM

2002 3.12 -0.09 -0.54 -2.94 Nil Nil 41.36 6.30 NM NM

2001 3.30 0.02 -0.48 -4.62 Nil Nil 62.12 7.88 NM NM

2000 NM -10.71 -11.82 NA Nil Nil 625.75 6.38 NM NM

2,338 509 39.2 24.1 442 NM 489 491

1,885 333 43.2 9.38 292 33.7% 193 194

1,409 175 37.5 10.4 145 NM 157 191

1,123 95.6 33.4 7.06 62.1 NM 74.5 73.3

963 64.9 27.3 5.07 36.5 NM 193 187

914 43.9 13.5 3.72 31.3 NM 31.5 20.3

864 26.0 11.5 0.91 11.9 NM 11.9 -18.6

1,004 22.7 18.3 Nil -19.2 NM -19.2 -111

1,172 23.3 16.6 Nil -7.30 NM -7.30 -157

1,235 -40.5 17.4 Nil -315 NM -315 NA

Balance Sheet & Other Financial Data (Million $) Cash 800 Current Assets 1,023 Total Assets 1,834 Current Liabilities 409 Long Term Debt 36.0 Common Equity 1,322 Total Capital 1,517 Capital Expenditures 15.1 Cash Flow 529 Current Ratio 2.5 % Long Term Debt of Capitalization 2.4 % Net Income of Revenue 20.9 % Return on Assets 30.8 % Return on Equity 47.7

463 624 1,344 547 Nil 730 779 18.3 237 1.1 Nil 10.3 14.4 29.6

509 613 1,351 695 Nil 579 643 16.0 193 0.9 Nil 11.1 12.7 33.5

424 503 1,106 101 569 349 953 12.9 108 5.0 59.7 6.6 8.0 20.8

80.3 224 754 71.0 224 369 672 11.0 218 3.1 33.3 20.0 29.7 67.2

101 273 542 74.4 224 199 467 6.94 43.5 3.7 48.1 3.4 7.2 17.2

93.7 284 338 49.6 125 149 287 6.58 22.0 5.7 43.4 1.4 4.3 7.4

85.4 170 211 65.3 Nil 132 145 9.13 -3.26 2.6 Nil NM NM NM

115 185 262 87.3 Nil 147 172 9.42 0.71 2.1 Nil NM NM NM

90.6 131 195 79.3 Nil -249 111 37.3 -298 1.7 Nil NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 800 Connecticut Ave, Norwalk, CT 06854-1625. Telephone: 203-299-8000. Website: http://www.priceline.com Chrmn: R.M. Bahna

Pres & CEO: J.H. Boyd Vice Chrmn: R.J. Mylod, Jr. COO: L. Gillingham EVP, Secy & General Counsel: P.J. Millones

Investor Contact: D.J. Finnegan (203-299-8000) Board Members: R. M. Bahna, H. W. Barker, Jr., J. H. Boyd, J. L. Docter, J. Epstein, J. M. Guyette, R. J. Mylod, Jr., N. B. Peretsman, C. W. Rydin

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1997 Domicile: Delaware Employees: 2,010

Stock Report | October 23, 2010 | NYS Symbol: PFG | PFG is in the S&P 500

Principal Financial Group Inc. S&P Recommendation HOLD

★★★★★

Price $27.07 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $27.00

Investment Style Large-Cap Blend

Summary This company offers businesses, individuals and other clients various financial products and services, including insurance, retirement and investment services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.41– 20.89 Trailing 12-Month EPS $2.02 Trailing 12-Month P/E 13.4 $10K Invested 5 Yrs Ago $6,099

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.75 3.10 9.8 320.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.671 1.85 $0.50 61

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.95 11 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of PFG's significant exposure to the equity markets and potential for further investment losses, especially considering its exposure to commercial real estate. We believe PFG's capital position could come under strain if the economic environment and capital markets worsen. However, we believe PFG's financial position has improved following recent capital raises.

80 40 20 10 5 Vol. 80

Mil.

Quantitative Evaluations

24 16 8 0 5

S&P Quality Ranking 4

3

2

3

D

3

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 64

LOWEST = 1

HIGHEST = 99

Options: CBOE

Analysis prepared by Bret Howlett on August 16, 2010, when the stock traded at $ 22.81. Highlights ➤

➤

➤

We forecast a 3%-4% decline in U.S. Asset Management and Accumulation (USAMA) earnings in 2010. We expect 401(k) sales and flows to be pressured by the weak macro conditions for small businesses, higher withdrawals, and lower employee contributions and employer matching. However, the recovery in the equity markets has boosted average account values, and we expect higher fee income at USAMA. We are cautious on our outlook for Life & Health due to our forecast for sluggish sales and higher benefit ratios. We expect earnings to be up considerably at International Asset Management and Accumulation (IAMA). We believe IAMA will benefit from greater assets under management, higher investment income, and foreign currency shifts. However, PFG reduced its stake in a joint venture in Brazil, which should adversely affect earnings. We believe Global Asset Management profits will increase 20% on the improved financial markets and higher real estate associated income. We forecast operating EPS of $2.75 for 2010 and $3.10 for 2011. Our estimates exclude realized investment gains or losses.

Investment Rationale/Risk ➤

➤

➤

While we believe PFG's economy-sensitive businesses still face headwinds, we have become more optimistic about its prospects given the improving macro environment. Although we think multiple expansion will be held back by slow revenue growth and elevated investment losses, we believe this is reflected in PFG's shares. PFG trades at only a slight premium to the group, but we believe a premium is warranted since its businesses are less capitalintensive and typically generate a higher return on equity versus peers. PFG's exposure to commercial real estate is a concern, as we think impairments have yet to peak in this asset class. We believe future losses will be manageable, though, based on PFG's solid statutory financial position and capital raises. Risks to our recommendation and target price include a significant decline in the equity markets, narrowing margins in the company's health insurance business, outflows in its USAMA business, and deteriorating credit and economic conditions. Our 12-month target price of $27 is 1.0X our 2010 year-end book value forecast, below historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,264 2,234 2009 2,189 2,158 2008 2,501 2,658 2007 2,661 2,832 2006 2,402 2,460 2005 2,144 2,200

3Q -2,270 2,498 2,850 2,450 2,218

4Q -2,232 2,279 2,564 2,559 2,445

Year -8,849 9,936 10,907 9,871 9,008

Earnings Per Share ($) 2010 0.59 0.42 2009 0.43 0.52 2008 0.67 0.64 2007 0.95 1.14 2006 1.01 0.76 2005 0.68 0.77

E0.62 0.57 0.35 0.88 0.92 0.74

E0.71 0.44 -0.03 0.05 0.93 0.83

E2.75 1.98 1.63 3.01 3.63 3.02

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.500

10/26

11/10

11/13

12/04/09

Dividends have been paid since 2002. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PFG

Principal Financial Group Inc. Business Summary August 16, 2010 CORPORATE OVERVIEW. The Principal Financial Group is a leading provider of retirement savings, investment and insurance products and services, with approximately $285 billion in assets under management at December 31, 2009. The focus of the company is to provide retirement and employment products and services, specifically 401(k) plans, to small and medium-sized businesses. According to Spectrem Group, a consulting and market research firm, PFG is a leading corporate defined contributions plan provider with over 33,000 plans. PFG's businesses are organized into five operating segments. The U.S. Asset Management and Accumulation segment (USAMA), which accounted for 43% of operating revenues excluding corporate and other in 2009, provides retirement savings and related investment products and services, and asset management operations, with a concentration on small and medium-sized businesses with fewer than 1,000 employees. At year-end 2009, USAMA account values totaled $164 billion.

porate and other in 2009. The International Asset Management and Accumulation segment (IAMA) consists of Principal International and offers retirement products and services, annuities, mutual funds and life insurance through operations in Brazil, Chile, Mexico, China, Hong Kong and India. IAMA accounted for 5.9% of operating revenues from continuing operations in 2009. The Life and Health Insurance segment, which accounted for 47% of operating revenues from continuing operations in 2009, offers individual and group life and disability insurance, as well as group health, dental and vision insurance. The Corporate and Other segment includes, among other things, intersegment eliminations, income on capital not allocated to other segments, and the company's financing activities. The segment reported a loss of $168 million in 2009.

The Global Asset Management segment includes Principal Global Investors and its affiliates, and focuses on providing a range of asset management services. The segment accounted for 4.6% of operating revenues excluding corCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 33.18 NA 1.98 3.07 0.50 25% 30.87 5.41 16 3

2008 4.41 NA 1.63 2.77 0.45 28% 68.94 8.78 42 5

2007 22.35 NA 3.01 3.69 0.90 30% 70.85 51.52 24 17

2006 22.24 NA 3.63 3.45 0.80 22% 59.40 45.91 16 13

2005 24.14 NA 3.02 3.02 0.65 22% 52.00 36.80 17 12

2004 23.67 NA 2.23 2.36 0.55 25% 41.26 32.00 19 14

2003 22.12 NA 2.23 2.38 0.45 20% 34.67 25.21 16 11

2002 19.32 2.46 1.77 1.85 0.25 14% 31.50 22.00 18 12

2001 10.59 1.96 1.02 1.69 Nil Nil 24.75 18.50 24 18

2000 14.89 NA 1.74 NA NA NA NA NA NA NA

239,782 1,254 2,496 3,401 8,849 746 NA 623 918

246,329 1,564 2,646 3,994 9,936 454 NA 458 722

243,119 1,827 2,808 3,967 10,907 1,048 NA 840 991

218,947 1,560 2,745 3,618 9,871 1,329 NA 1,034 951

197,690 1,546 2,429 3,361 9,008 1,124 NA 892 871

180,344 1,477 2,233 3,227 8,304 882 NA 702 742

136,530 1,500 2,135 3,420 9,404 954 NA 728 778

137,794 1,824 2,058 3,305 9,223 666 864 620 647

62,309 2,089 2,033 3,395 8,818 449 711 370 608

60,389 1,792 2,205 3,172 8,885 872 NA 627 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 2,932 Premiums Due 1,065 Investment Assets:Bonds 47,253 Investment Assets:Stocks 436 Investment Assets:Loans 12,748 Investment Assets:Total 63,937 Deferred Policy Costs 3,681 Total Assets 137,759 Debt 1,585 Common Equity 7,893 % Return on Revenue 7.0 % Return on Assets 0.5 % Return on Equity 12.0 % Investment Yield 5.5

3,359 988 40,961 401 12,748 59,107 4,153 128,182 1,291 2,473 4.6 0.3 9.3 6.7

2,119 951 47,268 586 13,522 64,365 2,810 154,520 1,399 7,422 7.7 0.6 10.6 6.4

2,314 1,252 44,727 848 12,515 60,367 2,419 143,658 1,554 7,861 10.5 0.8 12.8 6.1

2,324 593 42,117 815 12,312 57,583 2,174 127,035 899 7,807 9.9 0.7 11.4 5.9

1,131 628 40,916 763 12,529 57,012 1,838 113,798 844 7,544 8.5 0.6 9.4 5.8

2,344 720 37,553 712 14,312 55,578 1,572 107,754 2,767 7,400 7.7 0.7 10.4 6.5

1,685 460 34,287 379 11,900 48,996 1,414 89,861 1,333 13,314 7.0 0.7 4.6 7.0

1,218 531 30,030 834 11,898 44,773 1,373 88,351 1,378 6,820 4.2 0.4 5.7 7.8

940 572 29,328 579 12,359 44,403 1,338 86,838 1,391 6,624 7.1 0.8 10.5 7.9

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 711 High Street, Des Moines, IA 50392-9992. Telephone: 515-247-5111. Website: http://www.principal.com Chrmn, Pres & CEO: L.D. Zimpleman

EVP & General Counsel: K.E. Shaff SVP, CFO & Chief Acctg Officer: T.J. Lillis SVP & Secy: J.N. Hoffman SVP & Cntlr: G. Elming

Investor Contact: T. Graf (515-235-9500) Founded: 1998 Board Members: B. J. Bernard, J. E. Carter-Miller, G. E. Domicile: Delaware Costley, M. T. Dan, C. Gelatt, Jr., S. L. Helton, R. L. Employees: 14,487 Keyser, A. K. Mathrani, E. E. Tallett, L. D. Zimpleman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PG | PG is in the S&P 500

Procter & Gamble Co (The) S&P Recommendation BUY

★★★★★

Price $63.40 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Household Products

12-Mo. Target Price $66.00

Investment Style Large-Cap Growth

Summary This leading consumer products company markets household and personal care products in more than 180 countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $64.58– 39.37 Trailing 12-Month EPS $4.11 Trailing 12-Month P/E 15.4 $10K Invested 5 Yrs Ago $13,133

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.97 NA 16.0 2,838.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$179.959 3.04 $1.93 57

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.51 7 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that demand for household and personal care products is generally stable and not affected by changes in the economy or geopolitical factors, except for select categories such as fragrances.

80

60 50

Quantitative Evaluations

40

S&P Quality Ranking

Vol. 237

Mil. 90 60 30 0

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 53

5

4

5

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Tom Graves, CFA on October 04, 2010, when the stock traded at $ 59.95. Highlights ➤

We think PG has benefited from its tiered portfolio, which offers products at different price points, from new products that command higher pricing through innovation, and from its broad geographic reach. In FY 11 (Jun.), we look for sales growth of about 4%, following a rise of 2.9% in FY 10.

Investment Rationale/Risk ➤

➤ ➤

➤

In FY 11, we expect a segment operating profit margin of about 15%, similar to what was reported for FY 10, as we look for higher commodity costs to at least partly offset continuing productivity gains and cost reductions. For FY 11, we estimate EPS of $3.97, up from $3.67 in FY 10, which excludes a $0.05 charge for taxation of a retiree health care subsidy, and $0.09 of charges for potential competition law fines. In FY 11, we expect year-to-year EPS comparisons to be more favorable in the second half than in the first. In the company's FY 10 annual report, PG said it expects share repurchases of $6 billion to $8 billion in FY 11, following total share repurchases of $6.0 billion in FY 10.

➤

Revenue/Earnings Data

2010

Looking ahead, we expect PG to benefit from innovation, acquisitions and growth in new markets and categories. In our view, PG's competitive strengths in developing markets include its broad product portfolio and sizable distribution network. Risks to our recommendation and target price include heightened competition, a worsening consumer spending environment, unfavorable currency translation, greater commodity cost pressures, higher promotional spending, and slow consumer acceptance of new products. Our 12-month target price of $66 is based on a blended valuation. Our historical P/E analysis uses a multiple of about 14.6X our calendar 2011 EPS estimate of $4.12, which is below the 10-year median, while our peer analysis, based on PG's strong earnings track record and leading market share positions, uses a premium 15.8X multiple. These multiples imply values of $60 and $65, respectively. Our DCF model implies a $73 intrinsic value, assuming a blended WACC of 8.5%, and a 3% terminal growth rate. The stock recently had an indicated dividend yield of 3.2%

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 19,807 21,027 2009 21,582 20,368 2008 20,199 21,575 2007 18,785 19,725 2006 14,793 18,337 2005 13,744 14,452

3Q 19,178 18,417 20,463 18,694 17,250 14,287

4Q 18,926 18,662 21,266 19,272 17,842 14,258

Year 78,938 79,029 83,503 76,476 68,222 56,741

Earnings Per Share ($) 2010 0.97 1.01 2009 1.03 0.94 2008 0.92 0.98 2007 0.79 0.84 2006 0.77 0.72 2005 0.73 0.74

0.83 0.83 0.82 0.74 0.63 0.63

0.71 0.80 0.92 0.67 0.55 0.56

3.53 3.58 3.64 3.04 2.64 2.66

Fiscal year ended Jun. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.440 0.482 0.482 0.482

01/12 04/19 07/13 10/12

01/20 04/28 07/21 10/20

01/22 04/30 07/23 10/22

02/16/10 05/17/10 08/16/10 11/15/10

Dividends have been paid since 1891. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PG

Procter & Gamble Co (The) Business Summary October 04, 2010 CORPORATE OVERVIEW. Procter & Gamble's business is focused on providing branded products of what it considers superior quality and value to improve the lives of the world's consumers. PG's products are sold in more than 180 countries. In FY 10 (Jun.), North America accounted for 42% of total sales, Western Europe 21%, Asia 15%, Latin America 9%, and other geographic areas 13%. PG's customers include mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores. Sales to Wal-Mart Stores, Inc. and its affiliates represented about 16% of total FY 10 revenue. PG's top 10 customers accounted for about 32% of total unit volume.

(4%; 3%); Fabric Care and Home Care (30%; 31%); and Baby Care and Family Care (19%; 19%). IMPACT OF MAJOR DEVELOPMENTS. In October 2005, PG acquired The Gillette Company for about $54 billion. Gillette is the world leader in the male and female grooming categories and holds the number one position worldwide in alkaline batteries and toothbrushes. We expect the acquisition to add to increased shareholder value over time through cost synergies and sales growth opportunities, following the initial two years of dilution.

Under U.S. accounting standards, PG has six reportable business segments: Beauty (25% of FY 10 net sales and 25% of net income from continuing operations); Grooming (10%; 13%); Health Care (15%; 17%); Snacks and Pet Care Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 4.53 3.53 3.53 1.80 51% 64.58 39.37 18 11

2009 NM 4.50 3.58 3.38 1.64 46% 63.48 43.93 18 12

2008 NM 4.54 3.64 3.24 1.45 40% 73.81 54.92 20 15

2007 NM 4.30 3.04 2.96 1.28 42% 75.18 60.42 25 20

2006 NM 3.56 2.64 2.60 1.15 44% 64.73 52.75 25 20

2005 NM 3.30 2.66 2.45 1.03 39% 59.70 51.16 22 19

2004 NM 2.90 2.32 2.17 0.93 40% 57.40 48.89 25 21

2003 0.43 2.41 1.85 1.58 0.82 44% 49.97 39.79 27 22

2002 NM 2.11 1.54 1.28 0.76 49% 47.38 37.04 31 24

2001 0.78 1.85 1.04 0.81 0.70 68% 40.86 27.98 39 27

78,938 19,129 3,108 946 15,047 NA 10,946 10,730

79,029 19,205 3,082 1,358 15,325 26.3% 11,293 10,467

83,503 20,249 3,166 1,467 16,078 24.9% 12,075 10,575

76,476 18,580 3,130 1,304 14,710 29.7% 10,340 9,917

68,222 15,876 2,627 1,119 12,413 30.0% 8,684 8,420

56,741 12,811 1,884 834 10,439 30.5% 7,257 6,552

51,407 11,560 1,733 629 9,350 30.7% 6,481 5,922

43,377 9,556 1,703 561 7,530 31.1% 5,186 4,313

40,238 8,371 1,693 603 6,383 31.8% 4,352 3,486

39,244 7,007 2,271 794 4,616 36.7% 2,922 2,165

Balance Sheet & Other Financial Data (Million $) Cash 2,879 Current Assets 18,782 Total Assets 128,172 Current Liabilities 24,282 Long Term Debt 21,360 Common Equity 61,439 Total Capital 91,271 Capital Expenditures 3,067 Cash Flow 14,054 Current Ratio 0.8 % Long Term Debt of Capitalization 23.4 % Net Income of Revenue 13.9 % Return on Assets 8.3 % Return on Equity 17.8

4,781 21,905 134,833 30,901 20,652 63,099 95,827 3,238 14,183 0.7 21.6 14.3 8.1 17.2

3,541 24,515 143,992 30,958 23,581 69,494 104,880 3,046 15,065 0.8 22.5 14.5 8.6 17.9

5,354 24,031 138,014 30,717 23,375 65,354 102,150 2,945 13,470 0.8 22.9 13.5 7.6 16.3

6,693 24,329 135,695 19,985 35,976 61,457 111,238 2,667 11,311 1.2 32.3 12.7 8.8 22.1

6,389 20,329 61,527 25,039 12,887 15,994 33,258 2,181 9,005 0.8 38.7 12.8 12.2 45.7

5,469 17,115 57,048 22,147 12,554 15,752 32,093 2,024 8,083 0.8 39.1 12.6 12.9 41.8

5,912 15,220 43,706 12,358 11,475 14,606 29,057 1,482 6,764 1.2 39.5 12.0 12.3 37.9

3,427 12,166 40,776 12,704 11,201 12,072 25,984 1,679 5,921 1.0 43.1 10.8 11.6 37.8

2,306 10,889 34,387 9,846 9,792 10,309 22,696 2,486 5,193 1.1 43.1 7.4 8.5 28.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One Procter & Gamble Plaza, Cincinnati, OH 45202. Telephone: 513-983-1100. Website: http://www.pg.com Chrmn, Pres & CEO: R.A. McDonald

SVP, Chief Acctg Officer & Cntlr: V.L. Sheppard SVP & Treas: T.L. List CFO: J.R. Moeller CTO: B. Brown

Investor Contact: M. Erceg (800-742-6253) Board Members: A. F. Braly, K. I. Chenault, S. D. Cook, R. K. Gupta, R. A. McDonald, W. J. McNerney, Jr., J. A. Rodgers, M. A. Wilderotter, P. Woertz, E. Zedillo

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1837 Domicile: Ohio Employees: 127,000

Stock Report | October 23, 2010 | NYS Symbol: PGR | PGR is in the S&P 500

Progressive Corp (The) S&P Recommendation HOLD

★★★★★

Price $20.97 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $22.00

Investment Style Large-Cap Growth

Summary One of the largest auto insurance groups in the U.S., Progressive is the largest seller of motorcycle policies and a market leader in commercial auto insurance.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $21.59– 15.90 Trailing 12-Month EPS $1.61 Trailing 12-Month P/E 13.0 $10K Invested 5 Yrs Ago $8,483

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.51 1.60 13.9 667.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.85 3 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of PGR's position as a leading underwriter of personal lines coverage. As primarily an auto insurer, PGR is less exposed to catastrophe losses than a number of peers, although they still pose a risk.

25 20 15

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

D

45 30 15 0 5

$14.000 NA NA 69

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

49 3

2

LOWEST = 1

3

2

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Cathy A. Seifert on July 19, 2010, when the stock traded at $ 19.53. Highlights ➤

➤

We believe earned premiums will rise 2% to 4% in 2010 and 4% in 2011, reflecting likely market share gains, partly offset by continued price competition. Earned premiums advanced 2.8% in 2009 and 4% in the first half of 2010, following a decline of 1.8% in 2008. We expect total operating revenue growth in 2010 to remain constrained by an expected rise in net investment income of between 2% and 3%. Barring a surge in catastrophe losses, we expect underwriting results to remain profitable in coming periods. Underwriting results in 2009 were aided by a 1.1% decline in loss costs, partly offset by a 1.8% rise in policy acquisition costs and other underwriting expenses. As a result, the combined (loss and expense) ratio improved to 91.6% in 2009 from 94.6% in 2008.

Investment Rationale/Risk ➤

➤

➤ ➤

We estimate operating EPS of $1.49 in 2010, rising to $1.60 in 2011, versus the $1.55 of operating EPS reported for 2009. Our estimates assume that a flat to modestly higher earned premium base and profitable underwriting results will be slightly offset by only modestly higher net investment income in coming periods, in a more challenging investment environment.

Revenue/Earnings Data

2010

We view PGR's technology and marketing capabilities as superior to many peers. However, at recent levels, the shares traded at a premium to most peers on both a forward price/earnings and price/tangible book value basis. We view the shares as appropriately valued. We note that PGR is still being affected by ongoing competitive pressures that we think may force PGR to lower its underwriting standards to gain market share.

Revenue (Million $) 1Q 2Q 2010 3,666 3,686 2009 3,468 3,584 2008 3,586 3,537 2007 3,687 3,671 2006 3,661 3,708 2005 3,492 3,590

3Q 3,770 3,611 2,210 3,710 3,724 3,623

4Q -3,901 3,508 3,615 3,694 3,599

Year -14,564 12,840 14,687 14,786 14,303

Earnings Per Share ($) 2010 0.44 0.32 2009 0.35 0.37 2008 0.35 0.32 2007 0.49 0.39 2006 0.55 0.51 2005 0.51 0.49

0.40 0.40 -1.03 0.42 0.53 0.39

E0.37 0.46 0.24 0.34 0.53 0.36

E1.51 1.57 -0.10 1.65 2.10 1.75

Risks to our recommendation and target price include a greater-than-expected deterioration in premium revenues, higher-than-expected claim cost inflation and erosion in claim trends, and greater-that-expected erosion in the company's investment portfolio.

Fiscal year ended Dec. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $22 assumes that the shares will continue to trade at a premium to property-casualty insurance peers, albeit a smaller one, on a forward price-to-tangible book value basis and a forward price/earnings basis.

0.161

12/14

01/25

01/27

02/05/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PGR

Progressive Corp (The) Business Summary July 19, 2010 CORPORATE OVERVIEW. Progressive Corp. underwrites an array of personal and commercial lines insurance. Net written premiums totaled $14.0 billion in 2009, of which personal lines accounted for 89% and commercial and other lines 11%.

tions. During 2009, 59% of total personal lines net written premiums were distributed through the agency channel (62% in 2008). Distribution through direct channels, including a toll free telephone line and the Internet, accounted for 41% of net written premiums in 2009 (38% in 2008).

PGR's core business (90% of 2009's $12.5 billion in personal lines net premiums written) is underwriting private passenger automobile insurance. Based on year-end 2008 industry net written premium data (latest available), the company was the fourth largest private U.S. passenger auto insurer, a position that PGR believes it retained in 2009. PGR's other lines of business include recreational vehicle, motorcycle and small commercial vehicle insurance, and, to a lesser degree, commercial indemnity insurance.

PGR conducts its personal lines business in 50 states and in the District of Columbia. Commercial auto policies are written in every state except Hawaii; and not in the District of Columbia. The commercial auto business (11% of net written premiums in 2009) writes primarily liability and physical damage insurance for automobiles and trucks owned by small businesses.

Personal lines products are distributed through a network of more than 30,000, including independent agents, as well as brokers in New York and California, and strategic alliance business relationships with an array of financial instituCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.15 NA 1.57 1.54 Nil Nil 18.22 9.76 12 6

2008 6.23 NA -0.10 1.29 Nil Nil 21.31 10.29 NM NM

2007 7.26 NA 1.65 1.55 Nil Nil 25.16 17.26 15 10

2006 9.15 NA 2.10 2.11 0.06 3% 30.09 22.18 14 11

2005 7.74 NA 1.75 1.77 0.03 2% 31.23 20.34 18 12

2004 6.43 NA 1.91 1.85 0.04 2% 24.32 18.28 13 10

2003 5.85 NA 1.42 1.40 0.03 2% 21.17 11.56 15 8

2002 4.32 0.81 0.75 0.79 0.02 3% 15.12 11.19 20 15

2001 3.69 0.54 0.46 0.52 0.02 5% 12.65 6.84 28 15

2000 3.25 0.06 0.05 NA 0.02 44% 9.25 3.75 NM NM

14,013 507 44.0 14,564 1,557 NA 1,058 1,040

13,631 638 -1,429 12,840 -222 NA -70.0 869

13,877 681 116 14,687 1,693 NA 1,183 1,113

14,118 648 20.7 14,786 2,433 NA 1,648 1,654

13,764 537 539 14,303 2,059 NA 1,394 1,415

13,170 484 612 13,782 2,451 NA 1,649 1,591

11,341 465 54.5 11,892 1,860 NA 1,255 1,234

8,884 455 34.3 9,373 981 718 667 702

7,162 414 24.7 7,488 588 486 411 469

6,348 385 37.4 6,771 31.8 55.4 46.1 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 271 Premiums Due 3,020 Investment Assets:Bonds 11,563 Investment Assets:Stocks 2,072 Investment Assets:Loans Nil Investment Assets:Total 14,713 Deferred Policy Costs 402 Total Assets 19,846 Debt 2,177 Common Equity 5,749 Property & Casualty:Loss Ratio 70.7 Property & Casualty:Expense Ratio 20.9 Property & Casualty Combined Ratio 91.6 % Return on Revenue 7.3 % Return on Equity 21.2

129 2,697 9,559 2,266 Nil 12,978 414 18,251 2,176 4,215 73.5 21.1 94.6 NM NM

148 2,730 9,185 4,598 Nil 14,165 426 18,843 2,174 4,936 71.5 21.1 92.6 8.1 20.1

140 2,932 9,959 4,149 Nil 14,689 441 19,482 1,186 6,847 66.6 19.9 86.5 11.1 25.4

139 2,906 10,222 3,279 Nil 14,275 445 18,899 1,285 6,108 68.1 87.4 19.3 9.7 24.8

124 2,669 9,084 2,621 Nil 13,082 432 17,184 1,284 5,155 65.0 19.6 84.6 12.0 32.4

110 2,351 9,133 2,751 Nil 12,532 412 16,282 1,490 5,060 67.4 18.8 86.2 10.6 28.4

94.8 1,959 7,713 2,004 Nil 10,284 364 13,564 1,489 3,768 70.9 20.4 91.3 7.1 19.3

86.4 1,497 5,949 2,050 Nil 8,226 317 11,122 1,096 3,251 73.6 21.0 94.7 5.4 13.4

73.1 1,567 4,784 2,012 Nil 6,983 310 10,052 749 2,870 83.2 21.0 104.2 0.7 1.6

Income Statement Analysis (Million $) Premium Income Net Investment Income Other Revenue Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6300 Wilson Mills Road, Mayfield Village, OH 44143. Telephone: 440-461-5000. Website: http://www.progressive.com Chrmn: P.B. Lewis

Pres & CEO: G.M. Renwick CFO: B. Domeck Chief Acctg Officer: J.W. Basch Treas: T.A. King

Investor Contact: P. Brennan (440-395-2370) Board Members: S. B. Burgdoerfer, C. A. Davis, R. N. Farah, L. W. Fitt, S. R. Hardis, B. P. Healy, A. F. Kohnstamm, P. B. Lewis, N. S. Matthews, P. H. Nettles, G. M. Renwick, B. T. Sheares

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1965 Domicile: Ohio Employees: 24,661

Stock Report | October 23, 2010 | NYS Symbol: PGN | PGN is in the S&P 500

Progress Energy Inc. S&P Recommendation HOLD

★★★★★

Price $44.91 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $41.00

Investment Style Large-Cap Blend

Summary This diversified energy company owns two electric utilities that serve approximately 3.1 million customers in North Carolina, South Carolina and Florida.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $45.61– 36.67 Trailing 12-Month EPS $2.72 Trailing 12-Month P/E 16.5 $10K Invested 5 Yrs Ago $14,344

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.06 3.15 14.7 292.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.140 5.52 $2.48 55

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.40 2 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

With the higher risk synthetic fuel business having been discontinued, our risk assessment reflects the strong and steady cash flow we still forecast from the regulated utilities in the Carolinas and Florida, despite the slowdown in customer growth due to the downturn in the economy and the housing market and an unfavorable regulatory environment in Florida.

50 45 40 35

Vol.

Quantitative Evaluations

Mil. 12 8 4 0 5

S&P Quality Ranking D 4

3

C

B-

B B

B+

A-

A

Relative Strength Rank

1

MODERATE

52

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

Highlights

➤

Excluding net one-time charges of $0.09, we expect operating EPS in 2010 to increase about 1% from 2009's $3.03, which excluded net onetime charges of $0.28. Despite the rejection of a proposed rate increase for the Florida utility, operating EPS in the first half of 2010 benefited from the base rate increase it received in July 2009, as well as more favorable weather in both the Carolinas and Florida.

Investment Rationale/Risk ➤

For the second half of 2010, we expect results to reflect higher operating and purchased power costs due to a nuclear plant outage, partially offset by the benefit of the warmer than normal weather in the third quarter. For 2011, we expect earnings to benefit from a modest recovery in the Florida economy and above average customer growth in the Carolinas. ➤

➤

On January 12, 2010, the Florida Public Service Commission rejected Progress Energy Florida's request for a $500 million base rate increase, leaving only the $132 million increase that was tentatively approved and implemented in July 2009. It also authorized an ROE of 10.5%, instead of the 12.54% requested. On June 1, 2010, the FPSC authorized the utility to seek a rate adjustment if its actual ROE fell below 9.5%.

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on September 20, 2010, when the stock traded at $ 43.80.

➤

A+

3

The stock is up about 6% year to date, reflecting, in our view, the rebound in the electric utility sector and the above-peers yield from the dividend (recently 5.7%). This follows a 4.6% increase in 2009. The shares had been hurt earlier this year, due, we believe, to the worse than expected regulatory decision on Progress Energy Florida's rate increase request. In addition to lower than previously anticipated revenues, the adverse decision could also have brought about a higher risk profile for the company and its cost of capital, as well as a reduction in the utility's capital expenditure plans and maintenance operations. While the 82% payout ratio on 2009 operating EPS is well above peers, we believe PGN is strongly committed to at least maintaining the current dividend. Risks to our recommendation and target price include the possibility of extended weakness in the Florida economy and housing market, as well as a sharp reduction in the average P/E for the electric utilities sub-sector as a whole. Our 12-month target price of $41 represents a premium-to-peers multiple of 13X our EPS estimate for 2011, warranted, in our view, by the well above peers yield from the dividend.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,535 2,372 2009 2,442 2,312 2008 2,066 2,244 2007 2,072 2,129 2006 2,433 2,499 2005 2,198 2,333

3Q -2,824 2,696 2,750 2,913 3,097

4Q -2,307 2,161 2,202 2,273 2,578

Year -9,885 9,167 9,153 9,570 10,108

Earnings Per Share ($) 2010 0.67 0.62 2009 0.66 0.62 2008 0.58 0.77 2007 0.62 0.41 2006 0.19 0.06 2005 0.43 0.02

E1.31 1.24 1.18 1.27 0.97 1.81

E0.37 0.46 0.44 0.09 0.51 0.63

E3.06 2.99 2.96 2.70 2.05 2.94

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.620 0.620 0.620 0.620

12/09 03/17 05/12 09/17

01/07 04/08 07/08 10/06

01/11 04/12 07/12 10/11

02/01/10 05/03/10 08/02/10 11/01/10

Dividends have been paid since 1937. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PGN

Progress Energy Inc. Business Summary September 20, 2010 CORPORATE OVERVIEW. Headquartered in Raleigh, NC, Progress Energy operates in retail utility markets in the southeastern U.S., and in competitive electricity, gas and other fuel markets in the eastern U.S. It is the holding company for the fully integrated regulated utilities Progress Energy Carolinas (PEC) and Progress Energy Florida (PEF), which together serve approximately 3.1 million retail electric customers. In 2009, PEC contributed about 54% of utility income (58% in 2008), and PEF 46% (42%). CORPORATE STRATEGY. As an integrated energy company, PGN has stated that its primary focus will be on the end-use and wholesale electricity markets in its service territory and region. However, the company has experienced the adverse impact of the current economic recession and the downturns in the housing and consumer credit markets. PGN has attempted to offset this im-

pact through its ongoing cost management initiatives, and to mitigate its fuel costs through its diverse generation mix, staggered fuel contracts and hedging, as well as through supplier and transportation diversity. Despite the company's expectation of a challenging economic environment in 2010, it remains intent on enhancing its operational excellence, strengthening its financial flexibility and growth, preparing for future power generating capacity, and continuing its record of having increased its dividend for 21 consecutive years.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 20.69 2.99 3.18 2.48 83% 42.20 31.35 14 10

2008 19.15 2.96 2.59 2.46 83% 49.16 32.60 17 11

2007 18.33 2.70 2.67 2.44 90% 52.75 43.12 20 16

2006 18.09 2.05 1.95 2.42 118% 49.55 40.27 24 20

2005 15.94 2.94 2.94 2.36 80% 46.00 40.19 16 14

2004 14.48 3.10 2.93 2.30 74% 47.95 40.09 15 13

2003 13.78 3.40 3.44 2.24 66% 48.00 37.45 14 11

2002 12.43 2.53 2.04 2.18 86% 52.70 32.84 21 13

2001 10.58 2.64 2.59 2.12 80% 49.25 38.78 19 15

2000 7.48 3.03 NA 2.06 68% 49.38 28.25 16 9

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

9,885 1,135 NA 2.82 163 32.2% 846 887

9,167 957 NA 2.84 162 33.7% 773 677

9,153 905 NA 2.76 17.0 32.2% 693 685

9,570 1,032 NA 2.28 7.00 28.1% 514 487

10,108 1,074 NA 1.93 13.0 NM 727 726

9,772 1,068 NA 2.21 6.00 13.5% 753 712

8,743 1,040 NA 2.16 7.00 NM 811 819

7,945 820 NA 1.64 8.13 NM 552 445

8,461 1,090 NA 1.75 18.0 NM 542 532

4,119 740 NA 2.60 20.7 29.8% 478 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 31,309 Capital Expenditures 2,295 Net Property 19,733 Capitalization:Long Term Debt 12,365 Capitalization:% Long Term Debt 56.7 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 9,449 Capitalization:% Common 43.3 Total Capital 22,226 % Operating Ratio 86.1 % Earned on Net Property 9.3 % Return on Revenue 8.6 % Return on Invested Capital 7.3 % Return on Common Equity 9.3

29,591 2,333 18,293 10,983 55.8 Nil Nil 8,687 44.2 19,803 85.9 9.6 8.4 7.6 9.0

27,500 2,201 16,605 9,069 51.8 Nil Nil 8,422 48.2 17,714 86.8 9.7 7.6 7.4 8.3

25,796 1,423 15,732 8,928 51.9 Nil Nil 8,286 48.1 17,681 87.5 8.5 5.4 6.8 6.3

26,401 1,286 16,799 10,539 56.7 Nil Nil 8,038 43.3 19,061 87.2 7.7 7.2 7.3 9.3

25,602 998 16,819 9,650 55.8 Nil Nil 7,633 44.2 18,058 86.7 8.8 7.7 7.6 10.0

25,172 1,018 17,056 10,027 57.4 Nil Nil 7,444 42.6 18,398 66.8 8.2 9.3 8.2 11.5

23,021 2,109 12,541 9,840 59.6 Nil Nil 6,677 40.4 17,656 85.4 8.3 6.9 7.2 8.7

22,541 1,216 12,445 9,577 61.5 Nil Nil 6,004 38.5 17,241 83.5 10.3 6.4 9.2 9.4

21,028 950 11,677 5,983 52.4 Nil Nil 5,424 47.6 13,476 87.1 7.6 11.6 7.1 10.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 410 South Wilmington Street, Raleigh, NC 27601-1748. Telephone: 919-546-6111. Email: [email protected] Website: http://www.progress-energy.com

Chrmn, Pres & CEO: W.D. Johnson SVP & CFO: M.F. Mulhern CFO: S.A. Allaire Chief Admin Officer, Secy & General Counsel: J. McArthur

Chief Acctg Officer & Cntlr: J.M. Stone Investor Contact: B. Drennan (919-546-7474) Board Members: J. D. Baker, II, J. E. Bostic, Jr., H. E. DeLoach, Jr., J. B. Hyler, Jr., W. D. Johnson, R. W. Jones, W. S. Jones, M. Martinez, E. M. McKee, J. H. Mullin, III, C. W. Pryor, Jr., C. A. Saladrigas, T. M. Stone, A. C. Tollison, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1926 Domicile: North Carolina Employees: 11,000

Stock Report | October 23, 2010 | NYS Symbol: PLD | PLD is in the S&P 500

ProLogis S&P Recommendation BUY

★★★★★

Price $12.60 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Industrial REITS

12-Mo. Target Price $14.00

Summary This real estate investment trust is a major global provider of distribution facilities to manufacturers, retailers, and transportation and third-party logistics companies across North America, Europe and Asia.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $15.04– 9.15 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $3,985

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

0.55 0.71 22.9 476.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta 2.79 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) 4 S&P Credit Rating BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of PLD's position as one of the largest owners of industrial space in the world, and its broad geographic and customer diversification. Although the trust's debt burden remains heavy, we think it is manageable, with no sizable debt maturities until 2012.

80

20 8

2

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 90 60 30 0 5

$6.008 4.76 $0.60 100

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

A+ STRONG

4

75 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Robert McMillan on October 18, 2010, when the stock traded at $ 12.31. Highlights ➤

➤

➤

Investment Rationale/Risk

We believe rental income, after falling 8.6% in 2008 and 78% in 2009, on softer demand for space in PLD's industrial properties, sharply lower property disposition proceeds, and fewer properties in the portfolio, will decline 19% in 2010 due to property disposition proceeds and continued portfolio re-positioning.

➤

We see a gradual rebound in global trade stimulating demand for PLD's properties; we believe inventory rebuilding by industrial companies will be a major catalyst. At the end of the 2010 second quarter, PLD's total industrial operating portfolio (including completed developments) was 89.7% leased, up from 88.7% last year. We expect re-leasing spreads, which declined 15.7% in the second quarter, to improve over the next 12-18 months. Developers, like PLD, have sharply reduced new developments over the past year, helping to limit supply, which we believe will allow rents to increase once demand recovers. We also think management's continued de-leveraging efforts will help improve the trust's risk profile.

➤

We estimate funds from operations (FFO) per share of $0.55 for 2010 and $0.71 for 2011.

➤

Long term, we see shareholders benefiting from PLD's position as one of the largest owners of global distribution facilities, which are increasingly important, in our view, to global companies looking to increase efficiency. In the short term, however, lingering concerns about PLD's debt burden may weigh on the shares. Risks to our recommendation and target price include a sharp drop in demand and rental rates for industrial space, a sharperthan-expected downturn in development activity, and higher interest rates. The stock recently traded at 19.2X PLD's trailing 12-month operating FFO per share. Our 12-month target price of $14 is about 19X our forward 12-month FFO estimate of $0.73. Although our target valuation multiple is toward the high end of recent historical levels, we think it is warranted. Over the past 12 months, PLD has significantly de-levered its balance sheet and has made efforts to re-position the portfolio for more stable long-term growth. We believe that the combination of rising demand for space and limited new construction will considerably help long-term growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/FFO Data Revenue (Million $) 1Q 2Q 2010 260.0 264.0 2009 433.3 259.1 2008 1,637 1,515 2007 955.9 989.4 2006 571.1 687.4 2005 431.9 469.6

3Q -270.4 1,122 3,461 580.5 532.0

4Q -260.3 1,388 799.9 624.9 434.6

Year -1,223 5,599 6,205 2,464 1,868

FFO Per Share ($) 2010 0.01 2009 0.86 2008 1.38 2007 1.25 2006 0.90 2005 0.90

E0.20 0.21 0.63 1.41 0.79 0.79

E0.19 -0.64 0.61 0.79 1.11 0.58

E0.55 0.35 3.68 4.61 3.69 2.51

0.20 0.34 1.06 1.16 0.90 0.90

Fiscal year ended Dec. 31. Next earnings report expected: Late October. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

11/02 02/01 05/03 08/02

11/12 02/10 05/12 08/12

11/16 02/12 05/14 08/16

11/30/09 02/26/10 05/28/10 08/31/10

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PLD

ProLogis Business Summary October 18, 2010 ProLogis (formerly ProLogis Trust, and prior to that Security Capital Industrial Trust) is a real estate investment trust that owns and operates industrial distribution and facilities in North America, Europe and Asia. The trust's business strategy is to integrate international scope and expertise with a strong local presence in its markets, thereby becoming an attractive choice for its targeted customer base, the largest global users of distribution space, while achieving long-term sustainable growth in cash flow. PLD's business is dividend into two operating segments: direct owned (66.7% of 2009 net operating income) and investment management (13.5%). In 2009, PLD discontinued its corporate distribution facilities services segment (CDFS, which represented 19.8% of 2009 net operating income); its operations were contributed to the other two segments The direct owned segment represents the direct long-term ownership of industrial and retail properties. It is involved in long-term ownership, management and leasing of industrial distribution facilities, usually adaptable for distribution and light manufacturing or assembly uses. The trust earns income from rents and reimbursement of property operating expenses from unaffiliated customers, and management fees from entities in which it has an ownership interest. At December 31, 2009, PLD's direct owned segment consisted of 1,220 properties aggregating about 196 million square feet in North America, Europe and Asia. The properties are primarily distribution properties, although it owned 27 retail properties aggregating 1 million square feet.

The investment management segment (5% of 2009 operating income) represents PLD's investment management of unconsolidated property funds and certain joint ventures and the properties they own. PLD utilizes its investment management expertise to manage the property funds and joint ventures and utilizes its leasing and property management expertise to manage the properties owned by these entities. The trust's property fund strategy allows PLD, as the manager of the property funds, to maintain and expand its market presence and customer relationships; to maintain a long-term ownership position in the properties; to earn fees for providing services to the property funds; and to earn incentive performance participation income based on the investors' returns over a specified period. As of December 31, 2009, PLD had investments in and advances to 15 property funds, totaling $1.9 billion with ownership interests ranging from 20% to 50% in investments in North America, Europe and Asia. These property funds own, on a combined basis, 1,287 distribution properties aggregating 274.2 million square feet with a total entity investment (not PLD's proportionate share) in operating properties of $19.5 billion. Also included in this segment are certain industrial joint ventures that PLD manages and that own 92 operating properties with 10.0 million square feet, all located in North America.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.27 -0.73 -0.73 0.70 NM 16.68 4.87 NM NM

2008 21.27 -0.85 -0.85 2.07 NM 66.58 2.20 NM NM

2007 25.44 3.61 3.61 1.84 51% 73.35 51.64 20 14

2006 23.09 2.71 2.71 1.60 59% 67.52 46.29 25 17

2005 21.08 1.39 1.39 1.48 106% 47.62 36.50 34 26

2004 14.82 1.09 1.06 1.46 134% 43.33 27.62 40 25

2003 14.35 1.16 1.14 1.44 124% 32.62 23.63 28 20

2002 13.96 1.20 1.17 1.42 118% 26.00 20.96 22 17

2001 12.94 0.52 0.49 1.38 NM 23.30 19.35 45 37

2000 13.53 0.96 NA 1.34 140% 24.69 17.56 26 18

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

891 Nil 1,223 493 373 Nil 316 -266 -292

1,002 Nil 5,599 4,692 341 Nil 339 -195 -221

1,068 Nil 6,205 4,760 368 Nil 309 987 962

928 Nil 2,464 1,403 294 Nil 293 718 692

635 Nil 1,868 1,210 178 Nil 199 318 292

527 Nil 598 224 153 Nil 172 234 199

Nil Nil 734 210 155 Nil 165 251 208

449 Nil 675 91.0 153 Nil 153 249 210

466 Nil 574 83.0 164 Nil 143 128 86.8

480 Nil 644 78.0 172 Nil 151 214 NA

Balance Sheet & Other Financial Data (Million $) Cash 34.4 Total Assets 16,885 Real Estate Investment 15,216 Loss Reserve Nil Net Investment 13,545 Short Term Debt Nil Capitalization:Debt 7,977 Capitalization:Equity 7,637 Capitalization:Total 15,984 % Earnings & Depreciation/Assets 0.3 Price Times Book Value:High 1.1 Price Times Book Value:Low 0.3

175 19,252 15,706 Nil 14,123 Nil 11,008 6,075 17,453 7.4 3.1 0.1

419 19,724 16,579 Nil 15,210 Nil 9,650 7,086 17,165 7.3 2.9 2.0

1,775 15,904 13,954 Nil 12,674 Nil 7,844 6,049 14,295 4.7 2.9 2.0

1,241 13,114 11,875 Nil 10,757 Nil 6,678 5,138 12,225 5.1 2.3 1.7

1,145 7,098 6,334 Nil 5,345 Nil 3,414 2,752 6,583 6.0 2.9 1.9

1,009 6,369 5,854 Nil 5,007 Nil 2,991 2,586 6,089 6.8 2.3 1.6

111 5,924 5,396 Nil 4,683 222 2,510 2,486 5,439 7.0 1.9 1.5

28.0 5,604 4,588 Nil 4,013 49.3 2,529 2,276 5,251 4.7 1.8 1.5

57.9 5,946 4,689 Nil 4,213 69.7 2,555 2,236 5,574 6.2 1.8 1.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4545 Airport Way, Denver, CO 80239-5716. Telephone: 303-567-5000. Email: [email protected] Website: http://www.prologis.com

Chrmn: S.L. Feinberg Pres: T.R. Antenucci CEO: W.C. Rakowich COO: G.A. Anderson

SVP & Chief Acctg Officer: J.S. Finnin Founded: 1991 Investor Contact: M. Marsden (303-567-5622) Domicile: Maryland Trustees: S. L. Feinberg, G. L. Fotiades, C. N. Garvey, L. Employees: 1,135 V. Jackson, D. P. Jacobs, I. F. Lyons, III, W. C. Rakowich, D. M. Steuert, A. M. Zulberti, J. A. de Barros Teixeira

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PRU | PRU is in the S&P 500

Prudential Financial Inc S&P Recommendation STRONG BUY

★★★★★

Price $52.71 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $75.00

Investment Style Large-Cap Value

Summary This company provides a wide range of insurance, investment management and other financial products and services to customers in the U.S. and overseas.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $66.80– 43.41 Trailing 12-Month EPS $8.97 Trailing 12-Month P/E 5.9 $10K Invested 5 Yrs Ago $8,612

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.95 6.75 8.9 465.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.49 13 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

MEDIUM

HIGH

Our risk assessment reflects PRU's exposure to equity markets and risk of further asset impairments on its balance sheet, especially considering its sizable holdings of commercial real estate loans and CMBS. However, we believe its financial flexibility and excess capital cushion will make future losses manageable. We also view favorably PRU's varied product offerings, geographic diversification and prominent market position.

40

20

10 Vol. 94

Mil.

LOW

Below Avg.

80

45 30 15 0

$24.510 1.33 $0.70 54

Quantitative Evaluations 5

S&P Quality Ranking

5

4

5

D

C

B-

NR B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

2010 Options: ASE, CBOE, Ph

WEAK

20 LOWEST = 1

HIGHEST = 99

Analysis prepared by Bret Howlett on August 16, 2010, when the stock traded at $ 54.72. Highlights ➤

➤

We believe retirement fundamentals are strong, and we look for a sharp increase in earnings on robust full-service sales and flows and higher account values. We believe PRU is gaining market share in variable annuities due to the attractiveness of its products, and we forecast strong sales growth. We see earnings rebounding in asset management on better proprietary investment returns and strong flows. We see slight earnings growth in PRU's insurance unit on higher investment income and in the absence of accounting charges, despite lower premiums and poor life and disability margins. Price hikes and the challenging macro environment should pressure sales. We expect 10%-12% international earnings growth, on strong premium growth at Gibraltar, fueled by robust sales of protection-oriented products in the bank channel. We also see strong results at Life Planner on higher sales of variable life and retirement products, expanded distribution and acquisitions, and increased agent productivity.

Investment Rationale/Risk ➤

➤

Our strong buy recommendation is based on our view of PRU's collection of high-growth businesses and its superior financial flexibility. We believe PRU will expand earnings and return on equity (ROE) at a faster rate than many peers and is well positioned to gain market share in many product areas. We expect PRU's strong financial position to allow it to deploy a considerable amount of excess capital in the credit markets, and the company could potentially execute a sizable acquisition in 2010. Also, we think PRU might resume share repurchases. We believe PRU's stock warrants a higher valuation versus many peers due to its broad business mix, distribution capabilities, and its rapidly growing international division, which will benefit from a favorable competitive landscape in Asia, in our view. Risks to our recommendation and target price include currency risk; reserving risks for new guaranteed minimum benefits; integration risk from acquisitions; credit risk; and exposure to equity market declines.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 9,292 11,054 2009 8,563 6,906 2008 7,564 7,709 2007 8,775 8,425 2006 7,850 7,373 2005 7,721 8,318

3Q -8,564 7,036 8,383 8,408 7,787

4Q -8,659 6,966 8,808 8,857 7,882

Year -32,688 29,275 34,401 32,488 31,708

Earnings Per Share ($) 2010 1.16 1.70 2009 0.01 1.22 2008 0.20 1.35 2007 2.10 1.86 2006 1.39 0.92 2005 1.47 1.56

E1.45 2.36 -0.24 1.89 2.24 2.61

E1.50 3.82 -3.91 1.89 1.85 0.78

E5.95 7.66 -2.49 7.58 6.37 6.46

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.700

11/10

11/20

11/24

12/18/09

Dividends have been paid since 2002. Source: Company reports. ➤

We see operating EPS of $5.95 for 2010 and EPS of $6.75 for 2011. Our estimates exclude realized investment gains or losses.

➤

Our 12-month target price is $75, or roughly 1.2X our 2011 book value (ex- FAS 115) estimate, below PRU's historical multiple, but above peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PRU

Prudential Financial Inc Business Summary August 16, 2010 CORPORATE OVERVIEW. Prudential Financial is one of the largest U.S. financial services companies, with $641 billion in assets under management and $2.6 trillion in life insurance in force at year-end 2009, and customers in roughly 37 other countries. The financial services business operates through three divisions: retirement and investments (33% of 2009 operating revenues, 33% in 2008), insurance (29%, 32%), and international insurance and investments (39%, 36%). PRU also has a corporate and other segment which reported a loss of $5 million in 2009. The insurance division consists of the individual life unit (34% of the division's 2009 operating revenues) and the group insurance unit (66%), which distributes group life, disability and related insurance products through employee and member benefit plans.

mass affluent markets mostly in Japan and Korea through its Life Planner operations (which contributed to 62% of the division's insurance operating revenues in 2009). Additionally, the company's Life Advisor agents market insurance products to the middle class in Japan through its Gibraltar Life subsidiary (38%) The closed block businesses represent some insurance products no longer offered, including certain participating insurance and annuity policies. At December 31, 2009, PRU had reinsurance agreements covering about 73% of the closed block policies. CORPORATE STRATEGY. We believe PRU is focused on two prime areas of growth: international businesses and domestic retirement and savings. Prudential has made strategic acquisitions to enhance these opportunities.

The asset management unit (14% of the division's 2009 operating revenues), the individual annuities unit (33%) and the retirement services unit (53%) comprise the retirement and investments division. International insurance and investments consists of insurance (96% of the division's 2009 operating revenues) and investments (4%). PRU distributes life insurance products to the Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 84.86 NA 7.66 10.75 0.70 9% 55.99 10.63 7 1

2008 31.18 NA -2.49 2.77 0.58 NM 93.14 13.10 NM NM

2007 52.43 NA 7.58 6.18 1.15 15% 103.27 81.61 14 11

2006 46.32 NA 6.37 5.41 0.95 15% 87.18 71.28 14 11

2005 45.53 NA 6.46 4.96 0.78 12% 78.62 52.07 12 8

2004 42.40 NA 3.45 1.91 0.63 18% 55.62 40.14 16 12

2003 39.65 NA 2.06 1.79 0.50 24% 42.21 27.03 20 13

2002 37.89 NA 1.36 1.13 0.40 29% 36.00 25.25 26 19

2001 34.90 NA 0.07 NA Nil Nil 33.74 27.50 NM NM

2000 NA NA 0.82 NA NA NA NA NA NA NA

NA 16,545 NA 11,421 32,688 3,092 NA 3,105 4,810

NA 15,468 NA 11,883 29,275 -1,565 NA -1,104 1,189

NA 14,351 NA 12,017 34,401 4,932 NA 3,687 2,899

NA 13,908 NA 11,354 32,488 4,611 NA 3,363 2,675

NA 13,685 NA 10,560 31,708 4,471 NA 3,602 2,580

NA 12,580 NA 9,079 28,348 3,287 NA 2,332 1,022

1,928,650 10,972 806 8,681 27,907 1,958 NA 1,308 981

1,800,788 10,897 586 8,832 26,675 64.0 NA 256 650

1,768,038 10,078 515 9,151 27,177 -227 NA -170 -403

NA NA NA 9,467 26,514 525 NA 304 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 32,217 Premiums Due NA Investment Assets:Bonds 180,345 Investment Assets:Stocks 25,948 Investment Assets:Loans 41,530 Investment Assets:Total 260,552 Deferred Policy Costs 14,578 Total Assets 480,203 Debt 21,037 Common Equity 25,195 % Return on Revenue 9.5 % Return on Assets 0.7 % Return on Equity 16.1 % Investment Yield 4.5

33,239 1,558 161,864 24,276 42,817 242,025 15,126 445,011 20,290 13,422 NM NM NA 4.9

13,234 2,119 165,710 26,216 39,384 243,107 12,339 485,814 14,101 23,457 10.7 0.8 15.9 5.0

10,731 1,958 166,285 24,574 34,626 245,349 10,863 454,266 11,423 22,892 10.4 0.8 14.7 4.8

9,866 3,548 158,515 18,792 32,811 221,401 9,438 417,776 8,270 22,763 11.4 0.9 16.0 4.8

10,100 32,790 153,715 4,283 32,761 216,624 8,847 401,058 7,627 22,344 8.2 0.6 10.7 4.6

9,746 Nil 132,011 6,703 27,621 181,041 7,826 321,274 5,610 21,292 4.7 0.4 6.1 4.8

11,688 Nil 128,075 2,807 22,094 183,094 7,031 292,746 4,757 21,330 1.0 0.1 1.2 5.1

20,364 Nil 110,316 2,272 28,299 165,834 6,868 293,030 5,304 20,453 NM NM NM 5.8

19,994 NA NA NA NA 169,251 6,751 298,414 14,812 20,692 1.1 NA NA NA

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 751 Broad St, Newark, NJ 07102. Telephone: 973-802-6000. Email: [email protected] Website: http://www.investor.prudential.com

Chrmn, Pres & CEO: J.R. Strangfeld, Jr. Vice Chrmn: M.B. Grier COO & EVP: E.P. Baird EVP & CFO: R.J. Carbone

SVP & Chief Acctg Officer: P. Sayre Founded: 1875 Board Members: T. J. Baltimore, Jr., G. M. Bethune, G. Domicile: New Jersey Caperton, III, G. F. Casellas, J. G. Cullen, W. H. Gray, Employees: 41,943 III, M. B. Grier, J. F. Hanson, C. J. Horner, M. Hund-Mejean, K. J. Krapek, C. A. Poon, J. R. Strangfeld, Jr., J. A. Unruh

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PSA | PSA is in the S&P 500

Public Storage S&P Recommendation HOLD

★★★★★

Price $103.08 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $108.00

Investment Style Large-Cap Blend

Summary This real estate investment trust primarily invests in self-service storage facilities (mini-warehouses), but also has commercial and industrial properties.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $104.35– 71.33 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $18,792

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

4.43 5.45 23.3 170.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.535 3.10 $3.20 75

Beta 1.00 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) 2 S&P Credit Rating A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects PSA's position as one of the largest providers of self-storage space in a consolidating industry. In our opinion, the trust has a very strong balance sheet.

100

70 60

Quantitative Evaluations

50

S&P Quality Ranking Vol.

D

Mil.

28

B-

B+ B

B+

A-

A

A+

30

12 8 4 0 5

C

Relative Strength Rank

MODERATE 57

LOWEST = 1 4

3

4

4

3

HIGHEST = 99

3

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, Ph

Analysis prepared by Robert McMillan on August 09, 2010, when the stock traded at $ 101.18. Highlights ➤

➤

➤

Investment Rationale/Risk

After a revenue drop of 5.6% in 2009 on the disposition of a majority stake in the Shurgard European storage business and weak demand for storage space, we expect a fractional decline in 2010, driven by continued discounting activity. We think occupancy and rent trends will improve as the year progresses on firmer demand (helped by an improving economy), which should allow management to gradually reduce discounting.

➤

Same-store domestic occupancy rose to 91.0% at the end of the second quarter, from 90.0% last year; rents per available square foot fell 1.5%, partially reflecting the need for continued discounting and promotional activity. We are encouraged that the European storage business, which weakened earlier than the U.S. business, appears to be stabilizing. Shurgard Europe's occupancy fell to 85.0% from 86.1%, but rents per occupied square foot rose 3.4%. In 2010, lower anticipated media spending should help results. Reflecting healthy liquidity and very little debt, we look for PSA to make small opportunistic property acquisitions.

➤

We estimate FFO of $4.43 ($4.22 including charges) for 2010 and $5.45 for 2011.

➤

We see PSA benefiting from its ability to continue to gain share at the expense of smaller competitors by creating customer awareness in its markets and offering an array of customer services that many small competitors cannot provide. Also, given its size versus the competition, the trust has significant pricing power, as well as the funds to launch advertising campaigns to create public awareness, which many smaller competitors cannot afford. Risks to our recommendation and target price include slower-than-expected growth in rental rates and occupancy levels, a sharp drop in moving activity, and higher interest rates. The stock recently traded at about 21.0X trailing 12-month FFO per share. Our 12-month target price of $108 is equal to 21.0X our forward fourquarter FFO estimate of $5.16. Although the valuation multiple is high relative to recent historical levels, we think it is warranted given our expectation of improved earnings as well as contributions from acquisitions and the company's huge size relative to its nearest competitors. We also consider PSA's relatively most debt burden and large cash balances as positive factors in our valuation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 398.1 410.0 2009 404.7 407.3 2008 462.8 428.8 2007 434.4 449.2 2006 278.5 297.9 2005 243.8 254.3

3Q -412.9 443.2 469.0 371.4 264.9

4Q -402.9 428.5 464.4 433.9 273.6

Year -1,628 1,766 1,829 1,382 1,061

FFO Per Share ($) 2010 0.78 2009 1.51 2008 1.39 2007 1.05 2006 0.94 2005 0.79

E1.26 1.44 1.09 1.43 0.77 0.97

E1.27 1.27 1.49 1.40 0.89 0.96

E4.43 5.61 5.07 4.97 3.57 3.61

0.92 1.40 1.10 1.10 0.99 0.90

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.650 0.372 0.800 0.800

03/01 05/06 05/06 08/05

03/11 06/11 06/11 09/13

03/15 06/15 06/15 09/15

03/31/10 06/30/10 06/30/10 09/30/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PSA

Public Storage Business Summary August 09, 2010 Public Storage is an equity real estate investment trust that was organized as a corporation under the laws of California on July 10, 1980. At December 31, 2009, PSA operated three business segments: domestic self-storage, Europe self-storage, and commercial. In the U.S., PSA is the largest U.S. owner and operator of storage space, with direct and indirect equity investments in 2,010 self-storage facilities located in 38 states within the U.S. operating under the Public Storage name at the end of 2008. The facilities contain approximately 127 million net rentable square feet of space. The Europe self-storage business comprises PSA's 49% equity interest in Shurgard Europe which owns 187 self-storage facilities (10 million net rentable square feet of space) located in seven countries in Europe which operate under the "Shurgard Storage Centers" brand name and manages one facility located in the United Kingdom that PSA wholly owned at the end of 2009. PSA also has direct and indirect equity interests in approximately 21 million net rentable square feet of commercial space located in 11 states in the U.S. operated under the PS Business Parks and Public Storage, Inc. brands. PSA has a 41% ownership interest in PS Business Parks, Inc. (PSB: hold, $49 at the end of 2009). PSA's growth strategies consist of improving the operating performance of stabilized existing traditional self-storage properties; acquiring additional interests in entities that own properties operated by the trust; purchasing interests in properties that are owned or operated by others; developing properties in selected markets; improving the operating performance of the containerized storage operations; and participating in the growth of PS Business Parks,

Inc as well as its European business. The trust's storage facilities are designed to offer accessible storage space for personal and business use at a relatively low cost. Individuals usually obtain this space for storage of furniture, household appliances, personal belongings, motor vehicles, boats, campers, motorcycles and other household goods. Businesses normally employ this space for storage of excess inventory, business records, seasonal goods, equipment and fixtures. A user rents a fully enclosed space that is for the user's exclusive use and that only the user has access to on an unrestricted basis during business hours. Some storage facilities also include rentable uncovered parking areas for vehicle storage, as well as space for portable storage containers. Leases for storage facility space may be on a long-term or short-term basis, although typically spaces are rented on a month-to-month basis. Rental rates vary according to the location of the property, the size of the storage space and the length of stay. PSA's self-storage facilities generally consist of three to seven buildings containing an aggregate of between 350 and 750 storage spaces, most of which have between 25 and 400 square feet and an interior height of approximately eight to 12 feet.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 30.13 3.52 3.52 2.20 63% 85.10 45.35 24 13

2008 30.21 4.20 4.20 2.20 52% 110.00 52.52 26 13

2007 28.85 1.17 1.15 2.00 171% 117.16 68.09 NM NM

2006 28.16 0.32 0.32 2.00 NM 98.05 67.72 NM NM

2005 16.72 1.92 1.91 1.85 97% 72.02 51.50 38 27

2004 16.69 1.39 1.38 1.80 129% 57.64 39.50 41 28

2003 17.03 1.27 1.25 1.80 142% 45.81 28.25 36 22

2002 16.16 1.28 1.26 1.80 1% 39.29 27.98 33 24

2001 28.37 1.51 1.48 1.69 112% 35.15 24.13 23 16

2000 18.24 1.41 NA 1.48 105% 26.93 20.87 19 15

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

1,490 Nil 1,628 459 29.9 Nil 340 843 595

1,581 Nil 1,766 644 44.0 Nil 414 936 710

1,663 Nil 1,829 712 64.0 Nil 622 458 197

1,240 Nil 1,382 585 33.1 Nil 438 312 44.7

980 Nil 1,061 400 8.22 Nil 196 450 247

894 Nil 928 349 0.76 Nil 183 367 179

844 Nil 875 336 1.12 Nil 186 335 157

813 Nil 841 311 3.81 Nil 180 319 156

782 Nil 835 297 3.23 Nil 168 324 183

703 Nil 757 273 3.29 Nil 149 297 NA

Balance Sheet & Other Financial Data (Million $) Cash 764 Total Assets 9,806 Real Estate Investment 10,296 Loss Reserve Nil Net Investment 7,562 Short Term Debt 12.7 Capitalization:Debt 506 Capitalization:Equity 5,529 Capitalization:Total 9,581 % Earnings & Depreciation/Assets 12.0 Price Times Book Value:High 2.8 Price Times Book Value:Low 1.5

681 9,936 10,227 Nil 7,822 13.0 631 5,291 9,710 13.1 3.6 1.7

245 10,643 11,719 Nil 9,591 216 808 5,236 9,270 9.8 4.1 2.4

857 11,198 11,262 Nil 9,507 Nil 1,848 5,353 8,785 8.9 3.5 2.4

329 5,552 6,314 Nil 4,814 Nil 134 2,319 5,205 12.0 4.3 3.1

708 5,205 5,908 Nil 4,588 Nil 130 2,328 4,989 10.8 3.5 2.4

205 4,968 5,544 Nil 4,391 Nil 76.0 2,353 4,722 10.6 2.7 1.7

103 4,844 5,424 Nil 4,436 39.8 76.1 2,342 4,675 10.5 2.4 1.7

49.3 4,626 5,062 Nil 4,242 Nil 144 2,369 4,508 7.1 1.2 0.9

89.5 4,514 4,822 Nil 4,154 Nil 156 2,569 4,413 10.2 1.5 1.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 701 Western Ave, Glendale, CA 91201-2349. Telephone: 818-244-8080. Email: [email protected] Website: http://www.publicstorage.com

Chrmn: B. Hughes Pres, Vice Chrmn & CEO: R.L. Havner, Jr. COO & SVP: M.C. Good SVP, CFO & Chief Acctg Officer: J. Reyes

SVP & General Counsel: S.M. Glick Founded: 1980 Investor Contact: C. Teng (818-244-8080) Domicile: Maryland Board Members: D. V. Angeloff, J. T. Evans, T. H. Employees: 4,900 Gustavson, U. P. Harkham, R. L. Havner, Jr., B. Hughes, B. W. Hughes, Jr., H. Lenkin, A. B. Poladian, G. E. Pruitt, R. P. Spogli, D. C. Staton

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PEG | PEG is in the S&P 500

Public Service Enterprise Group Inc S&P Recommendation BUY

★★★★★

Price $33.25 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $36.00

Investment Style Large-Cap Blend

Summary PEG is the holding company for Public Service Electric and Gas (PSE&G), with a service area that encompasses 70% of New Jersey.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.93– 29.01 Trailing 12-Month EPS $3.06 Trailing 12-Month P/E 10.9 $10K Invested 5 Yrs Ago $13,037

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.17 3.10 10.5 506.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.54 2 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the strong and steady cash flows from the regulated electric and gas utility operations of PSE&G, as well as the strong albeit less predictable earnings and cash flows from the non-regulated power generating operations. It also reflects what we see as a lowering of PEG's risk profile through the divestiture of non-core international investments.

50

35 30

$16.823 4.12 $1.37 62

2-for-1

25

Vol.

Quantitative Evaluations

Mil. 24 16 8 0 5

S&P Quality Ranking D 4

C

B-

B+ B

B+

A-

A

Relative Strength Rank

1

MODERATE

43

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

➤

➤

➤

Excluding $0.08 in net one-time charges, we expect 2010 operating EPS to increase less than 2% from 2009's $3.12, which excluded a net one-time gain of $0.02. Operating EPS in the first half of 2010 was down $0.09 from the yearearlier period as the benefit of much more favorable weather was more than offset by lower pricing in the Power segment. For full-year 2010, we expect operating results to benefit from the reversal of the below normal weather in 2009. However, we believe this could be partially offset by lower earnings for the power generation business due to an unplanned 17-day outage at the Salem 1 nuclear unit. For 2011, we expect a decline in operating EPS, due to lower-margin power contracts and the ongoing weakness in the economy. PEG's Energy Holdings unit sold its interest in nine leveraged leases in 2009. The leases had a combined book value of $369 million, including seven international leases for which the IRS disallowed deductions taken in prior years. Total proceeds were about $460 million, and are being used to reduce the related tax exposure range of $360 million to $780 million. PEG plans to litigate for the recovery of these taxes.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Justin McCann on August 31, 2010, when the stock traded at $ 31.80. Highlights

A+

4

3

Although the stock is down more than 5% year to date (after a 14% increase in 2009), it has rebounded 10% from its 2010 low. We believe the current weakness in the shares offers an attractive buying opportunity, and we continue to recommend it for above-average total return potential over the next 12 months. Although we expect near-term earnings to be pressured by the ongoing weakness in the economy and power markets, we think the company's costcontrol efforts and its effective management of its power supply operations will leave it well positioned for an economic recovery. Risks to our recommendation and target price include a decline in PEG's wholesale power margins, as well as weakness in the broader market and/or an event that would reduce the average P/E of the group as a whole. With the 3% increase effective with the March dividend payment, the recent yield was 4.3%. While this is still below the recent peer average of about 4.7%, it is roughly in line with the yields of other utility holding companies with large wholesale power operations. Our 12-month target price of $36 reflects a discount-to-peers P/E of 11.6X our EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,680 2,455 2009 3,921 2,561 2008 3,803 2,561 2007 3,508 2,718 2006 3,461 2,556 2005 3,310 2,442

3Q -3,039 3,718 3,356 3,212 3,376

4Q -2,886 3,262 3,271 2,935 3,472

Year -12,406 13,322 12,853 12,164 12,430

Earnings Per Share ($) 2010 0.97 0.44 2009 0.88 0.61 2008 0.85 -0.33 2007 0.64 0.56 2006 0.41 Nil 2005 0.59 0.21

E0.98 0.96 0.94 0.96 0.75 0.53

E0.70 0.69 0.47 0.44 0.35 0.45

E3.17 3.14 1.93 2.59 1.49 1.76

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.333 0.343 0.343 0.343

11/17 02/16 04/20 07/20

12/07 03/08 06/07 09/07

12/09 03/10 06/09 09/09

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1907. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: PEG

Public Service Enterprise Group Inc Business Summary August 31, 2010 CORPORATE OVERVIEW. Headquartered in Newark, NJ, Public Service Enterprise Group has three primary operating units: Public Service Electric and Gas Co. - PSE&G ($325 million of net income in 2009), Power ($1.189 billion), and Energy Holdings ($72 million). The parent company and intersegment eliminations accounted $6 million. PEG has sought to minimize its earnings and cash flow volatility through the divestiture of its international operations, and by entering into long-term contracts for most of its competitive wholesale power generation. MARKET PROFILE. At the end of 2009, the company's New Jersey utility operations served about 2.1 million electric customers and 1.7 million natural gas customers. PSE&G earns income from the delivery of electricity and gas, with the cost of the gas passed through to ratepayers. In 2009, commercial customers accounted for 58% of total electric customers (36% of gas customers), residential 31% (60%), and industrial 11% (4%). As part of New Jersey's utility deregulation, PSE&G transferred its power generating and gas supply opera-

tions to PEG's unregulated Power division in 2000 and 2002, respectively. Based on the proximity of its plants to PSE&G's customer base, Power has been able to win competitive bids for a significant portion of the utility's electricity supply obligations. Power's generating fleet, which had 15,548 megawatts (MW) of owned generating capacity as of December 31, 2009, is concentrated in Pennsylvania and New Jersey and serves the Pennsylvania, New Jersey and Maryland Interconnection (known as PJM). Power also has plants in Texas, Connecticut and New York. In addition to its electric business, Power provides PSE&G with all of the utility's gas supply needs under a contract that was extended from March 31, 2007, to March 31, 2012, and year to year thereafter.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 17.09 3.14 3.33 1.33 42% 34.14 23.65 11 8

2008 15.22 1.93 1.85 1.29 67% 52.30 22.09 27 11

2007 14.23 2.59 2.59 1.17 45% 49.88 32.16 19 12

2006 12.23 1.49 1.92 1.14 77% 36.31 29.50 24 20

2005 10.79 1.76 1.70 1.12 64% 34.24 24.66 20 14

2004 10.71 1.52 1.49 1.10 73% 26.32 19.05 17 13

2003 10.42 1.86 2.02 1.08 58% 22.25 16.05 12 9

2002 7.39 1.00 1.53 1.08 109% 23.63 10.00 24 10

2001 8.47 1.84 1.58 1.08 59% 25.78 18.44 14 10

2000 9.60 1.78 NA 1.08 61% 25.00 12.84 14 7

12,406 838 NA 5.97 NA 39.6% 1,592 1,682

13,322 792 NA 4.18 NA 48.5% 983 945

12,853 783 NA 4.10 NA 44.5% 1,319 1,316

12,164 832 NA 2.73 NA NM 752 967

12,430 748 NA 2.55 NA 38.7% 858 834

10,996 719 NA 2.21 NA 38.2% 721 708

11,116 527 NA 2.43 NA 35.3% 852 925

8,390 571 NA 2.38 NA 37.3% 416 638

9,815 522 NA 2.46 NA NM 763 656

6,848 362 NA 2.88 NA 39.1% 764 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 22,069 Capital Expenditures 1,794 Net Property 15,440 Capitalization:Long Term Debt 7,725 Capitalization:% Long Term Debt 46.8 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 8,788 Capitalization:% Common 53.2 Total Capital 17,053 % Operating Ratio 83.3 % Earned on Net Property 20.9 % Return on Revenue 12.8 % Return on Invested Capital 12.8 % Return on Common Equity 19.2

20,818 1,771 14,433 8,085 51.0 Nil Nil 7,771 49.0 19,721 87.3 18.9 7.4 7.8 13.0

19,310 1,348 13,275 8,742 54.5 Nil Nil 7,299 45.5 20,495 85.0 23.3 10.3 9.3 18.8

18,851 1,015 13,002 10,450 60.8 Nil Nil 6,747 39.2 21,659 78.7 15.1 6.2 9.3 11.8

18,896 1,024 13,336 11,359 65.4 Nil Nil 6,022 34.6 21,629 88.6 15.9 6.9 7.6 14.6

19,121 1,255 13,750 13,005 69.4 Nil Nil 5,739 30.6 23,091 87.5 14.9 6.6 6.9 12.8

17,406 1,351 12,422 13,025 70.2 Nil Nil 5,529 29.8 22,750 86.5 17.3 7.7 8.1 18.1

16,562 1,814 11,449 12,391 75.7 Nil Nil 3,987 24.3 19,302 78.8 14.3 5.0 9.3 10.2

14,886 2,053 10,064 11,061 72.8 Nil Nil 4,137 27.2 18,403 76.9 21.3 7.8 9.6 18.8

11,968 959 7,702 6,505 60.2 Nil Nil 4,294 39.8 13,906 79.6 18.9 11.2 10.8 18.4

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 80 Park Plaza, Newark, NJ 07102-4109. Telephone: 973-430-7000. Email: [email protected] Website: http://www.pseg.com

Chrmn, Pres & CEO: R. Izzo EVP & CFO: C.D. Dorsa EVP & General Counsel: J. Bouknight, Jr. Chief Acctg Officer & Cntlr: D.M. Dirisio

Secy: E.J. Biggins, Jr. Founded: 1985 Investor Contact: K.A. Lally Domicile: New Jersey Board Members: A. R. Gamper, Jr., C. K. Harper, W. V. Employees: 10,352 Hickey, R. Izzo, S. A. Jackson, D. Lilley, T. A. Renyi, H. C. Shin, R. J. Swift

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PHM | PHM is in the S&P 500

PulteGroup Inc S&P Recommendation BUY

★★★★★

Price $8.24 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Homebuilding

12-Mo. Target Price $13.00

Investment Style Large-Cap Blend

Summary This company became the largest U.S. homebuilder following the 2009 acquisition of rival Centex Corp.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$13.91– 7.70 $-1.14 NM $2,320

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.10 0.40 82.4 382.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.154 Nil Nil 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.00 15 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects risks involved in integrating the recently acquired Centex operations, which requires the combination of the home communities and the streamlining of sales and marketing and support services. While PHM enjoys greater scale post-merger, market risks remain should there be a delay in the recovery of the U.S. housing market.

30 20 15 10

Vol.

Quantitative Evaluations

Mil. 60 40 20 0

S&P Quality Ranking D

5

3

3

C

B-

B+ B

B+

WEAK

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights

Investment Rationale/Risk

Following a sizable revenue decline in 2009 and taking into account a contract backlog of $1.6 billion, we forecast that revenues will rise 13% in 2010 and 12% in 2011, with 2010 results boosted by the Centex acquisition in August 2009. PHM reported a 21% sequential revenue increase in 2010's second quarter due to the now expired federal housing tax credit.

➤

We believe PHM, with scale advantages over peers, will gain market share as the housing market slowly recovers. In attractive markets where there is land scarcity, the addition of Centex land inventory is a positive, in our view. We estimate homebuilding gross margins will widen to 14% in 2010 and 15% in 2011, from almost 10% in 2009, excluding asset impairment charges.

➤

We see SG&A costs as a percentage of total revenue reverting to a more normalized 12% to 13% level in 2010 and 2011, compared to 17.3% in 2009. The company is targeting $440 million in cost synergies and/or operating savings from the Centex merger. We estimate EPS of $0.10 in 2010 and $0.40 in 2011, excluding one-time adjustments.

➤

HIGHEST = 99

2010

Analysis prepared by Kenneth M. Leon, CPA on August 05, 2010, when the stock traded at $ 8.60.

➤

A+

20

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

A

Relative Strength Rank

1

➤

A-

4

In August 2009, PHM finalized the purchase of rival Centex Corp. via a stock swap valued at around $1.3 billion. We believe PHM can realize up to $300 million in operating cost savings and $100 million in interest cost savings from early debt retirements. With the companies combined, we see better sales execution and market share gains ahead. Risks to our recommendation and target price include problems integrating the Centex operations, further weakening of housing demand, a deepening recession, tighter mortgage lending, and future downward revisions of PHM's land inventory. We believe PHM has a strong balance sheet, with $2.7 billion in cash that can be used to build or acquire communities, and the company has one of the industry's largest land inventories. Our 12-month target price of $13 is derived by applying a target price-to-book multiple of just above 1.5X -- toward the middle of the historical range, and near peers -- to our forward book value per share estimate of $8.60 a share.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,020 1,306 2009 583.9 678.6 2008 1,442 1,619 2007 1,871 2,021 2006 2,963 3,359 2005 2,518 3,251

3Q -1,091 1,565 2,472 3,564 3,794

4Q -1,731 1,644 2,899 4,389 5,132

Year -4,084 6,263 9,257 14,274 14,695

Earnings Per Share ($) 2010 -0.03 -0.20 2009 -2.02 -0.74 2008 -2.75 -0.62 2007 -0.34 -2.01 2006 1.01 0.94 2005 0.83 1.16

E-0.03 -1.15 -1.11 -3.12 0.74 1.45

E-0.03 -0.31 -1.33 -3.54 -0.03 2.03

E0.10 -3.94 -5.81 -9.02 2.67 5.47

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data The most recent payment, $0.04 a share, was made in early January 2009

Stock Report | October 23, 2010 | NYS Symbol: PHM

PulteGroup Inc Business Summary August 05, 2010 CORPORATE OVERVIEW. As of 2009 year end, following the merger with Centex, the new Pulte had 882 home communities. The average selling price for company homes in 2009 was $258,000, down from $284,000 in 2008 and a high of $337,000 in 2006. The average selling price was $251,000 in the second quarter in 2010. PHM targets buyers in nearly all home categories, but has recently concentrated its expansion efforts on affordable housing and on mature buyers (age 50 and over). In July 2001, it acquired Del Webb Corp., the leading U.S. builder of active adult communities, for a total of $1.9 billion in stock, cash, and the assumption of debt. Growth in this active adult segment and among first-time buyers, two groups that often prefer townhouses, condominiums or duplexes, helps to explain the decrease in single-family homes in PHM's product mix over the past five years.

the company develops land, its engages directly in many phases of the development process, including land and site planning, and obtaining environmental and other regulatory approvals, as well as constructing roads, sewers, water and drainage facilities, and other amenities. To assist its home sales effort, PHM offers mortgage banking and title insurance services through Pulte Mortgage and other units mainly for the benefit of its domestic home buyers, but it also services the general public. In addition, it engages in the sale of loans and related servicing rights. Mortgage underwriting, processing and closing functions are centralized in Denver, CO, and Charlotte, NC, using a mortgage operations center concept. In December 2005, the company sold Pulte Mexico, sharply reducing its international presence, and realized cash proceeds of $131.5 million. In the fourth quarter of 2005, PHM reported these results as discontinued operations.

CORPORATE STRATEGY. As of December 31, 2009, the company controlled 546,694 lots, of which 138,273 were owned and 16,421 were under option agreements. Land is generally purchased after it is properly zoned and developed or is ready for development. In addition, PHM will dispose of owned land not required in the business through sales to appropriate end users. Where Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.54 -3.76 -3.94 -2.72 Nil Nil 13.59 7.71 NM NM

2008 10.59 -5.52 -5.81 -5.80 0.16 NM 23.24 6.49 NM NM

2007 16.35 -8.69 -9.02 -7.69 0.16 NM 35.56 8.78 NM NM

2006 23.82 2.99 2.67 2.59 0.16 6% 44.70 26.02 17 10

2005 21.49 5.70 5.47 5.46 0.09 2% 48.23 30.01 9 5

2004 15.95 4.01 3.84 3.82 0.10 3% 32.50 20.00 8 5

2003 12.13 2.61 2.46 2.45 0.04 2% 24.71 11.36 10 5

2002 9.41 1.92 1.80 1.76 0.04 2% 14.94 9.05 8 5

2001 7.64 1.67 1.50 1.43 0.04 3% 12.56 6.53 8 4

2000 7.51 1.38 1.30 NA 0.04 3% 11.25 3.81 9 3

4,084 -262 54.3 2.26 -1,975 40.1% -1,183 -817

6,263 -1,496 74.0 229 -1,683 NM -1,473 -1,469

9,263 -1,800 83.9 260 -2,497 NM -2,274 -1,939

14,274 2,678 83.7 256 1,083 36.3% 690 670

14,695 244 62.0 43.3 2,277 36.8% 1,437 1,435

11,711 1,587 46.3 56.4 1,601 37.6% 998 993

9,049 997 40.2 Nil 996 38.0% 617 615

7,472 746 29.8 Nil 729 39.0% 445 436

5,382 601 32.9 81.6 492 38.5% 302 288

4,159 429 14.2 65.1 355 38.5% 218 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,858 Current Assets 8,494 Total Assets 10,051 Current Liabilities 1,544 Long Term Debt 4,282 Common Equity 3,194 Total Capital 7,476 Capital Expenditures 39.3 Cash Flow -1,128 Current Ratio 3.2 % Long Term Debt of Capitalization 57.3 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,655 7,162 7,708 1,258 3,143 2,836 5,978 18.9 -1,399 3.9 52.6 NM NM NM

1,060 8,869 10,226 2,273 3,478 4,320 7,798 70.1 -2,191 3.9 44.6 NM NM NM

551 11,335 13,177 2,782 3,538 6,577 10,115 98.6 773 4.1 35.0 4.8 5.3 11.0

1,002 10,954 13,048 3,276 3,387 5,957 9,352 88.9 1,499 3.3 36.2 9.7 12.2 27.4

315 8,521 10,407 2,702 2,737 4,522 7,274 75.2 1,044 3.2 37.6 8.5 10.8 25.0

404 6,596 8,063 2,359 1,962 3,448 5,418 39.1 657 2.8 36.2 6.8 8.3 19.9

613 5,568 6,888 2,224 1,913 2,760 4,674 NA 474 2.5 40.9 6.0 7.1 17.7

72.1 4,407 5,714 1,703 1,738 2,277 4,015 NA 335 2.6 43.3 5.6 7.0 17.2

184 2,407 2,886 979 678 1,248 1,926 NA 233 2.5 35.2 5.3 8.1 18.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Bloomfield Hills Pkwy Ste 300, Bloomfield Hills, MI 48304-2950. Telephone: 248-647-2750. Website: http://www.pulte.com Chrmn, Pres & CEO: R.J. Dugas, Jr.

Vice Chrmn: T.R. Eller EVP & CFO: R.A. Cregg SVP, Secy & General Counsel: S.M. Cook Chief Acctg Officer & Cntlr: M.J. Schweninger

Investor Contact: C. Boyd (248-647-2750) Founded: 1969 Board Members: B. P. Anderson, R. J. Dugas, Jr., T. R. Domicile: Michigan Eller, C. W. Grise, D. J. Kelly-Ennis, D. N. Employees: 5,700 McCammon, C. W. Murchison, III, P. J. O'Leary, J. J. Postl, B. W. Reznicek, T. M. Schoewe

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: QEP | QEP is in the S&P 500

QEP Resources Inc S&P Recommendation HOLD

★★★★★

Price $31.80 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $35.00

Investment Style Large-Cap Growth

Summary This Questar spinoff is an independent oil and gas exploration and production company focused on the Rocky Mountain and Midcontinent regions of the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.00– 27.90 Trailing 12-Month EPS $2.27 Trailing 12-Month P/E 14.0 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.60 1.66 19.9 175.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.569 NA NA 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

NA NA BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects QEP's operations in a capital-intensive industry that derives value from producing commodities whose price is very volatile.

36

32 30

Quantitative Evaluations

28

S&P Quality Ranking

Vol.

D

Mil.

C

B-

NR B

B+

A-

A

A+

14

6 4 2 0

Relative Strength Rank

MODERATE

51 LOWEST = 1

5

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Michael Kay on August 03, 2010, when the stock traded at $ 33.88. Highlights ➤

➤

QEP boosted volumes by 11%, to 190 Bcfe, in 2009. Production in the first half of 2010 was up 16%, with strength in the Midcontinent region, driven by the Haynesville and Woodford Cana shales. QEP currently has seven rigs running at Haynesville, six at the Pinedale Anticline, two at Granite Wash, and one each at Woodford Cana and the Bakken Shale. We expect QEP to ramp activity for Bakken oil in the 2010 second half to lift exposure to liquids production. QEP targets 2010 production of 218-222 Bcfe, up 15%-17% from 2009, and up from previous targets as drilling efficiency improves at Haynesville. QEP sees 2010 EBITDAX (EBITDA before exploration expense) of $1,025 million, with 84% from E&P operations and the remainder from midstream field services, where we are concerned about NGL margins. QEP's 2010 capital expenditure budget of $1.34 billion allocates 78% to E&P and 22% to field services.

Investment Rationale/Risk ➤

➤

➤ ➤

We see 2010 EPS of $1.68 (with a $0.22 noncash gain in the first half) and 2011 EPS of $1.66 on a 16% production increase each year. We expect capex to surpass cash flows in 2010, but the completion of two NGL plants and declining capex should bridge the gap in 2011.

We recently initiated coverage with a hold opinion, as we think the shares will trade in line with E&P natural gas peers. QEP has a 92% reserve weighting toward natural gas. On June 30, 2010, QEP was spun off from Questar Corp. (STR 17, Hold) and began trading as a standalone E&P company, focusing onshore. This should allow for sharper focus on core E&P assets, greater capital commitment and the pursuit of growth, possibly by acquisition. We think minimal balance sheet leverage and a supportive midstream business will help support strategic growth initiatives. QEP has three-year production and reserve compound annual growth rates (CAGRs) of 13% and 19%, respectively. Risks to our recommendation and target price include a sustained decline in natural gas prices, an inability to replace reserves at a reasonable cost, and production declines. Our 12-month target price of $35 is based on our proved reserve NAV estimate of $43, blended with peer average relative metrics, including a target of 5X enterprise value to our 2011 EBITDA forecast and 5X our 2011 cash flow estimate. We see upside to NAV, but remain cautious on exposure to natural gas prices.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 580.1 529.6 2009 --2008 --2007 --2006 --2005 ---

3Q -------

4Q -------

Year -1,973 2,319 1,688 ---

Earnings Per Share ($) 2010 0.44 0.39 2009 --2008 --2007 --2006 --2005 ---

E0.35 ------

E0.38 ------

E1.60 1.21 2.90 2.05 ---

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.020

08/09

08/18

08/20

09/13/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: QEP

QEP Resources Inc Business Summary August 03, 2010 CORPORATE OVERVIEW. QEP Resources, Inc. is a leading independent natural gas and oil exploration and production company. On June 30, 2010, Questar Corporation (STR) spun off the shares of QEP Resources, Inc., creating a new publicly traded, independent natural gas and oil exploration and production company. QEP Resources is a major Rocky Mountain and Midcontinent region producer. QEP also gathers, compresses, treats and processes natural gas in its core producing areas. As of December 31, 2009, QEP had estimated proved reserves of 2,747 Bcfe, of which 92% consisted of natural gas and 8% crude oil and liquids. This compares to estimated proved reserves of 2,218 Bcfe, of which 92% were natural gas, at year-end 2008. We estimate QEP's year-end 2009 reserve life to be 14.5 years, compared to 12.9 years at the end of 2008. We estimate QEP has grown reserves at a three-year CAGR of 19%. Production in 2009 was 189.7 Bcfe, up 11%, and we estimate a 2009 reserve replacement ratio of 379%, above peers. Total costs incurred for drilling in 2009 were $1.056 billion, down 44% on lower oil and gas prices, and we calculate a 2009 finding and development cost of $1.17 per Mcf with a three-year CAGR of $2.46 per Mcf.

superior execution, and a low cost structure. QEP plans to allocate capital to projects that generate top returns; maintain a sustainable inventory of lowcost, high-margin resource plays; build contiguous acreage positions to drive efficiencies; own and operate midstream infrastructure in core areas to capture value; build gas processing plants to extract liquids from gas streams; gather, compress and treat its own production to drive down costs; and maintain a strong balance sheet and financial flexibility. QEP operates under three segments: Exploration & Production, Midstream and Marketing. The E&P segment (84% of forecast 2010 EBITDAX) acquires, explores for, develops and produces natural gas, crude oil and natural gas liquids. QEP operates and is active in some of the most economic, high-growth domestic resources plays. As it develops acreage in these plays, QEP is forecasting 2010 and 2011 production growth of about 16% per annum. QEP plans to spend about $1 billion on E&P capex in 2010 and $860 million in 2011.

CORPORATE STRATEGY. QEP intends to create value through strong growth, Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NA 4.39 1.21 NA NA NA NA NA NA NA

2008 NA 5.01 2.90 NA NA NA NA NA NA NA

2007 NA NA NA NA NA NA NA NA NA NA

2006 NA NA NA NA NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

1,973 1,163 559 70.1 333 35.3% 215 294

2,319 1,280 362 61.7 804 35.3% 521 586

1,688 860 264 33.6 573 36.9% 362 421

NA NA NA NA NA NA NA 356

NA NA NA NA NA NA NA 258

NA NA NA NA NA NA NA 165

NA NA NA NA NA NA NA 121

NA NA NA NA NA NA NA 66.2

NA NA NA NA NA NA NA 92.1

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash Nil Current Assets 685 Total Assets 6,190 Current Liabilities 700 Long Term Debt 999 Common Equity 2,885 Total Capital 4,088 Capital Expenditures NA Cash Flow 774 Current Ratio 1.0 % Long Term Debt of Capitalization 24.4 % Net Income of Revenue 10.9 % Return on Assets NM % Return on Equity NM

NA NA NA NA NA NA NA NA 883 NA NA 22.5 NA NA

NA NA NA NA NA NA NA NA 626 NA NA 21.4 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Pro forma data to 2009; 2009 bal. sheet as of Mar. 31, 2010. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Chrmn: K.O. Rattie Pres & CEO: C.B. Stanley EVP, CFO & Treas: R.J. Doleshek Chief Acctg Officer & Cntlr: B.K. Watts

Secy: A.L. Jones

Board Members: P. S. Baker, Jr., L. R. Flury, J. A. Harmon, R. E. McKee, III, K. O. Rattie, M. W. Scoggins, C. B. Stanley

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Auditor: Ernst & Young

Stock Report | October 23, 2010 | NNM Symbol: QLGC | QLGC is in the S&P 500

QLogic Corp S&P Recommendation HOLD

★★★★★

Price $16.73 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Storage & Peripherals

12-Mo. Target Price $17.00

Investment Style Large-Cap Growth

Summary This company supplies storage networking and network infrastructure solutions primarily to original equipment manufacturers and distributors.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $22.40– 14.30 Trailing 12-Month EPS $0.56 Trailing 12-Month P/E 29.9 $10K Invested 5 Yrs Ago $11,308

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.07 1.18 15.6 109.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.828 Nil Nil 98

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.46 8 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatile nature of the data storage industry and the rapid pace of technological change. Offsetting these factors is our view of the company's significant market share and strong financial position.

20 16

12 10

Quantitative Evaluations S&P Quality Ranking

Vol. 53

Mil.

D

24 16 8 0

C

B-

B+ B

B+

A-

Relative Strength Rank

A

A+

MODERATE

30 4

5

3

2

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on October 08, 2010, when the stock traded at $ 17.13. Highlights ➤

➤

➤

We expect revenues to increase 8.0% in FY 11 (Mar.), following a 13% decline in FY 10. Our forecast is based on our outlook for a rebound in the data storage industry amid a modest economic recovery in 2010. We believe enterprises have underinvested in data storage and network infrastructure solutions during the downturn. We think sales will benefit from a server upgrade cycle and new products, in particular those related to Fibre Channel over Ethernet, which we think will become an emerging standard. We also believe sales will be aided by favorable foreign currency exchange due to the recent decline in the U.S. dollar. We project gross margins of 66% in FY 11, up from 64% in FY 10. We believe QLGC will keep a tight control over employee headcount in FY 11. As a result, we see operating margins widening to 23% in FY 11 from 18% in FY 10. We estimate EPS of $1.03 in FY 11, compared to $0.47 in FY 10. The increased earnings we see in FY 11 reflects our projection for higher revenues and wider operating margins.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our hold recommendation reflects our concern about slowing demand in 2011. Recent data indicate that the recovery in the global economy has decelerated due to weak consumer spending and lack of job growth. Additionally, many governments plan to implement austerity programs to control their budget deficits. Still, we see mid-single digit revenue growth in FY 12, driven by growing interest in cloud computing. We believe demand for QLGC's solutions is also driven by the emergence of Fibre Channel over Ethernet as a new standard. Risks to our recommendation and target price include a slowdown in the global economy, a rise in the U.S. dollar, lower-than-expected cost savings, and significant loss in market share. Our 12-month target price of $17 is based on a weighted blend of our discounted cash flow (DCF) and P/E analyses. Our DCF model assumes a weighted average cost of capital of 12% and 3% terminal growth, yielding an intrinsic value of $18. From our P/E analysis, we derive a value of $16, based on an industry P/ E-to-growth ratio of 1.8X, or about 14X our FY 12 EPS estimate of $1.13.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 142.6 -2010 122.8 131.5 2009 168.4 171.2 2008 139.8 140.3 2007 136.7 145.3 2006 158.8 119.0

3Q -149.1 163.7 158.0 157.6 129.2

4Q -145.7 130.6 159.7 147.1 130.5

Year -549.1 633.9 597.9 586.7 494.1

Earnings Per Share ($) 2011 0.22 E0.28 2010 0.13 0.14 2009 0.24 0.20 2008 0.12 0.16 2007 0.13 0.19 2006 0.23 0.17

E0.29 E0.31 0.24 0.23 0.22 0.20

E0.28 -0.04 0.16 0.17 0.12 0.19

E1.07 0.47 0.85 0.67 0.66 0.70

Fiscal year ended Mar. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: QLGC

QLogic Corp Business Summary October 08, 2010 CORPORATE OVERVIEW. QLogic Corp. designs and develops storage networking infrastructure components sold to OEMs and distributors. QLGC produces host bus adapters (HBAs), fabric switches and management controller chips that provide the connectivity infrastructure for storage networks. The company serves customers with solutions based on various storage connectivity technologies, including Small Computer Systems Interface (SCSI), Internet SCSI (iSCSI), Fibre Channel, Fibre Channel over Ethernet (FCoE), Infiniband and intelligent Ethernet. International revenues accounted for 52% of net revenues in FY 09 (Mar.), up from 49% in FY 08. IBM, Hewlett-Packard and Sun Microsystems each accounted for over 10% of FY 09 sales. The 10 largest customers accounted for 84% of FY 09 revenues, down from 85% in FY 08. QLGC works closely with independent hardware and software vendors, as well as with developers and integrators who create, test and evaluate complementary storage networking

products. Other key alliance partners include Cisco Systems, Dell, and EMC. MARKET PROFILE. According to research firm IDC, growing server virtualization is driving an increase in storage area network (SAN) connectivity levels, partially offset by moderating server unit growth rates. IDC predicts worldwide HBA port shipments will increase from 4.5 million to 7.5 million between 2008 and 2013, resulting in a compound annual growth rate (CAGR) of 10.9% for the period. IDC expects single-port and multiport Fiber Channel (FC) HBA unit shipments to grow somewhat slower (a 2008-2013 CAGR of 4%), with 2013 shipments reaching 5.4 million.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.97 0.81 0.47 0.44 Nil Nil 2009 19.62 8.82 42 19

2009 4.09 1.22 0.85 0.90 Nil Nil 2008 20.21 8.69 24 10

2008 3.79 1.01 0.67 0.70 Nil Nil 2007 22.46 11.46 34 17

2007 4.61 0.83 0.66 0.70 Nil Nil 2006 22.94 15.86 35 24

2006 5.10 0.81 0.70 0.49 Nil Nil 2005 21.83 14.10 31 20

2005 5.19 0.92 0.84 0.67 Nil Nil 2004 26.57 10.72 32 13

2004 4.61 0.77 0.70 0.52 Nil Nil 2003 29.36 16.07 42 23

2003 4.00 0.62 0.55 0.35 Nil Nil 2002 28.55 9.83 52 18

2002 3.33 0.44 0.37 0.22 Nil Nil 2001 49.56 8.60 NM NM

2001 2.84 0.42 0.36 0.16 Nil Nil 2000 101.63 19.84 NM NM

549 146 40.1 NA 110 NA 55.0 51.7

634 219 48.4 Nil 169 35.6% 109 115

598 190 48.4 Nil 148 34.9% 96.2 100

587 169 27.6 Nil 155 31.9% 105 112

494 196 17.9 Nil 200 39.2% 122 85.6

572 240 15.6 Nil 242 35.0% 158 126

524 214 14.8 Nil 216 38.0% 134 99.4

441 157 14.7 Nil 159 35.0% 103 67.0

344 99.5 13.0 Nil 106 33.0% 70.7 42.1

358 132 10.8 Nil 117 41.2% 68.8 30.5

Balance Sheet & Other Financial Data (Million $) Cash 376 Current Assets 489 Total Assets 751 Current Liabilities 82.4 Long Term Debt NA Common Equity 583 Total Capital 583 Capital Expenditures 24.5 Cash Flow 95.1 Current Ratio 5.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 10.0 % Return on Assets 7.2 % Return on Equity 9.1

343 482 780 93.3 Nil 627 627 30.7 157 5.2 Nil 17.2 13.7 16.8

321 471 811 86.7 Nil 666 666 30.0 145 5.4 Nil 16.1 10.8 12.5

544 697 971 94.5 Nil 875 877 31.7 133 7.4 Nil 18.0 11.0 12.2

125 819 938 78.4 Nil 859 859 28.3 140 10.5 Nil 24.7 12.4 13.4

166 940 1,026 68.8 Nil 956 958 25.7 173 13.7 Nil 27.6 16.1 17.3

157 854 929 60.8 Nil 868 868 22.3 149 14.0 Nil 25.5 15.3 16.5

138 748 817 66.7 Nil 751 751 15.7 118 11.2 Nil 23.5 13.9 15.1

76.1 587 670 51.0 Nil 619 619 14.5 83.7 11.5 Nil 20.5 11.4 12.4

128 490 571 47.8 Nil 524 524 16.7 79.6 10.3 Nil 19.2 14.2 15.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 26650 Aliso Viejo Pkwy, Aliso Viejo, CA 92656-2674. Telephone: 949-389-6000. Website: http://www.qlogic.com Chrmn & CEO: H.K. Desai

COO: P. Mulligan SVP, CFO & Chief Acctg Officer: S. Biddiscombe Secy & General Counsel: M.L. Hawkins Investor Contact: J.D. Herbert (949-389-6343)

Board Members: J. S. Birnbaum, H. K. Desai, J. R. Founded: 1992 Fiebiger, B. S. Iyer, K. B. Lewis, S. Mercer, G. Wells, B. Domicile: Delaware Zeitler Employees: 1,038

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: QCOM | QCOM is in the S&P 500

QUALCOMM Inc S&P Recommendation BUY

★★★★★

Price $44.18 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $52.00

Investment Style Large-Cap Growth

Summary This company focuses on developing products and services based on its advanced wireless broadband technology.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.80– 31.63 Trailing 12-Month EPS $1.90 Trailing 12-Month P/E 23.3 $10K Invested 5 Yrs Ago $10,543

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.86 1.93 23.8 1,605.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

30

MEDIUM

HIGH

Quantitative Evaluations

Vol. 304

Mil.

S&P Quality Ranking

150 100 50 0

D 4

3

2008

2009

Analysis prepared by James Moorman, CFA on July 23, 2010, when the stock traded at $ 38.91.

We forecast a 4.8% revenue increase for FY 10 (Sep.) and a 6.3% increase for FY 11, following a 6.5% decline in FY 09. We believe that pressure on QCOM's chipset pricing is starting to abate following a period of decline due to competition and product mix. While we see stronger growth for its royalty business, we look for this to be tempered by a lower overall royalty rate. We expect growth in the WCDMA handset market, which supports QCOM's high-margin royalty business. We believe this will help maintain margins, but we are concerned about the effect of price declines as more growth comes from emerging markets and royalty rates decrease. We look for gross margins to decline slightly to 68.3% in FY 10 but then increase to 68.9% in FY 11, versus 69.5% in FY 09, as handset and chipset sales begin to reaccelerate with growth in the smartphone segment. We estimate that operating EPS will increase to $1.86 in FY 10 and $1.93 in FY 11, following $1.52 in FY 09.

B B

B+

A-

A

A+

MODERATE

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

66

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

Relative Strength Rank

2

1

➤

LOW

We believe QCOM's intellectual property rights and strong service provider relations give it a solid position in its industry. With our view of its healthy cash flow, we think the company's cash balance can support potentially weaker demand from customers and litigation risks related to its CDMA patents.

35

➤

0.97 11 NA

Below Avg.

40

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

45

5

$70.918 1.72 $0.76 79

We believe QCOM will see increasing chipset sales throughout the coming year as the economy begins to improve and with rapid growth in the smartphone market. We also believe that the popularity of QCOM's Snapdragon chipset will give it an advantage as media-centric wireless devices become more popular. QCOM has a strong balance sheet, in our view, and should continue to generate sizable cash flow, but we are moderately concerned about handset and chipset pricing. With our view of upside potential in the share price, our recommendation is buy. Risks to our recommendation and target price include weaker demand in the replacement rate for more advanced CDMA handsets; lower selling prices for handsets and chipsets; and a slower recovery in orders to shore up low inventory levels. Applying a multiple of 27X to our FY 11 EPS estimate -- a premium to peers, reflecting QCOM's above-average margins and cash flow generation -- we arrive at our 12-month target price of $52.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,670 2,663 2009 2,517 2,455 2008 2,440 2,606 2007 2,019 2,221 2006 1,741 1,834 2005 1,390 1,365

3Q 2,706 2,753 2,762 2,325 1,951 1,358

4Q -2,690 3,334 2,306 1,999 1,560

Year -10,416 11,142 8,871 7,526 5,673

Earnings Per Share ($) 2010 0.50 0.46 2009 0.20 -0.18 2008 0.46 0.47 2007 0.38 0.43 2006 0.36 0.34 2005 0.30 0.31

0.47 0.44 0.45 0.47 0.37 0.33

E0.43 0.49 0.52 0.67 0.36 0.32

E1.86 0.95 1.90 1.95 1.44 1.26

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.170 0.190 0.190 0.190

01/07 04/05 07/08 10/04

02/24 05/26 08/25 11/22

02/26 05/28 08/27 11/24

03/26/10 06/25/10 09/24/10 12/22/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: QCOM

QUALCOMM Inc Business Summary July 23, 2010 CORPORATE OVERVIEW. QUALCOMM Inc. is comprised of the following operating segments: CDMA technology (QCT), technology licensing (QTL), wireless and Internet (QWI), and strategic initiatives (QSI). The equipment and services unit, mostly in QCT, accounted for about 65% of total sales in the third quarter of FY 10 (Sep.), providing integrated circuits and system software solutions to top wireless handset and infrastructure manufacturers. QCOM uses a fabless business model, employing several independent semiconductor foundries to manufacture its semiconductor products. Approximately 103 million model station modem (MSM) integrated circuits were sold during the third quarter of FY 10, compared to approximately 94 million a year earlier. QCOM expects to sell between 106 million and 111 million MSM circuits in the fourth quarter of FY 10. The license and royalty fee segment (QTL) accounted for about 35% of total sales, with 79% operating margins. QCOM holds a number of patents related to CDMA, and derives royalties from licensing its technology. Royalties are paid when manufacturers earn revenue from the sale of CDMA-based equipment, including CDMA and WCDMA handsets made by customers Samsung, LG Electronics, Motorola, and others. QCOM expects 23% growth in CDMA and WCDMA handsets in calendar 2010, mostly from WCDMA handsets.

QCOM estimated that the average selling price of a handset was between $202 and $208 in FY 09, and projected it to decline to between $184 and $188 in FY 10, limiting the growth of its royalty revenues. LEGAL/REGULATORY ISSUES. QCOM has been involved in various legal issues involving patents on its chipsets and competitors' chipsets. The company's multiple disputes with Nokia included litigation over Nokia's obligation to pay royalties for the use of certain of QCOM's patents. Without a license contract with QCOM, Nokia had opted to cancel its CDMA-related handset division. However, in July 2008, QCOM and Nokia signed a new 15-year agreement covering various second, third and fourth-generation technology standards that we believe keeps QCOM's royalty pipeline active beyond supporting current handset offerings. In addition to a lump-sum cash payment that helped boost fourth-quarter FY 08 revenues by $580 million, Nokia returned to being a royalty customer of QCOM in late FY 08.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.44 1.33 0.95 1.64 0.66 69% 48.72 32.64 51 34

2008 8.05 2.18 1.90 2.05 0.60 32% 56.88 28.16 30 15

2007 8.82 2.18 1.95 1.86 0.52 27% 47.72 35.23 24 18

2006 7.37 1.60 1.44 1.40 0.42 29% 53.01 32.76 37 23

2005 6.43 1.38 1.26 1.03 0.32 25% 46.60 32.08 37 25

2004 5.69 1.13 1.03 0.83 0.19 18% 44.99 26.67 44 26

2003 4.54 0.62 0.51 0.74 0.09 17% 27.43 14.79 54 29

2002 2.77 0.47 0.22 0.34 Nil Nil 26.67 11.61 NM NM

2001 2.82 -0.14 -0.36 -0.68 Nil Nil 44.69 19.16 NM NM

2000 3.14 0.57 0.43 NA Nil Nil 100.00 25.75 NM NM

10,416 3,880 635 24.0 2,076 23.3% 1,592 2,744

11,142 4,200 456 22.0 3,826 17.4% 3,160 3,407

8,871 3,266 383 Nil 3,626 8.90% 3,303 3,148

7,526 2,962 272 Nil 3,156 21.7% 2,470 2,397

5,673 2,586 200 3.00 2,809 23.7% 2,143 1,733

4,880 2,266 163 2.00 2,313 25.4% 1,725 1,395

3,971 1,684 180 30.7 1,285 35.6% 827 610

3,040 1,068 394 25.7 461 22.0% 360 274

2,680 877 320 10.2 -426 NM -531 -512

3,197 1,105 244 4.92 1,197 44.0% 670 NA

Balance Sheet & Other Financial Data (Million $) Cash 11,069 Current Assets 12,570 Total Assets 27,445 Current Liabilities 2,813 Long Term Debt 187 Common Equity 20,316 Total Capital 20,316 Capital Expenditures 761 Cash Flow 2,227 Current Ratio 4.5 % Long Term Debt of Capitalization 0.9 % Net Income of Revenue 15.3 % Return on Assets 6.1 % Return on Equity 8.3

6,411 11,723 24,563 2,291 142 17,944 18,087 1,397 3,616 5.1 0.8 28.4 14.7 18.7

6,581 8,821 18,495 2,258 Nil 15,835 15,835 818 3,686 3.9 Nil 37.2 19.6 22.5

5,721 7,049 15,208 1,422 Nil 13,406 13,406 685 2,742 5.0 Nil 32.8 17.8 20.1

6,548 7,791 12,479 1,070 Nil 11,119 11,119 576 2,343 7.3 Nil 37.8 18.4 20.6

5,982 7,227 10,820 894 Nil 9,664 9,664 332 1,888 8.1 Nil 35.3 17.6 20.0

4,561 5,949 8,822 808 123 7,599 7,722 231 1,007 7.4 1.6 20.8 10.8 12.7

2,795 3,941 6,510 675 94.3 5,392 5,530 142 754 5.8 1.7 11.8 5.9 7.1

2,283 3,055 5,747 521 Nil 4,890 4,896 114 -211 5.9 Nil NM NM NM

1,772 2,730 6,063 472 Nil 5,516 5,563 163 914 5.8 Nil 21.0 12.6 16.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5775 Morehouse Drive, San Diego, CA 92121-1714. Telephone: 858-587-1121. Email: [email protected] Website: http://www.qualcomm.com

Chrmn & CEO: P.E. Jacobs Pres: S.R. Altman EVP, CFO & Chief Acctg Officer: W.E. Keitel EVP & CTO: R. Padovani

EVP, Secy & General Counsel: D.J. Rosenberg Founded: 1985 Investor Contact: J. Gilbert (858-658-4813) Domicile: Delaware Board Members: B. T. Alexander, S. M. Bennett, D. G. Employees: 16,100 Cruickshank, R. V. Dittamore, T. Horton, I. M. Jacobs, P. E. Jacobs, R. E. Kahn, S. Lansing, D. A. Nelles, B. Scowcroft, M. I. Stern

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: PWR | PWR is in the S&P 500

Quanta Services Inc. S&P Recommendation BUY

★★★★★

Price $19.40 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Construction & Engineering

12-Mo. Target Price $23.00

Investment Style Large-Cap Blend

Summary This company provides specialized contracting services, offering end-to-end network solutions to the electric power, gas, telecommunications and cable television industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.34– 16.75 Trailing 12-Month EPS $0.79 Trailing 12-Month P/E 24.6 $10K Invested 5 Yrs Ago $17,275

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.94 1.22 20.6 211.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.085 Nil Nil 89

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.18 25 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects PWR's dependence on just a few industries, the erratic spending patterns of the company's major customers, the lack of minimum service volumes in most contracts, the ability of customers to terminate agreements on short notice, the volatility of the storm restoration service business, and the large portion of revenue derived from fixed-price agreements.

40 30

20 15

10 Vol. Mil.

50

Quantitative Evaluations

24 16 8 0 5

S&P Quality Ranking 4

3

3

3

2

4

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ WEAK

29 LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Mathew Christy, CFA on August 11, 2010, when the stock traded at $ 18.68. Highlights ➤

➤

➤

We see revenues in 2010 advancing about 20% on some organic sales growth, but mainly due to the acquisition of Price Gregory. Our estimates are also based on PWR's 12-month backlog of $2.7 billion, and total backlog of $5.8 billion, as of June 30, reflecting recent major contract wins, including Northeast Utilities, Nebraska Public Power and Light, Duke Power, and renewable energy contracts. In addition, we base our estimates on continued contract wins, such as National Grid and the recent Teanaway Solar Reserve. In 2011, we estimate revenues will increase 16%. For both 2010 and 2011, we estimate that PWR's gross margin will increase compared to the 17.9% rate posted in 2009, as older lower priced contracts are completed. We also believe that the company will show overall improvement in the operating margin in both years due to greater operating leverage over higher sales, along with cost savings associated with recent acquisitions. With an expected 39% effective tax rate in both years, we estimate EPS of $0.94 for 2010 and $1.22 for 2011.

Investment Rationale/Risk ➤

➤

➤

Following lower overall results in 2009 due to reduced capital spending by customers and the recession, we believe 2010 results will increase due to favorable acquisitions and better customer spending levels. In addition, we view positively the long-term trend toward higher spending to maintain and upgrade aging transmission and distribution networks. Although we continue to see regulatory constraints subduing spending, we think the shares are attractively valued at about 7.5X our 2010 EBITDA estimate. Risks to our recommendation and target price include lower-than-expected capital spending by utilities and gas, telecommunications and cable companies, and an economic downturn. Our 12-month target price of $23 is based on a blend of valuation metrics. Our discounted cash flow model, which assumes a 3% perpetuity growth rate and a 10.9% discount rate, indicates a $24 intrinsic value. In terms of relative valuation, we apply an EV/EBITDA multiple of 8.4X to our 2010 EBITDA estimate, ahead of peers due to PWR's historical premium valuation, implying a value of $22.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 748.3 870.5 2009 738.5 813.4 2008 844.4 960.9 2007 574.9 557.6 2006 496.5 514.1 2005 372.5 439.3

3Q -780.8 1,053 655.9 528.5 523.3

4Q -985.4 921.5 879.0 592.0 523.5

Year -3,318 3,780 2,656 2,131 1,859

Earnings Per Share ($) 2010 0.11 0.16 2009 0.11 0.17 2008 0.14 0.22 2007 0.23 0.17 2006 0.07 0.14 2005 -0.04 0.03

E0.31 0.32 0.29 0.30 0.17 0.11

E0.34 0.21 0.24 0.18 -0.26 0.15

E0.94 0.81 0.88 0.87 0.15 0.25

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: PWR

Quanta Services Inc. Business Summary August 11, 2010 CORPORATE OVERVIEW. Quanta Services, Inc. (PWR) is a provider of specialty contracting services that designs, installs and maintains the infrastructure and networks for four primary areas: electric power, natural gas, telecommunications and cable television, and fiber optic licensing and leasing. PWR had over 14,600 employees in 2009, of which approximately 37% were covered by collective bargaining agreements, primarily with the International Brotherhood of Electrical Workers (IBEW). The company believes it is the largest contractor serving the transmission and distribution sector of the U.S. electric utility industry. The electric power infrastructure segment (64% of PWR's 2009 revenues) installs, repairs and maintains electric power distribution networks and transmission lines. The natural gas and pipeline segment (17%) provides design, installation, repair, and maintenance services for natural gas distribution and transmission networks. The telecommunications and cable network segment (19%) designs, installs and maintains fiber optic, coaxial and copper cable for video, data and voice transmission, and builds wireless communications towers and installs switching systems for telecommunications carriers. The fiber optic licensing and leasing segment (less than 1%) designs, procures, constructs, maintains, and licenses fiber optic networks in select markets in the U.S.

MARKET PROFILE. During the recent economic downturn, we believe the lack of available credit dampened demand dynamics and spending levels. For instance, several large telecom customers, including Verizon and AT&T, slowed spending on their fiber optic build-out initiatives such as fiber to the premises (FTTP) and fiber to the node (FTTN) in 2009, while the utility industry reduced or deferred capital expenditures that were slated for 2009. However, we think that longer-term demand for infrastructure services in the electric, gas, telecom and cable industries is powered by the need to maintain and upgrade networks, while keeping costs low by outsourcing these services to third parties. Due to the Energy Policy Act of 2005 and the American Recovery and Reinvestment Act of 2009, which both promote investment in aging U.S. energy infrastructure, we expect many utilities to continue spending on the upgrade of their power transmission and distribution networks. In addition, we see improving spending levels in 2010, as a result of the economic recovery.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.08 1.43 0.81 0.84 Nil Nil 25.80 15.84 32 20

2008 5.87 1.39 0.88 0.88 Nil Nil 35.39 10.56 40 12

2007 4.01 1.24 0.87 0.88 Nil Nil 33.42 18.66 38 21

2006 3.36 0.63 0.15 0.61 Nil Nil 20.05 12.24 NM NM

2005 2.67 0.73 0.25 0.26 Nil Nil 14.97 7.18 60 29

2004 2.34 0.45 -0.08 -0.09 Nil Nil 9.52 4.83 NM NM

2003 2.35 0.23 -0.30 -0.30 Nil Nil 9.87 2.80 NM NM

2002 3.05 -1.41 -2.26 -1.91 Nil Nil 18.90 1.75 NM NM

2001 2.79 2.10 1.10 0.83 Nil Nil 37.50 9.94 34 9

2000 2.76 2.12 1.42 NA Nil Nil 63.13 17.92 44 13

3,318 375 126 11.3 234 30.0% 162 168

3,780 403 114 17.5 282 40.8% 167 167

2,656 250 74.7 21.5 167 20.5% 133 134

2,131 189 56.2 26.8 65.1 73.2% 17.5 74.1

1,859 124 55.4 23.9 52.2 43.4% 29.6 30.3

1,627 70.2 60.4 25.1 -12.6 NM -9.19 -10.2

1,643 83.1 60.1 31.8 -53.1 NM -35.0 -33.9

1,751 71.6 60.6 35.9 -194 NM -174 -96.4

2,015 273 79.4 36.1 157 45.4% 85.8 64.5

1,793 308 57.3 25.7 200 47.0% 106 NA

Balance Sheet & Other Financial Data (Million $) Cash 700 Current Assets 1,583 Total Assets 4,117 Current Liabilities 496 Long Term Debt 127 Common Equity 3,109 Total Capital 3,241 Capital Expenditures 165 Cash Flow 288 Current Ratio 3.2 % Long Term Debt of Capitalization 3.9 % Net Income of Revenue 4.9 % Return on Assets 4.2 % Return on Equity 5.6

438 1,381 3,555 452 144 2,658 2,803 186 281 3.1 5.1 4.4 4.8 6.9

407 1,305 3,388 757 144 2,185 2,430 128 208 1.7 5.9 5.0 5.3 9.1

384 991 1,639 334 414 729 1,143 48.5 73.7 3.0 36.2 0.8 1.1 2.4

304 831 1,555 258 450 704 1,154 42.6 85.0 3.2 39.0 1.6 2.0 4.3

266 700 1,460 221 464 663 1,128 39.0 51.2 3.2 41.2 NM NM NM

180 676 1,466 199 501 663 1,164 35.9 25.1 3.4 43.0 NM NM NM

27.9 529 1,365 212 386 612 1,153 49.5 -114 2.5 33.5 NM NM NM

6.29 577 2,043 242 500 1,207 1,801 85.0 164 2.4 27.8 4.3 4.4 7.5

17.3 602 1,874 253 491 1,069 1,560 89.6 162 2.4 31.5 5.9 7.0 11.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1360 Post Oak Boulevard, Suite 2100, Houston, TX 77056. Telephone: 713-629-7600. Email: [email protected] Website: http://www.quantaservices.com

Chrmn & CEO: J.R. Colson Pres & COO: J.F. O'Neil, III CFO: J. Haddox Chief Admin Officer: D.B. Miller

Chief Acctg Officer: D.A. Jensen Founded: 1997 Investor Contact: K. Dennard (713-529-6600) Domicile: Delaware Board Members: J. R. Ball, J. R. Colson, J. M. Employees: 14,673 Conaway, R. R. DiSibio, V. D. Foster, B. Fried, L. Golm, W. F. Jackman, B. Ranck, J. R. Wilson, P. Wood, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DGX | DGX is in the S&P 500

Quest Diagnostics Inc S&P Recommendation BUY

★★★★★

Price $49.03 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Services

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company provides diagnostic testing, information and services to physicians, hospitals, managed care organizations, employers and government agencies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $62.83– 40.80 Trailing 12-Month EPS $3.95 Trailing 12-Month P/E 12.4 $10K Invested 5 Yrs Ago $10,731

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.98 4.36 12.3 177.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.689 0.82 $0.40 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.51 12 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of DGX's leadership position in the large and mature diagnostic testing industry, the company's broad geographic service area, its diverse and balanced payor mix, and the growing recognition of the importance and significance of diagnostic testing.

70 60

50

40

Quantitative Evaluations Vol.

S&P Quality Ranking

25

Mil. 9 6 3 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

A+

MODERATE

33 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Jeffrey Loo, CFA on October 22, 2010, when the stock traded at $ 48.25. Highlights ➤

➤

➤

We see 2010 sales off 2%, to $7.3 billion, amid a challenging employment environment, resulting in fewer patient visits. We believe physician office visits in the first nine months of 2010 declined 3% to 5%, and we see only a modest recovery in the fourth quarter. We expect growth to pick up steadily in 2011, and we look for a 4% sales increase to $7.6 billion. We see a continued increase in esoteric testing and tests per requisition, resulting in higher revenue per requisition, and we believe drugs-of-abuse testing volume has stabilized and should increase as the economy recovers. We see gross margins narrowing by 60 basis points (bps) in 2010 but expanding by 30 bps in 2011. DGX is ramping up its sales force to focus on its esoteric tests offering, but we see DGX maintaining its cost structure following years of cost cutting. We see operating margins falling 30 bps in 2010 before rising 50 bps in 2011. DGX has been a prolific acquirer, and we believe the current environment may present attractive opportunities. In October, DGX's directors approved a $250 million stock buyback. Our 2010 and 2011 EPS estimates are $3.98 and $4.36, respectively.

Investment Rationale/Risk ➤

We believe the shares are attractive, recently trading at 12.0X and 10.9X our 2010 and 2011 EPS estimates, respectively, well below historical levels. Although we have some concerns about economic challenges leading to slowing volume, we think DGX's core lab testing business is fundamentally sound and will be able to maintain stable growth and margin expansion through improved efficiency and cost cutting. Further, DGX has been successful in renewing managed care contracts, and we do not see significant pricing pressure over the next two years. We see two important metrics -- revenue per requisition and tests per requisition -- continuing to increase. We believe diagnostic testing remains an essential health care service and believe health care reform will benefit the lab industry through increased utilization, partially offset by lower reimbursement rates.

➤

Risks to our recommendation and target price include a greater-than-expected slowdown in physician office visits.

➤

Our 12-month target price of $60 is based on a P/E-to-growth ratio of about 1.15X applied to our 2011 EPS estimate, and assumes a threeyear EPS growth rate of 12%, in line with peers.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,806 1,875 2009 1,808 1,902 2008 1,785 1,838 2007 1,526 1,641 2006 1,553 1,583 2005 1,319 1,378

3Q -1,897 1,827 1,767 1,583 1,372

4Q -1,848 1,800 1,770 1,549 1,435

Year -7,455 7,249 6,705 6,269 5,504

Earnings Per Share ($) 2010 0.89 1.07 2009 0.89 1.00 2008 0.72 0.83 2007 0.55 0.73 2006 0.77 0.78 2005 0.64 0.72

E0.97 1.02 0.81 0.77 0.82 0.66

E0.90 0.97 0.87 0.79 0.77 0.64

E3.98 3.88 3.23 2.84 3.14 2.66

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

12/09 02/11 05/06 08/11

01/05 04/01 07/01 09/30

01/07 04/06 07/06 10/04

01/22/10 04/20/10 07/20/10 10/19/10

Dividends have been paid since 2004. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: DGX

Quest Diagnostics Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. Quest Diagnostics is the largest independent U.S. clinical lab operator. The clinical lab market is estimated to be about a $45 billion market, with hospital-based labs accounting for about 60% of the market, independent commercial labs, such as DGX, accounting for 33%, and physician-office labs the rest. DGX offers a broad range of clinical laboratory testing services used by physicians in the detection, diagnosis, and treatment of diseases and other medical conditions. Tests range from routine (such as blood cholesterol tests) to highly complex esoteric (such as gene-based testing and molecular diagnostics testing). At the end of 2008, DGX had a network of 35 principal laboratories throughout the U.S., 150 smaller "rapid response" (STAT) laboratories, and over 2,100 patient service centers, along with facilities in Mexico, Puerto Rico and England. In 2008, DGX started providing clinical lab services in India.

In 2009, DGX processed approximately 148 million requisitions (physician testing requests) annually. Routine testing and anatomic pathology generated 70% of net sales in 2009 (68% in 2008), esoteric testing 20% (20% in 2008), clinical trials and risk assessment services from LabOne (acquired in November 2005) 8% (9%), and 3% from overseas operations. Routine tests measure important health parameters such as the function of the kidney, heart, liver, thyroid and other organs. Esoteric tests are performed less frequently than routine tests, and/or require more sophisticated equipment and materials, professional hands-on attention, and more highly skilled personnel. As a result, they are generally priced substantially higher than routine tests.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 5.26 3.88 3.83 0.40 10% 62.83 42.36 16 11

2008 NM 4.58 3.23 3.29 0.40 12% 59.95 38.66 19 12

2007 NM 4.06 2.84 2.85 0.40 14% 58.63 47.98 21 17

2006 NM 4.24 3.14 3.17 0.39 12% 64.69 48.59 21 15

2005 NM 3.51 2.66 2.57 0.26 10% 54.80 44.32 21 17

2004 NM 3.12 2.35 2.13 0.30 13% 48.41 35.94 21 15

2003 NM 2.79 2.06 1.80 Nil Nil 37.50 23.68 18 11

2002 NM 2.31 1.62 1.42 Nil Nil 48.07 24.55 30 15

2001 NM 1.70 0.94 0.83 Nil Nil 37.88 18.30 40 19

2000 NM 1.27 0.56 NA Nil Nil 36.56 7.28 66 13

7,455 1,600 257 147 1,228 37.5% 730 719

7,249 1,508 265 185 1,051 36.8% 632 644

6,705 1,350 238 186 939 38.2% 554 556

6,269 1,325 197 96.5 1,057 38.6% 626 632

5,504 1,144 176 61.4 930 39.2% 546 531

5,127 1,060 169 57.9 854 39.3% 499 456

4,738 950 154 59.8 755 39.9% 437 377

4,108 724 131 53.7 557 39.5% 322 279

3,628 559 148 70.5 343 43.4% 184 162

3,421 452 134 120 210 45.7% 105 NA

Balance Sheet & Other Financial Data (Million $) Cash 534 Current Assets 1,679 Total Assets 8,564 Current Liabilities 1,059 Long Term Debt 2,937 Common Equity 3,990 Total Capital 7,119 Capital Expenditures 167 Cash Flow 987 Current Ratio 1.6 % Long Term Debt of Capitalization 41.3 % Net Income of Revenue 9.8 % Return on Assets 8.6 % Return on Equity 19.2

254 1,497 8,404 1,225 3,078 3,605 6,873 213 897 1.2 44.8 8.7 7.5 18.3

168 1,374 8,566 1,288 3,377 3,324 6,911 219 792 1.1 48.9 8.3 7.8 17.5

150 1,191 5,661 1,151 1,239 3,019 4,258 193 823 1.0 29.1 10.0 11.4 21.6

92.1 1,069 5,306 1,101 1,255 2,763 4,018 224 722 1.0 31.2 9.9 11.5 21.6

73.3 931 4,204 1,044 724 2,289 3,013 176 668 0.9 24.0 9.7 11.7 21.3

155 996 4,301 724 1,029 2,397 3,426 175 591 1.4 30.0 9.2 11.5 20.9

96.8 824 3,324 636 797 1,769 2,565 155 454 1.3 31.0 7.8 10.3 20.8

122 877 2,931 659 820 1,336 2,156 149 332 1.3 38.0 5.1 6.3 15.5

171 981 2,865 955 761 1,031 1,793 116 239 1.0 42.4 3.1 3.7 11.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Three Giralda Farms, Madison, NJ 07940. Telephone: 973-520-2700. Email: [email protected] Website: http://www.questdiagnostics.com

Chrmn, Pres & CEO: S.N. Mohapatra COO: W.R. Simmons SVP & CFO: R.A. Hagemann SVP & General Counsel: M.E. Prevoznik

Chief Acctg Officer & Cntlr: T.F. Bongiorno Investor Contact: L. Park (973-520-2900) Board Members: J. C. Baldwin, J. K. Britell, W. F. Buehler, R. Haggerty, S. N. Mohapatra, G. M. Pfeiffer, D. C. Stanzione, G. Wilensky, J. Ziegler

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Delaware Employees: 43,000

Stock Report | October 23, 2010 | NYS Symbol: Q | Q is in the S&P 500

Qwest Communications International Inc. S&P Recommendation HOLD

★★★★★

Price $6.46 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Integrated Telecommunication Services

12-Mo. Target Price $6.00

Investment Style Large-Cap Blend

Summary This company, which provides telecommunications services, primarily serving customers in 14 western and midwestern U.S. states, has agreed to be acquired by peer CenturyLink in a stock-based deal, subject to necessary approvals.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$6.49– 3.42 $0.25 25.8 $19,137

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.39 NA 16.6 1,739.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.236 4.95 $0.32 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.81 5 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly competitive nature of the industry and our view of the above-average debt load Q carries, offset by our view of steady operating cash flow that supports the dividend.

8 6 4

Quantitative Evaluations

2

S&P Quality Ranking

Vol. 575

Mil.

D

150 100 50 0

C

B-

BB

B+

A-

A

Relative Strength Rank

A+ STRONG

73

5

LOWEST = 1

3

2

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Todd Rosenbluth on August 05, 2010, when the stock traded at $ 5.64. Highlights ➤

➤

➤

Investment Rationale/Risk

We expect Q's revenues to decline 4.3% in 2010, a lesser decrease than in 2009. We forecast pressure on voice services from access line losses, due to competition and still-slow housing sales, and from wholesale weakness amid prior customer consolidation. In addition, in 2010, the company will not have wireless revenues as it has migrated customers off its service. We look for broadband additions and modest gains in the enterprise segment from new contracts, particularly in the second half, to provide an offset.

➤

Despite revenue pressure, we look for EBITDA to narrow to only $4.34 billion, from $4.42 billion in 2009, before restructuring costs. We look for expense reductions from a smaller work force and network cost savings that we think will help outweigh pension expenses and costs to support new broadband offerings. We expect depreciation charges to be relatively flat.

➤

We estimate Q will generate EPS of $0.39 in 2010, with relatively stable interest expenses. Our estimates reflect a normal mid-30% effective tax rate.

➤

Revenue/Earnings Data

2010

Q has agreed to be acquired by peer CenturyLink (CTL 36, Hold) in a stock-based deal, subject to necessary approvals that are expected by mid-2011. We view the offer, equal to an enterprise value/EBITDA multiple of 5X, to be fair given Q's relatively high debt leverage and access line losses. We see merger synergies and an opportunity to reduce debt leverage and the dividend payout for the combined entity, assuming a smooth closing. On a standalone basis, we think Q faces difficulty growing its cash flow, but we view its dividend as stable. Risks to our recommendation and target price include failure to receive approval for the planned merger, greater-than-expected line losses, and inability to access credit markets. Based on the terms of the proposed merger, which we expect to be completed, our 12-month target price is $6.00. Each Q share is to be exchanged for 0.1664 of a share of CTL, and we have a 12-month target price of $36 on CTL. The 5.2X enterprise value/EBITDA multiple and P/E of 15X, using a $6 price, are premiums to what we thought Q was worth, but the P/E is at only a modest premium to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,966 2,930 2009 3,173 3,090 2008 3,399 3,382 2007 3,446 3,463 2006 3,476 3,472 2005 3,449 3,470

3Q -3,054 3,379 3,434 3,487 3,504

4Q -2,994 3,315 3,435 3,488 3,480

Year -12,311 13,475 13,778 13,923 13,903

Earnings Per Share ($) 2010 0.02 0.09 2009 0.12 0.12 2008 0.09 0.11 2007 0.12 0.13 2006 0.05 0.06 2005 0.03 -0.09

E0.09 0.07 0.09 1.08 0.09 -0.08

E0.10 0.06 0.11 0.20 0.10 -0.27

E0.39 0.42 0.39 1.52 0.30 -0.41

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.080 0.080 0.080 0.080

12/17 04/15 08/19 10/21

02/17 05/19 09/08 12/01

02/19 05/21 09/10 12/03

03/12/10 06/11/10 09/24/10 12/17/10

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: Q

Qwest Communications International Inc. Business Summary August 05, 2010 CORPORATE OVERVIEW. Qwest Communications International (Q) provides telecommunications services in 14 midwestern and western states. As of June 2010, Q had 9.4 million local access lines for consumers and businesses and 2.9 million consumer broadband customers (up 4% from a year earlier), with approximately 80% of its access lines in its eight largest markets, including Denver, Portland and Seattle. In March 2004, Q began offering wireless services using Sprint's network but retained control of all marketing, customer service, pricing and promotional offerings. In May 2008, the company announced plans to switch to using Verizon Wireless as part of a service bundle, and at the end of October 2009 had migrated all customers. In the second quarter of 2010, Q's revenues were pressured in its wholesale segment (22% of overall revenues) and in the mass markets segment (41%), but revenues in the business markets segment (34%) were flat. IMPACT OF MAJOR DEVELOPMENTS. In April 2010, Q agreed to be acquired by CenturyLink (CTL), formerly known as CenturyTel, in a stock-based transaction, including debt assumption, valued at $22 billion. CTL believes it can realize $625 million of annual synergies following closing, which is expected, subject to approvals, by mid-2011. We believe the combined entity, with approximately 17 million access lines and $20 billion in revenues, will be able to main-

tain its dividend payout and will have lower debt leverage than Q would have on its own. CTL's access lines were also more stable than Q's in the second quarter of 2010, helped by its broadband penetration and less competitive operating environment. COMPETITIVE LANDSCAPE. As a standalone, we believe Q faces competitive challenges partly due to low barriers to entry and characteristics unique to the company. As of June 2010, Q's access line count was 10.5% lower than a year earlier, as wireless and to a lesser extent cable telephony substitution was intense, and we believe fewer housing sales in core markets limited new customer additions. Q competes with cable providers such as Cox Communications and Comcast, which offer broadband services and telephony products that were aggressively marketed in the past two years. To offset possible customer migration to cable, Q is offering a triple-play package of voice, data and video services through a partnership with satellite provider Direct TV (951,000 customers); 15% of its mass markets lines were subscribing to the service.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.56 0.42 0.38 0.32 76% 4.87 2.86 12 7

2008 NM 1.72 0.39 0.07 0.32 82% 7.07 2.05 18 5

2007 0.32 2.80 1.52 1.58 Nil Nil 10.45 6.23 7 4

2006 NM 1.51 0.30 0.25 Nil Nil 9.22 5.10 31 17

2005 NM 1.26 -0.41 -0.68 Nil Nil 5.95 3.30 NM NM

2004 NM 0.74 -1.00 -0.81 Nil Nil 5.00 2.56 NM NM

2003 NM 1.07 -0.76 -0.81 Nil Nil 6.15 3.01 NM NM

2002 NM -7.65 -10.48 -7.38 Nil Nil 15.19 1.07 NM NM

2001 1.28 0.83 -2.38 -1.39 0.05 NM 48.19 11.08 NM NM

2000 5.37 2.56 -0.06 NA Nil Nil 66.00 32.13 NM NM

12,311 2,014 NA NA 26.7% 662 664

13,475 2,314 NA NA 38.0% 681 124

13,778 2,459 NA NA NM 2,917 3,037

13,923 2,381 NA NA NM 593 492

13,903 3,065 NA NA NM -757 -1,154

13,809 3,123 NA NA NM -1,794 -1,465

14,288 3,167 NA NA NM -1,313 -1,382

15,385 3,847 NA NA NM -17,625 -12,411

19,695 5,335 NA NA NM -3,958 -2,327

16,610 3,342 NA NA NM -81.0 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 46,600 Net Property 12,299 Capital Expenditures 1,409 Total Capital 13,022 Fixed Charges Coverage 1.8 Capitalization:Long Term Debt 12,004 Capitalization:Preferred Nil Capitalization:Common -1,178 % Return on Revenue 5.4 % Return on Invested Capital 13.9 % Return on Common Equity NM % Earned on Net Property 15.6 % Long Term Debt of Capitalization 110.9 Capital % Preferred Nil Capitalization:% Common -10.9

46,770 13,045 1,777 11,390 2.1 12,839 Nil -1,449 5.1 14.1 NM 16.6 112.7 Nil -12.7

46,646 13,671 1,669 14,213 1.6 13,650 Nil 563 21.2 31.0 NM 12.4 96.0 Nil 4.0

46,374 14,579 1,632 11,761 1.4 13,206 Nil -1,445 4.3 15.0 NM 10.3 112.3 Nil -12.3

45,954 15,568 1,613 11,751 0.6 14,968 Nil -3,217 NM 8.1 NM 5.3 127.4 Nil -27.4

45,428 16,853 1,731 14,078 NM 16,690 Nil -2,612 NM NM NM NM 118.6 Nil -18.6

45,094 18,149 2,088 14,744 NM 15,639 Nil -1,016 NM NM NM 17.5 106.9 Nil -6.9

44,580 18,995 2,764 16,924 0.2 19,754 Nil -2,830 NM 12.4 NM 16.9 116.7 Nil -16.7

55,099 29,977 8,543 59,046 1.3 20,197 Nil 36,655 NM NM NM 26.4 34.2 Nil 62.0

48,318 25,583 6,597 58,493 2.5 15,421 Nil 41,304 NM 7.6 NM 32.9 27.2 Nil 72.8

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1801 California St, Denver, CO 80202-2658. Telephone: 303-992-1400. Email: [email protected] Website: http://www.qwest.com

Chrmn & CEO: E.A. Mueller COO & EVP: T.A. Taylor EVP & CFO: J.J. Euteneuer EVP, Chief Admin Officer & General Counsel: R. Baer

SVP, Chief Acctg Officer & Cntlr: R.W. Johnston Founded: 1983 Board Members: C. L. Biggs, K. D. Brooksher, P. S. Domicile: Delaware Hellman, R. D. Hoover, P. J. Martin, C. S. Mathews, E. A. Employees: 30,138 Mueller, W. Murdy, J. L. Murley, M. J. Roberts, J. A. Unruh, A. Welters

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: RSH | RSH is in the S&P 500

RadioShack Corp S&P Recommendation HOLD

★★★★★

Price $20.74 (as of Oct 25, 2010)

GICS Sector Consumer Discretionary Sub-Industry Computer & Electronics Retail

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This consumer electronics retailer operates the RadioShack chain, which has about 7,000 outlets (including dealers/franchises).

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.00– 16.39 Trailing 12-Month EPS $1.70 Trailing 12-Month P/E 12.2 $10K Invested 5 Yrs Ago $10,752

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.87 2.04 11.1 125.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.601 1.21 $0.25 96

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.82 8 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

The company is a relatively large player in a fragmented industry, with numerous suppliers and buyers, and a history of profitability. However, we view consumer electronics retailing as highly competitive, with numerous rivals and strong price competition.

30 20 15 10

Quantitative Evaluations Vol.

S&P Quality Ranking

52

Mil. 24 16 8 0

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank

5 2

1

3

2

A+ WEAK

27

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Michael Souers on August 02, 2010, when the stock traded at $ 21.54. Highlights ➤

➤

➤

Investment Rationale/Risk

We see sales increasing 3.8% in 2010, following a 1.2% advance in 2009. We expect RSH to continue to focus on increasing profitability by opportunistically closing underperforming stores and kiosks. We project a 4%-5% increase in comparable store sales, boosted by the addition of national wireless carrier T-Mobile and an improved product assortment that includes Apple's iPhone. We also look for the company to increase its focus on selling prepaid wireless handsets and airtime, and expect a sales lift from netbooks, offsetting anticipated sales declines in GPS devices, digital converter boxes and televisions.

➤

We expect a modest widening of operating margins, reflecting mix shift and a slight leveraging of fixed costs on solid comp-store sales growth. However, we think RSH will struggle to achieve historical gross margins due to increased competitive pressures and the company's focus on faster-moving, lower-margin categories.

➤

After taxes that we forecast at 38.0%, we estimate EPS of $1.80 in 2010, a 10% increase from the $1.63 the company earned in 2009. We see 2011 EPS of $1.88.

We see the company in the late stages of its turnaround plan, which is focused on increasing average unit volume, rationalizing its cost structure, and growing profitable square footage. While RSH's CEO has extensive retail experience with turnarounds, we think the longer-term outlook for the company is uncertain, due to the highly competitive environment for electronics products. Given our view of the company's lackluster longer-term sales outlook and lack of earnings visibility, we believe the shares are fairly valued despite trading at about 11X our 2011 EPS estimate, a slight discount to peers and the S&P 500. Risks to our recommendation and target price include macroeconomic factors that could result in weaker-than-anticipated consumer spending levels, and competitive pressures from rivals into the wireless handset space.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,042 1,011 2009 1,002 965.7 2008 949.0 994.9 2007 992.3 934.8 2006 1,160 1,100 2005 1,123 1,092

3Q -990.0 1,022 960.3 1,060 1,195

4Q -1,318 1,259 1,364 1,458 1,672

Year -4,276 4,225 4,252 4,778 5,082

Earnings Per Share ($) 2010 0.39 0.41 2009 0.34 0.39 2008 0.30 0.32 2007 0.31 0.34 2006 0.06 -0.02 2005 0.34 0.33

E0.37 0.30 0.39 0.34 -0.12 0.75

E0.70 0.60 0.50 0.77 0.62 0.40

E1.87 1.63 1.49 1.74 0.54 1.81

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250

11/09

11/24

11/27

12/16/09

Dividends have been paid since 1987. Source: Company reports. ➤

Our 12-month target price of $26, about 14X our 2011 EPS estimate, is derived from our discounted cash flow analysis. Our DCF model assumes a weighted average cost of capital of 10.3% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: RSH

RadioShack Corp Business Summary August 02, 2010 CORPORATE OVERVIEW. As of December 31, 2009, this consumer electronics retailer had 4,476 company-operated stores located through the U.S., including Puerto Rico and the U.S. Virgin Islands. RSH also had a network of 1,308 dealer/franchise stores, including 34 located outside the U.S. At the end of 2009, RSH operated 562 non-RadioShack branded kiosks, which offer product lines such as wireless phones and associated accessories. In addition, in December 2008, RadioShack acquired the remaining interest in its Mexican joint venture, RadioShack de Mexico, S.A. de C.V., RadioShack de Mexico had 204 stores and 10 dealers throughout Mexico at December 31, 2009. Each store carries a broad assortment of electronics products, including batteries and accessories; wireless phones and communication devices such as scanners and GPS units; flat panel televisions; DVD players; direct-to-home (DTH) satellite systems; PCs; home entertainment, wireless and other computer accessories; wire, cable and connectivity products; digital cameras; and specialized products such as radio-controlled cars and other toys. RSH also provides access to third-party services, such as wireless telephone and DTH satellite activation, satellite radio service, prepaid wireless airtime and extended service plans. We believe that RSH is focusing on revamping its product offerings in order to enhance its competitive position within the consumer

electronics industry. In the second half of 2005, RSH began dedicating floor space to Apple's iPod and accessories, and the company made a concerted push to sell video gaming products in 2007, another hot product category. At the end of 2009, RSH began selling Apple's iPhone in select locations, with a nationwide rollout anticipated in 2010. In April 2009, RSH agreed with Sprint Nextel to cease the companies' arrangement to jointly operate the Sprint-branded kioks. In August 2009, RSH transitioned these kiosks to multiple wireless carrier RadioShack-branded locations. RadioShack has been conducting a test rollout of non-RadioShack branded kiosk locations in approximately 100 Target stores, with the expected completion of this test in 2010. The company has a similar arrangement with Sam's Club, and in February 2009 signed a contract extension with Sam's Club through March 2011.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.06 2.36 1.63 1.63 0.25 15% 20.57 6.47 13 4

2008 6.24 2.26 1.49 1.49 0.25 17% 19.90 8.06 13 5

2007 5.88 2.57 1.74 1.74 0.25 14% 35.00 16.69 20 10

2006 4.81 1.48 0.54 0.67 0.25 46% 23.37 13.73 43 25

2005 4.36 2.65 1.81 1.69 0.25 14% 34.48 20.55 19 11

2004 5.83 2.70 2.08 1.94 0.25 12% 36.24 26.04 17 13

2003 4.73 2.31 1.77 1.49 0.25 14% 32.48 18.74 18 11

2002 4.24 1.97 1.45 1.18 0.22 15% 36.21 16.99 25 12

2001 4.04 1.41 0.85 1.06 0.22 25% 56.50 20.10 66 24

2000 4.46 2.38 1.84 NA 0.22 12% 72.94 35.06 40 19

4,276 464 92.9 44.1 329 37.6% 205 205

4,225 428 99.3 29.9 304 36.8% 192 192

4,252 464 113 38.8 367 35.4% 237 236

4,778 329 128 44.3 111 34.1% 73.4 92.3

5,082 474 124 44.5 322 16.0% 270 251

4,841 660 101 29.6 542 37.8% 337 315

4,649 576 92.0 35.7 473 36.9% 299 252

4,577 510 94.7 43.4 425 38.0% 263 211

4,776 583 108 50.8 292 42.8% 167 200

4,795 736 107 53.9 594 38.0% 368 NA

Balance Sheet & Other Financial Data (Million $) Cash 908 Current Assets 2,016 Total Assets 2,429 Current Liabilities 654 Long Term Debt 628 Common Equity 1,048 Total Capital 1,676 Capital Expenditures 81.0 Cash Flow 298 Current Ratio 3.1 % Long Term Debt of Capitalization 37.5 % Net Income of Revenue 4.8 % Return on Assets 8.7 % Return on Equity 22.0

815 1,792 2,284 637 732 817 1,550 85.6 292 2.8 47.3 4.6 9.0 24.3

510 1,567 1,990 748 348 770 1,118 45.3 350 2.1 31.1 5.6 11.7 33.3

472 1,600 2,070 984 346 654 1,000 91.0 202 1.6 34.6 1.5 3.4 11.8

224 1,627 2,205 986 495 589 1,084 171 394 1.6 45.7 5.3 11.4 35.7

438 1,775 2,517 957 507 922 1,429 229 439 1.9 35.5 7.0 14.2 39.9

635 1,667 2,244 858 541 769 1,311 190 391 1.9 41.3 6.4 13.4 39.9

447 1,707 1,707 829 591 729 1,320 107 354 2.1 44.8 5.8 13.3 35.9

401 1,714 2,245 826 565 714 1,344 139 270 2.1 42.1 3.5 6.9 21.2

131 1,818 2,577 1,232 303 812 1,284 120 470 1.5 23.6 7.7 15.6 46.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 300 Radioshack Cir, Fort Worth, TX 76102-1964. Telephone: 817-415-3011. Email: [email protected] Website: http://www.radioshack.com

Chrmn & CEO: J.C. Day COO: B. Bevin EVP & CFO: J.F. Gooch SVP & CIO: S.S. Stufflebeme

Chief Acctg Officer, Treas & Cntlr: M.O. Moad Founded: 1899 Investor Contact: M. Salky (817-415-3189) Domicile: Delaware Board Members: F. J. Belatti, J. C. Day, D. R. Feehan, H. Employees: 37,000 E. Lockhart, J. L. Messman, T. G. Plaskett, E. D. Woodbury

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RRC | RRC is in the S&P 500

Range Resources Corp. S&P Recommendation BUY

★★★★★

Price $36.75 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $44.00

Investment Style Large-Cap Growth

Summary This company explores, develops and acquires oil and gas properties, primarily in the Southwest, Appalachian and Gulf Coast regions of the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.73– 32.25 Trailing 12-Month EPS $0.25 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $17,372

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.97 1.06 37.9 160.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.881 0.44 $0.16 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.47 -18 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's operations in a capital-intensive industry that is cyclical and derives value from producing a commodity whose price is very volatile.

80 60

40

Quantitative Evaluations

30

S&P Quality Ranking Vol.

D

C

B-

B+ B

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

WEAK

24 LOWEST = 1 4

3

3

3

4

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for RRC has recently been changed to $44.00 from $47.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on RRC from MarketScope, see below.

➤

10/21/10 11:34 am ET ... S&P REITERATES BUY RECOMMENDATION ON SHARES OF RANGE RESOURCES (RRC 37.38****): RRC gives Q3 update ahead of its 10/28 release. Production of 503 MMcfe/d, up 15%, beat our forecast, as Marcellus ramps on solid drilling and new midstream build-out. RRC will redirect capex to liquids and is cutting gas drilling. About 90% of current capex is being spent at liquids plays. Despite higher production, we cut our '10 EPS view $0.11 to $0.97 (with $0.44 item) and '11's $0.24 to $1.06 on weak gas prices. On above peer multiples reflecting strong growth, and our DCF and NAV, we cut our target price $3 to $44. We see Q3 EPS of $0.12 vs. $0.26 (before items). /M.Kay

Revenue (Million $) 1Q 2Q 2010 348.5 224.8 2009 276.4 180.4 2008 205.3 150.1 2007 152.8 243.5 2006 189.2 177.6 2005 108.0 119.7

3Q -203.6 622.7 242.4 228.9 141.9

4Q -246.8 344.9 223.4 184.1 166.5

Year -907.3 1,323 862.1 779.7 536.0

Earnings Per Share ($) 2010 0.48 0.06 2009 0.21 -0.26 2008 0.01 -0.23 2007 0.06 0.43 2006 0.41 0.37 2005 0.18 0.17

E0.12 -0.19 1.81 0.39 0.46 0.19

E0.16 -0.11 0.60 0.22 0.19 0.32

E0.97 -0.35 2.22 1.11 1.42 0.86

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040 0.040 0.040

12/01 03/01 06/01 09/01

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 2004. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RRC

Range Resources Corp. Business Summary July 29, 2010 CORPORATE OVERVIEW. Range Resources Corp. is an independent oil and gas company primarily engaged in acquiring, developing, exploring and producing oil and gas properties. RRC has established three core operating areas in the Appalachian, Southwestern and Gulf Coast regions of the U.S. The Southwest business unit encompasses operations in East Texas, West Texas, New Mexico, and the Mid-continent region of Oklahoma and the Texas Panhandle. As of December 31, 2009, RRC had estimated proved reserves of 3.13 Tcfe, of which 84% was natural gas and 55% was proved developed. This compares with estimated proved reserves of 2.65 Tcfe, 83% natural gas and 62% proved developed, at the end of 2008, an 18% increase. We forecast RRC's reserve life to be 19.7 years, compared to 18.8 years at the end of 2008. We estimate that RRC replaced 486% (405% in 2008) of production in 2009, all of it from organic drilling. We estimate finding and development costs (exclude acquisitions) in 2009 were $1.04 per Mcfe versus a three-year average of $1.83 per Mcfe. Total reserve replacement costs (including acquisitions) in 2009 were $1.04 per Mcfe, versus a three-year average of $1.88 per Mcfe.

cations, higher potential exploration projects, and acquisitions. RRC focuses on acquisition opportunities within its core operating areas to capitalize on regional expertise and drive down costs. In June 2006, RRC completed the acquisition of Stroud Energy for $465.2 million, including $278 million in cash. RRC purchased 171 Bcfe of proved reserves located primarily in the Barnett Shale play of North Texas, the Cotton Valley play of East Texas and the Austin Chalk play of Central Texas. RRC has a goal of doubling production in this region over the next 12 months. Since 2004, RRC has completed over $850 million in non-core asset sales. RRC has sold West Texas oil properties, New York gas and Ohio tight gas assets, Austin Chalk acreage and properties in the Gulf of Mexico. IMPACT OF MAJOR DEVELOPMENTS. In February 2007, RRC completed the sale of its Austin Chalk assets acquired in the Stroud Energy transaction in 2006 for $82 million. RRC originally stated its intention to sell the assets In late July 2006, just as natural gas prices fell into a fairly steep decline, and RRC had difficulty selling the assets.

CORPORATE STRATEGY. RRC pursues what we consider a balanced growth strategy that targets the exploitation of its inventory of development drilling loCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.10 2.74 -0.35 -0.38 0.16 NM 60.13 30.90 NM NM

2008 15.82 4.45 2.22 2.14 0.16 7% 76.81 23.77 35 11

2007 11.57 2.59 1.11 1.11 0.13 12% 51.88 25.29 47 23

2006 9.04 2.65 1.42 1.42 0.09 6% 31.77 21.74 22 15

2005 5.36 1.84 0.86 0.82 0.07 8% 28.37 12.34 33 14

2004 4.65 1.43 0.38 0.29 0.03 9% 14.43 6.25 38 16

2003 3.24 1.34 0.35 0.33 Nil Nil 6.57 3.33 19 9

2002 2.50 1.23 0.29 0.29 Nil Nil 3.97 2.69 14 9

2001 3.11 1.05 0.07 0.18 Nil Nil 4.75 2.62 65 36

2000 2.43 1.23 0.38 NA Nil Nil 4.67 0.96 12 3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

907 NA 478 117 -58.7 8.28% -53.9 -57.3

1,323 965 348 99.8 543 36.2% 346 333

862 564 221 77.7 266 37.2% 167 167

780 549 170 57.6 321 38.5% 198 198

536 344 128 38.8 177 37.4% 111 105

321 193 103 23.1 66.8 36.8% 42.2 27.9

230 140 86.5 22.2 49.4 37.4% 30.9 27.3

195 119 76.8 23.2 19.3 NM 23.8 23.5

219 152 77.8 30.7 4.99 NM 5.05 14.1

188 132 72.2 40.0 18.6 NM 20.2 NA

Balance Sheet & Other Financial Data (Million $) Cash 0.77 Current Assets 175 Total Assets 5,396 Current Liabilities 314 Long Term Debt 1,708 Common Equity 2,379 Total Capital 4,086 Capital Expenditures 574 Cash Flow 424 Current Ratio 0.6 % Long Term Debt of Capitalization 41.8 % Return on Assets NM % Return on Equity NM

0.75 404 5,563 354 1,791 2,458 5,032 918 694 1.1 35.6 7.2 16.5

4.02 262 4,017 305 1,151 1,728 3,470 808 388 0.9 33.1 4.7 10.9

2.38 320 3,188 232 1,049 1,346 2,864 517 367 1.4 36.6 7.6 18.7

4.75 208 2,019 322 616 770 1,561 277 239 0.6 39.5 6.1 16.1

18.4 136 1,595 177 621 566 1,305 175 140 0.8 47.6 3.5 9.4

0.63 66.1 830 107 358 224 643 2.62 117 0.6 55.7 4.2 14.0

1.33 37.4 658 67.2 368 206 574 2.82 101 0.6 64.1 3.5 10.8

3.25 78.6 692 44.0 392 246 648 2.33 82.9 1.8 60.6 0.7 2.3

2.48 62.1 689 45.9 458 185 643 2.26 91.0 1.4 71.2 2.8 12.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 Throckmorton Street, Suite 1200, Fort Worth, TX 76102. Telephone: 817-870-2601. Website: http://www.rangeresources.com Chrmn & CEO: J.H. Pinkerton

Pres & COO: J.L. Ventura EVP & CFO: R.S. Manny SVP, Secy & General Counsel: D.P. Poole Investor Contact: R.L. Waller (817-870-2601)

Board Members: C. L. Blackburn, A. V. Dub, V. R. Eales, A. Finkelson, J. M. Funk, J. S. Linker, K. S. McCarthy, J. H. Pinkerton, J. L. Ventura

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1976 Domicile: Delaware Employees: 787

Stock Report | October 23, 2010 | NYS Symbol: RTN | RTN is in the S&P 500

Raytheon Co. S&P Recommendation HOLD

★★★★★

Price $47.60 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $52.00

Investment Style Large-Cap Value

Summary Raytheon, the world's sixth largest military contractor, specializes in making high-tech missiles, advanced radar systems, defense electronics, and missile-defense systems.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $60.10– 42.65 Trailing 12-Month EPS $4.18 Trailing 12-Month P/E 11.4 $10K Invested 5 Yrs Ago $14,508

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.24 5.20 11.2 374.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.808 3.15 $1.50 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.69 4 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects RTN's exposure to changes in defense spending and its historically average earnings stability, offset by its relatively low long-term debt to capital ratio of 19%, as of June 2010, its leading defense contractor status, and its large project backlog.

70 60 50 40

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

4

3

MODERATE

47

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Richard Tortoriello on August 02, 2010, when the stock traded at $ 46.89. Highlights ➤

➤

➤

We see revenue growth of 4% in 2010, driven by international orders for Patriot, classified programs, cyber warfare/security, missiles, homeland security, and training programs. International customers accounted for 30% of bookings in 2009, and we expect continued demand for international missile defense. We also project 4% revenue growth in 2011. The company had a book-to-bill ratio of 1.01 in 2009, and recorded a book-to-bill of 1.03 for the first six months of 2010. However, funded backlog declined 6% in the second quarter of 2010, and total backlog has declined slightly for each of the past five quarters. We see operating profit margins narrowing to 9.7% this year, from 12.2% in 2009, on increased pension expense (versus a pension gain in 2009) and a $395 million pre-tax charge to terminate the UK e-Borders program (which RTN believes it has performed well on). We project 2010 EPS of $4.24, including the eBorders charge, with growth to $5.20 in 2011. We look for free cash flow (cash generated from operations less capital expenditures) per share of about $4.90 in 2010.

Investment Rationale/Risk ➤

We recently downgraded our recommendation on the shares to Hold, from Buy. Although we have a favorable view of RTN's order rates over the past few years, we are concerned that total backlog has begun to decline. We see good opportunities for RTN with U.S. and international customers for missile defense and defense electronics, but note that U.S. and European defense budgets are beginning to tighten significantly, which we believe will constrain growth at large defense contractors going forward.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,053 5,973 2009 5,884 6,125 2008 5,354 5,870 2007 4,928 5,419 2006 4,660 4,973 2005 4,944 5,409

3Q -6,205 5,864 5,355 4,936 5,331

4Q -6,667 6,086 6,000 5,722 6,210

Year -24,881 23,174 21,301 20,291 21,894

Earnings Per Share ($) 2010 1.18 0.55 2009 1.11 1.24 2008 0.93 1.00 2007 0.69 0.79 2006 0.61 0.61 2005 0.43 0.51

E1.19 1.25 1.01 0.69 0.59 0.51

E1.32 1.30 1.02 1.45 0.81 0.63

E4.24 4.89 3.95 3.80 2.46 2.08

➤

Risks to our recommendation and target price include the potential for delays and/or cuts in military contracts and failure to perform well on existing contracts or to win new business.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

➤

Our 12-month target price of $52 is based on an enterprise value-to-EBITDA multiple of about 6X, using our 2011 EBITDA estimate of about $3.4 billion. This compares to a 20-year low EV/ EBITDA multiple for RTN of 3.5X and a 20-year average of 9.0X. We believe the shares deserve a below-average valuation, due to our view of projected weak defense spending.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.310 0.375 0.375 0.375

12/09 03/24 05/27 09/23

12/30 04/01 07/01 10/01

01/04 04/06 07/06 10/05

01/28/10 04/29/10 08/12/10 11/04/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1964. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: RTN

Raytheon Co. Business Summary August 02, 2010 CORPORATE OVERVIEW. Raytheon, with estimated 2010 revenues of $26.3 billion, is the world's sixth largest military contractor and a leading maker of missiles. It does business through six segments. Integrated Defense Systems (20% of sales and 26% of operating profits in 2009) is a leading provider of integrated naval, air and missile defense and civil security response solutions. Customers include the U.S. Missile Defense Agency (MDA), the U.S. Armed Forces, as well as key international customers. Main product lines include seapower capability systems, focusing on the DDG-1000, the Navy's next-generation naval destroyer; national & theater security programs, including the X-band radars and missile defense systems; Patriot programs, principally the Patriot Air & Missile Defense System; and global business operations, which provides a variety of products. Intelligence & Information Systems (12% of sales and 8% of profits) provides intelligence and information solutions specializing in ground processing, unmanned ground systems, cybersecurity solutions, homeland/civil security and other markets. About half its business is classified. Areas of focus include integrated mission support and systems engineering; intelligence data management and HUMINT operations support; information processing, information integration, and visualization systems; information security solutions; and nextgeneration classified systems.

Missile Systems (21% of sales and 18% of profits) makes and supports a broad range of leading-edge missile systems for the armed forces of the U.S. and other countries. Business areas include naval weapon systems, which provides defensive missiles and guided projectiles to the navies of over 30 countries; air warfare systems, with products focused on air and ground-based targets, including the Tomahawk cruise missile and AMRAAM air-to-air missile; land combat, which includes the Javelin anti-tank missile; and other programs. Network Centric Systems (18% of sales and 21% of profits) leverages its networking, command and control, and communications capabilities to provide solutions for the U.S. military, other U.S. government customers, and international customers. Business areas include combat systems, which provides ground-based surveillance and target engagement systems; integrated communication systems; command and control systems; Thales-Raytheon Systems, a joint venture between the two companies; and operations and precision components, which provides a broad range of imaging capabilities.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 5.69 4.89 5.21 1.24 25% 53.84 33.20 11 7

2008 NM 4.69 3.95 2.50 1.12 28% 67.49 41.81 17 11

2007 2.15 4.63 3.80 4.15 1.02 27% 65.94 50.96 17 13

2006 NM 3.28 2.46 3.10 0.96 34% 54.17 39.43 19 14

2005 NM 3.19 2.08 2.61 0.86 41% 40.57 35.96 21 19

2004 NM 1.93 0.99 1.96 0.80 81% 41.89 29.28 42 30

2003 NM 2.22 1.29 1.11 0.80 62% 33.97 24.31 26 19

2002 NM 2.74 1.85 -0.25 0.80 43% 45.70 26.30 25 14

2001 NM 2.03 0.01 -2.68 0.80 NM 37.44 23.95 NM NM

2000 NM 3.50 1.46 NA 0.80 55% 35.81 17.50 25 12

24,881 3,358 402 123 2,930 32.5% 1,936 2,064

23,174 2,907 311 129 2,498 33.0% 1,674 1,059

21,301 2,700 372 196 2,225 23.9% 1,693 1,848

20,291 2,213 373 273 1,688 34.4% 1,107 1,392

21,894 2,131 444 312 1,440 34.6% 942 1,180

20,245 1,822 434 418 579 24.2% 439 866

18,109 1,709 393 537 762 29.8% 535 460

16,760 2,118 364 497 1,074 29.7% 755 -105

16,867 1,488 729 660 117 95.7% 5.00 -970

16,895 2,319 694 736 877 43.2% 498 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,642 Current Assets 7,868 Total Assets 23,607 Current Liabilities 5,523 Long Term Debt 2,329 Common Equity 9,827 Total Capital 12,268 Capital Expenditures 280 Cash Flow 2,252 Current Ratio 1.4 % Long Term Debt of Capitalization 19.0 % Net Income of Revenue 7.8 % Return on Assets 8.3 % Return on Equity 20.5

2,259 7,417 23,296 5,149 2,309 9,087 11,659 304 1,985 1.4 19.8 7.2 7.2 15.5

2,655 7,616 23,281 4,788 2,268 12,542 15,261 313 2,065 1.6 14.9 8.0 19.8 14.3

2,460 9,517 25,491 6,715 3,278 11,101 14,544 295 1,480 1.4 22.5 5.5 4.4 10.2

1,202 7,567 24,381 5,900 3,969 10,798 15,011 75.0 1,386 1.3 26.4 4.3 3.9 8.8

556 7,124 24,153 5,644 4,637 10,611 15,345 363 873 1.3 30.2 2.2 1.8 4.4

661 6,585 23,668 3,849 7,376 9,162 16,538 428 928 1.7 44.6 3.0 2.2 5.9

544 7,190 23,946 5,107 7,138 8,870 16,008 458 1,119 1.4 44.6 4.5 3.0 7.5

1,214 8,362 26,636 5,753 6,875 11,290 18,743 486 734 1.5 36.7 0.0 0.0 0.0

871 8,013 26,777 4,865 9,054 10,823 20,650 431 1,192 1.6 43.8 2.9 1.8 4.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 870 Winter St, Waltham, MA 02451-1449. Telephone: 781-522-3000. Email: [email protected] Website: http://www.raytheon.com

Chrmn & CEO: W.H. Swanson Pres: J.R. Harbison SVP & CFO: D.C. Wajsgras SVP, Secy & General Counsel: J.B. Stephens

CFO: D.E. Smith Founded: 1928 Investor Contact: M. Kaplan (781-522-5141) Domicile: Delaware Board Members: V. Clark, J. M. Deutch, S. J. Hadley, F. Employees: 75,100 M. Poses, M. Ruettgers, R. L. Skates, W. R. Spivey, L. G. Stuntz, W. H. Swanson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RHT | RHT is in the S&P 500

Red Hat Inc S&P Recommendation HOLD

★★★★★

Price $40.66 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $40.00

Investment Style Large-Cap Growth

Summary This company is a leading provider of Linux operating system software for enterprises.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $41.75– 25.45 Trailing 12-Month EPS $0.45 Trailing 12-Month P/E 90.4 $10K Invested 5 Yrs Ago $18,912

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.51 0.57 79.7 190.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.749 Nil Nil 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 20 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatility of the enterprise software sector due to rapid changes in technology and competition as a result of mergers and acquisitions.

40 30 20 15

Quantitative Evaluations

10

S&P Quality Ranking Vol.

D

Mil.

C

B-

BB

B+

A-

A

A+

66

24 16 8 0

Relative Strength Rank

STRONG 82

LOWEST = 1

5

3

2

2

3

3

2

HIGHEST = 99

3 1

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on October 12, 2010, when the stock traded at $ 39.15. Highlights ➤

➤

➤

Investment Rationale/Risk

We estimate that total revenue in FY 11 (Feb.) will rise 18%, following a 15% advance in FY 10. Our revenue forecast for FY 11 is based on our projection of a low-teens increase in the unit sales of servers. We think this growth will be above the historical average due to the severity of the decline during the downturn. We also expect RHT to extend its lead in the Linux operating system market. We believe the company is gaining traction for its middleware and virtualization products, as companies need to upgrade their cloud computing infrastructure.

➤

We expect the gross margin in FY 11 to be 84%, down from 85% in FY 10. We see operating expenses increasing 12% in FY 11, as RHT improves product and service offerings, but we look for a decrease to 68% of revenues, from 71% in FY 10, due to economies of scale. We project that operating margins in FY 11 will widen to 16%, from 13% in FY 10, reflecting better operating efficiency.

➤

Our EPS forecast for FY 11 is $0.51, versus $0.45 in FY 10. The projected rise reflects our expectations for higher revenues and improved operating margins.

➤

Our hold recommendation reflects RHT's improving fundamentals. Despite concern about a slower global economy and weaker IT spending in response to the economic uncertainty, we see stronger demand for RHT's Linux products. Additionally, RHT is broadening its product offerings into middleware and virtualization software. Although we see stiffer competition in these segments than in Linux given the presence of incumbent market leaders, we believe the company will be modestly successful in expanding its presence in these areas. Risks to our recommendation and target price include a slowdown in the global economy, lower IT spending, and lack of market share gains in new markets. Our 12-month target price of $40 is based on a blend of our DCF and enterprise value (EV)-to-sales analyses. Our DCF model assumes a 12% weighted average cost of capital and a 3% terminal growth rate, yielding an intrinsic value of $40. From our EV-to-sales analysis, we derive a value of $41, based on an EV-to-sales ratio of 8.0X, a premium to the industry average of 3.1X, reflecting our view of RHT's higher growth potential.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 209.1 219.8 2010 174.4 183.6 2009 156.6 164.4 2008 118.9 127.3 2007 84.00 99.67 2006 60.78 65.72

3Q -194.4 165.3 135.4 105.8 73.11

4Q -195.9 166.2 141.5 111.1 78.72

Year -748.2 652.6 523.0 400.6 278.3

Earnings Per Share ($) 2011 0.12 0.12 2010 0.10 0.15 2009 0.08 0.10 2008 0.08 0.09 2007 0.07 0.05 2006 0.07 0.09

E0.13 0.08 0.12 0.10 0.07 0.12

E0.14 0.12 0.08 0.10 0.10 0.13

E0.51 0.45 0.39 0.36 0.29 0.41

Fiscal year ended Feb. 28. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: RHT

Red Hat Inc Business Summary October 12, 2010 CORPORATE OVERVIEW. RHT is the leading provider of Linux operating systems and subsystems, capturing 65% of the market in terms of new license and maintenance revenues in 2008, according to IDC, a technology research firm, followed by Novell (NOVL 6, Hold), with 30%. The company introduced its core operating system -- Red Hat Enterprise Linux (RHEL) -- in 2002. RHT also offers enterprise middleware software -- JBoss Enterprise Middleware. Both software packages utilize an open source software development model, which provides users and developers access to the source code and permits them to copy, modify and redistribute the software. RHT enhances the open source software and delivers the technologies and related services in the form of annual or multi-year subscriptions, which accounted for 88% of revenues in FY 10 (Feb.). The remaining 12% of revenues came from services, primarily customization, implementation and training.

ners and others generally contribute between 50% and 60% of bookings in any given quarter, with the balance coming from direct sales. We believe this heavy reliance on the indirect channel will enable RHT to maintain higher operating margins than would be possible with an entirely in-house sales team, but we believe this will come at the cost of control over this portion of its business. RHT will continue to expand its capabilities through strategic acquisitions. In June 2006, the company acquired JBoss, a provider of open source middleware, and the remaining minority interest in the Indian joint venture. In 2007, RHT acquired MetaMatrix, a leading provider of enterprise data management software. In September 2008, RHT acquired Qumranet, Inc. for $107 million in cash. Qumranet is a provider of virtualization software for managing Microsoft desktops.

CORPORATE STRATEGY. RHT is focused on increasing the adoption of RHEL by large enterprises and growing sales of services to its customers. To drive increased adoption, RHT has formed partnerships and strategic relationships with BEA, BMC Software, Computer Associates, IBM, Oracle, SAP, Sybase, Symantec, HP, Dell, Fujitsu, Fujitsu Siemens, NEC and VMware. These partCompany Financials Fiscal Year Ended Feb. 28 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.01 0.69 0.45 0.48 Nil Nil 2009 31.76 12.98 71 29

2009 2.87 0.56 0.39 0.39 Nil Nil 2008 24.84 7.50 64 19

2008 2.94 0.50 0.36 0.35 Nil Nil 2007 25.25 18.04 70 50

2007 2.06 0.38 0.29 0.29 Nil Nil 2006 32.48 13.70 NM NM

2006 2.12 0.46 0.41 0.28 Nil Nil 2005 28.65 10.37 70 25

2005 1.54 0.26 0.24 0.06 Nil Nil 2004 29.06 11.21 NM NM

2004 1.79 0.11 0.08 -0.37 Nil Nil 2003 19.98 4.95 NM NM

2003 1.73 Nil -0.04 -0.20 Nil Nil 2002 9.50 3.46 NM NM

2002 1.76 -0.35 -0.71 -0.75 Nil Nil 2001 10.12 2.40 NM NM

2001 1.88 -0.19 -0.53 -1.07 Nil Nil 2000 148.00 5.00 NM NM

748 155 45.9 0.16 122 28.2% 87.3 92.9

653 123 40.3 4.80 122 35.2% 78.7 78.7

523 103 33.0 6.25 125 38.4% 76.7 73.5

401 76.1 23.9 6.02 89.6 33.1% 59.9 59.9

278 73.5 15.4 6.12 82.0 2.84% 79.7 53.1

196 39.5 10.9 6.44 44.9 NM 45.4 6.25

126 10.1 6.87 Nil 14.0 NM 14.0 -63.8

90.9 -8.38 6.52 Nil -6.34 NM -6.34 -34.4

78.9 -17.7 59.7 Nil -120 NM -120 -126

103 -52.5 55.0 0.35 -86.4 NM -86.7 -176

Balance Sheet & Other Financial Data (Million $) Cash 761 Current Assets 1,003 Total Assets 1,871 Current Liabilities 566 Long Term Debt NA Common Equity 1,111 Total Capital 1,111 Capital Expenditures 28.4 Cash Flow 133 Current Ratio 1.8 % Long Term Debt of Capitalization Nil % Net Income of Revenue 11.7 % Return on Assets 4.8 % Return on Equity 7.9

663 891 1,754 447 Nil 1,106 1,106 24.5 119 2.0 Nil 12.1 4.1 7.7

990 1,192 2,080 970 Nil 951 951 41.8 110 1.2 Nil 14.7 4.0 8.7

527 1,007 1,786 300 570 821 1,391 22.6 83.8 3.4 41.0 15.0 3.9 9.2

268 881 1,314 201 570 477 1,048 16.8 95.1 4.4 54.4 28.6 6.5 19.0

140 385 1,134 139 600 361 962 14.9 56.3 2.8 62.4 23.1 4.0 11.8

545 658 1,110 83.6 601 409 1,010 13.2 20.9 7.9 59.5 11.1 1.9 3.8

45.3 120 390 47.1 1.39 336 338 6.77 0.18 2.6 0.4 NM NM NM

55.5 119 370 37.0 1.56 327 329 6.75 -59.8 3.2 0.5 NM NM NM

85.2 180 505 40.7 0.28 464 465 11.1 -31.7 4.4 0.1 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1801 Varsity Drive, Raleigh, NC 27606. Telephone: 919-754-3700. Email: [email protected] Website: http://www.redhat.com

Chrmn: H.H. Shelton Pres & CEO: J.M. Whitehurst EVP & CFO: C.E. Peters, Jr. EVP, Secy & General Counsel: M.R. Cunningham

CTO: B. Stevens Founded: 1993 Investor Contact: L. Brewton (919-754-4476) Domicile: Delaware Board Members: M. Chau, J. J. Clarke, M. A. Fox, N. K. Employees: 3,200 Gupta, W. S. Kaiser, D. H. Livingstone, H. H. Shelton, J. M. Whitehurst

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RF | RF is in the S&P 500

Regions Financial Corp S&P Recommendation HOLD

★★★★★

Price $7.14 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $9.00

Investment Style Large-Cap Value

Summary This major southeastern financial holding company has $135 billion in assets and $96 billion of deposits, with 1,774 banking offices in 16 mostly Sunbelt states, plus 325 Morgan Keegan brokerage branches.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.33– 4.61 $-1.37 NM $2,769

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.60 0.50 NM 1,255.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.967 0.56 $0.04 64

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.17 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our positive view of the many steps RF has taken since early 2009 to rebuild capital levels and credit quality, offset by numerous remaining credit challenges in the company's loan portfolios.

40 20

8 4

Quantitative Evaluations S&P Quality Ranking

Vol. 843

Mil. 150 100 50 0

D

C

B-

BB

B+

A-

A

Relative Strength Rank

A+

MODERATE

33

5

4

5

3

2

4

3

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: C, Ph

Analysis prepared by Erik Oja on July 28, 2010, when the stock traded at $ 7.23. Highlights ➤

➤

➤

We expect net interest income to increase 2.3% in 2010, despite our expectation that loans outstanding will fall in each of the next four quarters, as we see a slight widening of the net interest margin as well as increases in the available-for-sale securities portfolio. However, we expect core fee income to decline 3.5%, as we think mortgage income peaked in 2009. Based on RF's recent trends, and our outlook for the U.S. economy and for RF's loan portfolios, we project total net charge-offs of $2.40 billion in 2010, versus $2.25 billion in 2009. Despite this elevated projection, we see two positives -- a decline in new nonperforming loans, and an allowance that stands at 91.7% of June 30 nonperforming loans, which we see as above peers. Our 2010 estimate for loan loss provisions is $2.35 billion, equal to 0.98X net charge-offs, down sharply from 2009's $3.54 billion, which was equal to 1.57X net charge-offs. For 2011, we project a sharp drop in the loan loss provision, to $790 million. We estimate a 2010 loss per share of $0.60, followed by EPS of $0.50 in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Regions Financial's overall loan credit quality improved strongly in the second quarter, setting the stage, in our view, for a broad decline in net charge-offs for the rest of 2010. We expect total net charge-offs to fall in each remaining quarter of 2010, as well as in 2011, but the rate of decline will likely not be as dramatic as it was in the past three quarters, due to the uncertain pace of economic growth and employment levels. RF currently trades at just over 1.0X June 30 tangible book value per share, which we see as about in line with other banks that have a similar level of nonperforming loans (over 4.0%), as well as a tangible common equity ratio of about 6.0% (6.58% for RF). Risks to our recommendation and target price include a faster than expected decline in loan growth, and a sharp fall-off in mortgage banking and commission revenues. Our 12-month target price of $9 equates to an above-peers 18.0X our 2011 EPS estimate of $0.50, and 1.3X our estimate of RF's tangible book value per share of $6.90 for year-end 2010, about in line with banks having similar levels of capital and credit quality.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,027 1,936 2009 2,445 2,550 2008 1,935 2,360 2007 2,797 2,724 2006 1,666 1,756 2005 1,423 1,565

3Q -2,086 2,288 2,742 1,806 1,564

4Q -2,006 2,283 2,667 2,529 1,572

Year -9,087 9,587 10,925 7,756 6,124

Earnings Per Share ($) 2010 -0.21 -0.28 2009 0.04 -0.28 2008 0.48 0.30 2007 0.65 0.63 2006 0.64 0.75 2005 0.51 0.53

E-0.10 -0.37 0.13 0.56 0.77 0.55

ENil -0.51 -8.97 0.10 0.56 0.55

E-0.60 -1.27 -8.03 1.96 2.67 2.15

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010

10/15

12/15

12/17

01/03/11

Dividends have been paid since 1968. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: RF

Regions Financial Corp Business Summary July 28, 2010 CORPORATE OVERVIEW. Regions Financial is a financial holding company that operates primarily in the southeastern U.S., with operations consisting of banking, brokerage and investment services, mortgage banking, insurance brokerage, credit life insurance, commercial accounts receivable factoring and specialty financing. RF conducts its banking operations through Regions Bank, an Alabama-chartered commercial bank that is a member of the Federal Reserve System. Banking operations also include Regions Mortgage (RMI). RMI's primary business is the origination and servicing of mortgage loans for long-term investors. RMI generally provides services in the same states in which RF has banking operations. Financial services operations include Morgan Keegan, a regional full-service brokerage and investment bank, which was acquired in 2001. Other subsidiaries include Regions Insurance Group, Inc., Regions Agency Inc., Regions Life Insurance Company, Regions Interstate Billings Service Inc., and Regions Equipment Finance Corporation, providing all lines of personal and commercial insurance, credit-related insurance products, and other financial services.

lion in deposits, up from $86.2 billion a year before. In Alabama, RF had 233 branches, $18.9 billion of deposits, and a deposit market share of about 22.7%, ranking first. In Florida, RF had 421 branches, $17.4 billion of deposits, and a deposit market share of about 4.3%, ranking fourth. In Tennessee, RF had 285 branches, $17.3 billion of deposits, and a deposit market share of about 15.5%, ranking first. In Mississippi, RF had 144 branches, $7.2 billion of deposits, and a deposit market share of about 16.3%, ranking first. In Georgia, RF had 154 branches, $6.4 billion of deposits, and a deposit market share of about 3.5%, ranking sixth. In Louisiana, RF had 125 branches, $7.3 billion of deposits, and a deposit market share of about 9.3%, ranking third. In Arkansas, RF had 102 branches, $4.6 billion of deposits, and a deposit market share of about 9.4%, ranking second. RF also had a total of 355 offices and $14.6 billion of deposits in Texas, Illinois, Missouri, Indiana, South Carolina, Kentucky, Iowa, North Carolina and Virginia.

MARKET PROFILE. As of June 30, 2009, which is the latest available FDIC data, RF had 1,819 branches, down from 1,924 branches a year earlier, and $93.7 bilCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.89 -1.27 -1.23 0.12 NM 9.07 2.35 NM NM

2008 10.35 -8.03 0.39 0.96 NM 25.84 6.41 NM NM

2007 10.45 1.96 1.97 1.46 74% 38.17 22.84 19 12

2006 11.74 2.67 2.67 2.11 79% 39.15 32.37 15 12

2005 11.55 2.15 2.11 1.36 63% 35.54 29.16 17 14

2004 11.58 2.19 2.17 0.93 43% 35.97 27.26 16 12

2003 16.25 2.35 2.32 1.00 43% 30.70 24.16 13 10

2002 15.29 2.20 2.11 0.94 43% 31.10 21.95 14 10

2001 10.58 1.81 1.63 0.91 50% 26.72 20.84 15 11

2000 11.00 1.93 NA 0.87 45% 22.68 14.83 12 8

3,335 32.0 3,032 3,541 74.6% -1,202 NM -1,031 2.67 -1,225

3,843 36.7 3,021 2,057 66.4% -5,932 NM -5,584 3.23 272

4,398 38.1 2,864 555 64.2% 2,039 31.7% 1,393 3.79 1,405

3,353 NA 2,054 143 61.3% 1,959 30.9% 1,353 4.17 1,355

2,821 NA 1,832 165 65.5% 1,422 29.6% 1,001 3.91 983

2,113 NA 1,591 129 66.5% 1,176 29.9% 824 3.66 811

1,475 NA 1,373 122 64.6% 912 28.5% 652 3.49 647

1,498 NA 1,207 128 65.1% 869 28.7% 620 3.73 592

1,425 NA 950 165 64.2% 718 29.1% 509 3.66 458

1,389 NA 641 127 55.2% 742 28.9% 528 3.55 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 8,998 Investment Securities 24,100 Commercial Loans 21,547 Other Loans 69,127 Total Assets 142,318 Demand Deposits 23,204 Time Deposits 75,476 Long Term Debt 18,464 Common Equity 14,279 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 3.4 % Loans/Deposits 91.9 % Equity to Assets 9.6

9,380 18,896 23,595 73,823 146,248 18,457 72,447 19,231 13,505 NM NM 1.9 107.2 11.6

2,116 17,369 20,907 74,472 141,042 18,417 76,358 11,325 19,823 1.0 6.9 1.4 97.0 14.3

2,610 18,562 24,145 70,360 143,369 20,709 80,519 8,643 20,701 1.2 8.6 1.1 98.3 13.7

1,794 11,979 14,728 43,677 84,786 13,699 46,679 11,938 10,614 1.2 9.4 1.3 99.3 12.6

1,761 12,617 15,180 42,556 84,106 11,424 47,243 7,240 10,749 1.2 10.8 1.3 101.1 11.5

1,491 9,088 9,914 22,501 48,598 5,718 27,015 5,712 4,452 1.4 15.1 1.4 102.1 8.9

1,424 8,995 10,842 20,144 47,939 5,148 27,779 5,386 4,178 1.3 15.1 1.3 98.7 8.8

1,502 7,847 9,912 21,225 45,383 5,085 26,463 4,748 4,036 1.1 13.6 1.3 100.7 8.4

112 8,994 9,070 22,402 43,688 4,513 27,510 4,478 3,458 1.2 16.2 1.2 98.7 7.5

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1900 Fifth Avenue North, Birmingham, AL 35203. Telephone: 205-326-5807. Email: [email protected] Website: http://www.regions.com

Chrmn: E.W. Deavenport, Jr. Pres, Vice Chrmn, CEO & COO: O.B. Hall, Jr. EVP & CFO: D.J. Turner, Jr. EVP & Chief Admin Officer: D.B. Edmonds

EVP, Chief Acctg Officer & Cntlr: H.B. Kimbrough, Jr. Investor Contact: L. Underwood (205-801-0265) Board Members: S. W. Bartholomew, Jr., G. W. Bryan, C. H. Byrd, D. J. Cooper, D. DeFosset, Jr., E. W. Deavenport, Jr., E. C. Fast, O. B. Hall, Jr., J. R. Malone, S. W. Matlock, J. E. Maupin, Jr., C. D. McCrary, J. R. Roberts, L. Styslinger, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1970 Domicile: Delaware Employees: 28,509

Stock Report | October 23, 2010 | NYS Symbol: RSG | RSG is in the S&P 500

Republic Services Inc. S&P Recommendation BUY

★★★★★

Price $30.71 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Environmental & Facilities Services

12-Mo. Target Price $37.00

Investment Style Large-Cap Growth

Summary This company became the second largest U.S. provider of solid waste services in North America when it acquired Allied Waste Industries in December 2008.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.95– 25.15 Trailing 12-Month EPS $0.99 Trailing 12-Month P/E 31.0 $10K Invested 5 Yrs Ago $15,247

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.75 2.05 17.5 383.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.91 15 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong balance sheet and focus on cash generation mainly for debt paydowns, share buybacks and dividend payments, as well as synergies and asset divestiture gains resulting from the Allied Waste acquisition.

40

30

20

15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

51

B+

30

15 10 5 0 5

$11.762 2.61 $0.80 78

D

C

B-

B

B+

A-

A

Relative Strength Rank 4

4

A+

MODERATE

34 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Analysis prepared by Stewart Scharf on August 04, 2010, when the stock traded at $ 32.39. Highlights ➤

We expect organic revenues to decline modestly in 2010, as 2% higher core prices and a rise in commodity recycling are offset by lower, albeit, improving volume. We look for volume growth to return in the fourth quarter, driven by sequentially recovering industrial special waste and commercial collection, and growth in landfill volumes.

Investment Rationale/Risk ➤

➤ ➤

➤

In our view, gross margins in 2010 will widen from 41% in 2009, driven by pricing initiatives on the collection side. We still see better MSW landfill pricing, offset somewhat by lowermargin C&D and special waste work. Adjusted EBITDA before merger-related costs should also expand to above 31%, from 30.6% in 2009, as RSG leverages its health insurance costs, focusing on safety, training and systems, and achieves at least $185 million in run-rate synergies by the end of 2010. We expect lower interest expense and a drop in the tax rate to about 42% in 2010, and we estimate operating EPS rising 18%, to $1.75 (before restructuring and merger-related costs, and a loss on the extinguishment of debt); we see a further advance to $2.05 in 2011.

➤

Our Buy opinion is based on our valuation metrics and our view of RSG's strong cash generation, balance sheet, and return on invested capital. We also expect projected synergies from the Allied Waste merger to create long-term value as RSG boosts its position in the solid waste industry. Risks to our recommendation and target price include a slower-than-expected recovery in the housing market and economy, a decline in the customer retention rate, a rapid decline in commodity recycling prices, and sharply higher fuel and commodity costs. We also have corporate governance concerns related to compensation and board issues. Our DCF model, assuming a 3.5% perpetual growth rate and a weighted average cost of capital of 7%, results in an intrinsic value of $39. We apply a premium-to-peers forward P/E of 20X to our 2010 EPS estimate, which we think is warranted, given our view of RSG's superior operating margins, strong cash position, and higher ROIC, resulting in a value of $35. Blending these metrics, our 12-month target price is $37.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,958 2,066 2009 2,061 2,066 2008 779.2 827.5 2007 765.6 808.4 2006 737.5 779.8 2005 677.2 718.6

3Q -2,074 834.0 806.2 787.1 730.0

4Q -1,999 1,244 796.0 766.2 738.1

Year -8,199 3,685 3,176 3,071 2,864

Earnings Per Share ($) 2010 0.17 0.42 2009 0.30 0.59 2008 0.41 0.34 2007 0.28 0.45 2006 0.31 0.35 2005 0.29 0.29

E0.47 0.32 0.48 0.35 0.39 0.30

E0.44 0.09 -0.55 0.44 0.34 0.29

E1.75 1.30 0.37 1.51 1.38 1.17

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.190 0.190 0.190 0.200

11/02 02/11 04/29 07/29

12/30 03/30 06/29 09/29

01/04 04/01 07/01 10/01

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: RSG

Republic Services Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. Republic Services is the third largest U.S. provider of services in the non-hazardous solid waste industry. It provides collection services to commercial, industrial, municipal and residential customers through 376 collection companies in 40 states and Puerto Rico, and operates 223 transfer stations, 192 solid waste landfills and 78 recycling facilities. RSG also operates 74 landfill gas and renewable energy projects. At the end of 2009, operations were divided into five regions: eastern, central, southern, southwestern and western. Collection revenues accounted for 77% of the total at December 31, 2009 (35% residential, 40% commercial, 24% industrial and 0.4% other), while 19% was derived from net transfer and disposal revenues, and 4.2% from other. The average estimated landfill life for all of RSG's 192 landfills is 46 years. Twelve of its landfills meet the criteria for probable expansion airspace, and have an estimated remaining site life of 39 years. RSG's internalization rate at 2009 year-end was about 69%, up from 68% in 2008. The average age of the company's truck fleet is about seven years. The customer churn rate was about 7% in the second quarter of 2010. The industry tends to lag economic swings by six to nine months. About 60% of volumes are protected either through a floor contract or financial hedge.

at September 30, 2008. RSG notes that a $0.01 change in the price of diesel fuel changes its fuel costs by about $1.7 million on an annual basis, partially offset by a smaller change in the fuel recovery fees charged to its customers. About 50% of its revenues are tied to index-based pricing (CPI). The company resumed its share repurchase program in late 2009, buying back $1 million of stock. About $247 million of stock remains authorized for repurchase. Since 2000, stock buybacks totaled nearly $2.3 billion (44% of shares). RSG is targeting close to $400 million in share buybacks in 2011. In the first quarter of 2010, RSG incurred charges of $0.24 a share, with $0.22 from a loss on the extinguishment of debt. In 2009, RSG recorded a net charge of $0.18 a share, consisting mainly of a $0.19 a share gain on the disposition of assets, restructuring charges and costs to achieve synergies of $0.16 and loss on the extinguishment of debt of $0.22. Bill Gates's investment firm, Cascade Investments LLC, owns nearly 15% of RSG's common stock.

In the second quarter of 2010, the average wholesale price of diesel fuel per gallon rose to $3.03, from $2.33 a year earlier; diesel fuel was $4.34 per gallon Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.82 1.30 1.05 0.76 58% 29.82 15.05 23 12

2008 NM 2.28 0.37 0.44 0.72 195% 36.52 18.25 99 49

2007 NM 3.08 1.51 1.47 0.55 37% 35.00 26.22 23 17

2006 NM 2.84 1.38 1.38 0.40 29% 29.47 24.47 21 18

2005 0.07 2.45 1.17 1.10 0.35 30% 25.56 20.07 22 17

2004 1.24 2.13 1.02 0.99 0.24 24% 22.65 16.33 22 16

2003 1.36 1.87 0.89 0.85 0.08 9% 17.39 12.17 19 14

2002 1.27 1.76 0.96 0.90 Nil Nil 14.84 10.84 15 11

2001 0.80 1.33 0.49 0.45 Nil Nil 13.93 9.17 29 19

2000 0.91 1.59 0.84 NA Nil Nil 11.67 6.42 14 8

8,199 2,516 958 596 865 42.6% 495 400

3,685 1,017 378 135 159 53.6% 73.8 87.8

3,176 892 302 97.8 468 38.0% 290 282

3,071 816 296 95.8 444 37.0% 280 280

2,864 756 279 81.0 409 38.0% 254 240

2,708 712 259 76.7 384 38.0% 238 229

2,518 1,077 239 78.0 347 38.0% 215 206

2,365 654 200 77.0 387 38.0% 240 225

2,258 598 215 80.1 209 40.0% 126 114

2,103 638 197 81.6 356 38.0% 221 NA

Balance Sheet & Other Financial Data (Million $) Cash 48.0 Current Assets 1,265 Total Assets 19,540 Current Liabilities 2,549 Long Term Debt 6,420 Common Equity 7,565 Total Capital 14,530 Capital Expenditures 826 Cash Flow 1,454 Current Ratio 0.5 % Long Term Debt of Capitalization 44.2 % Net Income of Revenue 6.0 % Return on Assets 2.5 % Return on Equity 6.7

68.7 1,326 19,921 2,566 7,199 7,281 14,985 387 452 0.5 48.0 2.0 0.6 1.7

21.8 414 4,468 629 1,566 1,304 2,869 293 592 0.7 54.6 9.1 6.5 21.3

29.1 393 4,429 602 1,545 1,422 3,386 338 576 0.7 45.6 9.1 6.2 18.5

132 482 4,551 667 1,472 1,606 3,468 329 533 0.7 42.4 8.9 5.6 14.6

142 497 4,465 447 1,352 1,873 3,631 284 497 1.1 37.2 8.8 5.3 12.6

334 556 4,554 672 1,289 3,809 5,452 273 455 0.8 23.6 8.6 4.9 5.7

317 452 4,209 392 1,439 1,881 3,515 259 439 1.2 40.9 10.1 5.9 13.2

158 325 3,856 386 1,334 1,756 3,209 249 341 0.8 41.6 5.6 3.4 7.3

86.3 406 3,562 382 1,200 1,675 3,002 208 418 1.1 40.0 10.5 6.5 13.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 18500 North Allied Way, Phoenix, AZ 85054. Telephone: 480-627-2700. Website: http://www.republicservices.com Chrmn & CEO: J.E. O'Connor

Pres & COO: D.W. Slager Investor Contact: T.C. Holmes EVP & CFO: T.C. Holmes EVP, Secy & General Counsel: M.P. Rissman

Board Members: J. W. Croghan, J. W. Crownover, W. Founded: 1996 J. Flynn, D. I. Foley, M. Larson, N. Lehmann, W. L. Domicile: Delaware Nutter, J. E. O'Connor, R. A. Rodriguez, A. Sorensen, J. Employees: 31,000 M. Trani, M. W. Wickham

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RAI | RAI is in the S&P 500

Reynolds American Inc S&P Recommendation BUY

★★★★★

Price $62.74 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Tobacco

12-Mo. Target Price $70.00

Investment Style Large-Cap Value

Summary Reynolds American, the second largest U.S. cigarette manufacturer, was formed via the mid-2004 merger of R.J. Reynolds and Brown & Williamson.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $63.35– 36.35 Trailing 12-Month EPS $3.42 Trailing 12-Month P/E 18.4 $10K Invested 5 Yrs Ago $20,621

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.97 5.26 12.6 291.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$18.290 6.25 $3.92 47

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.63 6 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

The domestic tobacco industry typically produces stable revenue streams and strong cash flow. While the industry is involved in significant litigation, recent rulings have led to an improvement in the litigation environment.

70 60 50 40

Quantitative Evaluations S&P Quality Ranking

Vol. 20

Mil.

D

9 6 3 0 5

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

74 4

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on October 21, 2010, when the stock traded at $ 63.06. Highlights ➤

➤

We estimate that RAI's revenues in 2010 will rise approximately 2% above last year's $8.4 billion, versus 2009's 5% drop, with a favorable product mix shift, price increases and new product introductions offset by a mid-single digit rate shipment decline. We believe growth brands Camel, Pall Mall and American Spirit, which now account for over half the company's total cigarette volume, will see gains, with other brands, including low-margin private label, suffering declines as marketing efforts remain minimal. We see continued operating margin improvement in 2010 as gross margins benefit from the rationalization of non-core brands and brand styles, higher pricing and lower promotions, while SG&A spending, excluding additional pension expense, should remain well controlled as the company benefits from cost-saving actions. We estimate savings of about $35 million in 2011 on rationalization of cigarette manufacturing facilities.

Investment Rationale/Risk ➤

➤

In 2010, we estimate EPS of $4.97 on lower interest expense and a comparable effective tax rate of approximately 37%. For 2011, we forecast EPS of $5.26.

We think leading smokeless tobacco company Conwood, which RAI acquired in mid-2006 for $3.5 billion, could continue to drive profits as higher-margin smokeless tobacco growth offsets declining cigarette sales. While we were somewhat wary of potential heightened competition from Altria's UST unit as Altria extended its price cuts on Copenhagen and Skoal to additional markets, Altria has since begun to raise prices and we expect price competition to remain manageable. We also see continued good performance from Pall Mall as consumers trade down in a weak economic environment. With an indicated dividend yield over 6%, we find the shares attractive on a total return basis. Risks to our opinion and target price include additional regulation and taxation of tobacco products, in addition to near-term pressure on trading multiples due to ongoing litigation. We also think RAI's "poison pill" anti-takeover provision is not in shareholders' best interests.

Revenue (Million $) 1Q 2Q 2010 1,986 1,113 2009 1,921 2,250 2008 2,057 2,339 2007 2,148 2,348 2006 1,960 2,291 2005 1,957 2,103

3Q -2,152 2,272 2,297 2,190 2,149

4Q -2,096 2,177 2,230 2,069 2,047

Year -8,419 8,845 9,023 8,510 8,256

Earnings Per Share ($) 2010 1.02 1.17 2009 0.03 1.29 2008 1.71 1.24 2007 1.11 1.10 2006 0.95 1.24 2005 0.95 0.85

E1.34 1.24 0.72 1.21 1.05 0.72

E1.22 0.74 0.89 1.01 0.61 0.82

E4.97 3.30 4.57 4.43 3.85 3.34

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.900 0.900 2-for-1 0.490

05/07 07/15 10/15 10/15

06/08 09/08 11/16 12/08

06/10 09/10 11/01 12/10

07/01/10 10/01/10 11/15/10 01/03/11

Dividends have been paid since 1999. Source: Company reports. ➤

➤

Revenue/Earnings Data

2010

Applying a multiple of 13.3X, a slight discount to the peer average and a discount to the S&P 500 staples P/E of nearly 14X, to our 2011 EPS estimate of $5.26, we arrive at a relative valuation of $70, which is our 12-month target price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RAI

Reynolds American Inc Business Summary October 21, 2010 CORPORATE OVERVIEW. On July 30, 2004, R.J. Reynolds Tobacco Co. (RJRT) merged with Brown & Williamson (B&W), the U.S. operations of British American Tobacco (BTI), to form a new publicly traded company, Reynolds American, Inc. Combining RJRT and B&W, the second and third largest players, RAI is the second largest U.S. cigarette manufacturer, having a combined market share of 28.3% in 2009, down slightly from 28.4% in 2008.

The company's leading products are its Camel, Kool, Pall Mall, Doral and Winston brand cigarettes. The company's other brands include Salem, Misty and Capri. RAI also manages and contract manufactures cigarettes and tobacco products through its relationship with BAT affiliates.

RAI is the parent company of RJRT, Santa Fe Natural Tobacco, which RJRT acquired in 2002, and Lane Limited, which was purchased from BTI for $400 million as part of the merger. In 2003, prior to the merger, RJRT began a significant restructuring plan, targeting cost savings of $1 billion by the end of 2005 through a significant work force reduction, asset divestitures and associated exit activities. Full integration of RJRT and B&W was expected to be completed in 2006, but realization of cost savings continued into 2007. The business combination was expected to result in approximately $600 million in annualized savings, including headcount reductions and operations consolidation, when compared with a separate entity basis.

CORPORATE STRATEGY. RAI's management has stated that its strategy is to generate sustainable earnings growth and strong cash flow in order to maximize shareholder value. To that end, RAI implemented a new portfolio strategy, designed to improve profitability, which established three categories for the combined brands of RJRT and B&W. The investment brand category, which includes premium brand Camel and value brand Pall Mall, receive the majority of resources to promote market share growth. The selective support brands, which include Kool, Winston, Salem, Capri and value brands Doral and Misty, receive limited support to optimize profitability; and the remaining brands are called non-support brands, which are managed to maximize profitability.

Conwood's primary brands included Grizzly and Kodiak moist snuff.

In May 2006, RAI completed the acquisition of Conwood, the second largest manufacturer of smokeless tobacco products in the U.S., for $3.5 billion. RAI combined Conwood with its Lane Limited subsidiary into an Other Tobacco Products division in 2007. RAI's reportable segments are RJRT and Conwood.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.70 3.30 4.76 3.45 105% 54.26 31.55 16 10

2008 NM 5.05 4.57 3.63 3.40 74% 72.00 37.21 16 8

2007 NM 4.92 4.43 4.41 3.20 72% 71.72 58.55 16 13

2006 NM 4.39 3.85 3.95 1.38 36% 67.09 47.48 17 12

2005 NM 4.00 3.34 3.96 2.10 63% 51.19 38.24 15 11

2004 NM 2.65 2.81 3.59 0.95 34% 40.27 26.69 14 9

2003 NM -20.81 -22.04 2.13 1.90 NM 30.07 13.76 NM NM

2002 NM 3.34 2.32 1.73 1.86 80% 35.95 17.42 15 8

2001 NM 4.72 2.24 1.52 1.65 74% 31.35 22.09 14 10

2000 NM 4.10 1.73 NA 1.55 90% 25.13 7.88 15 5

4,492 2,639 118 251 1,534 37.3% 962 1,388

6,955 2,602 142 275 2,128 37.1% 1,338 1,063

9,023 2,496 143 338 2,073 37.0% 1,307 1,302

8,510 2,183 162 270 1,809 37.2% 1,136 1,167

8,256 1,880 195 113 1,416 30.4% 985 1,167

6,437 1,239 153 85.0 829 24.4% 627 800

5,267 873 151 111 -3,918 NM -3,689 357

6,211 1,200 184 147 683 38.8% 418 313

8,585 1,409 491 150 892 50.2% 444 301

8,167 1,399 485 168 748 52.9% 352 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,727 Current Assets 5,495 Total Assets 18,009 Current Liabilities 4,340 Long Term Debt 4,136 Common Equity 6,498 Total Capital 10,634 Capital Expenditures 141 Cash Flow 1,080 Current Ratio 1.3 % Long Term Debt of Capitalization 38.9 % Net Income of Revenue 21.4 % Return on Assets 5.3 % Return on Equity 15.1

2,601 5,019 18,154 3,923 4,486 6,237 11,005 113 1,480 1.3 40.8 19.2 7.3 19.5

2,592 4,992 18,629 3,903 4,515 7,466 13,165 142 1,450 1.3 34.3 14.5 7.1 18.0

1,433 4,935 18,178 4,092 4,389 7,043 12,599 136 1,298 1.2 34.8 13.3 6.9 16.7

1,333 5,065 14,519 4,149 1,558 6,553 8,750 105 1,180 1.2 17.8 11.9 6.8 15.5

1,499 4,624 14,428 4,055 1,595 6,176 8,576 92.0 780 1.1 18.6 9.7 5.2 13.6

1,523 3,331 9,677 2,865 1,671 3,057 5,534 70.0 -3,538 1.2 30.2 NM NM NM

1,584 3,992 14,651 3,427 1,755 6,716 9,707 111 602 1.2 18.1 6.7 2.8 5.7

2,020 3,856 15,050 2,792 1,631 8,026 11,383 74.0 935 1.4 14.3 5.2 2.9 5.4

2,543 3,871 15,554 2,776 1,674 8,436 11,966 60.0 837 1.4 14.0 4.3 2.4 4.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 401 North Main Street, Winston-Salem, NC 27102-2866. Telephone: 336-741-2000. Email: [email protected] Website: http://www.reynoldsamerican.com

Chrmn, Pres & CEO: S.M. Ivey Pres: J.B. O'Brien EVP & CFO: T.R. Adams EVP & General Counsel: E.J. Lambeth

SVP & Chief Acctg Officer: F.W. Smothers Auditor: KPMG, Greensboro Board Members: M. D. Feinstein, S. M. Ivey, L. Jobin, H. Founded: 1875 K. Koeppel, N. Mensah, L. L. Nowell, III, H. G. Powell, T. Domicile: Delaware C. Wajnert, N. R. Withington, J. J. Zillmer Employees: 6,550

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RHI | RHI is in the S&P 500

Robert Half International Inc. S&P Recommendation HOLD

★★★★★

Price $27.36 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Human Resource & Employment Services

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary This company is the world's largest specialized provider of temporary and permanent personnel in the fields of accounting and finance.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.25– 21.16 Trailing 12-Month EPS $0.28 Trailing 12-Month P/E 97.7 $10K Invested 5 Yrs Ago $7,938

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.45 0.80 60.8 147.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.038 1.90 $0.52 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.97 55 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as RHI's strong position in accounting and finance placements and a healthy balance sheet. This is offset by the highly cyclical nature of the company's business, which is largely dependent on the U.S. economy and the health of labor markets.

40

25 20 15

10

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 3

3

3

C

B-

B B

B+

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

STRONG

The 12-month target price for RHI has recently been changed to $30.00 from $22.00. The Highlights section of this Stock Report will be updated accordingly.

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

➤

A+

76

1

Highlights

A

Relative Strength Rank

1

2007

A-

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on RHI from MarketScope, see below.

➤

10/21/10 12:48 pm ET ... S&P MAINTAINS HOLD OPINION ON SHARES OF ROBERT HALF (RHI 27.25***): Q3 EPS of $0.14, vs. $0.06, beats our forecast by $0.02, as a 13% revenue gain was stronger than we expected, with RHI seeing a pick up in demand for its services. We think RHI's operating rebound will go on for an extended period, and see it aided in the coming year by an ongoing focus of businesses on temp hirings for staffing needs. We raise our '10 EPS estimate by $0.05 to $0.45, and '11's by $0.10 to $0.80. We also lift our target price by $8 to $30, 37.5X our '11 estimate, and the high-end of RHI's valuation during a similar stage of its last business recovery. /M.Jaffe

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 737.2 769.1 2009 823.3 749.9 2008 1,226 1,225 2007 1,097 1,149 2006 943.9 981.8 2005 770.0 816.7

3Q -725.9 1,160 1,179 1,028 867.0

4Q -737.4 989.8 1,220 1,060 884.8

Year -3,037 4,601 4,646 4,014 3,338

Earnings Per Share ($) 2010 0.05 0.08 2009 0.06 0.03 2008 0.45 0.48 2007 0.42 0.44 2006 0.38 0.39 2005 0.29 0.33

E0.12 0.06 0.43 0.46 0.43 0.37

E0.16 0.09 0.26 0.50 0.45 0.37

E0.45 0.24 1.63 1.81 1.65 1.36

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.120 0.130 0.130 0.130

10/27 02/10 05/06 07/28

11/23 02/23 05/21 08/23

11/25 02/25 05/25 08/25

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 2004. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: RHI

Robert Half International Inc. Business Summary August 26, 2010 CORPORATE OVERVIEW. Robert Half International is the world's largest specialized staffing service in the fields of accounting and finance. In May 2002, RHI expanded its offerings to include risk consulting and internal audit services through its Protiviti unit. In 2009, the company derived 81% of its revenues from activities in temporary and consultant staffing, 6% from permanent placement staffing, and 13% from risk consulting and internal audit services. Foreign operations accounted for 29% of RHI's revenues in 2009. As of 2009 year-end, the company's staffing businesses had more than 365 offices in 42 states, the District of Columbia and 20 foreign countries, while Protiviti had more than 60 offices in 23 states and 16 foreign countries. RHI's Accountemps temporary services division offers customers an economical means of dealing with uneven or peak work loads for accounting, tax and finance personnel. The temporary workers are employees of Accountemps, and are paid by Accountemps only when working on customer assignments. The customer pays a fixed rate for hours worked. If the client converts the temporary hire to a permanent worker, it typically pays a one-time fee for the conversion.

nel. Fees for successful permanent placements are paid only by the employer and are usually a percentage of the new employee's annual salary. Since the early 1990s, the company has expanded into additional specialty fields. OfficeTeam, formed in 1991, provides skilled temporary and full-time administrative and office personnel. In 1992, RHI acquired Robert Half Legal (formerly The Affiliates), which places temporary and regular employees in attorney, paralegal, legal administrative and other legal support positions. In 1994, Robert Half Technology (formerly RHI Consulting) was created to concentrate on the placement of contract and full-time information technology consultants. In 1997, the company established Robert Half Management Resources (formerly RHI Management Resources) to provide senior level project professionals specializing in the accounting and finance fields. The Creative Group, which started up in 1999, provides project staffing in the advertising, marketing and Web design fields. In 2009, Accountemps provided 40% of revenues, OfficeTeam 18%, other placement businesses 29%, and Protiviti 13%.

RHI offers permanent placement services through Robert Half Finance & Accounting, which specializes in accounting, financial, tax and banking personCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.78 0.70 0.24 0.24 0.48 NM 28.06 14.06 NM NM

2008 5.26 2.11 1.63 1.63 0.44 27% 29.99 14.31 18 9

2007 4.99 2.25 1.81 1.81 0.40 22% 42.21 24.41 23 13

2006 5.15 2.00 1.65 1.65 0.32 19% 43.94 29.91 27 18

2005 4.72 1.66 1.36 1.29 0.28 21% 39.86 23.95 29 18

2004 4.30 1.07 0.79 0.71 0.18 23% 30.98 20.69 39 26

2003 3.65 0.42 0.04 -0.11 Nil Nil 25.18 11.44 NM NM

2002 3.41 0.42 0.01 -0.17 Nil Nil 30.90 11.94 NM NM

2001 3.69 1.07 0.67 0.51 Nil Nil 30.90 18.50 46 28

2000 3.13 1.30 1.00 NA Nil Nil 38.63 12.34 39 12

3,037 131 65.3 0.50 66.8 44.2% 37.3 35.1

4,601 487 73.2 5.30 419 40.3% 250 250

4,646 549 71.4 4.10 490 39.6% 296 296

4,014 511 61.1 Nil 466 39.3% 283 283

3,338 433 51.3 Nil 392 39.3% 238 224

2,676 280 49.1 Nil 235 40.1% 141 125

1,975 75.0 65.9 Nil 11.7 45.5% 6.39 -18.4

1,905 71.2 72.3 Nil 3.50 38.0% 2.17 -30.2

2,453 261 73.1 Nil 196 38.3% 121 91.1

2,699 348 56.6 Nil 302 38.3% 186 NA

Balance Sheet & Other Financial Data (Million $) Cash 366 Current Assets 923 Total Assets 1,284 Current Liabilities 367 Long Term Debt 1.78 Common Equity 900 Total Capital 902 Capital Expenditures 41.3 Cash Flow 103 Current Ratio 2.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 1.2 % Return on Assets NA % Return on Equity NA

355 1,033 1,412 413 1.89 984 986 73.4 323 2.5 0.2 5.4 17.5 25.4

310 1,060 1,450 448 3.75 984 988 83.8 368 2.4 0.4 6.4 20.4 29.2

447 1,112 1,459 403 3.83 1,043 1,047 80.4 344 2.8 0.4 7.1 20.4 28.1

458 1,017 1,319 337 2.70 971 974 61.8 289 3.0 0.3 7.1 18.9 25.3

437 916 1,199 280 2.27 912 914 32.9 190 3.3 0.2 5.3 12.9 16.5

377 699 980 189 2.34 789 791 36.5 72.3 3.7 0.3 0.3 0.7 0.8

317 643 936 184 2.40 745 747 48.3 74.5 3.5 0.3 0.1 0.2 0.3

347 686 994 177 2.48 806 808 84.7 194 3.9 0.3 4.9 12.3 15.9

239 672 971 237 2.54 719 721 74.0 243 2.8 0.4 6.9 21.3 28.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2884 Sand Hill Rd, Menlo Park, CA 94025-7072. Telephone: 650-234-6000. Website: http://www.rhi.com Chrmn & CEO: H.M. Messmer, Jr.

Pres, Vice Chrmn & CFO: M.K. Waddell Board Members: A. S. Berwick, Jr., E. W. Gibbons, H. EVP, Chief Admin Officer, Chief Acctg Officer & Treas: M. Messmer, Jr., B. J. Novogradac, R. J. Pace, F. A. M.C. Buckley Richman, J. S. Schaub, M. K. Waddell EVP, Secy & General Counsel: S. Karel CIO: K. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Delaware Employees: 166,900

Stock Report | October 23, 2010 | NYS Symbol: ROK | ROK is in the S&P 500

Rockwell Automation Inc. S&P Recommendation SELL

★★★★★

Price $62.71 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Electrical Components & Equipment

12-Mo. Target Price $58.00

Investment Style Large-Cap Blend

Summary This company manufactures and develops automated industrial equipment and power generators for applications in many different manufacturing processes.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $63.90– 39.39 Trailing 12-Month EPS $2.51 Trailing 12-Month P/E 25.0 $10K Invested 5 Yrs Ago $13,588

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.04 3.74 20.6 141.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.896 2.23 $1.40 71

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.69 30 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the highly cyclical end-market demand for the company's products, offset by corporate governance practices that we view favorably, and we note the company has an S&P Quality Ranking of B+, which reflects average stability in earnings and dividend growth, and low capital requirements.

80 60 40 30 20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 4

3

3

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Mathew Christy, CFA on October 07, 2010, when the stock traded at $ 61.87.

➤

➤

➤

After a 24% revenue decline in FY 09 (Sep.), we expect an increase of about 11% for FY 10, due in part to a better economic environment, with industrial production and capacity utilization both improving in recent months. Our forecast primarily reflects projected 4% sales growth at the Control Products unit, and a 28% gain for Architecture & Software sales, driven by revenue from higher maintenance, repair, and product sales, partly offset by lower project work. We believe the global economic recovery will continue, and look for FY 11 revenues to advance 13%. We forecast that operating margins will widen in FY 10, as the company benefits from restructuring efforts, offset somewhat by lower operating leverage expected in the controls business. In FY 11, we see operating margins expanding further on greater operating leverage and operating rates. Assuming effective tax rates of 20.3% for FY 10 and 25% for FY 11, and excluding earnings from discontinued operations, we project operating EPS of $3.04 for FY 10 and $3.74 for FY 11.

Investment Rationale/Risk ➤

➤

➤

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

73 LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, Ph

Highlights

C

Our recent downgrade to sell, from hold, is primarily based on valuation after a substantial rise in the share price since the August lows. This is despite recent gains in capacity utilization and industrial production rates, as reported by the Federal Reserve, which we think indicate increased spending on automation products. That said, we see risk in the apparent deceleration in manufacturing activity, as evidenced by recent reductions in the ISM's PMI, and we view the stock as overvalued at recent levels. Risks to our recommendation and target price include greater-than-expected global economic growth, higher-than-expected project spending, and a significant expansion in global manufacturing capacity. Our 12-month target price of $58 is based on a blend of valuation metrics. On relative peer valuation, we apply a target P/E multiple of about 17X, in line with the peer average, to our forward 12-month EPS per share estimate, resulting in a $62 value. Our discounted cash flow model, which assumes a 3% growth rate in perpetuity and a 10.7% discount rate, implies intrinsic value of $54.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,068 1,165 2009 1,189 1,058 2008 1,332 1,407 2007 1,146 1,207 2006 1,301 1,378 2005 1,185 1,218

3Q 1,268 1,011 1,475 1,281 1,428 1,265

4Q -1,074 1,484 1,371 1,454 1,335

Year -4,333 5,698 5,004 5,561 5,003

Earnings Per Share ($) 2010 E0.42 0.78 2009 0.81 0.29 2008 1.04 0.96 2007 0.76 0.65 2006 0.80 0.83 2005 0.65 0.75

0.83 0.23 1.03 1.07 0.83 0.68

E0.89 0.20 0.87 1.07 1.04 0.69

E3.04 1.53 3.90 3.53 3.49 2.77

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.290 0.290 0.290 0.350

11/04 02/03 04/07 06/03

11/12 02/11 05/13 08/12

11/16 02/16 05/17 08/16

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1948. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: ROK

Rockwell Automation Inc. Business Summary October 07, 2010 CORPORATE OVERVIEW. In the early 1990s, Rockwell Automation (formerly Rockwell International) operated a broad range of manufacturing businesses. Following a series of divestitures that included the 2001 spin-off of Rockwell Collins, the 2006 divestitures of ElectroCraft Engineered Solutions, the sale of a 50% interest in Rockwell Scientific, and the 2007 divestiture of Dodge Mechanical and Reliance Electric Motors. ROK now operates two business segments: Control Products and Solutions and Architecture and Software. The Control Products and Solutions (CS) segment accounted for 60.2% of FY 09 (Sep.) total revenues and 47% of total operating profits, with 8.4% profit margins. CS supplies industrial control products and services focused on helping customers control, monitor and improve manufacturing processes. Products include industrial controls, variable frequency drives, smart motor controls, electronic overload controls, power control and motor control centers, drive systems, custom OEM panels, information systems and systems integration. Major markets served include consumer products, food and beverage, transportation, metals, mining, pulp and paper, and oil and gas. Competitors include Emerson Electric, General Electric, and Schneider Electric.

The Architecture and Software (A&S) segment generated 39.8% of FY 09 sales and 53% of operating profits, with 14.2% operating margins. The division offers control platforms and software as well as bundled automation products for enterprise business systems, distribution and supply chains. Control offerings include controllers, electronic interface devices, communications and network products, motor control sensors, programmable logic controllers (PLCs), input/output devices, sensors, safety components, and other products used in the automation of manufacturing operations. Software product offerings include configuration and visualization software, control platforms, and other manufacturing control software. Major competitors include Siemens AG, Mitsubishi Corp, ABB Ltd, Schneider Electric, Honeywell International, and Emerson Electric. Major markets served include food and beverage, automotive, oil and gas, metals and mining, home and personal care, and life sciences.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.21 2.36 1.53 0.71 1.16 76% 49.25 17.50 32 11

2008 3.65 4.72 3.90 3.03 1.16 30% 69.72 21.51 18 6

2007 4.29 4.26 3.53 3.45 1.16 33% 75.60 56.73 21 16

2006 4.40 4.35 3.49 3.48 0.90 26% 799.47 53.49 23 15

2005 2.95 3.68 2.77 2.68 0.78 28% 63.30 45.40 23 16

2004 3.95 2.83 1.85 1.88 0.66 36% 49.97 28.45 27 15

2003 2.41 2.53 1.49 1.16 0.66 44% 36.10 18.75 24 13

2002 2.61 2.29 1.20 0.75 0.66 55% 22.79 14.71 19 12

2001 2.23 5.39 0.68 -0.06 0.93 137% 49.45 11.78 73 17

2000 6.90 4.80 3.35 NA 1.02 30% 54.50 27.69 16 8

4,333 520 118 60.9 274 20.5% 218 102

5,698 1,021 122 68.2 809 28.6% 578 449

5,004 937 118 63.4 789 27.8% 569 556

5,561 1,073 154 58.4 365 NM 628 628

5,003 944 171 45.8 737 29.7% 518 498

4,411 691 187 41.7 438 19.2% 354 361

4,104 543 198 52.0 299 5.69% 282 221

3,909 488 206 66.0 233 3.00% 226 142

4,279 1,079 872 83.0 168 25.6% 125 -12.0

7,151 1,223 276 73.0 943 32.6% 636 NA

Balance Sheet & Other Financial Data (Million $) Cash 644 Current Assets 2,135 Total Assets 4,306 Current Liabilities 947 Long Term Debt 905 Common Equity 1,316 Total Capital 2,221 Capital Expenditures 98.0 Cash Flow 336 Current Ratio 2.3 % Long Term Debt of Capitalization 40.7 % Net Income of Revenue 5.0 % Return on Assets 4.9 % Return on Equity 14.5

582 2,437 4,594 1,303 904 1,689 2,593 151 700 1.9 34.9 10.1 12.6 33.7

624 2,382 4,546 1,745 406 1,743 2,149 131 687 1.4 18.9 11.4 12.3 31.1

415 2,188 4,735 1,293 748 1,918 2,822 150 782 1.7 26.5 11.3 13.6 35.2

464 2,187 4,525 941 748 1,649 2,397 124 690 2.3 31.2 10.4 11.9 29.5

474 2,026 4,201 864 758 1,861 2,708 98.0 541 2.3 28.0 8.0 8.7 20.5

226 1,736 3,986 820 764 1,587 2,388 109 480 2.1 32.0 6.9 7.1 17.6

289 1,775 4,024 966 767 1,609 2,534 104 432 1.8 30.3 5.8 5.6 14.1

121 1,697 4,074 867 922 1,600 2,693 157 997 2.0 34.2 2.9 2.7 5.9

190 3,206 6,390 1,820 924 2,669 3,593 315 912 1.8 25.7 8.9 9.8 24.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1201 S 2nd St, Milwaukee, WI 53204-2498. Telephone: 414-382-2000. Website: http://www.rockwellautomation.com Chrmn, Pres & CEO: K.D. Nosbusch

COO: M. Thomas SVP & CFO: T.D. Crandall SVP & CTO: S. Chand SVP, Secy & General Counsel: D.M. Hagerman

Board Members: B. C. Alewine, V. G. Istock, B. C. Johnson, W. T. McCormick, Jr., K. D. Nosbusch, D. R. Parfet, B. M. Rockwell, D. B. Speer, J. F. Toot, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1928 Domicile: Delaware Employees: 19,000

Stock Report | October 23, 2010 | NYS Symbol: COL | COL is in the S&P 500

Rockwell Collins Inc. S&P Recommendation BUY

★★★★★

Price $61.39 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $70.00

Investment Style Large-Cap Growth

Summary This company is one of the world's largest makers of military and commercial avionics and electronics, including cockpit controls, communications and navigation systems, and in-flight entertainment systems.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $68.04– 47.19 Trailing 12-Month EPS $3.42 Trailing 12-Month P/E 18.0 $10K Invested 5 Yrs Ago $14,006

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.54 3.95 17.3 157.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.650 1.56 $0.96 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.35 5 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to the commercial airline industry, dependence on U.S. military procurement and R&D budgets, and high fixed-cost structure, offset by what we view as a solid balance sheet and strong returns.

80 60

40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

D

B-

A B

B+

A-

A

Relative Strength Rank

5

4

C

MODERATE

4

3

A+

65 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Richard Tortoriello on August 06, 2010, when the stock traded at $ 57.76. Highlights ➤

➤

We estimate that sales will rise about 6% in FY 10 (Sep.), following a 6% decline in FY 09, as we see significant sales growth in Government Systems (GS) partially offset by a sales decline in Commercial Systems (CS). For FY 11, we project a 6% sales gain, with increases in both CS and GS. We see CS achieving slight growth, primarily due to increased commercial and business & regional aftermarket demand, due to rising flight hours. We see GS achieving continued substantial growth on aircraft display and control systems and defense communications. We expect segment operating margins to decline to 19.2% in FY 10, from 21.4% in FY 09, and we project a rise to 20.2% in FY 11, as production volume should increase. We note that previous peak segment margins for COL have been well above 22%.

Investment Rationale/Risk ➤

➤

➤ ➤

We estimate EPS of $3.54 for FY 10 and $3.95 for FY 11. We project free cash flow (cash flow from operating activities less capital expenditures) of about 90% of net income in FY 10.

Although we expect weak business jet OEM demand to continue to constrain earnings in FY 10 and into FY 11, we look for a bounce-back in overall aftermarket demand due to a variety of factors, including depleted inventories at airlines and a recent increase in air travel. We see the company generating returns on invested capital (ROIC) of over 25%, despite the recent economic downturn. We also see COL conserving cash for attractive acquisitions, which we think would favorably expand its market position. At the same time, we see COL's valuations below historical averages on slightly depressed earnings. Risks to our recommendation and target price include an unanticipated slowdown in the global economy, failure to gain new contracts, and operational or other missteps. Our 12-month target price of $70 is based on an enterprise value to FY 12 estimated EBITDA multiple of 10X. Over its eight-year operating history, COL has recorded EV-to-EBITDA multiples ranging from 5X to 15X. Given this stage of the economic recovery, we believe a multiple near the middle of this range is appropriate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,027 1,142 2009 1,058 1,138 2008 1,112 1,186 2007 993.0 1,083 2006 881.0 957.0 2005 763.0 829.0

3Q 1,214 1,084 1,194 1,113 964.0 890.0

4Q -1,190 1,277 1,226 1,061 963.0

Year -4,470 4,769 4,415 3,863 3,445

Earnings Per Share ($) 2010 0.76 0.93 2009 0.95 1.03 2008 0.93 1.03 2007 0.84 0.82 2006 0.59 0.65 2005 0.50 0.52

0.89 0.91 1.07 0.86 0.70 0.56

E0.96 0.84 1.13 0.93 0.79 0.62

E3.54 3.73 4.16 3.45 2.73 2.20

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.240 0.240 0.240 0.240

10/26 01/19 04/26 07/27

11/12 02/10 05/13 08/12

11/16 02/15 05/17 08/16

12/07/09 03/08/10 06/07/10 09/07/10

Dividends have been paid since 2001. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: COL

Rockwell Collins Inc. Business Summary August 06, 2010 CORPORATE OVERVIEW. This global $4.5 billion revenue aircraft electronics (avionics) maker conducts its business through two segments: Commercial Systems (CS) and Government Systems (GS). CS (42% of revenues and 37% of segment operating earnings, and segment operating margins of 18.7% in FY 09 (Sep.)) primarily makes flight deck electronic systems. CS also provides a range of repair and overhaul services. GS (58%; 63%; 23.3%) primarily makes communication radios and cockpit displays installed in military jets. GS also makes navigation equipment embedded in guided missiles. Commercial Systems products include integrated avionics systems, which include liquid crystal flight displays, flight management, integrated flight control, automatic flight controls, engine indications, and crew alerts; cabin electronics, including passenger connectivity and entertainment, business support systems, networks, and environmental controls; communications products and systems; navigation products and systems; situational awareness and surveillance products and systems, such as Heads-Up Guidance Systems, weather radar, and collision avoidance systems; flight deck systems, including liquid crystal, cathode ray tube, and heads-up displays; information management systems; electro-mechanical pilot controls and stabilization systems; simulation and training systems; and maintenance, repair, parts, and support

services. Customers include large commercial airplane, regional jet, and business jet makers; commercial airlines; regional airlines; fractional jet operators; and business jet operators. Government Systems products include communications systems and products; military data link products; navigation systems and products, including radio navigation systems, global positioning systems (GPS), handheld navigation systems, and multi-mode receivers; subsystems for the flight deck that combine flight operations with navigation and guidance functions; cockpit display systems, including flat panel, helmet-mounted and other displays for fighter/attack aircraft; integrated computer systems for the Army's FCS initiative; simulation and training systems; and maintenance, repair, parts, and support services. Customers include the U.S. Department of Defense, other government agencies, civil agencies, defense contractors, and foreign ministries of defense. Products are used for airborne, ground, and shipboard applications.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.09 4.63 3.73 3.08 0.96 26% 56.88 27.67 15 7

2008 3.79 4.95 4.16 3.39 0.88 21% 72.41 27.76 17 7

2007 5.97 4.14 3.45 3.35 0.64 19% 76.00 61.25 22 18

2006 3.30 3.34 2.73 2.66 0.56 21% 64.31 43.49 24 16

2005 2.13 2.86 2.20 2.04 0.48 22% 49.80 37.22 23 17

2004 3.29 2.28 1.67 1.47 0.39 23% 40.94 29.16 25 17

2003 2.21 2.02 1.43 0.82 0.36 25% 30.10 17.20 21 12

2002 2.93 1.85 1.28 0.46 0.36 28% 28.00 18.50 22 14

2001 4.48 1.47 0.72 NA Nil Nil 27.12 11.80 38 16

2000 NA 1.87 1.35 NA NA NA NA NA NA NA

4,470 1,029 144 18.0 867 31.5% 594 491

4,769 1,090 129 21.0 953 28.9% 678 552

4,415 959 118 13.0 843 30.6% 585 568

3,863 776 106 13.0 689 30.8% 477 465

3,445 660 119 11.0 547 27.6% 396 367

2,930 539 109 8.00 430 30.0% 301 264

2,542 440 105 3.00 368 29.9% 258 148

2,492 427 105 6.00 341 30.8% 236 86.8

2,820 492 131 3.00 224 37.9% 139 59.2

2,510 492 99.0 20.0 381 32.5% 257 NA

Balance Sheet & Other Financial Data (Million $) Cash 235 Current Assets 2,362 Total Assets 4,645 Current Liabilities 1,359 Long Term Debt 532 Common Equity 1,292 Total Capital 1,824 Capital Expenditures 153 Cash Flow 738 Current Ratio 1.7 % Long Term Debt of Capitalization 29.2 % Net Income of Revenue 13.3 % Return on Assets 13.5 % Return on Equity 44.0

175 2,338 4,144 1,740 228 1,408 1,646 171 807 1.3 13.9 14.2 17.2 45.5

231 2,169 3,750 1,459 223 1,573 1,840 125 703 1.5 12.1 13.3 16.7 42.1

144 1,927 3,278 1,324 245 1,206 1,451 144 583 1.5 16.9 12.3 14.8 44.5

145 1,775 3,140 1,177 200 939 1,139 111 515 1.5 17.6 11.5 13.2 38.2

196 1,663 2,874 964 201 1,133 1,334 94.0 410 1.7 15.1 10.3 11.0 30.6

66.0 1,427 2,591 901 Nil 833 833 72.0 363 1.6 Nil 10.1 10.0 28.4

49.0 1,438 2,560 1,043 Nil 987 987 62.0 341 1.4 Nil 9.5 9.1 22.5

60.0 1,639 2,628 1,135 Nil 1,110 1,110 110 270 1.4 Nil 4.9 5.9 13.8

20.0 1,531 2,628 1,073 Nil 1,086 1,086 NA 356 1.4 Nil 10.2 NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 400 Collins Rd NE, Cedar Rapids, IA 52498-0503. Telephone: 319-295-1000. Email: [email protected] Website: http://www.rockwellcollins.com

Chrmn, Pres & CEO: C. Jones COO: J.A. Moore SVP & CFO: P.E. Allen SVP & CTO: N. Mattai

SVP, Secy & General Counsel: G.R. Chadick Founded: 2001 Investor Contact: D. Crookshank (319-295-7575) Domicile: Delaware Board Members: D. R. Beall, A. J. Carbone, C. A. Employees: 19,300 Davis, M. Donegan, R. E. Eberhart, C. Jones, D. Lilley, A. J. Policano, C. L. Shavers

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: ROP | ROP is in the S&P 500

Roper Industries Inc. S&P Recommendation HOLD

★★★★★

Price $70.38 (as of Oct 25, 2010)

GICS Sector Industrials Sub-Industry Electrical Components & Equipment

12-Mo. Target Price $78.00

Investment Style Large-Cap Growth

Summary This company makes high-tech industrial equipment and analytical instruments for oil and gas producers, semiconductor equipment makers, and industrial companies.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $72.91– 49.53 Trailing 12-Month EPS $2.74 Trailing 12-Month P/E 25.7 $10K Invested 5 Yrs Ago $20,324

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.25 3.76 21.7 94.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.628 0.54 $0.38 94

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.75 13 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's significant proportion of rapidly growing international sales and ROP's proprietary product portfolio, offset by its acquisition strategy and corporate governance practices, which we view as unfavorable versus peers.

80

60 50 40

Quantitative Evaluations Vol.

S&P Quality Ranking

19

Mil. 6 4 2 0 5

D

C

B-

A B

B+

A-

A

Relative Strength Rank 4

4

3

4

A+ STRONG

81

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

Highlights ➤

The 12-month target price for ROP has recently been changed to $78.00 from $68.00. The Highlights section of this Stock Report will be updated accordingly.

2009

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on ROP from MarketScope, see below.

➤

10/25/10 10:43 am ET ... S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF ROPER INDUSTRIES (ROP 71.27***): ROP reports Q3 EPS of $0.87, vs. $0.61, $0.09 ahead of our estimate on greater-than-expected revenue growth of 25% and a lower tax rate. We are increasing our '10 EPS forecast $0.11 to $3.25 and '11's by $0.23 to $3.76 on revised sales and margin forecasts and view favorably new order growth of 31% (20% organically). Although we would expect that order growth will continue, albeit at a slower pace due mainly to more normalized comparisons, we see limited upside potential to our $78 target price, which we raise $10 today on higher estimates and revised valuation analyses. /M.Christy, CFA

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 534.4 567.1 2009 505.4 504.9 2008 543.0 594.4 2007 478.4 530.6 2006 382.7 425.3 2005 333.8 361.6

3Q -485.7 593.1 530.9 427.2 365.2

4Q -553.6 575.9 560.1 465.5 393.2

Year -2,050 2,306 2,102 1,701 1,454

Earnings Per Share ($) 2010 0.62 0.74 2009 0.56 0.64 2008 0.68 0.80 2007 0.56 0.66 2006 0.42 0.53 2005 0.33 0.41

E0.78 0.61 0.80 0.70 0.56 0.45

E0.99 0.77 0.78 0.77 0.62 0.57

E3.25 2.58 3.06 2.68 2.13 1.74

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.095 0.095 0.095 0.095

11/23 01/25 06/18 08/12

01/06 04/07 07/07 10/06

01/08 04/09 07/09 10/08

01/29/10 04/23/10 07/30/10 10/29/10

Dividends have been paid since 1992. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: ROP

Roper Industries Inc. Business Summary August 03, 2010 CORPORATE OVERVIEW. Roper Industries is a high-tech industrial components and equipment maker that designs, manufactures and distributes energy systems and controls, scientific and industrial imaging products and software, specialty industrial technology products, and instrumentation products and services. ROP's target end markets include radio frequency (RF) applications, water and wastewater, oil and gas, research, power generation, and general industry. The company's products are broken down into four segments: Industrial Technology; Energy Systems and Controls; Scientific and Industrial Imaging; and RF Technology. The Industrial Technology segment (26% of 2009 sales; 28% of segment operating profits; 24% operating margins) provides products and solutions for improving customer productivity. Offerings include industrial pumps, flow measurement and metering equipment, industrial valves and controls, and water meter and automatic meter reading products and systems. ROP's strategy for this segment includes global sourcing, geographic expansion, asset velocity improvements, and the capture of market-based synergies among business units.

leading application expertise, coupled with advanced vibration-monitoring components, turbo-machinery control systems and non-destructive testing solutions, often incorporating significant software content. The company's strategy for the segment includes focusing on expanding into new applications and increasing aftermarket revenue. About half of this segment's revenues are derived from the oil and gas industry. The Scientific and Industrial Imaging segment (17%; 17%; 21%) provides solutions that enable global research in life and physical sciences. Key products are digital imaging cameras, spectrographic systems, electron microscope accessories, high-speed digital video equipment and image processing software. In addition, through ROP's Imaging Alliance, these businesses are working closely with internal and external sources. The RF Technology segment (35%; 34%; 22%) provides radio frequency identification and satellite-based communications technologies that are used in toll and traffic systems and processing, security and access control, and mobile asset tracking.

The Energy Systems and Controls segment (22%; 21%; 22%) provides service and solutions to improve quality, safety and efficiency for customer equipment and processes, primarily in energy markets. Customers benefit from industryCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.69 2.58 2.55 0.33 13% 55.50 36.82 22 14

2008 NM 3.42 3.06 3.06 0.29 9% 70.48 34.85 23 11

2007 NM 3.02 2.68 2.68 0.26 10% 71.01 48.40 26 18

2006 NM 3.03 2.13 2.13 0.24 11% 51.75 38.32 24 18

2005 NM 2.55 1.74 1.63 0.27 15% 41.10 28.28 24 16

2004 NM 1.79 1.24 1.11 0.19 16% 31.84 22.33 26 18

2003 NM 1.01 0.75 0.66 0.18 23% 25.98 13.18 35 18

2002 NM 1.28 1.04 0.93 0.17 16% 26.46 13.63 25 13

2001 NM 1.32 0.89 0.81 0.15 17% 26.13 15.50 30 18

2000 NM 1.15 0.79 NA 0.14 18% 18.97 12.00 24 15

2,050 511 103 58.5 340 29.5% 239 237

2,306 524 33.9 53.7 436 34.3% 287 287

2,102 470 31.8 52.2 384 34.8% 250 250

1,701 420 82.0 44.8 293 34.0% 193 193

1,454 336 71.3 43.4 221 30.6% 153 144

970 213 41.4 28.8 134 29.8% 93.9 83.8

657 124 16.4 16.4 66.3 27.5% 48.1 42.1

627 130 15.2 18.5 95.7 31.0% 66.0 59.0

587 126 27.5 15.9 86.4 35.4% 55.8 50.9

504 110 22.3 13.5 75.9 35.1% 49.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 168 Current Assets 871 Total Assets 4,328 Current Liabilities 478 Long Term Debt 1,041 Common Equity 2,421 Total Capital 3,575 Capital Expenditures 25.9 Cash Flow 343 Current Ratio 1.8 % Long Term Debt of Capitalization 29.1 % Net Income of Revenue 11.7 % Return on Assets 5.8 % Return on Equity 10.8

178 858 3,972 619 1,034 2,004 3,271 30.1 320 1.4 31.6 12.4 7.7 15.1

309 951 3,453 668 727 1,790 2,739 30.1 282 1.4 26.6 11.9 7.8 15.3

69.5 627 2,995 588 727 1,487 2,384 32.2 275 1.1 30.5 11.4 7.0 14.1

53.1 498 2,522 506 621 1,250 1,995 24.8 224 1.0 31.1 10.5 6.3 13.0

129 556 2,366 254 855 1,114 2,095 12.1 135 2.2 40.8 9.7 4.8 10.6

70.2 381 1,515 161 630 656 1,336 10.4 64.4 2.4 47.2 7.3 4.1 9.3

12.4 248 829 130 312 376 688 7.78 81.2 1.9 45.3 10.5 8.3 18.9

16.2 233 762 104 324 324 647 7.46 83.3 2.2 50.0 9.5 8.2 18.8

11.4 214 597 84.5 235 270 505 15.2 71.6 2.5 46.5 9.8 9.7 19.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6901 Professional Pkwy E Ste 200, Sarasota, FL 34240-8473. Telephone: 941-556-2601. Email: [email protected] Website: http://www.roperind.com

Chrmn, Pres & CEO: B.D. Jellison CFO: J. Humphrey Chief Acctg Officer & Cntlr: P.J. Soni Secy & General Counsel: D.B. Liner

Board Members: D. W. Devonshire, J. F. Fort, III, B. D. Founded: 1981 Jellison, R. D. Johnson, R. E. Knowling, Jr., J. Prezzano, Domicile: Delaware Jr., R. F. Wallman, C. Wright Employees: 7,650

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: ROST | ROST is in the S&P 500

Ross Stores Inc S&P Recommendation HOLD

★★★★★

Price $57.62 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel Retail

12-Mo. Target Price $55.00

Investment Style Large-Cap Growth

Summary This off-price retailer offers in-season branded apparel and other merchandise through over 1,000 stores in 27 states and Guam.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $58.93– 42.30 Trailing 12-Month EPS $4.24 Trailing 12-Month P/E 13.6 $10K Invested 5 Yrs Ago $23,397

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.25 4.70 13.6 120.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.941 1.11 $0.64 100

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.72 13 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of ROST's promising new turnaround initiatives at Ross Stores, and favorable growth prospects for dd's DISCOUNTS, offset by an uncertain outlook for consumer discretionary spending.

60 50 40 30

Quantitative Evaluations S&P Quality Ranking

Vol. 38

Mil.

D

15 10 5 0 5

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 68

4

3

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Jason N. Asaeda on August 27, 2010, when the stock traded at $ 50.95. Highlights ➤

➤

➤

Investment Rationale/Risk

We forecast a 7.5% increase in net sales for FY 11 (Jan.), following FY 10's 11% advance. We project about a 4% increase in net selling square footage based on ROST's plans to open 35 new Ross and 15 new dd's DISCOUNTS stores and closure of a handful of locations. The company opened 52 new Ross and four new dd's stores in FY 10. In a difficult macroeconomic environment, we think ROST will benefit from cost-conscious consumers trading down from higher-priced retailers for more affordable brand-name merchandise. We forecast that same-store sales will rise 4% in FY 11, on top of FY 10's 6% increase.

➤

While we expect ROST to take timely markdowns in an effort to support the inflow of new assortments, we see an overall reduction in clearance levels and higher merchandise margins as a result of improved inventory management and micro-merchandising tools. We also look for the company to exercise tight cost controls, as we anticipate operating expenses will increase with planned expansion.

➤

Factoring in planned share buybacks under ROST's new two-year $750 million repurchase authorization, we see EPS of $4.25 for FY 11.

➤

Revenue/Earnings Data

2010

Our hold recommendation is based on valuation. We believe ROST's planned expansion of Ross Stores mainly in its top-performing markets such as Florida, and management's efforts to lift the chain's profitability with improved execution of off-price buying, bode well for company fundamentals. And with fine-tuning of merchandise offerings driving profit improvement, we view dd's DISCOUNTS as an attractive long-term growth vehicle. However, our near-term outlook for ROST is tempered by tough comparisons this fall, as well as the company's significant presence in California, where sales weakened in the second quarter. Risks to our recommendation and target price include sales shortfalls due to changes in consumer confidence, spending habits, and buying preferences; merchandise availability; and, increased promotional activity by competitors. Our 12-month target price of $55 blends two valuation metrics. Applying a peer-median forward P/E multiple of 12.4X to our FY 11 EPS estimate, we arrive at a $53 value. Our historical valuation uses a forward P/E multiple of 13.5X, ROST's 10-year historical median, yielding a $57 value.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,935 1,912 2010 1,692 1,769 2009 1,556 1,640 2008 1,411 1,445 2007 1,292 1,308 2006 1,124 1,172

3Q -1,744 1,555 1,468 1,362 1,237

4Q -1,980 1,734 1,652 1,608 1,411

Year -7,184 6,486 5,975 5,570 4,944

Earnings Per Share ($) 2011 1.16 1.07 2010 0.72 0.82 2009 0.60 0.54 2008 0.48 0.54 2007 0.41 0.32 2006 0.34 0.29

E0.83 0.84 0.44 0.36 0.31 0.25

E1.18 1.16 0.76 0.70 0.66 0.49

E4.25 3.54 2.33 1.90 1.70 1.36

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.110 0.160 0.160 0.160

11/18 02/04 05/19 08/18

12/04 02/17 06/03 08/31

12/08 02/19 06/07 09/02

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: ROST

Ross Stores Inc Business Summary August 27, 2010 CORPORATE OVERVIEW. Ross Stores operated 1,036 (as of July 31, 2010) offprice retail stores that feature first-quality, in-season apparel, shoes, fragrances, and apparel-related accessories, as well as home furnishings and jewelry under the Ross (979) and dd's DISCOUNTS (57) names. Both chains target value-conscious 25 to 54 year-old men and women, with Ross targeting mainly middle-income households and dd's DISCOUNTS more moderate income households. Ross stores average 29,800 sq. ft. of selling space, and are located in 27 states (mainly warm weather) and Guam. dd's DISCOUNTS stores average 24,900 sq. ft of selling space, and are located in California, Florida, Texas and Arizona. Nearly all stores occupy leased facilities and are situated in neighborhood or strip shopping centers in heavily populated urban and suburban areas. The company believes it derives a competitive advantage by offering a wide assortment of quality brand-name and fashion merchandise in an easyto-shop environment at prices generally 20% to 60% below those charged by most department and specialty stores at Ross, and 20% to 70% below moderate department and discount store regular prices at dd's DISCOUNTS. Working with more than 7,700 vendors and manufacturers, ROST purchases later in the buying cycle than department and specialty stores, and can take advan-

tage of supply/demand imbalances. The vast majority of merchandise is acquired through opportunistic purchases of cancellations and overruns. Most orders have one delivery, and generally exclude promotional and markdown allowances and return privileges, enabling buyers to obtain significant discounts on in-season purchases. MARKET PROFILE. Apparel generated $188.5 billion at retail in the U.S. in 2009, down 5.2% from 2008, according to The NPD Group, Inc. consumer estimated data. Sales of women's apparel accounted for 55.2% of all apparel sales, followed by men's at 27.1%, and children's at 17.7%. In 2009, specialty stores accounted for approximately 30.8% of U.S. apparel sales, followed by mass merchants such as Target and Kmart at 21.6%, department stores including Nordstrom and Macy's at 13.5%, and national chains like Kohl's and JCPenney at 13.0%. ROST participates in the off-price retail channel, which gained ground last year, capturing an estimated 9.3% of U.S. apparel sales in 2009, up from 8.9% in 2008.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 9.39 4.81 3.54 3.54 NA NA 2009 50.50 28.08 14 8

2009 7.74 3.41 2.33 2.33 0.38 11% 2008 41.56 21.23 18 9

2008 7.23 2.78 1.90 1.90 0.24 13% 2007 35.17 24.42 19 13

2007 6.53 2.47 1.70 1.70 0.21 12% 2006 31.80 22.12 19 13

2006 5.80 2.12 1.36 1.30 0.17 12% 2005 31.37 22.34 23 16

2005 5.22 1.76 1.13 1.07 0.12 10% 2004 32.86 20.95 29 19

2004 4.99 1.96 1.47 1.41 0.10 6% 2003 28.08 16.29 19 11

2003 4.15 1.68 1.26 1.22 0.10 8% 2002 23.62 15.85 19 13

2002 3.45 1.26 0.96 0.92 0.09 9% 2001 17.07 8.28 18 9

2001 2.91 1.18 0.91 0.87 0.07 7% 2000 12.16 6.00 13 7

7,184 885 159 9.40 719 38.4% 443 443

6,486 637 142 11.5 495 38.3% 305 305

5,975 542 121 10.7 425 38.6% 261 261

5,570 498 108 8.63 398 39.3% 242 242

4,944 436 111 Nil 328 39.2% 200 190

4,240 390 94.6 0.92 279 39.1% 170 160

3,921 451 76.7 Nil 375 39.1% 228 218

3,531 397 66.2 0.28 330 39.1% 201 193

2,987 308 49.9 3.17 255 39.1% 155 149

2,709 297 44.4 3.47 249 39.1% 152 143

Balance Sheet & Other Financial Data (Million $) Cash 770 Current Assets 1,745 Total Assets 2,769 Current Liabilities 1,191 Long Term Debt 150 Common Equity 1,157 Total Capital 1,307 Capital Expenditures 158 Cash Flow 602 Current Ratio 1.5 % Long Term Debt of Capitalization 11.5 % Net Income of Revenue 6.2 % Return on Assets 17.3 % Return on Equity 41.1

322 1,314 2,356 955 150 996 1,244 224 447 1.4 12.1 4.7 12.9 31.1

264 1,398 2,371 1,011 150 971 1,200 236 382 1.4 12.5 4.4 11.0 27.8

367 1,515 2,359 1,083 150 910 1,146 137 350 1.4 13.1 4.3 11.2 27.7

192 1,229 1,939 879 Nil 836 937 176 310 1.4 Nil 4.0 10.8 24.9

115 1,123 1,736 712 50.0 766 908 150 264 1.6 5.5 4.0 9.9 22.4

202 1,121 1,657 712 50.0 755 885 147 305 1.6 5.6 5.8 15.0 32.6

151 922 1,361 627 25.0 643 668 133 267 1.5 3.7 5.7 16.5 33.9

40.4 715 1,083 490 Nil 544 544 86.0 205 1.5 Nil 5.2 15.1 30.6

37.2 631 975 434 30.0 468 498 82.1 196 1.5 6.0 5.6 15.8 32.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4440 Rosewood Dr, Pleasanton, CA 94588-3050. Telephone: 925-965-4400. Email: [email protected] Website: http://www.rossstores.com

Chrmn: N.A. Ferber Vice Chrmn & CEO: M. Balmuth COO & Co-Pres: M.B. O'Sullivan SVP, CFO & Chief Acctg Officer: J.G. Call

SVP, Secy & General Counsel: M. LeHocky Investor Contact: B. Chaville (925-965-4289) Board Members: M. Balmuth, K. Bjorklund, M. J. Bush, N. A. Ferber, S. D. Garrett, G. Orban, G. L. Quesnel, D. H. Seiler

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1957 Domicile: Delaware Employees: 45,600

Stock Report | October 23, 2010 | NYS Symbol: RDC | RDC is in the S&P 500

Rowan Companies Inc. S&P Recommendation HOLD

★★★★★

Price $32.24 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Drilling

12-Mo. Target Price $30.00

Investment Style Large-Cap Value

Summary This company performs contract oil and natural gas drilling, and builds heavy equipment and offshore drilling rigs.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $33.49– 20.44 Trailing 12-Month EPS $2.58 Trailing 12-Month P/E 12.5 $10K Invested 5 Yrs Ago $11,144

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.48 2.15 13.0 114.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.696 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.60 -17 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects RDC's exposure to volatile crude oil and natural gas prices, capital spending decisions made by its oil and gas producing customers, and risks associated with operating in frontier regions. Offsetting these risks is the company's relatively higher specification jackup rig fleet than peers.

40 30 20

10

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

24 16 8 0 5

D

2007

2008

2009

B+

A-

A

A+ STRONG

Analysis prepared by Stewart Glickman, CFA on October 01, 2010, when the stock traded at $ 30.36. Highlights The recent acquisition of three rigs under construction, previously owned by privately held Norwegian player Skeie Drilling, raises RDC's newbuild slate to seven units, from four units previously. While only two of the seven units have obtained contract commitments, we believe that because the remaining five units are all high-specification jackups (a jackup niche which enjoys utilization in excess of 90%, globally, versus standard jackups in the 70% range), RDC should obtain contracts in short order. The first uncontracted unit is due for delivery in October 2010, three more in 2011, and one in 2012. As of August 2010, RDC had nine jackups in the U.S. Gulf of Mexico, which has experienced some delays in the permitting process due to the U.S. drilling moratorium (slated to end on November 30). Despite the pending termination, we expect companies to move units out of the U.S. Gulf to international locations, given uncertainty over post-ban operating costs and regulations. We see EPS of $2.48 in 2010, declining to $2.15 in 2011 on weaker dayrates.

Investment Rationale/Risk ➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P

➤

B B

82 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

We think RDC's high-spec jackup strategy offers a good value proposition to customers, enhanced by recent deep gas finds in the shallow U.S. Gulf of Mexico. While jackups in general have seen lower utilization in 2010 than in most prior years, this does not apply to high-end jackups, a niche in which RDC is a dominant player. Still, a rising supply of newbuild jackups, with 9 jackups due by the end of the year and 19 more in 2011, will likely be hard to absorb without causing pressure on leading edge dayrates.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 432.4 490.1 2009 494.8 482.2 2008 485.5 587.1 2007 465.3 507.0 2006 299.8 382.9 2005 222.4 244.6

3Q -393.4 527.1 502.2 417.1 284.4

4Q -399.8 613.0 623.6 411.0 317.4

Year -1,770 2,213 2,095 1,511 1,069

Earnings Per Share ($) 2010 0.56 0.79 2009 1.16 0.85 2008 0.88 1.06 2007 0.77 1.14 2006 0.53 0.98 2005 0.28 0.39

E0.53 0.69 1.00 1.16 0.77 0.67

E0.38 0.53 0.81 1.23 0.56 0.63

E2.48 3.24 3.77 4.31 2.84 1.97

➤

Risks to our recommendation and target price include lower dayrates and utilization; permitting delays in the U.S. Gulf of Mexico; shipyard delays; and risk of contract terminations at LTI.

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

➤

Our net asset valuation model, assuming terminal growth of 3% per year and a weighted average cost of capital of 11.1%, indicates that the shares have an intrinsic value of $25. Assuming relative multiples of 7X enterprise value to estimated 2011 EBITDA and 8X projected 2011 cash flow (slight premium to peers, warranted, we think, by lack of deepwater U.S. Gulf exposure) and blending these values with our NAV model, our 12-month target price is $30.

Quarterly dividends were eliminated in January 2009.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data

Stock Report | October 23, 2010 | NYS Symbol: RDC

Rowan Companies Inc. Business Summary October 01, 2010 CORPORATE OVERVIEW. Rowan Companies is a major provider of international and domestic contract drilling services, and also has manufacturing operations. As of February 2010, RDC operated 23 jackup rigs (comprised of 20 cantilever jackups and three conventional jackups), and a fleet of 29 land rigs. Of the 23 active jackups in the fleet, eight were in the Gulf of Mexico (GOM), nine were in the Middle East, two were in the North Sea, and one apiece were in West Africa, Egypt, Eastern Canada, and Mexico. RDC's jackup rigs perform both exploratory and development drilling and, in certain areas, well workover operations. Its larger jackups can drill to depths of 20,000 ft. to 30,000 ft. in maximum water depths of 250 ft. to 490 ft. RDC conducts business via two main operations. In 2009, Drilling Services operations, which includes the offshore rigs and land rigs, contributed $1.21 billion in revenues (down 16% from 2008), and accounted for 69% of RDC's total 2009 revenues (60% offshore, 9% land). Manufacturing operations contributed $555 million in net revenues in 2009 (down 27% from 2008), accounting for the remaining 31% of total revenues. Manufacturing operations are further subdivided into two business segments. The Drilling Products and Services segment (DPS) provides equipment, parts and services for the drilling industry including jack-up rigs, rig kits and component packages. DPS generated $369 million in revenues to external customers in 2009 (after eliminations), down 25% from 2008. The Mining, Forestry and Steel Products segment (MFS),

which produces large-wheeled mining and timber equipment and related parts and carbon and alloy steel, generated $268 million in revenues to external customers in 2009, down 31% from 2008. IMPACT OF MAJOR DEVELOPMENTS. In July 2010, RDC acquired a 48.8% stake in privately held Skeie Drilling (which was managing the construction of three high-specification N-class jackup rigs), adding to its prior 1.5% stake, by issuing 0.00574 shares of RDC stock in exchange for each Skeie share. RDC also said that upon completion, it would tender for all remaining Skeie shares. Factoring in Skeie debt and expected remaining newbuild construction costs on the rigs, we estimate that the deal implies total consideration of $1.2 billion for the three rigs, and raises RDC's share count by approximately 11%. In March 2008, the company said it would explore strategic alternatives for its LTI business, including a potential spin-off to RDC shareholders. In November 2008, however, RDC said that due to financial market and industry conditions, it would not pursue further negotiations toward sale of LTI, although it will continue to review all strategic options.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 27.32 4.74 3.24 3.30 Nil Nil 27.54 10.28 8 3

2008 23.52 5.02 3.77 3.22 0.40 11% 47.94 12.00 13 3

2007 20.99 5.37 4.31 4.10 0.40 9% 46.16 29.48 11 7

2006 16.97 3.64 2.84 2.76 0.30 11% 48.15 29.03 17 10

2005 14.75 2.71 1.97 1.63 Nil Nil 39.50 24.53 20 12

2004 12.97 1.14 0.25 0.28 Nil Nil 27.26 20.44 NM NM

2003 11.95 0.84 -0.08 -0.05 Nil Nil 26.72 17.70 NM NM

2002 12.09 1.72 0.90 -0.31 Nil Nil 27.03 16.04 30 18

2001 11.84 1.52 0.80 0.65 Nil Nil 33.89 11.10 42 14

2000 11.17 1.36 0.74 NA Nil Nil 34.25 19.06 46 26

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,770 NA 171 8.03 501 26.7% 368 375

2,213 843 141 4.00 654 34.6% 428 366

2,095 812 119 25.9 739 34.5% 484 460

1,511 555 90.0 20.6 493 35.8% 317 308

1,069 355 81.3 22.0 345 36.9% 218 181

709 152 95.7 18.7 42.8 38.4% 26.4 28.9

679 89.0 86.9 15.9 -12.0 NM -7.77 -4.74

617 65.1 78.1 15.9 133 35.0% 86.3 -30.2

731 193 68.5 13.1 120 35.9% 77.0 62.8

646 170 58.9 12.1 111 36.7% 70.2 NA

Balance Sheet & Other Financial Data (Million $) Cash 640 Current Assets 1,550 Total Assets 5,211 Current Liabilities 568 Long Term Debt 788 Common Equity 3,110 Total Capital 3,963 Capital Expenditures 566 Cash Flow 539 Current Ratio 2.7 % Long Term Debt of Capitalization 19.9 % Return on Assets 7.5 % Return on Equity 12.7

222 1,369 4,549 745 356 2,660 3,442 829 569 1.8 10.3 10.2 17.1

284 1,303 3,875 496 420 2,348 3,182 463 603 2.6 13.2 13.2 22.9

258 1,103 3,435 517 485 1,874 2,707 479 407 2.1 17.9 9.9 18.1

676 1,208 2,975 341 550 1,620 2,485 200 299 3.5 22.1 8.0 14.4

466 815 2,492 235 574 1,409 2,147 137 122 3.5 26.8 1.1 2.1

58.2 444 2,191 150 569 1,137 1,924 250 79.1 3.0 29.6 NM NM

179 470 2,055 116 513 1,132 1,811 243 164 4.1 28.3 4.3 7.7

237 507 1,939 201 438 1,108 1,674 305 145 2.5 26.2 4.3 7.1

193 483 1,678 104 372 1,053 1,516 216 129 4.6 24.5 4.6 7.9

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2800 Post Oak Blvd Ste 5450, Houston, TX 77056-6189. Telephone: 713-621-7800. Email: [email protected] Website: http://www.rowancompanies.com

Chrmn: H.E. Lentz, Jr. Pres & CEO: W.M. Ralls SVP, CFO & Treas: W.H. Wells Chief Acctg Officer & Cntlr: G.M. Hatfield

Secy: M.M. Trent Founded: 1923 Investor Contact: S.M. McLeod (713-960-7517) Domicile: Delaware Board Members: R. G. Croyle, W. T. Fox, III, G. Employees: 4,846 Hearne, T. R. Hix, R. E. Kramek, F. R. Lausen, H. E. Lentz, Jr., C. B. Moynihan, P. D. Peacock, J. J. Quicke, W. M. Ralls

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: R | R is in the S&P 500

Ryder System Inc S&P Recommendation BUY

★★★★★

Price $44.87 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Trucking

12-Mo. Target Price $54.00

Investment Style Large-Cap Value

Summary This company provides truck leasing and rental, logistics and supply chain management solutions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.49– 31.86 Trailing 12-Month EPS $1.37 Trailing 12-Month P/E 32.8 $10K Invested 5 Yrs Ago $14,996

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.20 2.65 20.4 52.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.352 2.41 $1.08 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.40 14 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's financial leverage, exposure to low-margin businesses, and heavy capital spending needs to maintain its rental fleet, offset by its strong market position in truck leasing and what we see as steady cash flow generated by multi-year lease contracts.

80 60

40 30

20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

9 6 3 0 5

D 4

4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Kevin Kirkeby on August 09, 2010, when the stock traded at $ 44.04. Highlights

Investment Rationale/Risk

We forecast operating revenue, excluding fuel and subcontracted transportation, in 2010 to be unchanged from 2009 as R's customers reach fleet size targets, having reduced the capacity stipulated in their contracts. Still, we expect the economy to improve over the remainder of 2010 and 2011, and believe this is already starting to be reflected in R's commercial rental unit and will broaden to its contract-based leasing and dedicated segments. Based on this outlook, we anticipate a 5% increase in operating revenues in 2011.

➤

We see margins widening in 2010 due to cost cuts and a stabilization in customer shipping schedules, allowing for more effective fleet positioning. Since prices for used equipment appear to have bottomed, we anticipate that depreciation expense will decrease in 2010, reflecting fewer revaluations to truck values. We expect variable compensation to rise as business recovers, but pension expenses will likely be lower than in 2009. These same factors will contribute to a further widening in margins during 2011, in our view.

➤

After incorporating a higher effective tax rate, our EPS forecast for 2010 is $2.08.

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P

➤

B+ B

61 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

Economic weakness has weighed upon R's leasing operations, which are contract-based and generally slower to respond to changes in the economy. However, with manufacturing plants increasing production, we see R's rental operations as a key near-term capacity supplier to companies still reluctant to commit to new trucks. We also believe the economy is improving and that R's other segments will begin to show sequential gains this year. On this, we think valuations above the 10-year average are justified.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,220 1,286 2009 1,174 1,212 2008 1,544 1,660 2007 1,594 1,658 2006 1,496 1,596 2005 1,316 1,390

3Q -1,254 1,626 1,648 1,621 1,491

4Q -1,247 1,374 1,666 1,594 1,545

Year -4,887 6,204 6,566 6,307 5,741

Earnings Per Share ($) 2010 0.24 0.58 2009 0.20 0.48 2008 0.96 1.10 2007 0.84 1.07 2006 0.77 1.13 2005 0.64 0.98

E0.65 0.51 1.25 1.11 1.06 0.98

E0.60 0.43 0.19 1.24 1.08 0.93

E2.20 1.62 3.52 4.24 4.04 3.53

Risks to our recommendation and target price include renewed weakness in the economy and a slowing in rental activity; large increases in capacity across the truckload industry; and higher interest rates, to which R is exposed in light of its financial leverage.

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our DCF model assumes an 11.8% cost of equity and terminal growth of 3.5%, and calculates intrinsic value approaching $52. Using a 0.85X multiple, which is above the historical average but not top quartile, in our price-to-invested capital model yields a $56 value. Blending these two metrics, we arrive at our 12-month target price of $54.

0.250 0.250 0.270 0.270

02/10 05/14 07/16 10/20

02/19 05/21 08/19 11/18

02/23 05/25 08/23 11/22

03/19/10 06/15/10 09/17/10 12/17/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: R

Ryder System Inc Business Summary August 09, 2010 CORPORATE OVERVIEW. Ryder System is primarily a provider of transportation services and equipment to third parties. In 2009, the company generated over 93% of revenues in the United States and Canada, with the remainder spread across Europe, Asia and Mexico. The company serves a broad array of industries, with clients in the automotive, electronics, paper and paper products, food and beverage and retailing industries, among others. For reporting purposes, operations are divided into three segments: Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Contract Carriage (DCC). FMS (68% of revenues and 68% of operating profits before eliminations and unallocated costs in 2009) provides full-service truck leasing to customers worldwide. Under a typical full-service lease, R provides customers with vehicles, maintenance, supplies and related equipment necessary for operation, while customers furnish and supervise their own drivers, as well as dispatch and exercise control over the vehicles. R leased approximately 115,100 vehicles under full-service leases at December 31, 2009. FMS also provides shortterm truck rental to commercial customers that need to supplement their fleets during peak periods. About 12% of FMS revenue in 2009 was generated through commercial rentals. At December 31, 2009, the commercial rental fleet had about 27,400 units, down from about 38,400 at the end of 2005, re-

flecting the company's shift toward more longer-term, contractual portions of its business rather than the more cyclical rental market. SCS (23%, 13%) provides logistics support and transportation along the entire supply chain for its customers. This includes managing inbound raw materials all the way through to distribution of finished goods. Services include combinations of logistics systems and information technology design, the provision of vehicles and equipment (including maintenance and drivers), warehouse and transportation management, vehicle dispatch, and just-in-time delivery. The company said that its business with auto manufacturers, as well as parts suppliers, represented about 42% of SCS revenue in 2009. We believe General Motors is one of the unit's largest customers, at 13% of SCS revenues (and 3% of total company-wide revenues). R supports 9 General Motors plants, three less than in 2008 due to facility closures as part of that company's reorganization plan. There are about $20 million included in revenues that originated from R's serving those three facilities during 2009 prior to their closure.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 21.93 16.62 1.62 1.93 0.96 59% 46.58 19.00 29 12

2008 19.95 18.38 3.52 1.93 0.92 26% 76.64 27.71 22 8

2007 29.32 17.89 4.24 3.43 0.84 20% 57.70 38.95 14 9

2006 25.48 10.57 4.04 3.72 0.72 18% 59.93 39.61 15 10

2005 21.81 15.65 3.53 3.09 0.64 18% 47.82 32.00 14 9

2004 20.65 14.03 3.28 2.80 0.60 18% 55.55 33.61 17 10

2003 18.09 11.90 2.12 2.26 0.60 28% 34.65 20.00 16 9

2002 14.97 10.65 1.80 0.84 0.60 33% 31.09 21.05 17 12

2001 17.51 9.30 0.31 -0.76 0.60 194% 23.19 16.06 75 52

2000 17.43 11.20 1.49 NA 0.60 40% 25.13 14.81 17 10

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,887 1,111 826 144 144 37.3% 90.2 107

6,204 1,384 844 157 350 42.9% 200 110

6,566 1,336 817 160 405 37.4% 254 206

6,307 1,218 743 141 786 18.3% 642 229

5,741 1,165 740 120 357 36.3% 228 200

5,150 1,076 706 100 331 34.9% 216 184

4,802 905 625 96.2 212 36.2% 136 145

4,776 854 552 91.7 176 36.0% 113 53.1

5,006 798 545 119 30.7 39.2% 18.7 -46.3

5,337 906 580 154 141 37.0% 89.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 98.5 Current Assets 880 Total Assets 6,260 Current Liabilities 850 Long Term Debt 2,265 Common Equity 1,427 Total Capital 3,692 Capital Expenditures 652 Cash Flow 916 Current Ratio 1.0 % Long Term Debt of Capitalization 61.4 % Net Income of Revenue 1.9 % Return on Assets 1.4 % Return on Equity 6.5

120 951 6,690 1,111 2,479 1,345 4,741 1,234 1,044 0.9 52.3 3.2 3.0 12.4

200 1,222 6,855 1,019 2,553 1,888 5,425 1,317 1,071 1.2 47.1 3.9 3.7 14.1

129 1,262 6,829 1,268 2,484 1,721 5,112 1,695 642 1.0 48.6 10.2 10.0 39.5

129 1,164 6,033 1,253 1,916 1,527 4,293 1,399 968 0.9 44.6 4.0 3.9 15.0

101 1,228 5,638 1,455 1,394 1,510 3,775 1,092 922 0.8 36.9 4.2 3.9 15.1

141 1,107 5,279 1,074 1,449 1,344 3,688 725 760 1.0 39.3 2.8 2.7 11.1

104 1,024 4,767 862 1,389 1,108 3,431 600 665 1.2 40.5 2.4 2.3 9.6

118 982 4,924 1,014 1,392 1,231 3,625 657 564 1.0 38.4 0.4 0.4 1.5

122 928 5,475 1,302 1,604 1,253 3,874 1,289 669 0.7 41.4 1.7 1.6 7.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 11690 NW 105th Street, Miami, FL 33178. Telephone: 305-500-3726. Email: [email protected] Website: http://www.ryder.com

Chrmn & CEO: G.T. Swienton Pres: R.M. Schneider EVP & CFO: A.A. Garcia EVP & Chief Admin Officer: G.F. Greene

EVP, Secy & General Counsel: R.D. Fatovic Investor Contact: B. Brunn (305-500-4053) Board Members: J. S. Beard, J. M. Berra, D. I. Fuente, L. P. Hassey, L. M. Martin, L. P. Nieto, Jr., E. A. Renna, A. J. Smith, E. F. Smith, G. T. Swienton, H. E. Tookes, II

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1933 Domicile: Florida Employees: 22,900

Stock Report | October 23, 2010 | NYS Symbol: SWY | SWY is in the S&P 500

Safeway Inc S&P Recommendation HOLD

★★★★★

Price $22.29 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Food Retail

12-Mo. Target Price $23.00

Investment Style Large-Cap Blend

Summary This major food retailer operates about 1,725 stores in the U.S. and Canada.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $27.04– 18.73 Trailing 12-Month EPS $-3.25 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $10,383

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.54 1.75 14.5 372.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.310 2.15 $0.48 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.72 14 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of an improved shopping experience associated with new Lifestyle store remodelings. This is offset by a continued intense competitive environment as high unemployment rates and reduced consumer spending results in increased pricing pressure and trading down by consumers.

35 30 25 20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

30 20 10 0

D 4

5

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

➤

The 12-month target price for SWY has recently been changed to $23.00 from $20.00. The Highlights section of this Stock Report will be updated accordingly.

B+

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P

Highlights

BB

69

1

2007

B-

Relative Strength Rank

3

2

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on SWY from MarketScope, see below.

➤

10/14/10 12:10 pm ET ... S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SAFEWAY INC (SWY 21.68***): Q3 EPS of $0.33, vs. $0.31, is $0.01 below our estimate. Results benefitted from lower interest expense and an 8.5% reduction in shares, despite a 2.0% decline in identical store sales (vs. our -0.5% estimate) and narrower margins due to price reduction efforts. Although we see decreased deflationary food pressures in 2011, we believe sales growth will continue to be restricted by weak consumer demand. As a result, we are reducing our 2011 EPS estimate $0.10 to $1.75. However, due to our updated comparative and P/E analyses, we are raising our target price by $3 to $23. /J.Agnese

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 9,327 9,520 2009 9,236 9,462 2008 9,999 10,120 2007 9,322 9,823 2006 8,895 9,367 2005 8,621 8,803

3Q 9,400 9,458 10,169 9,785 9,420 8,946

4Q -12,694 13,816 13,356 12,504 12,046

Year -40,851 44,104 42,286 40,185 38,416

Earnings Per Share ($) 2010 0.25 0.37 2009 0.34 0.57 2008 0.44 0.53 2007 0.39 0.49 2006 0.32 0.55 2005 0.29 0.30

0.33 0.31 0.46 0.44 0.39 0.27

E0.61 -4.06 0.79 0.68 0.69 0.39

E1.54 -2.66 2.21 1.99 1.94 1.25

Fiscal year ended Dec. 31. Next earnings report expected: Late February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.120 0.120

12/11 03/11 05/19 08/25

12/22 03/23 06/22 09/21

12/24 03/25 06/24 09/23

01/14/10 04/15/10 07/15/10 10/14/10

Dividends have been paid since 2005. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SWY

Safeway Inc Business Summary July 23, 2010 CORPORATE OVERVIEW. Safeway is one of the largest U.S. food and drug retailers, operating about 1,725 stores principally in California, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area, and the Mid-Atlantic region in the U.S., and in British Columbia, Alberta and Manitoba/Saskatchewan in Canada. To support its store network, SWY has a network of distribution, manufacturing and food processing facilities. The company seeks to provide value to customers by maintaining high store standards while differentiating its offerings with a wide selection of high-quality produce and meat at competitive prices. The company also provides third-party gift cards, prepaid cards and sports and entertainment cards to retailers for sales to customers in North America and the U.K. through its Blackhawk subsidiary.

broken down by format, conventional supermarkets have the largest market share, holding 76% of the supermarket category, with $361 billion in sales. However, the natural/gourmet foods format is the fastest-growing category, holding a 6.1% market share in 2008 ($19.8 billion in sales). With $40.2 billion in sales excluding fuel ($3.9 billion) in 2008, Safeway held about a 7.3% market share within the supermarket category and 4.0% of total grocery sales. The average size of Safeway's stores (about 46,000 square feet) exceeded the industry average (33,300 square feet). Additionally, the company's sales per square foot ($500 per square foot) is higher than the supermarket average of $465 per square foot in 2008.

MARKET PROFILE. The U.S. grocery industry was a $995 billion business in 2008, according to Progressive Grocer. Supermarkets generated $547 billion, or 55% of total grocery industry sales, followed by convenience stores ($320 billion, 32%) and warehouse clubs ($107 billion, 11%). When supermarkets are Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 11.64 0.18 -2.66 1.88 0.38 NM 24.25 17.19 NM NM

2008 10.25 4.83 2.21 2.03 0.32 14% 34.87 17.19 16 8

2007 9.76 4.40 1.99 1.87 0.26 13% 38.31 30.10 19 15

2006 7.44 4.16 1.94 1.91 0.22 11% 35.61 22.23 18 11

2005 5.60 3.32 1.25 1.26 0.15 12% 26.46 17.85 21 14

2004 4.24 3.24 1.25 1.15 Nil Nil 25.64 17.26 21 14

2003 2.79 1.57 -0.38 1.21 Nil Nil 25.83 16.20 NM NM

2002 1.77 2.91 1.20 2.42 Nil Nil 46.90 18.45 39 15

2001 1.67 4.29 2.44 2.19 Nil Nil 61.38 37.44 25 15

2000 1.35 3.77 2.13 NA Nil Nil 62.69 30.75 29 14

40,851 2,604 1,171 332 -953 NM -1,098 780

44,104 2,994 1,141 371 1,505 35.8% 965 888

42,286 2,816 1,071 405 1,404 36.7% 888 835

40,185 2,591 991 396 1,240 29.8% 871 859

38,416 2,147 933 403 849 33.9% 561 566

35,823 2,067 895 411 794 29.4% 560 517

35,553 2,167 864 442 141 NM -170 538

32,399 3,190 812 369 1,320 56.9% 568 1,140

34,301 3,535 946 447 2,095 40.1% 1,254 1,122

31,977 3,119 838 457 1,867 41.5% 1,092 NA

Balance Sheet & Other Financial Data (Million $) Cash 472 Current Assets 3,825 Total Assets 14,964 Current Liabilities 4,238 Long Term Debt 3,874 Common Equity 4,946 Total Capital 9,330 Capital Expenditures 852 Cash Flow 73.7 Current Ratio 0.9 % Long Term Debt of Capitalization 41.5 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

383 3,976 17,485 4,499 4,184 6,786 11,729 1,596 2,106 0.9 35.7 2.2 5.5 14.3

278 4,008 17,651 5,136 4,658 6,702 11,614 1,769 1,960 0.8 40.1 2.1 5.2 14.4

217 3,566 16,274 4,601 5,037 5,667 10,821 1,674 1,862 0.8 46.5 2.2 5.4 16.4

373 3,702 15,757 4,264 5,605 4,920 10,748 1,384 1,494 0.9 52.2 1.5 3.6 12.2

267 3,598 15,377 3,792 6,124 4,307 10,894 1,213 1,455 0.9 56.2 1.6 3.7 14.1

175 3,508 15,097 3,464 7,072 3,644 11,139 936 694 1.0 63.5 NM NM NM

73.7 4,259 16,047 3,936 7,522 3,628 11,727 1,371 1,381 1.1 64.1 1.8 3.4 11.9

68.5 3,312 17,463 3,883 6,712 5,890 13,100 1,793 2,200 0.9 51.2 3.7 7.5 22.2

91.7 3,224 15,965 3,780 5,822 5,390 11,721 1,573 1,930 0.9 49.7 3.4 7.1 23.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5918 Stoneridge Mall Road, Pleasanton, CA 94588-3229. Telephone: 925-467-3000. Website: http://www.safeway.com Chrmn, Pres & CEO: S.A. Burd

EVP & CFO: R.L. Edwards EVP & Chief Admin Officer: L.M. Renda SVP & Chief Acctg Officer: D.F. Bond SVP, Secy & General Counsel: R.A. Gordon

Investor Contact: M.C. Plaisance (925-467-3136) Board Members: S. A. Burd, J. Grove, M. S. Gyani, P. M. Hazen, F. C. Herringer, K. W. Oder, A. Sarin, M. S. Shannon, W. Y. Tauscher

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1915 Domicile: Delaware Employees: 186,000

Stock Report | October 23, 2010 | NYS Symbol: SAI | SAI is in the S&P 500

SAIC Inc S&P Recommendation HOLD

★★★★★

Price $15.76 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry IT Consulting & Other Services

12-Mo. Target Price $16.00

Investment Style Large-Cap Value

Summary This company is a provider of scientific, engineering, systems integration and technical services and solutions primarily to the U.S. government.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.76– 14.87 Trailing 12-Month EPS $1.46 Trailing 12-Month P/E 10.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.46 1.51 10.8 371.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.858 Nil Nil 38

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.23 9 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the long-term nature of SAI's contracts, which typically provide steady cash flow, and its large cash position, offset by intense industry competition and the company's high percentage of revenue from the intelligence community and the Department of Defense.

22 20 18 16

Quantitative Evaluations Vol. Mil.

S&P Quality Ranking

81

41

NR

31

15 10 5 0

D

C

B-

B

B+

A-

A

Relative Strength Rank

5

4

3

2

A+ WEAK

26

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Dylan Cathers on September 02, 2010, when the stock traded at $ 15.22. Highlights ➤

➤

➤

We look for revenue growth of 4.5% in FY 11 (Jan.). We expect SAI to post healthy gains in the October and January quarters, given our view of easy comparisons and an expected ramp-up of previously signed contracts. In FY 12, we anticipate growth of 6.0%, given a large pipeline of opportunities as well as a strong funded backlog, which was $5.8 billion at the end of July. However, we still believe there are a number of headwinds, most important of which is our expectation of nominal growth for spending by the Federal government in its FY 11 (Sep.) budget for defense and Federal IT. Further, we think the contract award cycle remains extended, a problem that is exacerbated by uncertainty in the contracting process and increased protest activity by competitors. We see operating margins widening slightly in FY 11. We expect increased levels of research and development, bid and proposal activity, and pricing pressures to be offset by cost reduction initiatives and the receipt of a $56 million royalty payment, which had little expense associated with it. We estimate EPS of $1.46 in FY 11, aided by share buybacks, and see $1.51 in FY 12.

Investment Rationale/Risk ➤

➤

➤

Although we believe the stock's valuation is reasonable, we have concerns about the next few quarters, given the tightening of expenditures on defense-related items not directly related to the troops on the ground in Afghanistan. Long term, we have some concerns about defense spending levels in general, but we are more positive on the growth prospects related to cybersecurity and intelligence, as well as energy and healthcare IT, areas that SAI is attempting to expand into. Risks to our recommendation and target price include acquisition integration risk, pricing pressures from the outsourcing arena, changes in government procurement policies, increased contract protest activity by competitors, and a slowdown in defense spending reflecting shifting Administration priorities. Our 12-month target price of $16 is based on our relative valuation analysis. We use a peerdiscount multiple of 10.6X our FY 12 EPS estimate. The peer group includes companies in the IT Consulting & Other Services sub-industry that regularly compete with SAI and have significant exposure to the U.S. Department of Defense.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 2,685 2,794 2010 2,649 2,749 2009 2,369 2,555 2008 2,011 2,222 2007 1,954 2,051 2006 1,846 1,952

3Q -2,765 2,631 2,365 2,142 2,028

4Q -2,683 2,518 2,337 2,147 1,966

Year -10,846 10,070 8,935 8,294 7,792

Earnings Per Share ($) 2011 0.30 0.42 2010 0.30 0.31 2009 0.25 0.26 2008 0.18 0.24 2007 0.27 0.30 2006 0.15 0.24

E0.36 0.34 0.29 0.26 0.26 0.20

E0.36 0.31 0.30 0.24 0.20 0.38

E1.46 1.24 1.10 0.93 1.01 0.74

Fiscal year ended Jan. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: SAI

SAIC Inc Business Summary September 02, 2010 CORPORATE OVERVIEW. Science Applications International Corporation was formed in 1969. In October 2006, it completed a reorganization merger and became a wholly owned subsidiary of SAIC, Inc., which is a publicly traded company trading under the symbol SAI. The company provides scientific, engineering, systems integration and technical services and solutions primarily to the U.S. government, with specific emphasis on all branches of the U.S. military, the Department of Defense (DoD), the intelligence community, and the Department of Homeland Security (DoHS). It also provides these services to U.S. government, civil, state and local agencies, as well as to foreign governments and customers in select commercial markets. SAI has three reportable segments: Government, Commercial, and Corporate and other. Government is the largest, with sales from this segment contributing 96% of the company total in FY 10 (Jan.), up slightly from FY 09. The commercial segment operates mainly in the oil and gas, utilities and life sciences verticals, providing systems integration and advanced technical services, as well as more focused offerings such as IT infrastructure and data lifecycle management.

CORPORATE STRATEGY. Acquisitions are common in the IT services industry and are particularly prevalent among the companies that cater to the DoD and other related military, defense and intelligence communities. Acquisitions are an effective way for companies to increase their breadth of offerings and gain new skills. Equally important, acquisitions have become a method for adding employees, specifically those with high security clearances. During the past five fiscal years, SAI has made many acquisitions. In FY 08, it acquired The Benham Companies LLC, a consulting, engineering and architectural design company specializing in industrial manufacturing and facilities construction. In FY 09, it acquired Icon Systems, Inc., which designs, develops and produces laser-based systems and products for military testing, and SM Consulting, Inc, which provides various services to the government and private industries. In FY 10, it acquired R.W. Beck Group, Inc. a provider of business, engineering, energy, and infrastructure consulting services.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 1.94 1.52 1.24 1.24 NA NA 2009 20.42 15.94 16 13

2009 1.84 1.25 1.10 1.10 Nil Nil 2008 21.90 16.25 20 15

2008 4.03 1.12 0.93 0.92 Nil Nil 2007 21.13 16.11 23 17

2007 5.17 1.21 1.01 0.83 Nil Nil 2006 21.10 15.00 21 15

2006 16.28 0.89 0.74 0.72 Nil Nil 2005 NA NA NA NA

2005 NA 0.87 0.72 NA NA NA 2004 NA NA NA NA

2004 NA 1.14 0.93 NA NA NA 2003 NA NA NA NA

2003 NA 0.84 0.61 NA NA NA 2002 NA NA NA NA

2002 NA 0.43 0.04 NA NA NA 2001 NA NA NA NA

2001 NA 4.42 4.05 NA NA NA 2000 NA NA NA NA

10,846 960 93.0 76.0 799 37.4% 500 485

10,070 835 59.0 78.0 703 36.4% 447 448

8,935 746 80.0 90.0 629 38.2% 386 382

8,294 657 72.0 92.0 615 38.0% 369 370

7,792 567 70.0 89.0 497 28.0% 345 334

7,187 542 56.0 88.0 417 31.4% 272 NA

5,833 439 37.0 80.0 374 37.4% 224 NA

5,903 619 96.3 45.0 365 30.4% 247 NA

6,095 712 179 18.1 43.9 20.2% 18.2 NA

5,896 596 188 19.6 3,291 37.1% 2,059 NA

Balance Sheet & Other Financial Data (Million $) Cash 861 Current Assets 3,193 Total Assets 5,295 Current Liabilities 1,706 Long Term Debt 1,103 Common Equity 2,291 Total Capital 3,397 Capital Expenditures 58.0 Cash Flow 593 Current Ratio 1.9 % Long Term Debt of Capitalization 32.5 % Net Income of Revenue 4.6 % Return on Assets 9.7 % Return on Equity 22.9

936 3,217 5,048 1,683 1,099 2,084 3,183 59.0 506 1.9 34.5 4.4 8.9 22.4

1,096 3,237 4,981 1,832 1,098 1,901 2,999 61.0 466 1.8 36.6 4.3 8.1 22.5

1,113 2,945 4,558 1,663 1,199 1,536 2,791 74.0 441 1.8 43.0 4.4 7.2 17.0

3,455 NA 6,419 NA 1,192 1,221 2,413 54.0 415 NA 49.4 4.4 NA NA

2,350 4,986 6,010 2,299 1,215 2,351 3,682 42.0 328 2.2 33.0 3.8 4.7 12.0

2,365 3,928 5,493 1,713 1,232 2,190 3,510 131 432 2.3 35.1 5.2 6.8 16.7

2,189 3,505 4,804 1,552 897 2,007 2,952 43.4 343 2.3 30.4 4.2 5.1 10.9

1,189 2,586 4,948 1,711 123 2,524 2,695 127 197 1.5 4.6 0.3 0.3 0.6

1,346 2,901 6,092 1,785 119 3,344 3,501 147 2,247 1.6 3.4 34.9 39.2 79.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Data for 2006 pro forma as adj.; bal. sheet & book value as of July 31, 2006; per sh. data based on adj. pro forma shs. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1710 SAIC Drive, McLean, VA 22102. Telephone: 703-676-4300. Website: http://www.saic.com Chrmn: A.T. Young

CEO: W.P. Havenstein COO: L.B. Prior, III COO: A.J. Moraco EVP & CFO: M.W. Sopp

Investor Contact: S. Davis (703-676-2283) Board Members: F. A. Cordova, J. A. Drummond, T. F. Frist, III, J. J. Hamre, W. P. Havenstein, M. E. John, A. K. Jones, J. P. Jumper, H. M. Kraemer, Jr., L. C. Nussdorf, E. J. Sanderson, Jr., L. A. Simpson, A. T. Young

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1969 Domicile: Delaware Employees: 46,200

Stock Report | October 23, 2010 | NYS Symbol: STJ | STJ is in the S&P 500

St. Jude Medical Inc. S&P Recommendation BUY

★★★★★

Price $38.83 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $44.00

Investment Style Large-Cap Growth

Summary This leading maker of mechanical heart valves also produces pacemakers, defibrillators, and other cardiac devices. In July 2008, it acquired EP Medsystems for $91 million in a deal that expanded its capabilities in the atrial fibrillation market.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $42.87– 33.92 Trailing 12-Month EPS $2.55 Trailing 12-Month P/E 15.2 $10K Invested 5 Yrs Ago $8,088

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.99 3.20 13.0 327.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.713 Nil Nil 83

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.57 14 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

The company operates in a highly competitive industry characterized by relatively short product life cycles and volatile market share fluctuations. However, there are significant barriers to entry in the company's core markets, as products must obtain FDA approval prior to launch, and they require a large investment in research and development and sales effort.

50

40

30 25 Vol.

24 16 8 0 5

Quantitative Evaluations

83

Mil.

S&P Quality Ranking D

5

4

3

C

B-

B+ B

B+

Relative Strength Rank

1

2009

➤

The 12-month target price for STJ has recently been changed to $44.00 from $43.00. The Highlights section of this Stock Report will be updated accordingly.

HIGHEST = 99

2010 Options: ASE, CBOE

Highlights

A+

MODERATE

LOWEST = 1

2008

A

47

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A-

4

3

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on STJ from MarketScope, see below.

➤

10/20/10 10:40 am ET ... S&P REITERATES BUY OPINION ON SHARES OF ST. JUDE MEDICAL (STJ 38.5****): Q3 adjusted EPS of $0.72, vs. $0.59, beats our estimate by $0.05. Sales rose 6.9% on implantable cardioverter defibrillator, atrial fibrillation and neuromodulation gains. Gross margins declined on lower pacemaker margins, but the EBIT margin was above our view on well-controlled operating costs. We are positive on STJ's product development, which should improve gross margin trends, and its overseas penetration. We also think it is gaining share in several markets. We raise our '10 adjusted EPS estimate $0.08 to $2.99, '11's by $0.05 to $3.20 and our target price by $1 to $44. /P.Seligman

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,262 1,313 2009 1,134 1,184 2008 1,011 1,136 2007 887.0 947.3 2006 784.4 832.9 2005 663.9 723.7

3Q -1,160 1,084 926.8 821.3 737.8

4Q -1,203 1,133 1,018 863.8 789.9

Year -4,681 4,363 3,779 3,302 2,915

Earnings Per Share ($) 2010 0.73 0.77 2009 0.58 0.63 2008 0.53 0.58 2007 0.41 0.39 2006 0.36 0.38 2005 0.32 0.27

E0.67 0.48 0.55 0.46 0.32 0.44

E0.73 0.57 -0.56 0.34 0.42 0.01

E2.99 2.26 1.10 1.59 1.47 1.04

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 1994.

Stock Report | October 23, 2010 | NYS Symbol: STJ

St. Jude Medical Inc. Business Summary July 28, 2010 CORPORATE OVERVIEW. St. Jude Medical sells medical devices in the cardiac rhythm management (CRM), cardiac surgery, atrial fibrillation, and pain management categories. Although the company has a diversified product line, the principal driver of growth in recent years has been the CRM segment, where it sells pacemakers and defibrillators. CRM products (59% of 2009 sales) include implantable cardioverter defibrillators (ICDs) that are used to treat hearts that beat too fast (tachycardia) by monitoring the heartbeat and delivering high energy electrical impulses to terminate ventricular tachycardia and ventricular fibrillation. ICD products include the AnalyST Accel (approved in Europe in 2009) and Current Plus and Promote Plus devices (approved in 2009) with features that provide physicians more options for customizing therapy for patients with potentially lethal heart arrhythmias and heart failure. In addition, the company's products include the Current RF (radio frequency) VR/DR (single chamber/dual chamber) ICDs and Promote RF CRT-D. These devices are available in both standard and high energy versions and feature wireless telemetry.

well as Team ADx pacemakers, a group comprised of the Identity ADx, Integrity ADx, and Verity ADx families of devices. The Zephyr family of pacemakers includes automatic features to simplify device follow-up; the Victory line which includes the Victory and Victory XL family models, adding new capabilities, such as automatic P-wave and R-wave measurements with trends, lead monitoring, and automatic polarity switching. The Identity ADx family models maintain the therapeutic features of previous St. Jude Medical pacemakers, including the AF Suppression algorithm and the beat-by-beat auto capture pacing system that lets the pacemaker monitor each paced beat to verify heart stimulation. This family offers atrial tachycardia and atrial fibrillation arrhythmia diagnostics. In 2009, STJ received both European and FDA of its Accent RF pacemaker and Anthem RF CRT-P (cardiac resynchronization therapy pacemaker). In 2010, STJ anticipates introducing an MRI compatible pacemaker outside the U.S. and intends to file an application for a U.S. trial in 2010.

Also within the CRM division, pacemakers and related systems are sold to treat patients with hearts that beat too slowly (bradycardia). STJ's other pacing products include the Zephyr family of pacemakers, Victory product line as Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.65 2.88 2.26 2.27 Nil Nil 41.96 28.86 19 13

2008 2.19 1.63 1.10 1.12 Nil Nil 48.49 24.98 44 23

2007 2.25 2.08 1.59 1.64 Nil Nil 48.10 34.90 30 22

2006 2.23 1.92 1.47 1.47 Nil Nil 54.75 31.20 37 21

2005 1.84 1.38 1.04 0.90 Nil Nil 52.80 34.48 51 33

2004 4.27 1.34 1.10 1.03 Nil Nil 42.90 29.90 39 27

2003 3.02 1.12 0.92 0.82 Nil Nil 32.00 19.38 35 21

2002 3.27 0.96 0.76 0.63 Nil Nil 21.56 15.26 29 20

2001 2.28 0.74 0.48 0.38 Nil Nil 19.52 11.11 41 23

2000 1.50 0.65 0.38 NA Nil Nil 15.63 5.91 41 16

4,681 1,440 213 45.6 1,057 26.5% 777 782

4,363 1,275 186 22.6 631 39.1% 384 393

3,779 1,093 176 38.2 744 24.9% 559 576

3,302 945 167 33.9 721 23.9% 548 548

2,915 911 130 Nil 621 36.7% 393 341

2,294 672 85.8 Nil 537 23.7% 410 377

1,933 533 76.7 Nil 459 26.0% 339 302

1,590 445 74.9 Nil 373 26.0% 276 231

1,347 347 90.3 Nil 228 24.3% 173 136

1,179 326 92.3 Nil 177 27.2% 129 NA

Balance Sheet & Other Financial Data (Million $) Cash 393 Current Assets 2,560 Total Assets 6,426 Current Liabilities 1,067 Long Term Debt 1,588 Common Equity 3,324 Total Capital 5,246 Capital Expenditures 326 Cash Flow 991 Current Ratio 2.4 % Long Term Debt of Capitalization 30.3 % Net Income of Revenue 16.6 % Return on Assets 12.8 % Return on Equity 23.7

136 2,080 5,724 1,029 1,126 3,236 4,476 344 570 2.0 25.2 8.8 7.0 12.5

389 2,128 5,329 1,849 182 2,928 3,217 287 735 1.2 5.7 14.8 29.3 19.0

79.9 1,690 4,790 676 859 2,969 3,992 268 715 2.5 21.5 16.6 11.4 18.7

535 1,941 4,845 1,534 177 2,883 3,217 159 524 1.3 5.5 13.5 9.7 15.1

688 1,863 3,231 605 235 2,334 2,625 89.5 496 3.1 8.9 17.9 14.2 20.8

461 1,492 2,556 510 352 1,604 2,046 49.6 416 2.9 17.2 17.6 15.1 21.3

402 1,114 1,951 375 Nil 1,577 1,577 62.2 351 3.0 Nil 17.4 15.4 20.0

148 798 1,629 322 123 1,184 1,307 63.1 263 2.5 9.4 12.8 10.9 16.2

108 705 1,533 297 295 941 1,235 39.7 221 2.4 23.8 11.0 8.4 14.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One St Jude Medical Drive, St Paul, MN 55117-9983. Telephone: 651-756-2000. Website: http://www.sjm.com Chrmn, Pres & CEO: D.J. Starks

EVP, CFO & Chief Acctg Officer: J.C. Heinmiller Secy & General Counsel: P. Krop Investor Contact: A. Craig (651-481-7789) Cntlr: D. Zurbay

Board Members: J. W. Brown, R. R. Devenuti, S. M. Essig, T. H. Garrett, III, B. B. Hill, M. A. Rocca, D. J. Starks, W. L. Yarno

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1976 Domicile: Minnesota Employees: 14,000

Stock Report | October 23, 2010 | NYS Symbol: CRM | CRM is in the S&P 500

salesforce.com inc S&P Recommendation HOLD

★★★★★

Price $107.94 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Application Software

12-Mo. Target Price $110.00

Investment Style Large-Cap Growth

Summary This San Francisco-based company is a leading provider of on-demand customer relationship management applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $123.77– 56.17 Trailing 12-Month EPS $0.56 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $43,985

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.45 0.60 NM 129.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.021 Nil Nil 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.72 3 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's dominance in one of the growth areas of the software market. However, we think competition from traditional software vendors, and increasingly difficult annual comparisons, may result in lower future reported growth relative to historical rates.

120

60 40

20

Quantitative Evaluations

Vol. Mil.

38

32

15 10 5 0

D

5

3

3

4

3

2

2008

2009

Analysis prepared by Zaineb Bokhari on August 25, 2010, when the stock traded at $ 112.93.

➤

➤

We see sales rising 23% in FY 11 (Jan.), to $1.6 billion, following a 21% increase in FY 10. We expect sales to be driven by a 24% rise in subscription and support sales. We think clients will manage implementations to control costs, and we look for dollar-based attrition rates to stabilize in the mid-teens due to prevailing employment trends and clients' caution about the macro-economy; we see attrition improving modestly in FY 12. We see sales advancing 20% in FY 12, to $1.9 billion. We expect gross margins to improve slightly in FY 11 as we look for professional services to decline as a percentage of revenues. We forecast operating margins of 7.5% in FY 11, versus 8.8% in FY 10. Our outlook includes higher stock-based compensation expense, which we believe will rise to $117 million in FY 11, from $89 million in FY 10. We anticipate slightly wider operating margins again in FY 12. We forecast EPS of $0.45 in FY 11, down from $0.63 in FY 10. We expect CRM's effective tax rate to remain near 41% in FY 11. We estimate EPS of $0.60 in FY 12.

Investment Rationale/Risk ➤

NR B

B+

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, Ph

Highlights

B-

38

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

Relative Strength Rank

3

1

➤

S&P Quality Ranking

We remain cautious in our outlook for IT spending over the next 12 month, as we expect customer caution to prevail amid sluggish global macro-economic conditions. Nevertheless, we think new product offerings and the appeal of CRM's software-as-a-service delivery model will allow the company to post growth that exceeds that of traditional software peers. While we look for profitability to improve over time, in the near term, we see this being limited by planned investments in distribution and sales. We continue to see competitive on-demand offerings from traditional vendors in future periods, but we think CRM enjoys strong market leadership. We believe the company's ondemand model will have strong appeal in the current economic environment, but we think the shares are richly valued.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 376.8 394.4 2010 304.9 316.1 2009 247.6 263.1 2008 162.4 176.6 2007 104.7 118.1 2006 64.18 71.94

3Q -330.6 276.5 192.8 130.1 82.67

4Q -354.1 289.6 216.9 144.2 91.06

Year -1,306 1,077 748.7 497.1 309.9

Earnings Per Share ($) 2011 0.13 0.11 2010 0.15 0.17 2009 0.08 0.08 2008 0.01 0.08 2007 Nil Nil 2006 0.04 0.04

E0.15 0.16 0.08 0.05 Nil 0.11

E0.06 0.16 0.11 0.06 Nil 0.05

E0.45 0.63 0.35 0.15 Nil 0.24

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤

Risks to our recommendation and target price include a sharp downturn in the global economy, a sharp decline in sales or bookings growth from anticipated levels, and heightened competition.

➤

Our 12-month target price of $110 applies a 7.5X enterprise value-to-sales multiple to our FY 12 sales estimate, a notable premium to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: CRM

salesforce.com inc Business Summary August 25, 2010 CORPORATE OVERVIEW. Salesforce.com is a leading provider of "on-demand" customer relationship management software. On-demand, used interchangeably with software-as-a-service (SAAS), refers to the delivery of application or programming or platform services over the Internet as needed. Under this delivery model, customers access a software provider's solutions via the Web, with minor implementation and customization and little to no on-premise installation or maintenance of software. Payment for this "service" is generally on a per-seat per-user basis over an agreed-upon term. In our view, the delivery of software on demand offers several benefits to customers, including lower up front investment, increased vendor accountability and risk sharing, greater awareness of customer needs due to the constant feedback from customers, and flexible subscription pricing, which can be tailored to customer requirements. This model also offers benefits to the software vendor, including improved visibility into customers' needs and potentially higher customer satisfaction and retention levels. Another benefit we see is lower development and support costs arising from the use of a single version of software across a vendor's installed base. Among the drawbacks to this model for the customer is that over time, depending on the number of seats contracted for or level of usage, the ultimate cost of buying software

on-demand can become quite high and the level of customization may not always address a client's specific needs. A vendor typically incurs considerable up front cost in launching and supporting an SAAS solution. Many SAAS vendors operate at losses until they cross a certain revenue threshold. We note that Salesforce.com, in particular, had 82,400 customers at the end of July 2010, but achieved 7.5% GAAP operating margins. CRM experienced service outages in late December 2005 and in early 2006. We believe these service issues have been largely addressed, although we note another outage took place in early January 2010. We credit the company with the transparency it provides regarding the performance, uptime, and security of its system. Since the delivery of its service over the Web is a point of differentiation, we expect the company to continue to invest in infrastructure in future quarters. The low up front cost of CRM's products has significant appeal to small- and mid-sized businesses, in our view, although the company has had notable success in selling its services to larger institutions.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 7.50 0.97 0.63 0.58 NA Nil 2009 74.95 25.19 NM NM

2009 4.78 0.51 0.35 0.36 Nil Nil 2008 75.21 20.82 NM NM

2008 3.71 0.29 0.15 0.14 Nil Nil 2007 65.52 35.55 NM NM

2007 2.40 0.11 Nil Nil Nil Nil 2006 44.58 21.64 NM NM

2006 1.78 0.29 0.24 0.07 Nil Nil 2005 36.19 12.96 NM NM

2005 1.38 0.09 0.07 -0.04 Nil Nil 2004 22.70 9.00 NM NM

2004 1.13 0.06 0.04 -0.02 NA NA 2003 NA NA NA NA

2003 NA -0.27 -0.37 -0.43 NA NA 2002 NA NA NA NA

2002 NA -1.25 -1.36 NA NA NA 2001 NA NA NA NA

2001 NA -2.31 -2.38 NA NA NA 2000 NA NA NA NA

1,306 159 53.2 2.00 142 40.5% 80.7 74.7

1,077 84.7 21.0 0.11 85.6 43.9% 43.4 44.4

749 37.1 16.8 0.05 46.2 50.6% 18.4 17.5

497 8.91 12.5 0.19 12.5 78.4% 0.48 0.48

310 25.8 6.03 0.07 28.2 NM 28.5 8.59

176 9.67 3.15 0.04 9.15 13.3% 7.35 -3.26

96.0 2.86 2.59 0.02 4.24 12.8% 3.51 -0.61

51.0 -7.84 2.66 0.08 -10.0 Nil -9.72 -11.4

22.4 -19.5 2.40 0.27 -29.0 Nil -28.6 NA

5.43 -32.7 0.86 0.04 -31.9 NA -31.7 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,242 Current Assets 1,706 Total Assets 2,460 Current Liabilities 908 Long Term Debt 450 Common Equity 1,044 Total Capital 1,507 Capital Expenditures 53.9 Cash Flow 124 Current Ratio 1.9 % Long Term Debt of Capitalization 29.9 % Net Income of Revenue 6.2 % Return on Assets 4.1 % Return on Equity 9.4

698 1,069 1,480 767 4.05 672 687 61.1 64.4 1.4 0.6 4.0 3.4 7.7

451 741 1,090 606 Nil 452 461 43.6 35.2 1.2 Nil 2.5 2.1 5.0

252 419 665 377 0.01 282 286 22.1 13.0 1.1 0.0 0.1 0.1 0.2

208 303 435 235 0.18 196 199 23.4 34.5 1.3 0.1 9.2 8.0 16.7

119 179 280 132 0.72 145 147 4.31 10.5 1.4 0.5 4.2 4.0 14.9

142 NA 191 NA Nil 115 115 NA 6.11 NA Nil 3.7 NA NA

16.0 30.1 39.4 28.8 NA -56.1 5.42 2.37 -7.06 1.1 Nil NM NM NM

11.7 18.2 29.1 12.3 NA -52.0 9.47 0.71 -26.2 1.5 Nil NM NA NA

NA NA NA NA NA NA NA 5.87 -30.8 NA NA NM NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: The Landmark @ One Market, San Francisco, CA 94105. Telephone: 415-901-7000. Website: http://www.salesforce.com Chrmn & CEO: M. Benioff

EVP, CFO & Chief Acctg Officer: G.V. Smith EVP, Secy & General Counsel: D. Schellhase CTO: B. Pech

Board Members: M. Benioff, C. Conway, A. G. Founded: 1999 Hassenfeld, C. Ramsey, S. R. Robertson, S. Sclavos, L. Domicile: Delaware J. Tomlinson, M. Webb, Jr., S. Young Employees: 3,969

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NNM Symbol: SNDK | SNDK is in the S&P 500

SanDisk Corp S&P Recommendation HOLD

★★★★★

Price $37.41 (as of Oct 25, 2010)

GICS Sector Information Technology Sub-Industry Computer Storage & Peripherals

12-Mo. Target Price $47.00

Investment Style Large-Cap Growth

Summary This company designs, makes, and markets flash memory storage products used in a wide variety of electronic systems.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $50.55– 19.18 Trailing 12-Month EPS $4.85 Trailing 12-Month P/E 7.7 $10K Invested 5 Yrs Ago $6,553

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.48 4.15 8.4 233.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.719 Nil Nil 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.75 20 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatile nature of the flash memory space, an intensifying competitive environment, and what we deem to be significant price erosion within the industry.

40 20 10

Quantitative Evaluations

5

S&P Quality Ranking

Vol.

D

C

B-

BB

B+

A-

A

A+

Mil. 60 40 20 0

Relative Strength Rank

WEAK

19 LOWEST = 1

5

4

3

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Angelo Zino on October 25, 2010, when the stock traded at $ 37.69. Highlights ➤

➤

➤

We forecast that sales will increase 9.2% in 2011, following our projection for a 34% rise in 2010, as we see growth in megabytes partially offset by average price deflation. We see demand for SNDK's products increasing at a modest pace, with growth primarily being driven by higher demand for new mobile phones. In addition, we anticipate that new product cycles in devices such as tablets and smartphones will drive the need for increased NAND flash-based storage solutions. We project an annual gross margin of 37% in 2011, versus our 43% forecast in 2010. We think SNDK will benefit from higher growth in megabytes, but we expect some pricing pressure despite a relatively healthy supply and demand picture for NAND flash memory. We see margins aided by cost reductions as the company transitions to more advanced processes. We estimate an operating margin of 25% in 2011, compared to our 31% margin outlook in 2010. We forecast GAAP EPS of $4.48 for 2010 and $4.15 for 2011. Despite higher projected unit sales, we expect profit margins to narrow in 2011, given a lower pricing environment.

Investment Rationale/Risk ➤

We see SNDK poised to benefit from new applications in flash memory, such as solid state drives, but we are wary of pricing pressure as the industry expands capacity. We believe inventory levels across the supply chain are healthy and expect end-demand to improve going forward, partly aided by new tablet devices like the iPad. We expect the mobile market to be SNDK's highest growth business, and we see the stock being supported to some extent by net cash per share of nearly $14 as of the end of September 2010. We view co-founder and COO Sanjay Mehrotra as a suitable replacement following CEO Eli Harari's announcement to retire at the end of 2010.

➤

Risks to our recommendation and target price include the potential for more aggressive price erosion than we forecast, and more weakening in end-market demand than we foresee.

➤

Our 12-month target price of $47 is based on a P/E multiple of 11.3X our 2011 EPS estimate of $4.15, near comparable semiconductor manufacturers. Our target price is supported by a price-to-sales of 2.2X our 2011 sales per share estimate of $21.75, within its five-year historical range.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,087 1,179 2009 659.5 730.6 2008 850.0 816.0 2007 786.1 827.0 2006 623.3 719.2 2005 451.0 514.9

3Q 1,234 935.2 821.5 1,037 751.4 589.6

4Q -1,242 863.9 1,246 1,164 750.6

Year -3,567 3,351 3,896 3,258 2,306

Earnings Per Share ($) 2010 0.99 1.08 2009 -0.92 0.23 2008 0.08 -0.30 2007 Nil 0.12 2006 0.17 0.47 2005 0.39 0.37

1.34 0.99 -0.69 0.36 0.51 0.55

E1.07 1.45 -8.25 0.45 -0.17 0.68

E4.48 1.79 -9.19 0.93 0.96 2.00

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 25, 2010 | NNM Symbol: SNDK

SanDisk Corp Business Summary October 25, 2010 CORPORATE OVERVIEW. SanDisk Corp. (SNDK) designs, makes and markets flash storage card products used in a wide variety of consumer electronics products such as digital cameras, mobile phones, laptops, Universal Serial Bus, or USB, drives, gaming devices and MP3 players. Flash storage technology allows data to be stored in a durable, compact format that retains the digital information even after the power has been switched off. SNDK also provides high-speed and high-capacity storage solutions, known as solid-state drives, or SSDs, that can be used in lieu of hard disk drives in a variety of computing devices, including personal computers and enterprise servers. SNDK focuses on three primary markets: mobile phones, consumer, and computing. For mobile phones, SNDK's cards are experiencing increasing demand as multimedia features such as video and Internet access become more prevalent. The company is a leading supplier of the microSD and Memory Stick Micro product lines of removable storage cards used in mobile phones. Within the consumer market, SNDK provides flash storage products for imaging, gaming, audio/video and global positioning system (GPS). Flash storage cards are used as the film for all major brands of digital cameras. Its cards are also used to store video in solid-state digital camcorders and to store digital data in many other devices, such as maps in GPS devices.

In the computing market, SNDK sells USB flash drives that allow consumers to store computer files, pictures and music on keychain-sized devices and then transfer these files between laptops, notebooks, desktops and other devices that incorporate a USB connection. SNDK is currently developing SSDs for the mainstream notebook and desktop computer markets and it believes that SSDs will become a major application for NAND flash memory over the next several years as they are increasingly likely to replace hard disk drives. CORPORATE STRATEGY. Most of SNDK's products are manufactured by combining NAND flash memory with a controller chip. The vast majority of its NAND flash memory supply requirements are purchased through its flash venture relationship with Toshiba Corporation, which provide the company with memory wafers. From time to time, SNDK also purchase flash memory on a foundry basis from NAND flash manufacturers including Toshiba, Samsung, and Hynix Semiconductor. SNDK typically designs its controllers in-house and has them manufactured at third-party foundries.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 16.85 2.79 1.79 1.77 Nil Nil 31.18 7.53 17 4

2008 13.76 -8.00 -9.19 -5.06 Nil Nil 33.73 5.07 NM NM

2007 16.94 1.97 0.93 0.96 Nil Nil 59.75 32.74 64 35

2006 15.31 1.61 0.96 0.94 Nil Nil 79.80 37.34 83 39

2005 13.41 2.34 2.00 1.76 Nil Nil 65.49 20.25 33 10

2004 10.78 1.62 1.44 1.29 Nil Nil 36.35 19.28 25 13

2003 9.32 1.12 1.02 0.89 Nil Nil 43.15 7.39 42 7

2002 4.54 0.40 0.26 0.18 Nil Nil 14.60 4.80 57 19

2001 4.93 -2.04 -2.19 -1.05 Nil Nil 24.34 4.30 NM NM

2000 6.40 2.17 2.06 NA Nil Nil 84.81 13.75 41 7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,567 750 231 68.6 504 17.6% 415 411

3,351 -569 254 16.5 -1,903 NM -2,070 -1,138

3,896 536 246 16.9 398 43.9% 218 225

3,258 688 136 Nil 431 53.4% 199 195

2,306 642 65.8 0.57 613 37.0% 386 339

1,777 457 38.9 5.95 423 37.0% 267 239

1,080 280 23.0 6.75 242 30.2% 169 149

541 79.5 21.3 6.70 40.0 9.35% 36.2 25.7

366 -124 20.5 Nil -442 NM -298 -144

602 141 15.9 Nil 492 39.3% 299 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,919 Current Assets 2,915 Total Assets 6,002 Current Liabilities 871 Long Term Debt 935 Common Equity 3,910 Total Capital 4,918 Capital Expenditures 59.7 Cash Flow 646 Current Ratio 3.4 % Long Term Debt of Capitalization 19.0 % Net Income of Revenue 11.6 % Return on Assets 7.0 % Return on Equity 11.7

1,439 2,703 5,879 1,263 1,225 3,162 4,400 184 -1,803 2.1 27.9 NM NM NM

1,835 3,300 7,235 914 1,225 4,960 6,200 259 464 3.6 19.8 5.6 3.1 4.5

1,581 4,242 6,968 896 1,225 4,768 5,999 176 334 4.7 20.4 6.1 3.9 5.5

762 2,576 3,120 571 Nil 2,524 2,524 134 452 4.5 Nil 16.8 14.2 17.3

464 1,880 2,320 353 Nil 1,940 1,940 126 305 5.3 Nil 15.0 12.2 15.4

734 1,725 2,024 347 150 1,501 1,651 52.5 192 5.0 9.1 15.6 11.3 15.9

267 757 976 173 150 628 778 16.6 57.6 4.4 19.3 6.7 3.8 5.6

254 542 932 127 125 675 800 26.2 -277 4.3 15.6 NM NM NM

106 697 1,108 171 Nil 863 863 26.6 315 4.1 Nil 49.6 33.8 41.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 601 McCarthy Blvd, Milpitas, CA 95035-7932. Telephone: 408-801-1000. Email: [email protected] Website: http://www.sandisk.com

Chrmn & CEO: E. Harari Pres & COO: S. Mehrotra Vice Chrmn: I. Federman EVP & CTO: Y. Cedar

SVP, Secy & General Counsel: J. Brelsford Founded: 1988 Investor Contact: J. Bruner Domicile: Delaware Board Members: K. A. DeNuccio, I. Federman, S. Employees: 3,267 Gomo, E. Harari, E. Hartenstein, C. C. Hu, C. P. Lego, M. E. Marks, S. Mehrotra, J. D. Meindl

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SLE | SLE is in the S&P 500

Sara Lee Corp S&P Recommendation HOLD

★★★★★

Price $14.50 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $16.00

Investment Style Large-Cap Blend

Summary This company is a diversified provider of branded food products such as meats, fresh and frozen baked goods, and coffee. SLE is divesting some other businesses.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $15.40– 11.18 Trailing 12-Month EPS $0.73 Trailing 12-Month P/E 19.9 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.87 NA 16.7 662.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.602 3.03 $0.44 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.79 11 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Sara Lee reflects the relatively stable nature of the company's end markets, what we expect to be sizable cash flow from operating activities, and corporate governance practices that we view as favorable relative to peers.

16

12 10 8

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0

D

C

B-

B B

B+

A-

A

Relative Strength Rank

5

MODERATE

39

3

2

A+

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Tom Graves, CFA on August 24, 2010, when the stock traded at $ 14.74. Highlights ➤

➤

➤

SLE is in the midst of divesting various businesses in its International Household and Body Care (H&BC) segment. As of August 2010, SLE has announced transactions with divestiture sale prices totaling about 1.93 billion euros. Also, in February 2010, SLE hedged 1.6 billion euros at a euro-dollar rate of $1.35 per euro in anticipation of divestiture proceeds. We look for SLE to spend $2.5 billion to $3 billion on stock repurchases over a three-year period, including $500 million (about 36 million shares) already spent in 2010 through an accelerated share repurchase program. We expect cash sources for stock repurchases to include divestiture proceeds. In FY 11 (Jun.), from continuing operations, and before the prospective use of some divestiture proceeds, we estimate EPS of $0.87, up from $0.78 for FY 10, which excludes some special items, but includes about a $0.02 benefit from a 53rd week. Our sales estimate of about $10.8 billion for FY 11 excludes the H&BC segment, which is being treated as a discontinued operation.

Investment Rationale/Risk ➤

➤

➤

We look for a multi-year improvement program called Project Accelerate to incur costs, but also to lead to substantial expense savings. In August 2010, SLE said that from businesses classified as continuing operations, it expected annualized project benefits of $350 million to $400 million by the end of FY 12. Cumulative costs by the end of FY 12 were expected to total more than $300 million. We are pleased by acquisition offers that SLE has received for pieces of its H&BC business.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,588 2,858 2009 3,349 3,340 2008 3,054 3,408 2007 2,891 3,182 2006 3,900 2,974 2005 4,861 5,199

3Q 2,578 3,028 3,243 3,006 3,789 4,785

4Q 2,769 3,164 3,507 3,199 4,100 4,754

Year 10,793 12,881 13,212 12,278 15,944 19,254

Earnings Per Share ($) 2010 0.27 0.43 2009 0.32 -0.02 2008 0.28 0.25 2007 0.34 -0.08 2006 0.25 -0.06 2005 0.44 0.41

0.04 0.24 0.33 0.15 0.18 0.24

0.17 -0.02 -0.96 0.16 -0.15 -0.14

0.92 0.52 -0.06 0.57 0.53 0.92

Risks to our recommendation and target price include divestiture activity proceeding less favorably than expected, weaker-than-expected sales resulting from disappointing demand, and significantly more cost pressure than we anticipate.

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $16 largely reflects a P/E multiple of about 17X applied to our calendar 2010 EPS estimate from continuing operations of $0.80, which is about a 14% premium to what we expect from a group of other food stocks. We also include between $2 and $3 a share from prospective divestiture proceeds that SLE has yet to receive. The stock recently had an indicated dividend yield of about 3.0%.

0.110 0.110 0.110 0.110

10/29 01/28 04/28 06/24

11/27 02/25 05/27 09/02

12/01 03/01 06/01 09/07

01/08/10 04/07/10 07/08/10 10/07/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1946. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SLE

Sara Lee Corp Business Summary August 24, 2010 CORPORATE OVERVIEW. Sara Lee, best known for its baked goods, also has various other branded food and non-food businesses. In North America, this includes Jimmy Dean and Hillshire Farm meat products, while outside the U.S., it includes coffee and tea. In North America, in addition to providing products to retailers, SLE provides coffee, meats and bakery products to foodservice operators. In FY 10 (Jun.), from continuing operations, before intersegment eliminations, SLE's North American Retail (e.g., packaged meat, frozen bakery products, U.S. Senseo retail coffee business) represented 26% of total sales; North American Fresh Bakery accounted for 20%; North American Foodservice 17%; International Beverage 30%; and International Bakery 7%. SLE's International Household and Body Care (H&BC) segment is being treated as a discontinued operation. CORPORATE STRATEGY. In February 2010, SLE said that it anticipated $2.5 billion to $3 billion of stock repurchases within three years. Also, SLE said that it looked to maintain and gradually increase its current $0.44 per share annual dividend following the sale of its International Household and Body Care business, which we see SLE seeking to divest in pieces.

pleted or proposed divestiture transactions amounting to a total of about 1.93 billion euros. Also, in February 2010, SLE hedged 1.6 billion euros at a eurodollar rate of $1.35 per euro in anticipation of divestiture proceeds. Closed transactions include the air care business for 320 million euros and the Indian insecticides business for 185 million euros. Planned transactions include the global body care business for 1.275 billion euros, and the non-Indian insecticides business for 153.5 million euros. SLE said that both proposed transactions are expected to close in 2010, subject to regulatory approval. Also, SLE said in August 2010 that it is confident it will be able to successfully divest its remaining household businesses, primarily its global shoe care and Asian cleaning businesses, based on interest from various parties. At the end of FY 10's third quarter, SLE's balance sheet included $935 million of cash equivalents. We expected SLE to be paying sizable repatriation-related taxes related to it its pending divestiture proceeds and cash balance, but we think that stock repurchases are a good use for a large part of SLE's proceeds or cash.

Related to the H&BC segment, as of August 2010, SLE had announced comCompany Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 1.58 0.92 0.84 0.44 48% 15.40 11.67 17 13

2009 NM 1.22 0.52 0.47 0.44 84% 12.61 6.80 24 13

2008 NM 0.51 -0.06 0.69 0.42 NM 16.08 7.74 NM NM

2007 NM 1.33 0.57 0.50 0.50 88% 18.15 14.75 32 26

2006 NM 1.46 0.53 0.44 0.79 149% 19.64 14.08 37 27

2005 NM 1.87 0.92 0.86 0.78 85% 25.00 17.31 27 19

2004 NM 2.53 1.59 1.67 0.60 38% 24.49 20.17 15 13

2003 NM 2.44 1.50 1.30 0.62 41% 23.13 16.25 15 11

2002 NM 1.94 1.23 1.00 0.60 48% 23.84 16.15 19 13

2001 NM 2.80 1.87 0.92 0.57 30% 24.75 18.26 13 10

10,793 1,418 455 147 795 NA 635 586

12,881 1,488 497 170 588 38.1% 364 327

13,212 1,484 403 205 137 146.7% -64.0 501

12,278 1,242 539 265 419 NM 426 385

15,944 1,779 701 308 683 40.0% 410 339

19,254 2,183 737 290 934 21.7% 731 684

19,566 2,386 734 271 1,542 17.5% 1,272 1,336

18,291 2,345 674 276 1,484 17.7% 1,221 1,047

17,628 2,138 582 304 1,185 14.8% 1,010 806

17,747 2,191 599 270 1,851 13.4% 1,603 768

Balance Sheet & Other Financial Data (Million $) Cash 955 Current Assets 3,810 Total Assets 8,836 Current Liabilities 2,723 Long Term Debt 2,693 Common Equity 1,487 Total Capital 4,214 Capital Expenditures 373 Cash Flow 1,090 Current Ratio 1.4 % Long Term Debt of Capitalization 63.9 % Net Income of Revenue 5.9 % Return on Assets NA % Return on Equity NA

959 3,830 9,417 2,846 2,704 2,036 4,872 357 861 1.4 55.5 2.8 3.6 15.0

1,284 4,467 10,830 3,841 2,340 2,811 5,347 454 362 1.2 43.8 NM NM NM

2,520 5,643 12,190 4,301 2,803 2,615 6,066 529 965 1.3 46.2 3.5 3.2 16.8

2,231 6,774 14,522 6,277 3,807 2,449 6,324 625 1,111 1.1 60.2 2.6 2.8 15.2

545 5,811 14,412 4,968 4,115 2,938 7,134 538 1,468 1.2 57.6 3.8 5.0 24.7

638 5,746 14,883 5,423 4,171 2,948 7,194 530 2,006 1.1 58.0 6.5 8.4 52.8

942 5,953 15,084 5,199 5,157 1,870 7,806 746 1,895 1.1 66.1 6.7 8.5 71.7

298 4,986 13,753 5,463 4,326 1,534 7,252 669 1,592 0.9 59.7 5.7 8.4 83.0

548 5,083 10,167 4,958 2,640 899 4,646 532 2,191 1.0 56.8 9.0 14.7 167.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3500 Lacey Rd, Downers Grove, IL 60515-5424. Telephone: 630-598-6000. Website: http://www.saralee.com Chrmn: J.S. Crown

CEO: M. Smits EVP, Secy & General Counsel: B.J. Hart SVP & CFO: M. Garvey Chief Acctg Officer & Cntlr: J. Zyck

Investor Contact: L.M. de Kool Board Members: C. B. Begley, C. C. Bowles, V. W. Colbert, J. S. Crown, L. T. Koellner, C. J. Lede, J. D. McAdam, I. Prosser, N. Sorensen, J. W. Ubben, J. P. Ward

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1941 Domicile: Maryland Employees: 33,400

Stock Report | October 23, 2010 | NYS Symbol: SCG | SCG is in the S&P 500

SCANA Corp S&P Recommendation HOLD

★★★★★

Price $41.20 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $37.00

Investment Style Large-Cap Blend

Summary Through its subsidiaries, this energy-based holding company provides electric, natural gas, and telecommunications services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $41.97– 33.59 Trailing 12-Month EPS $2.90 Trailing 12-Month P/E 14.2 $10K Invested 5 Yrs Ago $13,499

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.95 3.15 14.0 126.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.217 4.61 $1.90 47

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.60 6 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

We think the largely regulated nature of SCG's operations provides a stable source of cash flow and earnings. In addition, the company has a less leveraged balance sheet than peers.

45 40 35

30

Quantitative Evaluations S&P Quality Ranking

Vol.

D

B-

B B

B+

A-

A

A+

21

Mil.

12

6 4 2 0 5

C

Relative Strength Rank

MODERATE 53

LOWEST = 1

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: Ph

Analysis prepared by Christopher B. Muir on August 20, 2010, when the stock traded at $ 38.27. Highlights ➤

We see 2010 revenue growth of 6.7%, stemming from stabilizing gas prices and industrial volumes, and growth in residential and commercial categories. SCG's gas and electric distribution territories should provide the utility with steady annual customer growth. In 2011, we see revenues rising 3.3% as we expect to see continuing economic improvements and rising gas prices, but we also see pressure on industrial sales.

Investment Rationale/Risk ➤

➤ ➤

➤

We expect operating margins of 17.3% this year rising to 18.2% in 2011, versus 16.5% in 2009. We expect lower per-revenue operating expenses in all categories in 2010 except electric fuel. For 2011, we see lower per-revenue electric fuel costs. We see pretax margins of 12.5% in 2010 and 13.7% in 2011, up from 12.2% in 2009, with 2010 affected by our expectations for higher interest expense and lower nonoperating income. Assuming an effective tax rate of 34.8% and continued upward share drift related to compensation, we estimate 2010 EPS of $2.95, up 8.1% from 2009's $2.73, excluding $0.12 in net non-recurring gains. Our 2011 EPS estimate is $3.15, up 6.8%.

➤

We think above-average population growth in SCG's service areas will provide solid opportunities for further rate and rate base increases. SCG's cash flow generation has been solid, in our view. We see the unregulated gas business in Georgia providing more growth than the regulated businesses. However, with our expectation for a 4% EPS CAGR over the next three years, we think the stock is fairly valued. Risks to our recommendation and target price include a sharp increase in interest rates, prolonged mild temperatures, unfavorable regulatory actions, and weaker-than-expected economic growth in the utility's service area. The stock recently traded at 12.1X our 2011 EPS estimate, or a small discount to its multi-utility peers. Our 12-month target price of $37 is 11.8X our 2011 estimate, an 8% discount to our peer target. We believe this valuation is warranted by what we see as a relatively strong balance sheet, offset by our expectation of slower than peers EPS growth and little improvement in the capital structure over the next three years. The dividend recently yielded 4.9%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,428 939.0 2009 1,343 878.0 2008 1,533 1,218 2007 1,363 1,007 2006 1,389 944.0 2005 1,266 891.0

3Q -921.0 1,266 1,079 1,062 1,127

4Q -1,094 1,301 1,172 1,168 1,492

Year -4,237 5,319 4,621 4,563 4,777

Earnings Per Share ($) 2010 1.03 0.43 2009 0.94 0.45 2008 0.93 0.49 2007 0.73 0.47 2006 0.80 0.50 2005 0.89 0.39

E0.82 0.84 0.80 0.79 0.76 0.88

E0.68 0.62 0.73 0.75 0.57 0.65

E2.95 2.85 2.96 2.74 2.63 2.81

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.470 0.475 0.475 0.475

10/28 02/11 05/06 07/29

12/08 03/08 06/08 09/08

12/10 03/10 06/10 09/10

01/01/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1946. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SCG

SCANA Corp Business Summary August 20, 2010 CORPORATE OVERVIEW. SCG's primary regulated operating businesses are South Carolina Electric & Gas (SCE&G), Public Service of North Carolina (PSNC), SCANA Energy, and an intrastate pipeline operation in South Carolina. As of December 31, 2009, SCE&G had 655,000 electric customers and 309,800 natural gas customers. PSNC had 472,900 gas utility customers. The company projects that its consolidated regulated base of more than 1.4 million electric and gas customers will grow 2.4% annually. The company's unregulated SCANA Energy served about 30% of the 1.5 million customers in Georgia's competitive natural gas supply market, with about 90,000 of its 455,000 gas customers receiving regulated services. In 2009, 51% of SCG's external revenues were derived from electric operations (42% in 2008), 22% (23%) from natural gas distribution, 14% (23%) from energy marketing, and 12% (12%) from retail gas marketing. SCE&G owned 5,611 megawatt (MW) of generating plants as of December 2009. This capacity consisted of 45% coal, 29% oil/gas, 14% hydro and 11% nuclear. In 2009, 63% of SCE&G's power was generated by coal plants, 21% by nuclear, 12% by natural gas and oil, and 4% by hydroelectric.

CORPORATE STRATEGY. SCG sees reserve margins falling in its service territory over the next several years and believes that new baseload power will be needed. As a result, it plans to invest in nuclear generation to fill the gap. SCE&G submitted a joint application to the NRC on March 31, 2008, with Santee Cooper, a state-owned utility, for a combined construction and operating license (COL) that covers two nuclear units. SCE&G has said that the companies have elected to use a 1,000 MW design, which would be built at the existing VC Summer nuclear station, if the economic need still exists after the approximately three-year COL application process. If the companies decide to move ahead with the project, SCG said the first plant could be built by 2016. SCE&G operates the VC Summer nuclear station and would remain the operator for all units after completion. Financially, SCG aims to increase earnings at a rate of 4%-6% annually and maintain a dividend payout ratio in the 55%-60% range.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.84 2.85 2.99 1.88 66% 38.64 26.01 14 9

2008 23.86 2.96 2.55 1.84 62% 44.06 27.75 15 9

2007 23.33 2.74 2.52 1.76 64% 45.49 32.93 17 12

2006 24.32 2.63 2.44 1.68 64% 42.43 36.92 16 14

2005 23.28 2.81 2.60 1.56 56% 43.65 36.56 16 13

2004 21.69 2.30 2.51 1.46 63% 39.71 32.82 17 14

2003 20.77 2.54 2.40 1.38 54% 35.70 28.10 14 11

2002 19.61 0.83 1.93 1.30 157% 32.15 23.50 39 28

2001 20.90 5.15 1.59 1.20 23% 30.00 24.25 6 5

2000 19.51 2.12 NA 1.15 54% 31.13 22.00 15 10

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

4,237 347 NA 3.12 NA 32.4% 348 365

5,319 344 NA 3.25 NA 35.3% 346 299

4,621 324 NA 3.18 NA 30.0% 320 294

4,563 333 NA 3.02 NA 28.1% 304 282

4,777 510 NA 2.18 3.00 NM 320 296

3,885 265 NA 2.83 26.0 32.4% 257 280

3,416 238 558 2.81 11.0 32.4% 282 268

2,954 220 522 2.68 NA 29.0% 88.0 204

3,451 224 482 2.49 NA 36.1% 539 167

3,433 217 NA 2.47 7.00 39.0% 221 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 12,602 Capital Expenditures 914 Net Property 9,300 Capitalization:Long Term Debt 4,483 Capitalization:% Long Term Debt 56.8 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 3,408 Capitalization:% Common 43.2 Total Capital 7,919 % Operating Ratio 87.4 % Earned on Net Property 7.9 % Return on Revenue 8.2 % Return on Invested Capital 7.5 % Return on Common Equity 10.8

11,645 904 8,499 4,361 58.0 113 1.50 3,045 40.5 8,631 90.2 8.8 6.5 7.3 11.5

10,650 712 7,669 2,879 48.4 113 1.90 2,960 49.7 7,000 89.3 8.5 6.9 9.8 11.0

9,954 485 7,139 3,067 50.9 114 1.89 2,846 47.2 7,094 89.4 8.6 6.7 8.8 11.0

9,540 366 6,842 3,062 53.4 Nil Nil 2,677 46.6 6,800 88.4 6.4 6.7 10.9 12.5

9,181 498 6,866 3,301 58.3 Nil Nil 2,357 41.7 6,658 87.8 8.9 6.6 7.6 10.8

9,025 738 6,745 3,340 59.2 Nil Nil 2,306 40.8 6,550 87.8 8.5 8.3 8.8 12.3

7,777 675 5,301 2,999 57.9 Nil Nil 2,177 42.1 6,041 83.8 10.1 3.0 9.9 4.0

7,215 523 4,851 2,812 56.2 Nil Nil 2,194 43.8 5,844 93.5 11.3 15.6 14.2 25.5

7,413 334 5,201 3,016 59.7 Nil Nil 2,032 40.3 5,888 88.0 11.0 6.4 8.7 10.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1426 Main Street, Columbia, SC 29201. Telephone: 803-217-9000. Email: [email protected] Website: http://www.scana.com

Chrmn, Pres & CEO: W.B. Timmerman SVP & CFO: J. Addison SVP & General Counsel: R.T. Lindsay Chief Acctg Officer & Cntlr: J.E. Swan, IV

Secy: G. Champion Founded: 1924 Investor Contact: J. Winn (803-217-9240) Domicile: South Carolina Board Members: B. Amick, J. A. Bennett, S. A. Employees: 5,828 Decker, D. M. Hagood, J. W. Martin, III, J. M. Micali, L. M. Miller, J. W. Roquemore, M. K. Sloan, H. C. Stowe, W. B. Timmerman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SLB | SLB is in the S&P 500

Schlumberger Ltd S&P Recommendation STRONG BUY

★★★★★

Price $67.77 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Equipment & Services

12-Mo. Target Price $85.00

Investment Style Large-Cap Blend

Summary This leading oilfield services company provides equipment and technology to the oil and gas industry worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $73.99– 51.67 Trailing 12-Month EPS $2.54 Trailing 12-Month P/E 26.7 $10K Invested 5 Yrs Ago $17,934

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.94 4.22 23.1 1,369.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$92.787 1.24 $0.84 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.27 23 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to volatile crude oil and natural gas prices; its dependence on capital spending decisions by its oil and gas producing customers; and political risk associated with operating in frontier regions around the world. This is offset by the company's leading industry position.

120

80 60

40

Quantitative Evaluations

Vol. Mil. 90 60 30 0

S&P Quality Ranking D 5

5

4

5

3

2

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

➤

The 12-month target price for SLB has recently been changed to $85.00 from $76.00. The Highlights section of this Stock Report will be updated accordingly.

NR B

B+

A-

A

Relative Strength Rank

A+ STRONG

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

85

1

2007

C

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on SLB from MarketScope, see below.

➤

10/22/10 11:41 am ET ... S&P MAINTAINS STRONG BUY OPINION ON SHARES OF SCHLUMBERGER (SLB 67.35*****): Q3 EPS of $0.70 before $0.68 of net 1X gains, vs. $0.65, is $0.07 below our est. We believe that the integration of the former Smith International is going relatively smoothly, and that SLB is likely to generate cost efficiencies and potential revenue efficiencies as a result. We think margins have room to the upside and, aside from Mexico, think international prospects look generally solid. We cut our '10 EPS estimate by $0.01 to $2.94, but lift '11's by $0.22 to $4.22. On our DCF model and higher peer multiples, we raise our 12-month target price by $9 to $85. /S. Glickman

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 5,598 5,937 2009 6,000 5,528 2008 6,290 6,746 2007 5,464 5,639 2006 4,239 4,687 2005 3,159 3,429

3Q -5,430 7,259 5,926 4,955 3,698

4Q -5,744 6,868 6,248 5,350 4,023

Year -22,702 27,163 23,277 19,230 14,309

Earnings Per Share ($) 2010 0.56 0.68 2009 0.78 0.51 2008 1.06 1.16 2007 0.96 1.02 2006 0.59 0.69 2005 0.44 0.39

E0.70 0.65 1.25 1.09 0.81 0.45

E0.94 0.67 0.95 1.12 0.92 0.54

E2.94 2.61 4.42 4.20 3.01 1.81

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.210 0.210 0.210 0.210

01/21 04/22 07/22 10/21

02/12 05/28 08/30 11/29

02/17 06/02 09/01 12/01

04/02/10 07/02/10 10/01/10 01/07/11

Dividends have been paid since 1957. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SLB

Schlumberger Ltd Business Summary July 26, 2010 CORPORATE OVERVIEW. As a global oilfield and information services company with major activity in the energy industry, Schlumberger operates in two primary business segments: Oilfield Services (91% of 2009 revenues; 89% of 2008 revenues), and WesternGeco (9%, 11%). Oilfield Services provides exploration and production services, solutions and technology to the petroleum industry. It is managed through four geographic areas (North America, South America, Europe/CIS/Africa, and the Middle East/Asia). The company is largely focused on international operations; North America generated only 18% of Oilfield Services' total revenues in 2009, and just 5% of the segment's 2009 pretax operating income (the latter number reflecting the extent to which the credit crisis-fueled pullback in oilfield activity hit the region). The Middle East/Asia region generated the highest operating margins in 2009, at 32.4%, with Europe/CIS/West Africa second, at 23.9%. Operations within Oilfield Services are organized into eight technology segments: (1) wireline services, providing information technology to evaluate the reservoir, plan and monitor wells, and evaluate and monitor production; (2) drilling and measurements, including directional drilling, measurement while drilling and logging while drilling services; (3) well testing; (4) well services, which includes pressure pumping, coiled tubing, well cementing and stimulation; (5) completions, which includes gas-lift and safety valves, and a range of intelligent well completions technology and equipment; (6) artificial lift, which offers production optimization services using electric submersible pumps and

other equipment; (7) data and consulting services; and (8) Schlumberger Information Solutions. Supporting these eight technologies are 20 R&D centers. In addition, SLB operates its WesternGeco seismic segment. WesternGeco provides worldwide comprehensive reservoir imaging, monitoring and development services, with seismic crews and data processing centers, as well as a large multiclient seismic library. Services include 3D and time-lapse (4D) seismic surveys, and multi-component surveys for delineating prospects and reservoir management. CORPORATE STRATEGY. SLB has made a strategic focus of improving its research and development of advanced oilfield technologies, with the goal of enhancing oilfield efficiency, reducing finding and development (F&D) costs, improving productivity, maximizing reserve recovery, and increasing asset values. We believe that advanced technology will become increasingly important, as existing oilfields mature and new oilfields are developed in harsh environments and challenging geological conditions. We anticipate that most new major oilfield developments are likely to be found in the Eastern Hemisphere, given relatively lower F&D costs and higher growth reservoir potential.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NA NA 2.61 0.84 32% 71.10 35.05 27 13

2008 8.85 5.97 4.42 0.84 19% 111.95 37.07 25 8

2007 7.23 5.41 4.20 0.70 17% 114.84 55.68 27 13

2006 3.84 4.24 3.01 0.50 17% 74.75 49.20 25 16

2005 3.63 2.89 1.81 0.42 23% 51.49 31.57 28 17

2004 2.54 1.89 0.85 0.38 44% 34.95 26.27 41 31

2003 1.87 1.74 0.41 0.38 93% 28.12 17.81 69 44

2002 0.70 -0.75 -2.09 0.38 NM 31.22 16.70 NM NM

2001 1.14 2.08 0.46 0.38 82% 41.41 20.42 91 45

2000 5.87 1.73 0.64 0.38 59% 44.44 26.75 70 42

22,702 NA 2,476 221 3,934 19.6% 3,156

27,163 8,602 1,904 247 6,852 20.9% 5,397

23,277 7,994 1,526 275 6,624 21.9% 5,177

19,230 6,458 1,561 235 4,948 24.0% 3,710

14,309 4,520 1,351 197 2,972 22.9% 2,199

11,480 2,895 1,308 272 1,327 20.9% 1,014

14,059 2,474 1,571 334 568 36.9% 473

13,474 -456 1,545 368 -2,230 NM -2,418

13,746 3,165 1,896 385 1,126 51.1% 522

9,611 2,084 1,271 276 959 23.8% 733

Balance Sheet & Other Financial Data (Million $) Cash 4,616 Current Assets NA Total Assets 33,465 Current Liabilities NA Long Term Debt 4,355 Common Equity 19,229 Total Capital NA Capital Expenditures 2,395 Cash Flow NA Current Ratio 1.9 % Long Term Debt of Capitalization 18.2 % Return on Assets NA % Return on Equity 17.5

3,692 12,894 31,991 8,125 3,694 16,862 20,628 3,723 7,301 1.6 17.9 18.0 34.0

3,169 11,055 27,853 7,505 3,794 14,876 18,732 3,191 6,703 1.5 20.3 20.4 40.9

166 9,186 22,832 6,455 4,664 10,420 15,084 2,457 5,271 1.4 30.9 18.1 41.2

191 8,554 18,077 5,515 3,591 7,592 11,688 1,593 3,550 1.6 30.7 12.9 32.1

224 7,060 16,001 4,701 3,944 6,117 10,477 1,216 2,322 1.5 37.6 5.6 16.9

234 10,369 20,041 6,795 6,097 5,881 12,376 1,025 2,044 1.5 49.3 2.4 8.2

168 7,185 19,435 6,451 6,029 5,606 12,188 1,366 -872 1.1 49.5 NM NM

178 7,705 22,326 6,218 6,216 8,378 15,231 2,053 2,418 1.2 40.8 2.6 6.3

3,040 7,493 17,173 3,991 3,573 8,295 12,474 1,323 2,003 1.9 28.6 4.5 9.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5599 San Felipe St 17th Fl, Houston, TX 77056-2724. Telephone: 713-513-2000. Email: [email protected] Website: http://www.slb.com

Chrmn & CEO: A. Gould COO: P. Kibsgaard EVP & CFO: S. Ayat Chief Acctg Officer: H. Guild

Treas: H.S. Oyinlola Investor Contact: M. Theobald (713-375-3535) Board Members: P. Camus, A. Gould, A. E. Isaac, N. Kudryavtsev, A. Lajous, M. E. Marks, E. A. Moler, L. R. Reif, T. I. Sandvold, H. Seydoux

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1926 Domicile: Netherlands Antilles Employees: 77,000

Stock Report | October 23, 2010 | NYS Symbol: SCHW | SCHW is in the S&P 500

Schwab (Charles) Corp

★★★★★

S&P Recommendation HOLD

Price $14.98 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Investment Banking & Brokerage

12-Mo. Target Price $17.00

Investment Style Large-Cap Blend

Summary This company's subsidiary, Charles Schwab & Co., is among the largest brokerage firms in the U.S., primarily serving retail clients.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.95– 12.64 Trailing 12-Month EPS $0.42 Trailing 12-Month P/E 35.7 $10K Invested 5 Yrs Ago $12,064

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.54 0.95 27.7 1,193.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.25 -7 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong competitive position, brand recognition and affluent client base, offset by industry cyclicality and our concerns about corporate governance.

30

20 15

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

D

90 60 30 0 5

$17.884 1.60 $0.24 70

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE 57

4

3

3

2

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Robert McMillan on October 19, 2010, when the stock traded at $ 14.98. Highlights ➤

➤

➤

We think revenues will inch up this year before a 17% increase in 2011. We look for assetbased fee income to decline, with higher asset balances due to new accounts and market gains outweighed by rate pressures. Commissions should also decrease as a modest uptick in activity is likely offset by lower commissions. We see net interest revenue increasing, helped by higher average interest earning assets and lower funding costs. While interest rates remain low, they seem to have stabilized somewhat, which should allow for fewer management fee waivers. SCHW continues to add clients and their assets, which should position the firm to grow revenues quickly once rates rise. An eventual move by the Fed to raise short-term rates would be immediately accretive to revenues, by our estimation. We expect pretax margins to contract in 2010 as the firm invests for growth. A slight reduction in compensation on a relative basis may be offset by rising advertising expenses. Other costs may decline on a relative basis, helped by cost-cutting efforts over the past year.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Although we think a premium multiple afforded the shares versus peers is appropriate, given SCHW's high proportion of recurring assetbased fees and strong brand recognition, we believe near-term challenges are likely to persist. Net interest income is not likely to improve significantly despite asset growth until the Federal Reserve raises short-term interest rates. A move to flat commissions regardless of the activity levels or assets should help the firm gain market share, although it is likely to reduce revenues in the near term. Nevertheless, we think SCHW's revenue streams are better diversified than many other discount brokers in our coverage, and are properly situated to benefit from an economic recovery. Risks to our recommendation and target price include a decline in trading volumes, equity market depreciation, and a delayed rise in short-term interest rates. Our 12-month target price of $17 is 20X our forward 12-month EPS estimate of $0.85, a premium to discount brokerage peers.

We forecast EPS of $0.54 in 2010 and $0.95 in 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 978.0 1,080 2009 1,111 1,085 2008 1,307 1,308 2007 1,153 1,205 2006 1,054 1,093 2005 1,059 1,087

3Q 58.00 1,011 1,251 1,291 1,066 1,138

4Q -986.0 1,284 1,345 1,096 1,180

Year -4,193 5,150 4,994 4,309 4,464

Earnings Per Share ($) 2010 Nil 0.17 2009 0.19 0.18 2008 0.26 0.26 2007 0.19 0.23 2006 0.19 0.19 2005 0.11 0.14

0.10 0.17 0.26 0.27 0.21 0.16

E0.16 0.14 0.27 0.26 0.37 0.14

E0.54 0.68 1.06 0.92 0.69 0.56

Fiscal year ended Dec. 31. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.060 0.060 0.060 0.060

10/22 01/27 04/27 07/27

11/10 02/10 05/05 08/11

11/13 02/12 05/07 08/13

11/27/09 02/26/10 05/21/10 08/27/10

Dividends have been paid since 1989. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SCHW

Schwab (Charles) Corp Business Summary October 19, 2010 CORPORATE OVERVIEW. Charles Schwab Corp. (SCHW) is a financial holding company that provides securities brokerage and related financial services through three segments, Schwab Investor Services, Schwab Institutional and Schwab Corporate and Retirement Services. Another subsidiary, Charles Schwab Investment Management, is the investment adviser for Schwab's proprietary mutual funds. In December 2007, CyberTrader, Inc., formerly a subsidiary of SCHW, which provides electronic trading and brokerage services to highly active, online traders, was merged into Schwab. Through the Schwab Investor Services segment (65% of 2009 net revenue), the company provides retail brokerage and banking services. Through various types of brokerage accounts, Schwab offers the purchase and sale of securities, including NASDAQ, exchange-listed and other equity securities, options, mutual funds, unit investment trusts, variable annuities and fixed-income investments. At the end of 2009, the company, through subsidiaries, served nearly 10 million active client accounts, and held client assets of more than $1.4 trillion.

segment has a dedicated sales force and service teams assigned to meet their needs. Institutional Services offers an array of services to help advisers establish their own independent practices, which includes access to dedicated service teams and outsourcing of back-office operations, as well as thirdparty firms that provide assistance with real estate, errors and omissions insurance, and company benefits. SCHW also offers a variety of educational materials and events to IAs seeking to expand their knowledge of industry issues and trends, as well as sharpen their individual expertise and practice management skills. The Institutional Services segment also provides retirement plan services, plan administrator services, stock plan services and mutual fund clearing services, and supports the availability of Schwab proprietary mutual funds on third-party platforms. The company serves a range of employer-sponsored plans: equity compensation plans, defined contribution plans, defined benefit plans, and other investment-related benefits plans.

Through the Institutional Services segment (35%), Schwab provides custodial, trading, technology, practice management, trust asset and other support services to independent advisers. To attract and serve independent advisers, this Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.89 0.82 0.68 0.67 0.24 35% 19.87 11.00 29 16

2008 3.03 1.19 1.06 1.08 0.22 21% 28.75 14.28 27 13

2007 2.76 1.04 0.92 0.92 0.20 22% 25.72 17.41 28 19

2006 3.63 0.81 0.69 0.68 0.14 14% 19.49 14.00 21 15

2005 2.71 0.72 0.56 0.53 0.09 16% 16.14 9.65 29 17

2004 2.57 0.47 0.30 0.23 0.07 25% 13.92 8.25 46 28

2003 2.56 0.35 0.35 0.27 0.05 14% 14.20 6.25 41 18

2002 0.55 0.30 0.07 -0.02 0.04 63% 19.00 7.22 NM NM

2001 2.58 0.30 0.06 -0.09 0.04 73% 33.00 8.13 NM NM

2000 2.69 0.70 0.51 NA 0.04 8% 44.75 22.46 88 44

996 1,428 4,414 221 1,276 38.3% 787 779

1,080 1,908 5,393 243 2,028 39.4% 1,230 1,247

860 2,270 5,617 623 1,853 39.6% 1,120 1,117

785 2,113 4,988 679 1,476 39.6% 891 875

779 1,944 5,151 687 1,185 38.4% 730 678

936 1,213 4,479 277 645 35.8% 414 314

1,207 970 4,328 241 710 33.5% 472 357

1,206 1,186 4,480 345 168 42.3% 97.0 -31.5

1,355 1,857 5,281 928 135 42.2% 78.0 -131

2,294 2,589 7,139 1,352 1,231 41.7% 718 NA

Balance Sheet & Other Financial Data (Million $) Total Assets 75,431 Cash Items 27,530 Receivables 16,535 Securities Owned 23,036 Securities Borrowed Nil Due Brokers & Customers 28,619 Other Liabilities 40,227 Capitalization:Debt 1,512 Capitalization:Equity 5,073 Capitalization:Total 6,585 % Return on Revenue 17.8 % Return on Assets 1.2 % Return on Equity 1.2

51,675 20,127 13,932 15,072 Nil 21,356 25,375 883 4,061 4,944 22.8 2.6 31.6

42,286 15,567 16,482 8,201 Nil 22,212 15,441 899 3,732 4,631 19.9 2.5 25.6

48,992 15,369 11,577 6,386 Nil 22,119 21,477 388 5,008 5,396 17.9 1.8 18.8

47,351 17,589 11,600 6,857 Nil 25,994 NA 514 4,450 4,964 14.2 1.5 16.5

47,133 21,797 10,323 5,335 Nil 28,622 NA 585 4,386 4,971 9.2 0.9 9.4

45,866 24,175 9,137 4,023 Nil 29,845 NA 772 4,461 5,233 15.1 1.1 11.1

39,705 24,119 7,067 1,716 Nil 27,877 NA 642 4,011 4,653 3.0 0.2 2.4

40,464 22,148 10,066 1,700 Nil 27,822 NA 730 4,163 4,893 2.0 0.2 1.9

38,154 14,300 16,680 1,603 Nil 26,785 NA 770 4,230 5,000 14.8 2.0 21.1

Income Statement Analysis (Million $) Commissions Interest Income Total Revenue Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Quarterly revs. excl. interest expense. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 211 Main Street, San Francisco, CA 94105. Telephone: 415-667-7000. Email: [email protected] Website: http://www.schwab.com

Chrmn: C.R. Schwab, Jr. Pres & CEO: W.W. Bettinger, II EVP, CFO & Chief Acctg Officer: J.R. Martinetto EVP, Secy & General Counsel: C.E. Dwyer

EVP & CIO: J. Hier-King Investor Contact: R.G. Fowler (415-636-9869) Board Members: N. H. Bechtle, W. W. Bettinger, II, P. P. Butcher, F. C. Herringer, S. T. McLin, A. Sarin, C. R. Schwab, Jr., P. A. Sneed, R. O. Walther, R. N. Wilson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1971 Domicile: Delaware Employees: 12,400

Stock Report | October 23, 2010 | NYS Symbol: SNI | SNI is in the S&P 500

Scripps Networks Interactive Inc S&P Recommendation BUY

★★★★★

Price $48.28 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Broadcasting & Cable TV

12-Mo. Target Price $52.00

Investment Style Large-Cap Value

Summary SNI, spun off by E.W. Scripps in 2008, is one of the leading developers of lifestyle-oriented content for television and the Internet.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.00– 36.87 Trailing 12-Month EPS $2.03 Trailing 12-Month P/E 23.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.01 2.51 24.0 166.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.280 0.62 $0.30 67

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.12 16 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects SNI's leading TV properties and our view of the company's solid ratings and advertising revenue growth. This is offset by a soft advertising market and higher volatility in the Interactive Services segment.

50 40 30 25

Quantitative Evaluations

20

S&P Quality Ranking

Vol. Mil.

D

6 4 2 0

C

B-

NR B

B+

A-

A

Relative Strength Rank

MODERATE 70

5

4

5

A+

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: Ph

Analysis prepared by Erik Kolb on August 12, 2010, when the stock traded at $ 42.23. Highlights ➤

➤

➤

Investment Rationale/Risk

We think SNI, spun off from E.W. Scripps (SSP 5, hold) on July 1, 2008, will grow net revenues 26%, to $1.96 billion, in 2010, compared to a 2.8% pro forma revenue decline in 2009. Although the ad market is still somewhat depressed, we think it is showing significant signs of improvement, and we believe SNI will continue to fare better than most peers. Retransmission revenues should also continue to rise. Specifically, we see a 30% increase at the Lifestyle Media segment and a 11% decline at the Interactive segment. In 2011, we see 11.0% net revenue growth.

➤

We think EBITDA margins will rise to 41.5% in 2010, from 38.7% in 2009, as improving ad rates and higher affiliate fees outweigh integration expenses and the still weak Interactive segment. We also note that most of SNI's programming is low cost due to its unscripted nature, which we think leads to better margins than most peers. In 2011, we see a 160 basis point improvement to 43.1%.

➤

Our 2010 and 2011 EPS estimates are $2.01 and $2.51, respectively, versus adjusted 2009 EPS of $1.76, which excludes various one-time charges.

➤

Revenue/Earnings Data

2010

We view SNI's niche television networks positively, as we think they will garner attractive ratings and attention from advertisers. The focused content of SNI's networks should also generate consistent advertising from specialty retailers, which should help provide a baseline advertising level. In the near term, we see higher affiliate fees as SNI renegotiates key contracts, especially for the Food Network. We see the beleaguered Interactive Services segment improving in 2011. Given SNI's unique networks and attractive balance sheet, we think it could become an acquisition target at some point. Risks to our recommendation and target price include a greater-than-expected slowdown in advertising, a decline in ratings for SNI's television networks, and a drop in visitors resulting in lower market share for the Interactive Services segment's comparison shopping websites. Our 12-month target price of $52 is derived by applying a 10.5X enterprise value multiple, slightly higher than peers in our coverage universe, to our 2011 EBITDA estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 469.4 516.0 2009 361.2 391.3 2008 388.3 416.1 2007 332.4 367.2 2006 --2005 ---

3Q -364.5 374.7 344.0 ---

4Q -429.7 411.5 397.7 ---

Year -1,541 1,591 1,441 1,323 1,002

Earnings Per Share ($) 2010 0.43 0.57 2009 0.37 0.49 2008 0.41 0.33 2007 -0.43 2006 --2005 ---

E0.40 0.39 0.35 0.35 ---

E0.56 0.40 -0.94 -1.83 ---

E2.01 1.65 0.14 -0.72 ---

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.075 0.075 0.075 0.075

11/18 02/18 05/18 08/04

11/25 02/24 05/26 08/27

11/30 02/26 05/31 08/31

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SNI

Scripps Networks Interactive Inc Business Summary August 12, 2010 CORPORATE OVERVIEW. Scripps Networks Interactive is a lifestyle content and Internet search company with national television networks and interactive brands. SNI manages its operations through the Lifestyle Media (formerly Scripps Networks) and Interactive Services (formerly Interactive Media) segments. Lifestyle Media includes HGTV, Food Network, DIY, Fine Living, Great American Country, a minority interest in Fox-BRV South Sports Holdings, and Internet-based businesses, including RecipeZaar.com, HGTVPro.com, and FrontDoor.com. Interactive Media includes online comparison shopping and consumer information services, including Shopzilla, BizRate and UpMyStreet.

vice providers for online leads generated by its websites. Lifestyle Media and Interactive Services accounted for 88% and 12% of 2009 revenue, respectively, compared 82% and 18% in 2008, 83% and 17% in 2007, 80% and 20% in 2006, and 90% and 10% in 2005. In 2009, HGTV accounted for 45.1% of operating revenue, Food Network for 37.1%, DIY for 5.1%, Fine Living for 3.4%, GAC for 2.0%, SN Digital for 6.0%, and Travel Channel for 0.8%. In 2009, the HGTV network reached 98,700 homes, according to Nielsen; Food Network 99,200; DIY 53,200; Fine Living 56,400; GAC 58,500, and Travel Channel 95,200.

The Lifestyle Media segment derives revenues principally from advertising sales, affiliate fees, and ancillary sales, including the sale and licensing of consumer products. Revenues from the Interactive Media segment are generated primarily from referral fees and commissions paid by merchants and serCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.14 1.65 1.68 0.30 18% 42.36 18.10 26 11

2008 2.26 0.59 0.14 1.63 0.15 107% 44.98 20.00 NM NM

2007 2.25 -0.19 -0.72 1.11 NA NA NA NA NA NA

2006 NA NA NA 1.44 NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

1,541 NA 81.5 2.81 520 31.0% 273 278

1,591 651 73.9 14.2 309 62.5% 23.6 267

1,441 591 86.7 15.2 98.7 NM -118 183

1,323 NA 101 54.0 427 28.3% 234 235

1,002 NA 67.0 37.0 343 32.8% 176 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 254 Current Assets 982 Total Assets 2,963 Current Liabilities 211 Long Term Debt 884 Common Equity 1,384 Total Capital 2,533 Capital Expenditures 90.0 Cash Flow 355 Current Ratio 4.7 % Long Term Debt of Capitalization Nil % Net Income of Revenue 17.7 % Return on Assets 11.5 % Return on Equity NA

12.7 638 1,773 166 80.0 1,135 1,368 77.4 97.5 3.8 5.8 1.5 1.2 2.2

44.2 658 2,064 124 450 1,157 1,391 NA -31.0 5.3 32.3 NM NM NM

19.0 604 2,385 172 765 1,186 2,069 40.4 335 3.5 39.2 17.7 NA NA

NA NA NA NA NA NA NA 29.0 243 NA Nil 17.5 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Data for 2007 pro forma; bal. sheet & book val. as of March 31, 2008. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 312 Walnut Street, Cincinnati, OH 45202. Telephone: 513-824-3200. Website: http://www.scrippsnetworksinteractive.com Chrmn, Pres & CEO: K.W. Lowe

COO: R. Boehne EVP & CTO: M.S. Hale CFO & Chief Admin Officer: J.G. NeCastro Chief Acctg Officer: J. Liddicoat

Board Members: J. H. Burlingame, M. R. Costa, D. A. Founded: 2007 Galloway, K. W. Lowe, J. Mohn, N. B. Paumgarten, M. Domicile: Ohio M. Peirce, D. Pond, J. Sagansky, N. E. Scagliotti, R. W. Employees: 1,800 Tysoe

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SEE | SEE is in the S&P 500

Sealed Air Corp S&P Recommendation BUY

★★★★★

Price $23.76 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Paper Packaging

12-Mo. Target Price $26.00

Investment Style Large-Cap Growth

Summary This company is a leading global manufacturer of a wide range of food and protective packaging materials and systems.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.20– 18.43 Trailing 12-Month EPS $1.43 Trailing 12-Month P/E 16.6 $10K Invested 5 Yrs Ago $11,141

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.65 1.80 14.4 159.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.36 11 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects challenging global markets, volatile resin costs, and food-related health issues that could lead to restrictions on imports and exports. This is offset by our view of the company's sound balance sheet and cash flow generation.

30

20 15

10

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 9 6 3 0 5

$3.792 2.19 $0.52 87

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

MODERATE

4

3

A+

70 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Stewart Scharf on August 03, 2010, when the stock traded at $ 22.25. Highlights ➤

➤

➤

We expect net sales to rise about 6% (before foreign exchange) in 2010, driven by strength in developing regions and a pick-up in demand for protective packaging unit volume in the U.S. and Europe. We see favorable trends for new food packaging and solutions products in parts of Latin America and Asia/Pacific. However, we still believe consumers will dine at home more and buy lower-priced meat products, especially in Europe. We look for gross margins to widen by around 100 basis points in 2010, from 28.7% in 2009, as price hikes and contractual pricing passthroughs offset higher resin prices, following a lag in the first half; we also see a better product mix and improving supply chain efficiencies. In our view, EBITDA margins should expand somewhat from 2009's 16.6% (excluding special charges), due to well-controlled costs and improved productivity resulting from SEE's global manufacturing strategy. We estimate a higher effective tax rate of about 27% for 2010, and operating EPS of $1.65 (before $0.02 of restructuring charges), advancing 9% to $1.80 for 2011.

Investment Rationale/Risk ➤

➤

➤

Our Buy recommendation is based on our view that global markets will gradually recover into 2011. We expect the company to focus on generating strong free cash and developing new technologies and innovative products, especially for emerging markets. Our valuation models also suggest the shares are undervalued at recent levels. Risks to our recommendation and target price include a prolonged global economic downturn, another significant increase in resin costs, a strengthening U.S. dollar, and a new "mad cow" type disease scare. We have some concern regarding corporate governance issues, since at least one former CEO serves on the board of directors. Applying a P/E of 15X to our 2010 EPS estimate - in line with historical forward levels but at a modest premium to the S&P Paper Packaging sub-industry group multiple -- we arrive at a value of $25. Our discounted cash flow model, which assumes a perpetual growth rate of 3.5% and a weighted average cost of capital of 9%, leads to an intrinsic value of $27. Our 12-month target price of $26 is a blend of these two metrics.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,061 1,090 2009 988.5 1,028 2008 1,177 1,279 2007 1,095 1,145 2006 1,019 1,082 2005 969.8 1,020

3Q -1,080 1,219 1,161 1,081 1,020

4Q -1,146 1,168 1,250 1,146 1,076

Year -4,243 4,844 4,651 4,328 4,085

Earnings Per Share ($) 2010 0.35 0.38 2009 0.32 0.33 2008 0.33 0.34 2007 0.67 0.40 2006 0.30 0.31 2005 0.29 0.33

E0.45 0.34 0.05 0.39 0.41 0.34

E0.55 0.37 0.26 0.43 0.45 0.39

E1.65 1.35 0.99 1.89 1.47 1.35

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.120 0.120 0.130 0.130

02/18 04/13 07/27 10/14

03/03 06/02 09/01 12/01

03/05 06/04 09/03 12/03

03/19/10 06/18/10 09/17/10 12/17/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SEE

Sealed Air Corp Business Summary August 03, 2010 CORPORATE OVERVIEW. Sealed Air Corp., a leading protective and specialty packaging company, expects an increasing proportion of sales to come from outside the U.S. Foreign operations (excluding Canada, with about 3%) accounted for about 50% of sales in 2009, with Europe accounting for 28% of total sales, Latin America 9.1%, and Asia/Pacific 13%. As of the second quarter of 2007, the company realigned its segment reporting to reflect its growth strategies in core markets and new business opportunities, as it focuses on long-term global trends, including higher living standards in emerging markets, conservation and energy efficiency, convenience and longevity. The food packaging segment (43% of net sales in 2009; $252 million of operating income) focuses on industrial products and new technologies that enable food processors to package and ship fresh and processed meats and cheeses through their supply chain. Food Solutions (21%; $86 million) targets advancements in food packaging technologies that provide consumers with fresh meals from food service outlets or expanding retail cases at grocery stores. Protective Packaging (28%; $150 million) includes core packaging technologies and solutions slated for traditional industrial applications while emphasizing consumer-oriented packaging solutions. Other sales accounted for 7.5% ($12 million).

systems marketed mainly under the Cryovac trademark for a broad range of perishable food applications. The segment also manufactures polystyrene foam trays that are used by supermarkets and food processors to protect and display fresh meat, poultry and produce. The U.S. Department of Agriculture (USDA) projects increases in U.S. protein consumption. Case-ready packaging sales exceeded $480 million in 2008. The protective packaging products segment includes surface protection and other cushioning products such as air cellular packaging materials, and plastic sheets containing encapsulated air bubbles that protect products from damage during shipment, under the Bubble Wrap and Air Cap brand names. The new "Other" segment focuses on newer markets, including specialty materials for non-packaging applications such as insulation and products for value-added medical applications, as well as new ventures that include products sourced from renewable materials. In the second quarter of 2010, SEE reported a $0.03 a share foreign currency gain related to its Venezuelan unit. In the first quarter of 2010, the company incurred a $0.6 million pretax restructuring charge ($0.01 a share, after tax). In 2009, SEE incurred restructuring and other charges of $0.09 per share.

Food packaging products primarily consist of flexible materials and related Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.21 2.18 1.35 1.42 0.48 36% 22.99 10.38 17 8

2008 NM 1.77 0.99 1.06 0.48 48% 28.32 12.01 29 12

2007 NM 2.62 1.89 1.78 0.40 21% 33.87 22.41 18 12

2006 NM 2.30 1.47 1.49 0.30 20% 32.88 22.81 22 16

2005 NM 2.64 1.35 1.37 Nil Nil 28.32 22.78 21 17

2004 NM 1.99 1.13 1.14 Nil Nil 27.45 22.03 24 20

2003 NM 1.95 1.00 1.03 Nil Nil 27.24 17.50 27 17

2002 NM -1.17 -2.15 1.29 Nil Nil 24.20 6.35 NM NM

2001 NM 1.92 0.61 0.63 Nil Nil 23.55 14.40 39 24

2000 NM 2.16 0.97 NA Nil Nil 30.94 13.19 32 14

4,243 653 155 155 330 26.0% 244 254

4,844 642 155 137 222 19.1% 180 193

4,651 712 149 150 456 22.6% 353 333

4,328 707 168 148 400 31.5% 274 278

4,085 687 175 150 377 32.1% 256 259

3,798 716 180 154 323 33.2% 216 219

3,532 693 154 134 377 36.2% 240 192

3,204 1,766 166 65.3 -392 NM -309 227

3,067 641 221 76.4 297 47.3% 157 111

3,068 687 220 64.5 413 45.5% 225 NA

Balance Sheet & Other Financial Data (Million $) Cash 694 Current Assets 2,073 Total Assets 5,416 Current Liabilities 1,434 Long Term Debt 1,626 Common Equity 2,212 Total Capital 3,845 Capital Expenditures 80.3 Cash Flow 399 Current Ratio 1.4 % Long Term Debt of Capitalization 42.3 % Net Income of Revenue 5.8 % Return on Assets 4.7 % Return on Equity 11.8

129 1,673 4,978 1,622 1,290 1,942 3,220 181 335 1.0 40.1 3.7 3.5 9.1

430 1,936 5,438 1,742 1,532 2,020 3,561 211 502 1.1 43.0 7.6 6.8 19.2

407 1,757 5,021 1,406 1,827 1,530 3,364 168 442 1.2 54.3 6.3 5.5 19.9

456 1,695 4,864 1,534 1,813 1,392 3,229 96.9 430 1.1 56.1 6.3 5.3 18.8

412 1,611 4,855 1,304 2,088 1,334 3,448 103 395 1.2 60.5 5.7 4.5 17.5

365 1,428 4,704 1,190 2,260 1,124 3,418 124 366 1.2 66.1 6.8 5.4 21.9

127 1,056 4,261 1,153 868 813 3,039 91.6 -197 0.9 28.6 NM NM NM

13.8 776 3,908 627 788 850 3,215 146 322 1.2 24.5 5.1 3.9 12.7

11.2 877 4,048 675 944 753 3,301 114 381 1.3 28.6 7.3 5.7 24.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 Riverfront Blvd, Elmwood Park, NJ 07407-1033. Telephone: 201-791-7600. Website: http://www.sealedair.com Pres & CEO: W.V. Hickey

SVP & CFO: D.H. Kelsey Chief Acctg Officer & Cntlr: J.S. Warren Treas: T.S. Christie Secy & General Counsel: H.K. White

Investor Contact: A. Butler (201-703-4210) Board Members: H. Brown, M. Chu, L. R. Codey, P. Duff, D. T. Dunphy, C. F. Farrell, Jr., W. V. Hickey, J. Kosecoff, K. P. Manning, W. J. Marino

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1996 Domicile: Delaware Employees: 16,200

Stock Report | October 23, 2010 | NNM Symbol: SHLD | SHLD is in the S&P 500

Sears Holdings Corp S&P Recommendation SELL

★★★★★

Price $76.32 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Department Stores

12-Mo. Target Price $58.00

Investment Style Large-Cap Blend

Summary Through its wholly owned Sears and Kmart subsidiaries, Sears Holdings is among the largest broadline retailers in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $125.42– 59.21 Trailing 12-Month EPS $2.44 Trailing 12-Month P/E 31.3 $10K Invested 5 Yrs Ago $6,269

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.50 2.70 30.5 110.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.445 Nil Nil 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.64 5 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we consider Kmart's and Sears's long records of inconsistent sales and earnings. This is partially offset by our view of SHLD's opportunity to leverage the two units' best practices and brands to strengthen its competitive positioning.

200 120 80

40

Quantitative Evaluations Vol.

S&P Quality Ranking

31

Mil. 15 10 5 0 5

D

C

B-

NR B

B+

A-

Relative Strength Rank 3

2

3

2

2

3

2

1

A

A+

MODERATE 70

LOWEST = 1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jason N. Asaeda on August 26, 2010, when the stock traded at $ 66.00. Highlights ➤

➤

➤

We project net sales of $43.5 billion in FY 11 (Jan.). By division, we expect same-store sales to be flat at Kmart and to decline 3% at Sears. We look for Kmart to outperform Sears (domestic) on the strength of its value proposition on basic goods, a layaway program that enables cash-strapped customers to purchase higher-margin discretionary categories, and a new customer loyalty program that rewards frequent shoppers. While we believe promotional activity, new products and the federal Cash for Appliances Program supported a recovery in appliance sales during the first half of FY 11, we think a soft U.S. housing market will hurt demand for big ticket home items at Sears. We look for operating margins to narrow modestly on lower-margin appliance sales, and investments in new customer service initiatives, partially offset by inventory and cost controls, and closure of underperforming stores. Factoring in likely share buybacks, we see EPS of $2.50 in FY 11, down from FY 10's $2.71 (excluding a $44 million asset sales gain, $33 million in mark-to-market losses on Sears Canada hedge transactions, and a $131 million charge for store closings).

Investment Rationale/Risk ➤

Our sell recommendation is based on valuation. We look for SHLD to effectively manage its flow of goods, which should help keep inventories in line with demand, and to maintain a low cost structure to limit margin erosion. However, we think Kmart's food and consumables business, which we consider to be a key traffic driver, is being hurt by aggressive pricing from competitors such as Wal-Mart Stores, Inc. (WMT 51, Strong Buy). We also see downside risk for Sears given a sluggish housing recovery and what we perceive to be a lack of destination brands in fashion apparel and accessories relative to moderate-price department store peers such as J.C. Penney (JCP 21, Buy). Our corporate governance concerns include cash-only payments to directors and the non-disclosure of specific hurdle rates for performance-based equity awards.

➤

Risks to our recommendation and target price include better-than-expected sales due to faster-than-expected economic and housing recoveries.

➤

Our 12-month target price of $58 reflects SHLD's historical median forward P/E multiple of 23.1X applied to our FY 11 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 10,046 10,458 2010 10,055 10,551 2009 11,068 11,762 2008 11,702 12,239 2007 11,998 12,785 2006 7,626 13,192

3Q -10,190 10,660 11,548 11,941 12,202

4Q -13,247 13,280 1,507 16,288 16,086

Year -44,043 46,770 50,703 53,012 49,124

Earnings Per Share ($) 2011 0.14 -0.35 2010 -0.22 -0.79 2009 -0.42 0.50 2008 1.40 0.51 2007 1.14 1.88 2006 0.65 0.98

E-0.98 -1.09 -1.16 0.01 1.27 0.35

E3.75 3.74 1.55 3.21 5.33 4.03

E2.50 1.99 0.42 5.70 9.57 6.17

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: SHLD

Sears Holdings Corp Business Summary August 26, 2010 CORPORATE OVERVIEW. Through the March 2005 merger of Kmart Holding Corp. and Sears, Roebuck and Co., which continue to operate under their separate brand names, Sears Holdings has emerged as one of the largest broadline retailers in the U.S. based on FY 09 (Jan.) reported revenues. As of July 31, 2010, the company operated 2,670 Sears-branded full line and specialty stores in the U.S. and Canada (operated by Sears Canada), and 1,309 Kmartbranded discount stores and supercenters across the U.S. CORPORATE STRATEGY. SHLD believes it has an opportunity to leverage Kmart's off-mall locations to expand the distribution of Sears products and services at a more rapid pace and at a lower cost than Sears would have been able to accomplish on its own. The company also sees the potential for Kmart to improve its value proposition and competitive positioning through the addition of Sears-owned brands and services (cross-selling).

store format called Sears Essentials, which combines convenience items found in Kmart stores with Sears's more destination-focused purchase categories. However, based on what we believe were disappointing results from 50 Sears Essentials stores opened during FY 06, SHLD decided to focus on its other off-mall format, Sears Grand. In response to declining sales trends, the company is attempting to raise productivity of its Sears and Kmart businesses through aggressive closure of underperforming stores in FY 10. During the fiscal year, SHLD closed 62 Kmart and Sears full-line stores. The company recorded a charge for costs associated with store closings and severance of $131 million in FY 10.

SHLD initially planned to convert about 400 Kmart stores to a new mid-size Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 39.10 9.85 1.99 1.39 NA Nil 2009 86.53 34.27 43 17

2009 38.57 8.14 0.42 -0.99 Nil Nil 2008 114.00 26.80 NM NM

2008 42.64 12.95 5.70 4.44 Nil Nil 2007 195.18 98.25 34 17

2007 49.25 16.90 9.57 9.24 Nil Nil 2006 182.38 114.90 19 12

2006 41.80 12.24 6.17 4.53 Nil Nil 2005 163.50 84.51 26 14

2005 50.21 11.59 11.00 4.51 Nil Nil 2004 119.69 22.41 11 2

2004 24.36 2.81 2.52 -4.53 Nil Nil 2003 34.55 12.00 14 5

2003 NA -4.02 -5.47 -6.80 NA NA 2002 NA NA NA NA

2002 NA -3.57 -5.24 -5.74 NA NA 2001 NA NA NA NA

2001 NA 1.10 -0.48 -0.55 NA NA 2000 NA NA NA NA

44,043 1,834 926 265 420 29.3% 235 165

46,770 1,530 981 272 184 46.2% 53.0 -126

50,703 2,542 1,049 286 1,452 37.9% 826 645

53,012 3,611 1,142 337 2,464 37.7% 1,490 1,439

49,124 2,901 932 322 1,965 36.4% 948 696

19,701 944 69.0 146 1,775 37.7% 1,106 448

17,072 442 31.0 105 400 38.0% 248 -405

30,762 -1,303 737 155 -3,286 NM -3,262 -3,439

36,151 -386 824 418 -2,702 4.26% -2,587 -2,840

37,028 1,460 777 333 -378 35.5% -244 -260

Balance Sheet & Other Financial Data (Million $) Cash 1,689 Current Assets 11,438 Total Assets 24,808 Current Liabilities 8,786 Long Term Debt 1,698 Common Equity 9,435 Total Capital 11,615 Capital Expenditures 361 Cash Flow 1,161 Current Ratio 1.3 % Long Term Debt of Capitalization 14.6 % Net Income of Revenue 0.5 % Return on Assets 0.9 % Return on Equity 2.5

1,173 11,416 25,342 8,512 1,527 9,380 14,168 497 1,034 1.3 10.8 0.1 0.2 0.5

1,622 12,802 27,397 9,562 2,606 10,667 13,586 570 1,875 1.3 19.2 1.6 2.9 7.1

3,968 15,406 30,066 10,052 2,849 12,714 15,563 513 2,632 1.5 18.3 2.8 4.9 12.3

4,440 15,207 30,573 10,350 3,268 11,611 14,879 546 1,880 1.5 22.0 1.9 4.8 11.8

3,435 7,541 8,651 2,086 661 4,469 5,130 230 1,175 3.6 12.9 5.6 15.0 33.1

2,088 5,811 6,084 1,776 819 2,192 3,011 108 279 3.3 27.2 1.5 3.9 12.7

613 6,102 11,238 2,120 623 -301 322 252 -2,525 2.9 NM NM NM NM

1,245 7,884 14,298 624 4,565 3,459 8,024 1,456 -1,763 12.6 56.9 NM NM NM

401 7,624 14,630 3,799 2,971 6,083 9,122 1,087 533 2.0 32.6 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3333 Beverly Rd, Hoffman Estates, IL 60179-0001. Telephone: 847-286-2500. Website: http://www.searsholdings.com Chrmn: E.S. Lampert

Pres & CEO: W.B. Johnson SVP & CFO: M.D. Collins SVP, Chief Acctg Officer & Cntlr: W.K. Phelan SVP & CIO: T. Kasbe

Board Members: W. B. Johnson, W. C. Kunkler, III, E. S. Founded: 1899 Lampert, S. T. Mnuchin, A. N. Reese, E. Scott, T. J. Domicile: Delaware Tisch Employees: 322,000

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SRE | SRE is in the S&P 500

Sempra Energy

★★★★★

S&P Recommendation HOLD

Price $53.52 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $55.00

Investment Style Large-Cap Blend

Summary This gas and electric utility is also engaged in unregulated power, liquefied natural gas, and international energy projects.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $57.18– 43.91 Trailing 12-Month EPS $3.74 Trailing 12-Month P/E 14.3 $10K Invested 5 Yrs Ago $14,753

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.80 4.49 14.1 247.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.265 2.91 $1.56 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.59 2 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects a balance between stable and steady earnings provided by SRE's regulated gas and electric utility operations and cyclical and volatile earnings from unregulated businesses, including power generation, energy marketing and trading, and international energy investments.

70 60

45 40 35

Quantitative Evaluations

Vol. 32

Mil.

S&P Quality Ranking

12 8 4 0

D 4

5

5

4

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Christopher B. Muir on October 01, 2010, when the stock traded at $ 54.16. Highlights

➤

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE

We see revenues rising 13% in 2010 and 2.5% in 2011. We believe 2010 growth should accelerate due to the addition of an LNG facility that opened in late 2009, and the November 2009 completion of Rockies Express (REX)-East. We see additional projects being completed in 2010 and 2011. Rate increases at the utilities should also help revenue growth. We expect operating margins to widen to 16.8% in 2010 and 17.4% in 2011, from 16.1% in 2009, as we see lower per-revenue operations & maintenance expenses partly offset by higher perrevenue cost of gas, electric fuel, and purchased power. We see pretax margins falling to 15.0% in 2010 and 16.7% in 2011, from 20.6% in 2009, as we expect higher interest expense and lower non-operating income. We forecast 2010 operating EPS of $3.80, which excludes net nonrecurring charges of $0.41, down 21% from 2009's $4.78, which excludes net nonrecurring charges of $0.26. We see reduced contributions from the commodities trading joint venture as responsible for the decreased earnings. Our 2011 EPS forecast is $4.49, an 18% increase, helped by debt reduction and share repurchases.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE

➤

B-

46

1

➤

C

We view favorably SRE's plans to sell its commodities trading joint venture, as we see proceeds being used to reduce debt and repurchase shares. The joint venture has already agreed to sell the European and Asian businesses and may renegotiate the terms of the joint venture agreement to facilitate a sale of the remaining North American business. Separately, Cameron LNG and the REX-East pipeline started operating in 2009. We see growth opportunities in all of SRE's businesses. Risks to our recommendation and target price include declining wholesale power margins, potential losses from energy and metals trading, or a weaker-than-expected economy. The stock recently traded at a multiple of 11.9X our 2011 EPS estimate, a 7% discount to multiutility peers. Our 12-month target price of $55 is about 12.3X our 2011 EPS estimate, a 3% discount to our peer P/E forecast, warranted, we believe, by SRE's prospects for slightly stronger-than-peers EPS and dividend growth beyond 2010, offset by uncertainty related to the price it could receive for its North American commodities trading joint venture.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,534 2,008 2009 2,108 1,689 2008 3,270 2,503 2007 3,004 2,661 2006 3,336 2,486 2005 2,697 2,276

3Q -1,853 2,692 2,663 2,694 2,770

4Q -2,456 2,293 3,110 3,245 3,994

Year -8,106 10,758 11,438 11,761 11,737

Earnings Per Share ($) 2010 0.42 0.89 2009 1.29 0.80 2008 0.92 0.98 2007 0.86 1.06 2006 0.90 0.71 2005 0.92 0.49

E1.12 1.27 1.24 1.24 2.07 0.86

E0.97 1.16 1.31 1.10 0.49 1.40

E3.80 4.52 4.43 4.26 4.17 3.69

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.390 0.390 0.390 0.390

12/18 02/12 05/12 08/19

12/28 03/16 06/16 09/27

12/30 03/18 06/18 09/29

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1998. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SRE

Sempra Energy Business Summary October 01, 2010 CORPORATE OVERVIEW. Sempra Energy is a holding company that operates five segments in two major divisions: California Utilities (CU) and Sempra Global. The CU division includes regulated public utilities Southern California Gas (SCG -- 36% of 2009 revenue) and San Diego Gas & Electric (SDGE -41%), which provide electricity and natural gas services in the Southern California. Sempra Global includes Sempra Generation (13%), which develops and operates power plants and energy infrastructure; RBS Sempra Commodities (1%), a joint venture that provides marketing and risk management services for energy products and base metals; Sempra Pipelines & Storage (6%), which operates in Mexico, the U.S. and South America; and other (3%), which primarily operates LNG receipt terminals in North America, but also includes parent organizations. CORPORATE STRATEGY. Sempra seeks to increase EPS through faster growth in its unregulated businesses through both acquisitions and organic growth. In the utility segment, the company focuses on managing regulatory risk as well as operating and capital expenditures. Recently, SRE has focused on new construction in most of its segments. The company has recently focused on developing renewable generation initiatives. In 2008, we believe the company reduced its risk profile and enhanced its growth prospects by placing its

commodities trading business into a joint venture with a partner that has a stronger credit profile, but has recently agreed to sell the entire business. In July 2007, SRE announced a deal with the Royal Bank of Scotland (RBS 15, Hold) that placed its commodity trading business in a joint venture. At closing, on April 1, 2008, SRE received about $1 billion in cash that had been used as collateral. RBS has been forced to sell its stake in the venture by the European Commission. On February 16, 2010, the venture agreed to sell the European and Asian businesses for $1.7 billion. SRE's share of the proceeds is expected to be $1.2 billion, which it plans to use to repurchase shares and reduce debt. The venture now intends to sell the entire business rather than to seek a new partner to replace RBS. RBS Sempra sold its retail business on September 20, 2010, for $317 million and announced it might take a charge for $50 million to $150 million, indicating to us that it might not get as much as it originally expected for the remainder of the business.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 34.53 7.66 4.52 4.83 1.56 35% 57.18 36.43 13 8

2008 30.54 7.17 4.43 3.59 1.37 31% 63.00 34.29 14 8

2007 31.27 6.86 4.26 4.26 1.24 29% 66.38 50.95 16 12

2006 28.67 6.70 4.17 4.19 1.20 29% 57.35 42.90 14 10

2005 23.97 6.25 3.69 3.44 1.16 31% 47.86 35.53 13 10

2004 20.79 6.59 3.93 3.65 1.00 25% 37.93 29.51 10 8

2003 17.14 6.12 3.24 3.29 1.00 31% 30.90 22.25 10 7

2002 13.78 5.68 2.79 2.16 1.00 36% 26.25 15.50 9 6

2001 13.17 5.35 2.52 1.76 1.00 40% 28.61 17.31 11 7

2000 12.27 4.76 2.06 NA 1.00 49% 24.88 16.19 12 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,106 NA 775 377 1,534 27.5% 1,119 1,197

10,758 2,027 687 263 1,551 28.2% 1,113 904

11,438 2,365 686 381 1,659 31.6% 1,135 1,124

11,761 1,785 657 361 1,732 37.0% 1,091 1,096

11,737 1,111 646 321 971 4.33% 929 866

9,410 1,272 621 332 1,113 17.3% 920 855

7,887 939 615 327 742 6.33% 695 708

6,020 987 596 323 721 20.2% 575 445

8,029 993 579 352 731 29.1% 518 362

7,143 NA 563 301 699 38.6% 429 NA

Balance Sheet & Other Financial Data (Million $) Cash 110 Current Assets 2,295 Total Assets 28,512 Current Liabilities 3,888 Long Term Debt 7,462 Common Equity 9,007 Total Capital 17,394 Capital Expenditures 1,912 Cash Flow 1,894 Current Ratio 0.6 % Long Term Debt of Capitalization 43.7 % Net Income of Revenue 13.8 % Return on Assets 4.1 % Return on Equity 13.2

507 2,476 26,400 3,612 6,646 7,969 15,980 2,061 1,800 0.7 41.6 10.4 3.9 13.7

669 11,338 30,091 10,394 4,655 8,339 13,852 2,011 1,811 1.1 33.6 9.9 3.8 14.2

920 12,016 28,949 10,349 4,704 7,511 12,694 1,907 1,748 1.2 37.1 9.3 3.7 16.0

772 13,318 29,213 12,157 5,002 6,160 11,480 1,404 1,575 1.1 43.6 7.9 3.5 16.9

419 8,776 23,643 9,082 4,371 4,865 9,734 1,083 1,541 1.0 44.9 9.8 4.0 21.0

432 7,886 22,009 8,348 4,199 3,890 8,807 1,049 1,310 0.9 47.7 8.8 3.3 20.7

455 7,010 17,757 7,247 4,487 2,825 8,202 1,214 1,171 1.0 54.7 9.6 3.5 20.8

605 4,808 15,156 5,524 3,840 2,692 7,474 1,068 1,097 0.9 51.4 6.5 3.4 20.0

637 6,425 15,612 7,467 3,468 2,494 7,093 759 992 0.9 54.8 6.1 3.2 15.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 101 Ash Street, San Diego, CA 92101. Telephone: 619-696-2000. Email: [email protected] Website: http://www.sempra.com

Chrmn & CEO: D.E. Felsinger Pres & COO: N.E. Schmale EVP & CFO: M.A. Snell EVP & General Counsel: J. Chaudhri

SVP, Chief Acctg Officer & Cntlr: J.A. Householder Investor Contact: S. Davis Board Members: J. G. Brocksmith, Jr., D. E. Felsinger, W. D. Godbold, Jr., W. D. Jones, L. T. Kuenzler, W. G. Ouchi, C. Ruiz, W. C. Rusnack, W. Rutledge, L. Schenk, N. E. Schmale

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1998 Domicile: California Employees: 13,800

Stock Report | October 23, 2010 | NYS Symbol: SHW | SHW is in the S&P 500

Sherwin-Williams Co (The)

★★★★★

S&P Recommendation STRONG SELL

Price $72.98 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Specialty Chemicals

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company, the largest U.S. producer of paints, is also a major seller of wallcoverings and related products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $80.53– 56.24 Trailing 12-Month EPS $4.06 Trailing 12-Month P/E 18.0 $10K Invested 5 Yrs Ago $18,668

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.55 4.86 16.0 108.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.939 1.97 $1.44 71

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.69 7 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Sherwin-Williams reflects the cyclical nature of the company's business, which is reliant on new housing starts and remodeling, and lead pigment litigation risk, offset by an above-average S&P Quality Ranking of A.

80 70 60 50

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 12 8 4 0 5

D

C

B-

A B

B+

A-

A

Relative Strength Rank 4

3

3

A+

MODERATE

37

2

1

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Revenue/Earnings Data

2010 Options: CBOE

Analysis prepared by Michael Souers on July 27, 2010, when the stock traded at $ 69.68. Highlights ➤

➤

➤

We expect sales to increase 6.6% in 2010, following an 11% decline in 2009. We forecast a slight pickup in residential construction, which should positively affect architectural and doit-yourself (DIY) sales, but we continue to see severe weakness in non-residential construction in 2010. We believe Paint Stores segment sales will increase modestly, on a projected 30-45 net new stores and a slight increase in same-store-sales. We project a slight narrowing in gross margins in 2010, as raw material cost pressure is only partially offset by improved pricing and product mix. We anticipate a 30 basis point widening in operating margins, as cost-cutting initiatives outweigh a de-leveraging of fixed expenses due to flat projected same-store sales. We project a 5% decline in share count due to SHW's active share repurchase program. Excluding a $0.10 charge for the recently passed health care legislation and an $0.08 charge related to a debt repurchase, we estimate 2010 EPS of $4.55, a 16% increase from the $3.91 the company earned in 2009, excluding a $0.13 charge. We see 2011 EPS of $4.86.

Investment Rationale/Risk ➤

➤

➤

We continue to have a positive outlook with regard to the company's balance sheet and generation of free cash flow. In addition, we think the ruling by the Rhode Island Supreme Court, which overturned a negative verdict against SHW over the manufacturing and selling of lead paint, makes future negative rulings far less likely. However, we remain concerned that a weak housing market and deteriorating commercial real estate market will limit sales and earnings growth over the medium term. We think the shares lack a positive near-term catalyst and are overvalued, recently trading at more than 14X our 2011 EPS estimate, a modest premium to historical averages and the S&P 500.

Revenue (Million $) 1Q 2Q 2010 1,565 2,143 2009 1,551 1,948 2008 1,782 2,230 2007 1,756 2,198 2006 1,769 2,130 2005 1,539 1,965

3Q -1,997 2,269 2,197 2,117 1,977

4Q -1,599 1,700 1,854 1,795 1,710

Year -7,094 7,980 8,005 7,810 7,191

Earnings Per Share ($) 2010 0.30 1.64 2009 0.32 1.35 2008 0.64 1.45 2007 0.83 1.52 2006 0.82 1.33 2005 0.58 1.08

E1.67 1.51 1.50 1.55 1.30 1.07

E0.74 0.58 0.42 0.80 0.73 0.54

E4.55 3.78 4.00 4.70 4.19 3.28

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Risks to our recommendation and target price include a significant increase in economic growth; a rapid recovery in the housing market; and declines in raw material costs, which would ease pressure on gross margins.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.360 0.360 0.360 0.360

02/17 04/20 07/19 10/20

02/24 05/19 08/18 11/17

02/26 05/21 08/20 11/19

03/12/10 06/04/10 09/10/10 12/03/10

Our 12-month target price of $60, about 12X our 2011 EPS estimate, is based on our DCF analysis, which assumes a weighted average cost of capital of 9.6% and a terminal growth rate of 3.0%.

Dividends have been paid since 1979. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SHW

Sherwin-Williams Co (The) Business Summary July 27, 2010 CORPORATE PROFILE. Sherwin-Williams develops, manufactures, distributes and sells paints, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean region, Europe and Asia. The company is structured into three reportable segments: Paint Stores, Consumer and Global Finishes. The Paint Stores segment (60% of revenues in 2009) offers Sherwin-Williams branded architectural and industrial paints, stains and related products. Its diverse customer base includes architectural and industrial painting contractors, residential and commercial builders, property owners and managers, OEM product finishers and do-it-yourself (DIY) homeowners. In 2009, SHW opened eight net new stores, bringing the North America Paint Stores store count to 3,354. Architects, builders, designers and consumers have embraced the "green" movement, and SHW leads the industry in the sale of environmentally favorable paints and coatings.

ucts. Brands include Dutch Boy, Krylon, Minwax, Thompson's Water Seal, Purdy and Pratt & Lambert, as well as private label brands. Approximately 51% of the total sales of the Consumer Group in 2009, including inter-segment transfers, represented products sold through the Paint Stores Group. The Global Finishes segment (23%) develops, licenses, manufactures, distributes and sells paints, stains, coatings, varnishes, industrial products, wood finishing products, applicators, aerosols, high-performance interior and exterior coatings for the automotive, aviation, fleet and heavy truck markets, OEM product finishes and related products. SHW sells these products through 539 company-operated architectural, automotive, industrial and chemical coatings branches and other operations in the United States, Argentina, Brazil, Canada, Chile, China, India, Malaysia, Mexico, Peru, Philippines, Portugal, Singapore, Uruguay and Vietnam. It also distributes these products to 19 other countries through wholly owned subsidiaries, joint ventures and licensees of technology, trademarks and tradenames.

The Consumer segment (17%) develops, manufactures and distributes architectural paints, stains, varnishes, industrial maintenance products, wood finishing products, paint applicators, corrosion inhibitors and paint-related prodCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.80 5.26 3.78 3.98 1.42 38% 64.13 42.19 17 11

2008 2.55 5.20 4.00 4.06 1.40 35% 65.00 44.51 16 11

2007 23.99 5.76 4.70 4.59 1.58 34% 73.96 56.75 16 12

2006 2.67 5.41 4.19 4.11 1.00 24% 64.76 37.40 15 9

2005 3.83 4.30 3.28 3.24 0.82 25% 48.84 40.47 15 12

2004 3.12 3.59 2.72 2.60 0.68 25% 45.61 32.95 17 12

2003 2.95 3.13 2.26 2.15 0.62 27% 34.77 24.42 15 11

2002 4.05 2.86 2.04 1.81 0.60 29% 33.24 21.75 16 11

2001 3.69 2.39 1.68 1.62 0.58 35% 28.23 19.73 17 12

2000 3.18 0.77 0.10 NA 0.54 NM 27.63 17.13 NM NM

7,094 875 171 40.0 623 30.0% 436 459

7,980 998 143 65.7 714 33.3% 477 483

8,005 1,145 139 71.6 913 32.6% 616 602

7,810 1,024 146 67.2 834 31.0% 576 564

7,191 898 144 49.6 656 29.2% 463 458

6,114 758 126 39.9 580 32.0% 393 376

5,408 690 117 38.7 523 36.5% 332 317

5,185 670 116 40.5 497 37.5% 311 276

5,067 599 109 54.6 424 38.0% 263 254

5,212 676 109 62.0 143 88.8% 16.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 69.3 Current Assets 1,770 Total Assets 4,324 Current Liabilities 1,394 Long Term Debt 783 Common Equity 1,491 Total Capital 2,286 Capital Expenditures 91.3 Cash Flow 607 Current Ratio 1.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 6.1 % Return on Assets NA % Return on Equity NA

26.2 1,909 4,416 1,937 304 1,606 1,923 117 620 1.0 15.7 6.0 10.3 31.1

27.3 2,070 4,855 2,141 293 1,461 2,079 166 755 1.0 14.0 7.7 12.5 32.6

469 2,450 4,995 2,075 292 1,559 2,284 210 722 1.2 12.8 7.4 12.3 35.4

36.0 1,891 4,369 1,554 487 1,696 2,218 143 607 1.2 22.0 6.4 10.7 29.2

45.9 1,782 4,274 1,520 488 1,475 2,139 107 519 1.2 22.8 6.4 9.9 29.7

303 1,715 3,683 1,154 503 1,174 1,962 117 449 1.5 25.6 6.1 9.3 26.8

164 1,506 3,432 1,083 507 1,300 1,849 127 426 1.4 27.4 6.0 8.8 23.7

119 1,507 3,628 1,141 504 1,319 1,991 82.6 372 1.3 25.3 5.2 7.1 18.9

2.90 1,552 3,751 1,115 624 1,472 2,095 133 125 1.4 29.8 0.3 0.4 1.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 101 West Prospect Avenue, Cleveland, OH 44115-1075. Telephone: 216-566-2000. Website: http://www.sherwin-williams.com Chrmn & CEO: C.M. Connor

Pres & COO: J.G. Morikis SVP & CFO: S.P. Hennessy SVP, Secy & General Counsel: L.E. Stellato Chief Admin Officer: R.M. Weaver

Investor Contact: R.J. Wells (216-566-2244) Founded: 1866 Board Members: A. F. Anton, J. C. Boland, C. M. Domicile: Ohio Connor, D. F. Hodnik, T. G. Kadien, S. J. Kropf, G. E. Employees: 29,220 McCullough, A. Mixon, III, C. E. Moll, R. K. Smucker, J. M. Stropki, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: SIAL | SIAL is in the S&P 500

Sigma Aldrich Corporation S&P Recommendation BUY

★★★★★

Price $62.29 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Specialty Chemicals

12-Mo. Target Price $74.00

Investment Style Large-Cap Growth

Summary This company makes and sells a wide range of biochemicals, organic chemicals, and chromatography products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $62.95– 46.50 Trailing 12-Month EPS $3.05 Trailing 12-Month P/E 20.4 $10K Invested 5 Yrs Ago $20,958

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.25 3.51 19.2 121.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.557 1.03 $0.64 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.86 13 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the stable nature of the company's laboratory chemicals business, its broad geographic sales mix, and our view of its strong balance sheet. However, SIAL's business lines are highly competitive.

70 60 50 40

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

9 6 3 0 5

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

73 4

3

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE

Highlights ➤

The 12-month target price for SIAL has recently been changed to $74.00 from $66.00. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on SIAL from MarketScope, see below.

➤

10/21/10 01:12 pm ET ... S&P REITERATES BUY OPINION ON SHARES OF SIGMA ALDRICH CORPORATION (SIAL 62.19****): Q3 adjusted EPS of $0.83, vs. $0.70, is $0.10 above our estimate. Sales including a 2% adverse forex impact, grew robust 5%, with organic sales growth in its SAFC unit up 14% and Research units up 5%. International sales were the main drivers of growth. We are also encouraged by a 60 bps rise in operating margin despite higher SG&A costs. But we see SAFC growth moderating over the next few quarters on tougher yearearlier comparisons and as Europe sales remain sluggish, particularly in pharmaceutical sector. We are upping our target price by $8 to $74, on 1.6X PEG, above peers. /J.Loo-CFA

Revenue (Million $) 1Q 2Q 2010 572.0 554.0 2009 519.3 522.0 2008 569.6 580.7 2007 495.9 507.5 2006 443.1 448.5 2005 399.8 444.0

3Q -533.8 540.6 503.2 441.4 412.2

4Q -572.0 509.8 532.1 464.5 410.5

Year -2,148 2,201 2,039 1,798 1,667

Earnings Per Share ($) 2010 0.81 1.23 2009 0.68 0.68 2008 0.64 0.70 2007 0.56 0.60 2006 0.49 0.52 2005 0.54 0.46

E0.73 0.70 0.64 0.54 0.51 0.47

E0.77 0.75 0.68 0.64 0.53 0.42

E3.25 2.80 2.65 2.34 2.05 1.88

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.145 0.160 0.160 0.160

11/10 02/10 05/04 08/10

11/27 02/25 05/27 08/30

12/01 03/01 06/01 09/01

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1970. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: SIAL

Sigma Aldrich Corporation Business Summary August 05, 2010 CORPORATE OVERVIEW. Sigma-Aldrich, well known for its extensive catalog business, is one of the world's largest providers of research chemicals, reagents, chromatography products, and related products. Foreign sales accounted for 65% of the total in 2009 (65% in 2008). SIAL distributes more than 170,000 chemical products, under the Sigma, Aldrich, Fluka and Supelco brand names, for use primarily in research and development, diagnosis of disease, and as specialty chemicals for manufacturing. About 75% of sales are to customers in the life sciences, with the remaining 25% used in high-technology applications. Customer sectors include pharmaceutical (40% of sales), academia and government (30%), chemical industry (20%), and hospitals and commercial laboratories (10%). The company itself produces about 48,000 products, accounting for 65% of 2009 (61% in 2008) net sales of chemical products. Remaining products are purchased from outside sources. The company also supplies 40,000 equipment products.

raphy consumables, reference materials and high-purity products. The Research Biotech unit, 16% of sales in 2009 (15%), supplies immunochemical, molecular biology, cell signaling and neuroscience biochemicals and kits used in biotechnology, genomic, proteomic and other life science research applications. Sigma-Genosys (acquired in 1998) is a major maker of custom synthetic DNA products, synthetic peptides and genes to the life science product categories. SIAL believes it is the leading supplier of products used in cell signaling and neuroscience. The SAFC (Fine Chemicals) unit, 28% of sales in 2009 (29%), is a top 10 supplier of large-scale organic chemicals and biochemicals used in development and production by pharmaceutical, biotechnology, industrial and diagnostic companies. The February 2007 purchase of Epichem Group (annual sales of $40 million) greatly expanded SAFC's high technology sales. SIAL also offers about 80,000 esoteric chemicals (less than 1% of total sales) as a special service to customers that screen them for potential applications.

The Research Essentials unit, 19% of sales in 2009 (19% in 2008), sells biological buffers, cell culture reagents, biochemicals, chemicals, solvents, and other reagents and kits. The Research Specialties unit, 37% of sales in 2009 (37%), sells organic chemicals, biochemicals, analytical reagents, chromatogCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.50 3.55 2.80 2.86 0.58 21% 56.29 31.45 20 11

2008 7.13 3.42 2.65 2.56 0.52 20% 63.04 34.33 24 13

2007 8.19 3.07 2.34 2.34 0.46 20% 56.59 37.40 24 16

2006 7.00 1.37 2.05 2.05 0.42 20% 39.68 31.27 19 15

2005 5.71 2.54 1.88 1.81 0.38 20% 33.55 27.67 18 15

2004 7.67 2.19 1.67 1.58 0.34 20% 30.81 26.61 18 16

2003 6.42 1.83 1.34 1.28 0.25 19% 28.96 20.47 22 15

2002 5.45 1.72 0.89 1.05 0.17 19% 26.40 19.08 30 21

2001 3.38 1.41 0.94 0.88 0.17 18% 25.75 18.13 28 19

2000 3.67 1.24 0.83 NA 0.16 19% 20.44 10.09 25 12

2,148 601 92.4 10.0 490 29.2% 347 354

2,201 602 98.6 21.0 490 30.2% 342 331

2,039 557 97.8 28.9 438 28.9% 311 310

1,798 494 90.9 24.0 379 26.9% 277 276

1,667 452 90.1 18.1 343 24.8% 258 249

1,409 392 73.4 7.20 312 25.3% 233 221

1,298 353 69.3 10.1 273 30.2% 190 180

1,207 323 66.3 13.8 272 31.4% 187 155

1,179 291 71.4 18.2 202 30.2% 141 133

1,096 284 67.6 10.2 203 31.5% 139 NA

Balance Sheet & Other Financial Data (Million $) Cash 373 Current Assets 1,384 Total Assets 2,714 Current Liabilities 742 Long Term Debt 100 Common Equity 1,686 Total Capital 1,886 Capital Expenditures 120 Cash Flow 439 Current Ratio 1.9 % Long Term Debt of Capitalization 5.3 % Net Income of Revenue 16.1 % Return on Assets 13.2 % Return on Equity 22.6

252 1,309 2,557 794 200 1,379 1,598 89.9 440 1.7 12.5 15.5 13.2 22.8

238 1,283 2,629 635 207 1,617 1,866 79.7 409 2.0 11.1 15.3 12.5 20.6

174 1,113 2,334 443 338 1,411 1,797 74.5 368 2.5 18.8 15.4 12.4 20.9

98.6 950 2,131 461 283 1,233 1,597 92.2 348 2.1 17.7 15.5 13.3 21.1

169 893 1,745 231 177 1,212 1,389 70.3 306 3.9 12.8 16.5 14.1 21.1

128 815 1,548 257 176 999 1,176 57.7 260 3.2 15.0 14.7 12.7 20.2

52.4 695 1,390 266 177 882 1,059 60.7 253 2.6 16.7 15.5 13.2 22.1

37.6 727 1,440 398 178 810 987 110 212 1.8 18.0 11.9 10.1 16.9

31.1 714 1,348 335 101 859 960 69.2 207 2.1 10.5 12.7 10.0 13.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3050 Spruce Street, St. Louis, MO 63103. Telephone: 314-771-5765. Website: http://www.sigma-aldrich.com Chrmn, Pres & CEO: J.P. Nagarkatti

SVP, CFO & Chief Admin Officer: R. Sachdev SVP, Secy & General Counsel: G.L. Miller Chief Acctg Officer & Cntlr: M.F. Kanan Investor Contact: K.A. Richter (314-286-8004)

Board Members: R. M. Bergman, G. Church, D. R. Harvey, W. L. McCollum, J. P. Nagarkatti, A. M. Nash, S. M. Paul, J. P. Reinhard, D. D. Spatz, B. Toan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1951 Domicile: Delaware Employees: 7,740

Stock Report | October 23, 2010 | NYS Symbol: SPG | SPG is in the S&P 500

Simon Property Group Inc. S&P Recommendation STRONG BUY

★★★★★

Price $97.69 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Retail REITS

12-Mo. Target Price $105.00

Investment Style Large-Cap Blend

Summary This real estate investment trust owns, develops and manages retail real estate, primarily regional malls, outlet centers and community/lifestyle centers, across the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $99.46– 64.20 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $17,514

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

5.38 6.32 18.2 292.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$28.605 2.46 $2.40 93

Beta 1.71 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) -1 S&P Credit Rating A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects SPG's position as one of the largest owners of shopping centers, with a diverse tenant and geographic mix and a variety of shopping center formats. The majority of SPG's customers are under long-term leases, reducing short-term volatility. Although the trust has sizable maturing debt, we think recent equity and debt offerings enhance its liquidity.

120 80 60 40

Vol.

30 20 10 0

Quantitative Evaluations

73

Mil.

S&P Quality Ranking D

5

C

B-

B B

B+

A-

A

A+

5

Relative Strength Rank

1

MODERATE 61

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Robert McMillan on August 03, 2010, when the stock traded at $ 93.53. Highlights ➤

We expect the trust to continue to benefit from what we view as a successful strategy of operating large and strategically located regional malls and shopping centers in major metropolitan markets.

➤

After a fractional decline in 2009, we look for total revenues to advance 3.8% in 2010 on higher rents and tenant reimbursements, as well as contributions from acquisitions. We believe that improving retailer sentiment will fuel rising demand for SPG's space. Occupancy in SPG's U.S. regional mall and premium outlet centers rose to 93.1% at the end of the second quarter from 92.3% a year earlier, while re-leasing spreads rose 1.2% during the second quarter. Occupancy levels also rose in SPG's community and lifestyle and Mills portfolios in the U.S., while they declined in the international shopping center portfolios. We think a prolonged drop in new construction activity, due in part to more stringent lending terms, as well as ongoing cost reductions, will benefit SPG.

➤

We see FFO per share of $5.38 ($5.84 excluding certain charges) in 2010 and $6.32 in 2011.

Investment Rationale/Risk ➤

HIGHEST = 99

2010

We think SPG's position as one of the largest owners and managers of shopping centers in the U.S. and its established relationships with numerous retailers will allow it to continue to generate solid growth long term. We also view the geographic, customer and format diversity of SPG's portfolio and management's acquisition acumen as positive factors in our valuation.

➤

Risks to our recommendation and target price include slower-than-expected retailer expansion, higher-than-normal retailer bankruptcies, and a rise in interest rates.

➤

The shares recently traded at 15.5X our forward 12-month FFO estimate of $6.04. Our 12-month target price of $105 is equal to 17.4X this estimate. We believe the multiple will expand based on improvements in the trust's operating performance, and easing of concerns about the impact of the economy on SPG's retailerdependent business, which is anchored by long-term leases. Although the multiple is toward the upper end of SPG's recent historical valuation range, we believe a higher valuation is warranted, given SPG's ample liquidity, which could be used for debt reduction and/or accretive acquisitions.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/FFO Data Revenue (Million $) 1Q 2Q 2010 925.1 933.6 2009 918.5 903.6 2008 895.3 913.5 2007 852.1 855.9 2006 787.7 798.7 2005 756.9 756.3

3Q -924.9 932.2 907.2 818.7 786.8

4Q -1,028 1,029 1,036 927.0 889.8

Year -3,775 3,783 3,651 3,332 3,167

FFO Per Share ($) 2010 1.11 2009 1.61 2008 1.46 2007 1.37 2006 1.26 2005 1.12

E1.35 1.38 1.61 1.46 1.30 1.19

E1.77 1.40 1.86 1.76 1.57 1.47

E5.38 5.33 6.42 5.90 5.39 4.96

1.66 0.96 1.49 1.31 1.26 1.18

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.600 0.600 0.600 0.600

10/30 02/05 04/30 07/30

11/12 02/11 05/12 08/13

11/16 02/16 05/14 08/17

12/18/09 02/26/10 05/28/10 08/31/10

Dividends have been paid since 1994. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SPG

Simon Property Group Inc. Business Summary August 03, 2010 CORPORATE OVERVIEW. Simon Property Group is a real estate investment trust that owns, develops, manages, leases and acquires primarily regional malls and community shopping centers. It is one of the largest owners of shopping centers in the world. As of December 31, 2009, SPG owned or held an interest in 321 income-producing properties in the United States, which consisted of 162 regional malls, 41 premium outlet centers, 67 community/ lifestyle centers, 36 properties acquired in the 2007 acquisition of The Mills Corporation, and 15 other shopping centers or outlet centers in 41 states and Puerto Rico. The company also had ownership interests in 51 European shopping centers, and 10 premium outlet centers in Japan, Mexico and South Korea, as well as two shopping centers in Italy currently under development. SPG's regional malls typically contain at least one traditional department store anchor or a combination of anchors and big box retailers with a wide variety of smaller stores located in enclosed malls connecting the anchors. Additional freestanding stores are usually located along the perimeter of the parking area. SPG's regional malls range in size from approximately 400,000 to 2.3 million square feet of gross leasable area (GLA) and contain more than 18,600 occupied stores, including approximately 710 anchors, which are mostly national retailers. SPG's premium outlet centers, ranging in size from 200,000 to 850,000 square feet of GLA, contain a wide variety of retailers located in open-air manufacturers' outlet centers near metropolitan areas .

ally range in size from approximately 100,000 to 900,000 square feet of GLA and are designed to serve a larger trade area, and typically contain at least two anchors and other tenants that are usually national retailers among the leaders in their markets. These tenants generally occupy a significant portion of the GLA of the center. The trust also owns traditional community shopping centers that focus primarily on value-oriented and convenience goods and services. These centers are normally anchored by a supermarket, discount retailer or drugstore and are designed to service a neighborhood area. The trust also owns open-air centers adjacent to its regional malls designed to take advantage of the drawing power of the mall. The Mills portfolio, which SPG acquired in 2007 with Farallon Capital Management, consists of Mills centers, regional malls, and community centers. The Mills centers, ranging from 1.0 million to 2.3 million square feet of GLA, are located in major metropolitan areas and combine a traditional mall or outlet center format with big box retailers and entertainment uses. The Mills regional malls generally range in size from 700,000 to 1.3 million square feet of GLA and contain a wide variety of national retailers. The four community centers are adjacent to Mills centers, and contain a mix of big box and other local and national retail tenants.

SPG's community and lifestyle shopping centers are generally unenclosed and smaller than its regional malls. The community and lifestyle centers usuCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.25 1.05 1.05 2.70 NM 83.82 24.27 80 23

2008 10.93 1.77 1.87 3.60 203% 106.43 33.78 60 19

2007 12.40 2.08 2.20 3.36 162% 123.96 82.60 60 40

2006 13.98 2.19 2.19 3.04 139% 104.08 76.14 48 35

2005 14.64 1.27 1.12 2.80 NM 80.97 58.29 64 46

2004 16.21 1.44 1.44 2.60 181% 65.87 44.39 46 31

2003 14.66 1.53 1.55 2.40 157% 48.59 31.70 32 21

2002 13.87 1.93 2.07 2.18 113% 36.95 28.80 19 15

2001 13.00 0.87 0.97 2.08 NM 30.97 23.75 36 27

2000 14.29 1.13 NA 2.02 179% 27.13 21.50 24 19

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

3,464 Nil 3,775 1,174 992 22.7 998 309 283

3,458 Nil 3,783 1,191 965 24.0 970 464 423

3,288 Nil 3,651 1,210 1,535 9.56 906 519 491

3,063 Nil 3,332 856 822 9.50 856 563 486

2,920 Nil 3,167 820 799 8.10 850 457 247

2,411 Nil 2,642 675 662 17.7 623 450 301

1,423 Nil 2,314 611 615 Nil 498 339 288

1,386 Nil 2,186 788 603 8.97 423 1,109 371

1,320 Nil 2,045 712 622 8.41 453 201 169

1,284 Nil 2,013 674 667 9.64 420 242 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,958 Total Assets 25,948 Real Estate Investment 25,336 Loss Reserve Nil Net Investment 18,332 Short Term Debt 2,312 Capitalization:Debt 16,318 Capitalization:Equity 4,412 Capitalization:Total 21,501 % Earnings & Depreciation/Assets 5.3 Price Times Book Value:High 5.5 Price Times Book Value:Low 1.6

774 23,597 25,206 Nil 19,021 1,476 16,567 2,615 19,607 6.1 9.7 3.1

502 23,606 24,415 Nil 19,103 810 16,409 2,817 21,821 6.2 10.0 6.7

929 22,084 24,390 Nil 19,784 NA 13,711 3,095 18,885 6.7 7.4 5.4

929 21,131 23,307 Nil 19,499 NA 14,106 3,227 19,681 6.0 5.5 4.0

520 22,070 23,175 Nil 20,012 NA 13,044 3,580 19,065 5.7 4.1 2.7

536 15,685 14,972 Nil 12,415 1,481 8,786 2,971 13,241 5.5 3.3 2.2

397 14,905 14,250 20.5 12,027 940 8,606 2,653 12,074 10.7 2.7 2.1

255 13,794 13,187 24.7 11,311 665 8,176 2,327 11,381 4.7 2.4 1.8

214 13,911 13,038 20.1 11,558 1,164 7,904 2,515 10,958 4.7 1.9 1.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 225 W Washington St, Indianapolis, IN 46204-3438. Telephone: 317-636-1600. Website: http://www.simon.com Chrmn & CEO: D.E. Simon

Pres & COO: R.S. Sokolov EVP & CFO: S.E. Sterrett EVP & Chief Admin Officer: J. Rulli EVP & Treas: A.A. Juster

Investor Contact: S.J. Doran (317-685-7330) Founded: 1993 Board Members: M. E. Bergstein, L. W. Bynoe, L. C. Domicile: Delaware Glasscock, K. N. Horn, A. B. Hubbard, R. S. Leibowitz, D.Employees: 5,200 E. Simon, H. Simon, D. C. Smith, J. A. Smith, Jr., R. S. Sokolov

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SLM | SLM is in the S&P 500

SLM Corp S&P Recommendation HOLD

★★★★★

Price $11.54 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Consumer Finance

12-Mo. Target Price $13.00

Investment Style Large-Cap Growth

Summary This company (formerly USA Education) is a leading U.S. provider of post-secondary educational financial services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$13.96– 9.28 $1.88 6.1 $2,182

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.69 1.49 6.8 485.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.605 Nil Nil 100

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.41 18 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as the negative impact from new legislation, offset by our view of lower loss provisions and a potentially higher net interest margin.

40 20

8

Quantitative Evaluations

4

S&P Quality Ranking Vol.

D 178 129

Mil.

B-

BB

B+

A-

A

A+

151

60 40 20 0 5

C

Relative Strength Rank

MODERATE

35 LOWEST = 1 3

4

3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Rafay Khalid, CFA on October 20, 2010, when the stock traded at $ 11.41. Highlights ➤

➤

➤

We project that the loan portfolio mix will shift toward private student loans in 2010, reflecting legislation to eliminate student loan subsidies for government-sponsored loans. As a result, we forecast that SLM's net interest margin will widen to 1.58% in 2010 from 1.05% in 2009. However, we see the net interest margin narrowing to 1.32% in 2011, as we think new legislation will negatively impact the company's origination business. On September 27, SLM agreed to acquire $28 billion of securitized federal student loans and other assets from The Student Loan Corporation, subject to approvals. We forecast that loan loss provisions will decline in both 2010 and 2011, given our outlook for lower charge-offs from improved forbearance policies. We expect that other income will decrease in 2010, after doubling in 2009, but we see an increase in 2011, on our outlook for continuing improvement in credit spreads. We see other expenses declining in 2010 and 2011, based on the company restructuring its business from origination to servicing of loans, following the passage of the new legislation.

Investment Rationale/Risk ➤

Recently, both houses of Congress passed legislation that eliminated student loan subsidies for government-sponsored loans. We believe the company will transition its primary business to focus on servicing loans instead of originating them. As a result, we think SLM, the largest provider of government-sponsored loans, will experience lower loan volumes and a decline in interest-earning assets. On a positive note, we expect SLM's run-off portfolio of governmentsponsored loans to generate solid financial returns, and we see credit spreads continuing to improve in 2010, reflecting our outlook for ongoing economic recovery.

Revenue (Million $) 1Q 2Q 2010 1,641 -2009 1,530 1,248 2008 1,963 2,331 2007 2,466 2,495 2006 1,766 2,695 2005 1,285 1,506

3Q -1,551 1,697 2,119 2,252 1,715

4Q -1,815 631.2 1,270 2,038 2,012

Year -6,145 7,881 9,171 8,751 6,518

Earnings Per Share ($) 2010 0.45 0.61 2009 Nil -0.31 2008 -0.28 0.50 2007 0.26 1.03 2006 0.34 1.52 2005 0.49 0.66

E0.35 0.26 -0.40 -0.85 0.60 0.95

E0.55 0.71 -0.52 -3.98 0.02 0.96

E1.69 0.71 -0.39 -2.26 2.63 3.05

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data ➤

Risks to our recommendation and target price include changes in government legislation that can remove subsidies for the company's loan products, loss of market share, and higherthan-expected loss provisions.

➤

Our 12-month target price of $13 is based on a P/E multiple of 8.8X our 2011 operating EPS estimate. This multiple is a discount to the historical average, reflecting what we think is a transition period in the company's business.

We estimate operating EPS of $1.69 for 2010 and $1.49 for 2011, compared to $0.95 in 2009.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividends were omitted in April 2007.

Stock Report | October 23, 2010 | NYS Symbol: SLM

SLM Corp Business Summary October 20, 2010 CORPORATE OVERVIEW. SLM Corp., formerly USA Education Inc., is the largest U.S. private source of funding, delivery and service support for higher education loans, primarily through its participation in the Federal Family Education Loan Program (FFELP). The company's main business is to originate, acquire and hold student loans with the net interest income and gains on the sales of student loans in securitization, the primary source of earnings. The company funds its operation through student loan asset-backed securities and unsecured debt securities. SLM was chartered by an Act of Congress in 1972, but in 1996 it was rechartered as a private sector corporation and completed its privatization process in December 2004. The company is divided into two business segments: Lending and Asset Performance Group (APG). According to the company, the SLM Lending segment manages the largest portfolio of FFELP and Private Education Loans in the student loan industry. As of December 31, 2009, the company served nearly 10 million borrowers, and managed $176 billion of student loans, of which 84% were federally insured.

PRIMARY BUSINESS DYNAMICS. There are two competing programs that divide student loans where the ultimate risk lies with the federal government: the FFELP and the Federal Direct Lending program (FDLP). FFELP loans are provided by private sector institutions, such as SLM, and are ultimately guaranteed by the U.S. Department of Education (ED). FDLP loans are funded by taxpayers and provided to borrowers directly by ED. Private Education Loans are originated by financial institutions where the lender assumes the credit risk of the borrower. The company acquires student loans from three principal sources: SLM's Preferred Channel, which consists of the company's own brand of loans and loans originated by lenders with commitments to SLM; Consolidation Loans, which earn a lower yield than FFELP Loans due to a Consolidation Rebate Fee; and strategic acquisitions.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.62 0.71 0.70 Nil Nil 12.43 3.11 18 4

2008 4.37 -0.39 -0.70 Nil Nil 25.05 4.19 NM NM

2007 5.93 -2.26 -2.24 0.25 NM 58.00 18.68 NM NM

2006 5.90 2.63 2.62 0.97 37% 58.35 44.65 22 17

2005 5.13 3.05 2.98 0.85 28% 56.48 45.56 19 15

2004 4.81 4.04 3.95 0.74 18% 54.44 36.43 13 9

2003 4.55 3.01 2.75 0.59 20% 42.92 33.73 14 11

2002 3.08 1.64 1.40 0.28 17% 35.65 25.67 22 16

2001 3.59 0.76 0.53 0.24 32% 29.33 18.63 39 25

2000 2.54 0.92 NA 0.22 24% 22.75 9.27 25 10

4,732 26.1 3,036 Nil 1,119 1,255 721 33.1% 482 330

6,994 276 5,905 Nil 720 1,357 -376 NM -213 -327

7,966 708 7,086 Nil 1,015 1,529 -482 NM -896 -923

6,074 503 5,123 Nil 287 1,346 1,995 41.8% 1,157 1,119

4,233 277 3,059 Nil 203 1,138 2,117 34.4% 1,382 1,324

2,500 233 1,434 Nil 111 895 2,557 25.1% 1,913 1,853

2,197 151 1,022 Nil 147 808 2,183 35.7% 1,404 1,276

2,124 87.9 1,203 Nil 117 690 1,223 35.3% 792 664

2,625 373 2,124 Nil 66.0 708 617 36.2% 384 261

2,977 501 2,837 Nil 32.1 586 712 33.1% 465 NA

Balance Sheet & Other Financial Data (Million $) Mortgages 144,227 Investment 7,183 Cash & Equivalent 6,070 Total Assets 169,985 Short Term Debt 30,897 Long Term Debt 130,546 Equity 3,903 % Return on Assets 0.3 % Return on Equity 13.4 Equity/Assets Ratio 2.1 Price Times Book Value:High 2.2 Price Times Book Value:Low 0.6

145,532 4,577 4,070 168,768 41,933 118,225 3,284 NM NM 2.1 5.7 1.0

125,327 6,008 7,582 155,565 35,947 111,098 3,659 NM NM 2.7 9.8 3.2

97,228 5,986 2,621 116,136 3.50 104,559 3,795 1.1 31.9 3.3 9.9 7.6

83,980 4,775 2,499 99,339 3,810 88,119 3,226 1.5 44.1 3.4 11.0 8.9

66,161 3,579 3,395 84,094 2,208 75,915 2,937 2.6 70.4 4.4 11.3 7.6

51,078 5,268 1,652 64,611 18,735 23,211 3,564 2.4 25.8 4.6 9.4 7.4

43,541 4,231 758 53,175 25,619 22,242 1,833 1.5 47.4 3.1 11.6 8.3

42,037 5,072 715 52,874 31,065 17,285 1,507 0.8 27.8 2.7 8.2 5.2

38,635 5,206 734 48,792 30,464 14,911 1,250 1.0 48.2 2.1 8.9 3.6

Income Statement Analysis (Million $) Interest on:Mortgages Interest on:Investment Interest Expense Guaranty Fees Loan Loss Provision Administration Expenses Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 12061 Bluemont Way, Reston, VA 20190. Telephone: 703-810-3000. Website: http://www.salliemae.com Chrmn: A.P. Terracciano

Chrmn: D.W. Acklie Vice Chrmn & CEO: A.L. Lord EVP & Treas: J.C. Clark EVP & General Counsel: M.L. Heleen

Investor Contact: S. McGarry (703-810-7746) Founded: 1972 Board Members: A. T. Bates, W. M. Diefenderfer, III, D. Domicile: Delaware S. Gilleland, E. A. Goode, R. F. Hunt, A. L. Lord, M. E. Employees: 8,000 Martin, B. Munitz, H. H. Newman, A. Porter, Jr., F. C. Puleo, W. Schoellkopf, S. L. Shapiro, J. T. Strange, A. P. Terracciano, B. L. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SJM | SJM is in the S&P 500

J.M. Smucker Co (The) S&P Recommendation BUY

★★★★★

Price $63.03 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $66.00

Investment Style Large-Cap Blend

Summary This company's products include coffee, fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods, and beverages. The Folgers coffee business was acquired in November 2008.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $63.75– 51.19 Trailing 12-Month EPS $4.18 Trailing 12-Month P/E 15.1 $10K Invested 5 Yrs Ago $17,206

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.55 4.87 13.9 119.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.532 2.54 $1.60 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.67 8 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the relative stability of the company's end markets, our view of its relatively strong balance sheet, and an S&P Quality Ranking of A+, which reflects S&P's appraisal of the historical growth and stability of SJM's earnings and dividends.

70 60 50

35

Quantitative Evaluations Vol. Mil.

5

S&P Quality Ranking

51

6 4 2 0

D 5

C

B-

A+ B

B+

A-

A

Relative Strength Rank

5

4

3

A+

MODERATE 53

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Tom Graves, CFA on August 27, 2010, when the stock traded at $ 58.07. Highlights ➤

In FY 11 (Apr.), we look for SJM sales to rise about 4%. SJM's revenue base increased substantially with the 2008 acquisition of the Folgers coffee business. We expect that by the end of FY 10, the Folgers transaction resulted in one-time costs of about $100 million to $125 million, and that SJM realized $80 million of annualized synergy benefits.

Investment Rationale/Risk ➤

➤ ➤

➤

While we view a supply chain improvement plan that was announced in March 2010 as a decent long-term investment, we are not especially enthused by the financial outline. Over 3-to-5 years, we expect SJM to have about $190 million of restucturing charges, and we look for annual savings of about $60 million to be fully realized in FY 15. Before some special items, we estimate FY 11 EPS at $4.55, up from about $4.29 in FY 10, which excludes a net negative impact of about $0.14 a share from special items. Also, both years include an estimated $0.40 of non-cash intangible asset amortization. Excluded from our FY 11 estimate are some restructuring merger and integration costs. For FY 12, we estimate EPS of $4.87.

➤

We generally like the acquisition of the Folgers coffee business, which adds diversification and should provide economies of scale. We look for SJM's overall sales to benefit from the introduction of new or reformulated products, including items such as Crisco olive oil and reduced sugar products. Risks to our recommendation and target price include competitive pressures, commodity cost inflation, consumer acceptance of new product introductions, and SJM's ability to fully integrate and realize expected cost savings from the Folgers acquisition. We think the May 2009 adoption by SJM directors of a shareholder rights plan seemed aimed at protecting SJM's independence. Our 12-month target price of $66 reflects our view that the shares should trade at about a 5% P/E discount (based on estimated calendar 2010 EPS) to what we expect, on average, for a group of packaged food stocks. SJM shares recently had an indicated dividend yield of 2.7%, based on a quarterly dividend that was raised 14% with the June 2010 payment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 1,047 -2010 1,052 1,279 2009 663.7 843.1 2008 561.5 707.9 2007 526.5 605.0 2006 510.3 606.3

3Q -1,206 1,183 665.4 523.1 536.5

4Q -1,069 1,069 590.0 493.5 501.7

Year -4,605 3,758 2,525 2,148 2,155

Earnings Per Share ($) 2011 0.86 E1.35 2010 0.83 1.18 2009 0.77 0.94 2008 0.77 0.87 2007 0.50 0.80 2006 0.51 0.79

E1.22 1.14 0.68 0.75 0.71 0.54

E0.94 1.01 0.80 0.67 0.75 0.62

E4.55 4.15 3.12 3.00 2.76 2.45

Fiscal year ended Apr. 30. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.350 0.350 0.400 0.400

10/27 01/28 04/22 07/19

11/10 02/10 05/12 08/11

11/13 02/12 05/14 08/13

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1949. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SJM

J.M. Smucker Co (The) Business Summary August 27, 2010 CORPORATE PROFILE. From its origins in 1897, when Jerome M. Smucker first pressed cider at a mill that he opened in that year, the J. M. Smucker Co. has become a leading U.S. producer of such products as fruit spreads, peanut butter, shortening, ice cream toppings, and coffee.

Uncrustables brands. The U.S. retail oils and baking market segment (20%) includes baking mixes, frostings, flour, private label canned milk, and oils. The special markets segment (19%) includes Canada, foodservice, natural foods (formerly beverage), and international businesses areas.

In November 2008, SJM completed the acquisition of the Folgers coffee business from Procter & Gamble (PG 60, Buy). PG shareholders received about 63 million SJM shares (about 53.5% of the total shares now outstanding) in exchange for the Folgers business. The Folgers transaction was preceded by SJM paying a one-time special dividend of $5 a share to SJM shareholders of record on September 30, 2008. On a pro forma basis, Folgers would have accounted for about 42% of SJM's total sales in FY 08 (assuming $1.8 billion from the Folgers business).

SJM's international business accounted for 9.5% of net sales in FY 10. Sales to Wal-Mart Stores, Inc. and its subsidiaries accounted for about 27% of net sales. SJM product categories include coffee (40% of FY 10 sales), peanut butter (12%), shortening and oils (8%), fruit spreads (8%), baking mixes and frostings (6%), canned milk (5%), flour and baking ingredients (5%), portion control (3%), juices and beverages (3%), Uncrustables frozen sandwiches (3%), toppings and syrups (2%), and other (5%).

SJM's U.S. retail coffee market segment (37% of FY 10 (Apr.) net sales) includes much of the Folgers business. SJM's U.S. retail consumer market segment (24%) includes such items as Smucker's fruit spreads and toppings, Jif peanut butter, and various products carrying the Hungry Jack and Smucker's Company Financials Fiscal Year Ended Apr. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 5.73 4.15 4.19 NA NA 2009 62.70 34.09 15 8

2009 NM 4.50 3.12 2.98 1.28 41% 2008 56.69 37.22 18 12

2008 0.98 4.11 3.00 2.55 1.12 37% 2007 64.32 46.57 21 16

2007 5.75 3.81 2.76 2.70 1.08 39% 2006 49.98 37.15 18 13

2006 5.52 3.77 2.45 2.30 1.00 41% 2005 51.65 43.64 21 18

2005 4.61 3.19 2.26 2.16 0.92 41% 2004 53.50 40.80 24 18

2004 7.10 3.01 2.21 2.20 0.76 34% 2003 46.75 33.00 21 15

2003 5.58 2.81 2.02 1.89 0.76 38% 2002 40.42 28.71 20 14

2002 9.32 2.39 1.24 1.10 0.64 52% 2001 37.73 22.61 30 18

2001 8.27 2.40 1.23 1.19 0.60 49% 2000 29.00 15.00 24 12

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,605 1,021 182 65.2 731 NA 494 495

3,758 655 118 62.5 396 32.9% 266 254

2,525 354 62.6 42.1 255 33.1% 170 144

2,148 318 58.9 23.4 241 34.8% 157 154

2,155 325 71.1 24.0 216 33.5% 143 134

2,044 526 56.0 22.6 205 36.2% 130 126

1,417 227 39.9 6.37 179 37.7% 111 111

1,312 214 37.8 8.75 155 38.0% 96.3 90.5

687 88.4 28.6 9.21 50.2 38.5% 30.9 25.9

651 83.7 26.9 0.78 50.0 36.6% 31.7 28.9

Balance Sheet & Other Financial Data (Million $) Cash 284 Current Assets 1,224 Total Assets 7,975 Current Liabilities 479 Long Term Debt 900 Common Equity 5,326 Total Capital 6,236 Capital Expenditures 137 Cash Flow 676 Current Ratio 2.6 % Long Term Debt of Capitalization 14.4 % Net Income of Revenue 10.7 % Return on Assets 6.1 % Return on Equity 9.6

457 1,399 8,192 1,061 910 4,940 6,127 109 384 1.3 14.9 7.1 4.7 7.9

184 776 3,130 239 790 1,800 2,765 76.4 233 3.2 28.6 6.8 5.9 9.5

200 639 2,694 236 393 1,796 2,347 57.0 216 2.7 16.7 7.3 5.9 8.9

121 571 2,650 235 429 1,728 2,312 63.2 214 2.4 18.5 6.7 5.4 8.4

75.8 556 2,636 308 432 1,691 2,233 87.6 187 1.8 19.3 6.4 6.0 9.0

163 425 1,684 175 135 1,211 1,482 100 151 2.4 9.1 7.9 6.7 9.5

181 467 1,615 167 135 1,124 1,393 49.5 134 2.8 9.7 7.3 9.0 13.7

91.9 280 525 80.4 135 280 419 23.5 59.4 3.5 32.2 4.5 6.1 11.6

51.1 229 470 67.1 135 247 387 29.4 58.6 3.4 34.9 4.9 6.8 11.3

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Strawberry Ln, Orrville, OH 44667-0280. Telephone: 330-682-3000. Email: [email protected] Website: http://www.smuckers.com

Co-Chrmn, Pres & Co-CEO: R.K. Smucker Co-Chrmn & Co-CEO: T. Smucker SVP & CFO: M.R. Belgya Chief Acctg Officer & Cntlr: J.W. Denman

Treas: D.A. Marthey Founded: 1897 Investor Contact: S. Robinson (330-684-3440) Domicile: Ohio Board Members: V. C. Byrd, R. D. Cowan, K. W. Employees: 4,850 Dindo, P. Dolan, N. L. Knight, E. V. Long, G. A. Oatey, A. Shumate, M. Smucker, R. K. Smucker, T. Smucker, W. H. Steinbrink, P. S. Wagstaff

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SNA | SNA is in the S&P 500

Snap-On Inc S&P Recommendation HOLD

★★★★★

Price $50.00 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Machinery

12-Mo. Target Price $54.00

Investment Style Large-Cap Value

Summary This company is the largest manufacturer and distributor of hand tools, storage units and diagnostic equipment for professional mechanics.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $50.11– 35.25 Trailing 12-Month EPS $2.48 Trailing 12-Month P/E 20.2 $10K Invested 5 Yrs Ago $15,388

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.08 3.64 16.2 58.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.49 12 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on our view of SNA's strong brand equity and healthy balance sheet, offset by an industry categorized by intense competition. We believe an improved global supply chain and cost reduction initiatives will offset rising raw material and delivery costs.

60

40 30

20

Quantitative Evaluations

Vol.

S&P Quality Ranking

Mil. 6 4 2 0 5

$2.905 2.40 $1.20 89

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

4

STRONG 81

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Revenue/Earnings Data

2010 Options: ASE, Ph

Highlights ➤

The STARS recommendation for SNA has recently been changed to 3 (hold) from 4 (buy) and the 12-month target price has recently been changed to $54.00 from $50.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on SNA from MarketScope, see below.

➤

10/22/10 02:57 pm ET ... S&P REDUCES RECOMMENDATION ON SHARES OF SNAP-ON TO HOLD FROM BUY (SNA 49.93***): SNA reports Q3 EPS of $0.80, vs. $0.44, and $0.16 ahead of our view, on greater-than-expected operating margins, and sales growth of 14%. We find positive SNA's strong performance in what historically has been a weaker seasonal quarter, and we raise our '10 EPS estimate by $0.18 to $3.08, and '11's by $0.13 to $3.64, on revised revenue and margin forecasts. That said, we believe the shares are now closer to fully valued, following the 24% advance since the August low, and we see less upside to our $54 target price, raised $4 today, on revised valuation analyses. / M.Christy,CFA

Revenue (Million $) 1Q 2Q 2010 621.6 647.6 2009 592.6 615.6 2008 747.0 784.4 2007 705.7 711.9 2006 593.5 624.4 2005 612.8 608.6

3Q -587.8 713.8 680.7 599.5 567.2

4Q -624.8 687.5 742.9 656.0 573.6

Year -2,421 2,935 2,841 2,522 2,362

Earnings Per Share ($) 2010 0.63 0.78 2009 0.60 0.65 2008 0.97 1.15 2007 0.66 0.90 2006 0.37 0.20 2005 0.31 0.46

E0.64 0.44 0.94 0.70 0.48 0.36

E0.87 0.63 1.01 0.99 0.64 0.47

E3.08 2.32 4.07 3.23 1.69 1.59

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.300 0.300 0.300 0.300

11/05 02/10 04/22 08/05

11/12 02/23 05/18 08/18

11/16 02/25 05/20 08/20

12/07/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1939. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SNA

Snap-On Inc Business Summary July 30, 2010 CORPORATE OVERVIEW. Snap-on Inc. is a major global manufacturer and marketer of high-quality tool, diagnostic, service and equipment solutions for professional tool and equipment users under various brands and trade names. Product lines include a broad range of hand and power tools, tool storage, saws and cutting tools, pruning tools, vehicle service diagnostics equipment, vehicle service equipment, including wheel service, safety testing and collision repair equipment, vehicle service information, business management systems, equipment repair services, and other tool and equipment solutions. SNA's customers include automotive technicians, vehicle service centers, manufacturers, industrial tool and equipment users, and those involved in commercial applications such as construction, electrical and agriculture. SNA services these customers through three primary channels of distribution: the mobile dealer van channel, including the company's technical representatives; company direct sales; and non-franchise, independent distributors.

ment products and equipment repair services to industrial and commercial customers worldwide through direct, distributor and other non-franchised distribution channels. The Diagnostics & Information Group (22%, 22%) provides diagnostic equipment, vehicle service information, business management systems and other solutions for customers in the vehicle service and repair marketplace. Financial Services (2%, 3%) is a relatively new business segment, which was originated in 2004. It consists of Snap-on Credit LLC, which following the July 2009 acquisition of the 50% ownership controlled by The CIT Group became a fully controlled subsidiary, and SNA's wholly owned finance subsidiaries in international markets where SNA has dealer operations. Segment eliminations as a percentage of total sales were -10% in 2009 and -11% in 2008. In regard to global reach, nearly 41% of total sales in 2009 were outside the U.S. market, or $981 million, a decline of 22% from the year before, due largely to currency translation.

SNA has four reportable business segments. The Snap-on Tools Group, formerly the Dealer Group (42% of 2009 sales, 38% of 2008 sales) consists of SNA's business operations serving the worldwide franchised dealer van channel. The Commercial & Industrial Group (44%, 49%) provides tools, equipCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.67 3.44 2.32 2.35 1.20 52% 43.88 20.51 19 9

2008 2.90 5.17 4.07 3.31 1.20 29% 62.21 27.70 15 7

2007 3.94 4.52 3.23 3.15 1.11 34% 57.81 44.58 18 14

2006 0.72 2.57 1.69 2.07 1.08 64% 48.65 36.38 29 22

2005 8.17 2.48 1.59 1.56 1.00 63% 38.71 30.57 24 19

2004 9.67 2.45 1.40 1.35 1.00 71% 34.67 27.15 25 19

2003 8.29 2.38 1.35 1.31 1.00 74% 32.38 22.60 24 17

2002 6.27 2.65 1.76 0.92 0.97 55% 35.15 20.71 20 12

2001 6.01 1.54 0.37 0.09 0.96 NM 34.40 21.15 93 57

2000 6.53 3.23 2.10 NA 0.94 45% 32.44 20.88 15 10

2,421 338 74.6 47.7 206 30.4% 134 136

2,935 467 63.8 33.8 355 33.2% 237 193

2,841 401 76.0 46.0 284 32.5% 189 184

2,522 217 51.9 20.6 146 31.4% 100 123

2,362 220 52.2 21.7 148 37.2% 92.9 91.6

2,407 203 61.0 23.0 120 32.1% 81.7 78.3

2,233 167 60.3 24.4 117 32.6% 78.7 76.6

2,109 217 51.7 28.7 161 36.0% 103 53.9

2,096 168 68.0 35.5 47.6 54.8% 21.5 5.49

2,176 270 66.2 40.7 193 36.1% 123 NA

Balance Sheet & Other Financial Data (Million $) Cash 699 Current Assets 1,676 Total Assets 3,447 Current Liabilities 740 Long Term Debt 675 Common Equity 1,290 Total Capital 1,980 Capital Expenditures 64.4 Cash Flow 199 Current Ratio 2.3 % Long Term Debt of Capitalization 34.1 % Net Income of Revenue 5.5 % Return on Assets 4.4 % Return on Equity 10.8

116 1,141 2,710 548 530 1,187 1,834 73.9 301 2.1 28.9 8.1 8.7 19.2

93.0 1,187 2,765 639 502 1,280 1,873 62.0 265 1.9 26.8 6.6 6.9 16.0

63.4 1,113 2,655 682 506 1,076 1,671 50.5 152 1.6 30.3 4.0 4.3 9.8

170 1,073 2,008 506 202 962 1,239 40.1 145 2.1 16.3 3.9 4.3 9.0

150 1,193 2,290 674 203 1,111 1,390 38.7 143 1.8 14.6 3.4 3.7 7.7

96.1 1,132 2,139 567 303 1,011 1,348 29.4 139 2.0 22.5 3.5 3.8 8.5

18.4 1,051 1,994 552 304 830 1,168 45.8 155 1.9 26.0 4.9 5.2 12.9

6.70 1,139 1,974 549 446 868 1,339 53.6 89.5 2.1 33.3 1.0 1.1 2.4

6.10 1,186 2,050 538 473 844 1,342 57.6 189 2.2 35.3 5.7 5.9 14.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2801 80th St, Kenosha, WI 53143-5656. Telephone: 262-656-5200. Website: http://www.snapon.com Chrmn, Pres & CEO: N.T. Pinchuk

SVP & CFO: A.J. Pagliari Chief Acctg Officer & Cntlr: C.R. Johnsen Secy & General Counsel: I.M. Shur Investor Contact: L. Kratcoski (262-656-6121)

Board Members: B. S. Chelberg, K. L. Daniel, R. J. Decyk, J. F. Fiedler, J. P. Holden, N. J. Jones, A. L. Kelly, W. D. Lehman, N. T. Pinchuk, E. H. Rensi, R. F. Teerlink

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1920 Domicile: Delaware Employees: 11,000

Stock Report | October 23, 2010 | NYS Symbol: SO | SO is in the S&P 500

Southern Co (The) S&P Recommendation HOLD

★★★★★

Price $38.32 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Electric Utilities

12-Mo. Target Price $37.00

Investment Style Large-Cap Value

Summary This Atlanta-based energy holding company is one of the largest producers of electricity in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.48– 30.85 Trailing 12-Month EPS $2.50 Trailing 12-Month P/E 15.3 $10K Invested 5 Yrs Ago $14,395

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.43 2.50 15.8 830.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.37 3 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong and steady cash flow from its regulated electric utility operations, its solid balance sheet, and a generally supportive regulatory environment, partially offset by a slowing economy in its service territories.

40 36 32

26

Quantitative Evaluations

Vol.

S&P Quality Ranking

60

Mil. 30 20 10 0 5

$31.833 4.75 $1.82 42

D

C

B-

AB

B+

A-

A

Relative Strength Rank 4

3

A+

MODERATE 58

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Justin McCann on July 30, 2010, when the stock traded at $ 35.23. Highlights ➤

➤

➤

We expect operating EPS in 2010 to increase nearly 5% from 2009's $2.32, which excluded a one-time charge of $0.25. Operating earnings in 2009 were hurt by the economic slowdown in SO's service territory, particularly in the industrial sector, where electricity demand was down 11.8% for the year. Results in the first half of 2010 were aided by the weather, which was abnormally cold in the first quarter and abnormally warm in the second quarter. Operating EPS in the second half of 2010 is expected to be restricted by more shares outstanding, and by higher operating expenses, which are expected to return to more normal levels after their sharp decline in 2009. Longer term, we expect SO to realize average annual EPS growth of 4% to 6%, with the utilities seeing customer growth of about 1.7% and demand growth of around 2%. We expect SO to have total capital expenditures of about $16.4 billion in the 2010 through 2012 period. We do not expect any significant change in the company's policies with the replacement of David Ratcliffe as president (on August 1), and as chairman and CEO (on December 1) by the current COO Thomas Fanning.

Investment Rationale/Risk ➤

➤

➤

The stock is up nearly 10% year to date, after declining 8.8% in 2009. We believe the weakness in the housing market in SO's territory has been milder than in other areas and that with an increase in industrial activity there could be a gradual improvement in the service territory economy. Despite the attractive yield from the dividend (recently 5.0%), we believe the stock has become fully valued at its recent level. However, we expect it to trade at a premium to peers, reflecting the relative predictability of SO's earnings and dividend stream. Risks to our recommendation and target price include a severe economic downturn in the company's service territory, and a significant decline in the average P/E of the electric utility group as a whole. We expect future dividends to increase at around a 4% annual rate. With the current dividend payout ratio at 75% of our operating EPS estimate for 2010, such increases would keep payouts at the top of SO's targeted payout range of 70% to 75%. We see the shares trading at a premium-to-peers P/E of about 14.8X our EPS estimate for 2011. Our 12-month target price is $37.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,157 4,207 2009 3,666 3,885 2008 3,683 4,215 2007 3,409 3,772 2006 3,063 3,592 2005 2,864 3,144

3Q -4,682 5,426 4,832 4,549 4,378

4Q -3,510 3,802 3,340 3,152 3,287

Year -15,743 17,127 15,353 14,356 13,554

Earnings Per Share ($) 2010 0.60 0.62 2009 0.18 0.60 2008 0.47 0.55 2007 0.45 0.57 2006 0.35 0.52 2005 0.43 0.52

E0.97 0.99 1.01 1.00 0.99 0.97

E0.27 0.31 0.24 0.27 0.25 0.21

E2.43 2.07 2.26 2.28 2.10 2.14

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.455 0.455 0.455 0.455

04/19 04/19 07/19 10/18

04/29 04/29 07/29 10/28

05/03 05/03 08/02 11/01

06/05/10 06/05/10 09/04/10 12/06/10

Dividends have been paid since 1948. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SO

Southern Co (The) Business Summary July 30, 2010 CORPORATE OVERVIEW. The Southern Company is one of the largest producers of electricity in the U.S. Based in Atlanta, GA, this utility holding company has approximately 42,932 megawatts of generating capacity and provides electricity to around 4.4 million customers in the Southeast through the following integrated utilities: Alabama Power, Georgia Power, Gulf Power (located in the northwestern portion of Florida), and Mississippi Power. Savannah Electric & Power was merged into Georgia Power on July 1, 2006. MARKET PROFILE. Southern Power Company (SPC) was formed by SO in January 2001 to own, manage and finance wholesale generating assets in the Southeast. It serves both the utility units and the wholesale power market. Energy from SPC's assets, which included 7,880 megawatts of generating capacity at the end of 2009, is marketed to wholesale customers through the Southern Company Generation and Energy Marketing unit. SPC and the utility

units enter into contracts for power purchases, sales and exchanges among themselves, as well as with other utilities in the Southeast. Although Southern Power is not subject to state regulation, it is subject to regulation by the Federal Energy Regulatory Commission. SO is also the parent company for SouthernLINC Wireless, which provides digital, wireless communications services to SO's four utility units, as well as to non-affiliates within the Southeast. It also provides wholesale fiber optic solutions to telecommunication providers in the Southeast.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 18.15 2.07 2.29 1.73 84% 37.62 26.48 18 13

2008 17.08 2.26 1.83 1.66 74% 40.60 29.82 18 13

2007 16.23 2.28 2.26 1.60 70% 39.35 33.16 17 15

2006 15.00 2.10 2.06 1.54 72% 37.40 30.48 18 14

2005 14.19 2.14 2.04 1.48 69% 36.47 31.14 17 15

2004 13.65 2.06 1.93 1.77 86% 33.96 27.44 16 13

2003 12.92 2.02 1.85 1.39 69% 32.00 27.00 16 13

2002 11.56 1.85 1.35 1.36 74% 31.14 23.22 17 13

2001 10.87 1.61 1.12 1.34 83% 35.72 20.89 22 13

2000 15.12 1.52 NA 1.34 88% 35.00 20.38 23 13

15,743 1,788 NA 3.82 200 35.3% 1,645 1,822

17,127 1,704 NA 3.84 152 34.4% 1,742 1,412

15,353 1,245 1,175 3.73 106 31.9% 1,734 1,720

14,356 1,200 1,096 3.73 50.0 33.2% 1,574 1,551

13,554 1,176 1,116 3.90 51.0 27.2% 1,591 1,532

11,902 955 1,027 4.11 47.0 27.7% 1,532 1,436

11,251 1,027 937 4.21 25.0 29.3% 1,474 1,351

10,549 1,047 961 3.80 22.0 28.6% 1,318 964

10,155 1,173 909 3.25 NA 33.3% 1,119 776

10,066 1,171 852 2.87 NA 37.2% 994 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 60,314 Capital Expenditures 4,670 Net Property 41,193 Capitalization:Long Term Debt 19,213 Capitalization:% Long Term Debt 56.4 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 14,878 Capitalization:% Common 43.6 Total Capital 35,204 % Operating Ratio 83.6 % Earned on Net Property 8.8 % Return on Revenue 10.5 % Return on Invested Capital 8.4 % Return on Common Equity 11.7

56,152 3,961 37,866 17,898 57.4 Nil Nil 13,276 42.6 37,968 84.9 9.5 10.2 7.4 13.6

53,094 3,545 35,681 15,223 55.1 Nil Nil 12,385 44.9 34,198 83.8 9.6 11.3 8.3 14.6

50,167 2,994 33,585 13,247 53.8 Nil Nil 11,371 46.2 31,110 83.0 9.9 11.0 8.0 14.3

47,580 2,370 31,853 13,442 55.7 Nil Nil 10,689 44.3 30,394 82.5 9.5 11.7 8.0 15.2

45,585 2,110 30,634 13,010 55.9 Nil Nil 10,278 44.1 29,077 81.2 9.4 12.9 7.9 15.4

43,722 2,002 29,418 10,587 52.3 Nil Nil 9,648 47.7 25,809 79.7 10.0 13.1 8.9 16.1

41,764 2,717 26,315 8,956 50.7 Nil Nil 8,710 49.3 22,937 80.5 10.1 12.5 8.5 15.8

38,104 2,617 23,084 10,941 57.8 Nil Nil 7,984 42.2 24,147 81.9 10.7 11.0 7.4 12.0

35,972 2,225 21,622 10,457 49.4 Nil Nil 10,690 50.6 26,436 82.0 11.4 9.9 7.3 10.0

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 30 Ivan Allen Jr Blvd NW, Atlanta, GA 30308-3003. Telephone: 404-506-5000. Email: [email protected] Website: http://www.southernco.com

Chrmn & CEO: D.M. Ratcliffe Pres: T.A. Fanning COO & EVP: A.J. Topazi EVP & CFO: A.P. Beattie

EVP & Secy: G.E. Holland, Jr. Founded: 1945 Investor Contact: G. Kundert (404-506-5135) Domicile: Delaware Board Members: J. P. Baranco, J. A. Boscia, H. A. Employees: 26,112 Clark, III, H. W. Habermeyer, Jr., V. M. Hagen, W. A. Hood, Jr., D. M. James, D. E. Klein, J. N. Purcell, D. M. Ratcliffe, W. G. Smith, Jr., S. R. Specker, L. D. Thompson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SWN | SWN is in the S&P 500

Southwestern Energy Co S&P Recommendation BUY

★★★★★

Price $33.91 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Exploration & Production

12-Mo. Target Price $40.00

Investment Style Large-Cap Growth

Summary This Houston-based company is engaged in oil and gas exploration and production, natural gas gathering and marketing.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.82– 30.61 Trailing 12-Month EPS $1.64 Trailing 12-Month P/E 20.7 $10K Invested 5 Yrs Ago $21,065

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.72 2.09 19.7 346.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$11.736 Nil Nil 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.53 11 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects SWN's operations in a capital-intensive industry that is competitive and cyclical and derives value from producing a commodity whose price is very volatile.

60

40 30

Quantitative Evaluations 20

S&P Quality Ranking

2-for-1 Vol.

D

C

B-

B B

B+

A-

A

A+

Mil. 45 30 15 0

Relative Strength Rank

WEAK

24 LOWEST = 1

5 2

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Michael Kay on October 13, 2010, when the stock traded at $ 34.66. Highlights ➤

➤

➤

Since SWN's discovery of the Fayetteville Shale in 2004, total annual production has risen to more than 300 Bcfe, from 54 Bcfe. Production in 2009 rose 54%, with 244 Bcfe from Fayetteville, up 81%. In 2010, on a growth target of 42% at Fayetteville, currently producing 1.5 Bcfe/day, we see production up 33%, to 400 Bcfe. SWN will allocate 70% of 2010's capex budget to Fayetteville, where it is running 24 rigs. It has begun drilling at the Marcellus Shale, with one rig, and it will run two rigs at its Haynesville Shale acreage. SWN has drilled four horizontal Marcellus wells, scheduled to have been completed in the third quarter, and sees 30-35 Marcellus wells in 2010. We view SWN as a low-cost producer, as lease operating expenses fell about 35% over the past two years on Fayetteville operations. In 2009, operating EPS was flat at $1.52, as production growth was offset by falling natural gas prices. With attractive hedges, we see EPS of $1.72 in 2010 and $2.09 in 2011, on 23% production growth. After investing $1.8 billion in 2009, SWN has set a capex budget for 2010 of $2.1 billion, above cash flows, and we expect asset sales to bridge the gap.

Investment Rationale/Risk ➤

SWN spent $1.3 billion at Fayetteville in 2009, 72% of its total capex budget, and plans $1.5 billion (70%) in 2010, providing production and reserve growth visibility. We view positively its growth prospects and low-cost operations, which we think position it well to boost earnings and cash flow. SWN holds significant leasehold acreage acquired at attractive prices due to limited attention paid to the region before 2004. We believe additional acreage at Marcellus and Haynesville should add value over the next several years. Despite weak natural gas markets, we expect SWN's top-tier production growth to be internally funded by 2011, and view its low-cost operations as attractive under current market conditions.

➤

Risks to our opinion and target price include a sustained drop in oil and gas prices and further deterioration in global economic conditions.

➤

We see production, EPS and cash flow growth, with potential upside if gas markets improve. We blend our NAV estimate of $39 with a target of 8X our 2011 EBITDA estimate, above peers, to arrive at our 12-month target price of $40. We believe the shares have been negatively impacted by SWN's aggressive spending.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 668.1 589.9 2009 540.8 477.5 2008 524.1 604.5 2007 284.7 270.1 2006 226.7 154.0 2005 161.1 132.5

3Q -503.0 683.0 297.6 168.4 162.1

4Q -624.5 500.1 402.8 214.0 220.7

Year -2,146 2,312 1,255 763.1 676.3

Earnings Per Share ($) 2010 0.49 0.35 2009 -1.26 0.35 2008 0.31 0.39 2007 0.15 0.14 2006 0.17 0.11 2005 0.11 0.09

E0.42 0.34 0.63 0.15 0.10 0.13

E0.46 0.45 0.30 0.21 0.10 0.15

E1.72 -0.10 1.64 0.64 0.48 0.48

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Cash dividends have not been paid since 2000.

Stock Report | October 23, 2010 | NYS Symbol: SWN

Southwestern Energy Co Business Summary October 13, 2010 CORPORATE OVERVIEW. Southwestern Energy Company (SWN) is primarily focused on the exploration and production of natural gas. SWN is engaged in natural gas and crude oil exploration and production (E&P) in the Arkoma Basin, Oklahoma, Texas and Pennsylvania. SWN also has natural gas gathering and marketing activities located in core market areas. Current operations are being principally focused on development of the unconventional gas reservoir located on the Arkansas side of the Arkoma Basin, the Fayetteville Shale play.

the Fayetteville Shale (72%), East Texas (10%), the conventional Arkoma Basin (2%), Appalachian Basin (2%) and other (1%).

As of December 31, 2009, SWN had estimated proved reserves of 3.66 Tcfe, of which 100% was natural gas and 54% was proved developed. This compares with estimated proved reserves of 2.19 Tcfe, 100% natural gas and 62% proved developed, at the end of 2008, a 67% increase. We calculate SWN's reserve life was 12.2 years as of year-end 2009, up from 11.2 years a year earlier. We believe this is especially impressive given SWN's production growth and indicative of very strong reserve additions.

SWN's primary business is natural gas and oil exploration, development and production, with operations primarily located in Arkansas, Oklahoma and Texas. These operations are conducted through its wholly owned subsidiaries, SEECO, Inc., and Southwestern Energy Production Company (SEPCO). Diamond M, also wholly owned, has interests in properties in the Permian Basin of Texas. DeSoto Drilling, Inc. (DDI), a wholly owned subsidiary of SEPCO, operates drilling rigs in the Fayetteville Shale play and in East Texas.

CORPORATE STRATEGY. SWN is focused on promoting long-term growth in the net asset value of its business. The key elements of SWN's E&P business strategy are to exploit and develop its existing asset base, control operations and costs, hedge production to stabilize cash flow, and achieve growth through new exploration and development activities.

We estimate that SWN replaced 592% of production in 2009 (523% in 2008). As of the end of 2009, SWN's three-year average reserve replacement ratio was 548%. During 2009, SWN invested a total of $1.8 billion, with $1.6 billion allocated to the E&P business. Capital spending, which included $214 million (13%) for Midstream Services, focused primarily on active drilling programs in Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.76 3.98 -0.10 -0.11 Nil Nil 51.33 25.26 NM NM

2008 7.30 2.84 1.64 1.54 Nil Nil 52.69 19.05 32 12

2007 4.82 1.49 0.64 0.63 Nil Nil 28.50 15.57 45 24

2006 4.25 0.92 0.48 0.46 Nil Nil 22.14 11.83 47 25

2005 3.32 0.78 0.48 0.46 Nil Nil 20.90 5.51 44 12

2004 1.54 0.60 0.35 0.33 Nil Nil 6.93 2.42 20 7

2003 1.19 0.39 0.19 0.17 Nil Nil 3.19 1.36 17 7

2002 0.86 0.33 0.07 0.05 Nil Nil 1.91 1.19 28 17

2001 0.91 0.43 0.17 0.15 Nil Nil 2.04 1.10 12 6

2000 0.71 0.00 -0.23 NA 0.02 NM 1.30 0.68 NM NM

2,146 NA 1,403 18.6 -52.2 31.4% -35.7 -37.0

2,312 1,301 414 28.9 920 38.2% 568 533

1,255 969 294 37.7 357 38.1% 221 217

763 246 151 12.4 262 38.0% 163 157

676 246 96.2 21.0 234 36.7% 148 143

477 182 73.7 19.8 163 36.2% 104 98.6

327 97.3 55.9 19.1 78.6 35.8% 49.8 46.6

262 111 54.0 21.5 23.0 35.6% 14.3 10.3

345 145 52.9 24.0 57.2 38.3% 35.3 30.8

364 112 45.9 23.2 -74.7 NM -45.8 NA

Balance Sheet & Other Financial Data (Million $) Cash 13.2 Current Assets 564 Total Assets 4,770 Current Liabilities 536 Long Term Debt 998 Common Equity 2,331 Total Capital 3,340 Capital Expenditures 1,780 Cash Flow 1,367 Current Ratio 1.1 % Long Term Debt of Capitalization 30.0 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

196 889 4,760 793 674 2,508 3,253 1,756 982 1.1 20.7 24.6 13.6 27.3

0.73 363 3,623 431 978 1,647 103 1,519 515 0.8 31.5 17.6 7.4 14.3

43.0 324 2,379 379 136 1,434 1,953 851 314 0.9 6.9 21.3 7.6 12.7

224 461 1,869 302 100 1,110 1,477 454 244 1.5 6.7 21.8 9.8 18.9

1.20 131 1,146 134 325 448 989 291 177 1.0 32.9 21.7 10.2 26.2

1.30 100 891 95.1 279 342 780 167 106 1.1 35.7 15.2 6.1 19.2

1.69 76.1 740 74.6 342 177 649 92.1 68.3 1.0 52.8 5.5 1.9 7.9

3.64 93.2 743 71.5 350 183 668 106 88.2 1.3 52.4 10.2 4.9 21.8

2.39 113 705 240 225 141 464 75.7 0.07 0.5 48.5 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2350 North Sam Houston Parkway East, Suite 125, Houston, TX 77032. Telephone: 281-618-4700. Website: http://www.swn.com Chrmn: H.M. Korell

Pres & CEO: S.L. Mueller EVP & CFO: G.D. Kerley EVP, Secy & General Counsel: M.K. Boling Chief Admin Officer & CIO: D.W. Hency

Investor Contact: B.D. Sylvester (281-618-4897) Founded: 1929 Board Members: L. E. Epley, Jr., R. L. Howard, G. D. Domicile: Delaware Kerley, H. M. Korell, V. A. Kuuskraa, K. R. Mourton, S. L. Employees: 1,702 Mueller, C. E. Scharlau, A. H. Stevens

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LUV | LUV is in the S&P 500

Southwest Airlines Co. S&P Recommendation BUY

★★★★★

Price $13.47 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Airlines

12-Mo. Target Price $17.00

Summary As the fifth largest U.S. airline, Southwest offers discounted fares, primarily on shorter-haul, point-to-point flights.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$14.16– 8.10 $0.30 44.9 $8,591

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.78 1.13 17.3 745.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.048 0.13 $0.02 83

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.08 14 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Even though Southwest participates in the highly volatile airline industry, we think its conservative balance sheet, with low debt to total capitalization, and its track record of 37 consecutive years of profitability mitigate this risk.

20 16 12

8

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 60 40 20 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

4

80 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Corridore on October 04, 2010, when the stock traded at $ 12.71. Highlights ➤

➤

➤

Investment Rationale/Risk

On September 27, LUV announced that it would acquire AirTran Holdings (AAI $7, Buy) for a total of $1.4 billion in cash and stock. Under terms of the deal, LUV would exchange $3.25 in cash and 0.321 LUV share for each AAI share. Completion of the acquisition was subject to regulatory approval and AAI shareholder approval. We look for LUV standalone revenues to rise about 17% on flat capacity, a two percentage point improvement in loads and 14% higher yields. We expect incremental revenues from the sale of assigned boarding slots, a more sophisticated revenue management system, and other ancillary revenue-generating initiatives.

➤

We see margins in 2010 aided by revenue and mix improvement from LUV's recent initiative to redeploy flights to more profitable markets, coupled with our view of a modest rebound in business travel demand along with stronger leisure demand. We see jet fuel costs rising about 18% in 2010.

➤

We estimate 2010 operating EPS of $0.85, a sharp improvement over 2009 operating EPS of $0.19 (excluding $43 million in special items). For 2011, we see EPS of $1.13.

While LUV is straying away from its traditional business model with the proposed acquisition of AirTran, we think the benefits are likely to outweigh the risks. LUV would get about 22% larger without adding a single seat to industrywide capacity. AAI shares a low cost culture and has a strong presence in Atlanta, a strong business travel market. While LUV is taking on additional complexity due to the addition of new plane types, we think it will be able to manage this risk to keep expenses low. We believe LUV has the balance sheet strength to be able to make this acquisition without harming its financial health. Risks to our recommendation and target price include a poorly integrated acquisition, a possible price war with one or more competitors, and weakening of air travel demand. We are concerned about LUV's corporate governance relating to its use of affiliated outsiders on its board of directors' nominating and compensation committees.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,630 3,168 2009 2,357 2,616 2008 2,530 2,869 2007 2,198 2,583 2006 2,019 2,449 2005 1,663 1,944

3Q -2,666 2,891 2,588 2,342 1,989

4Q -2,712 2,734 2,492 2,276 1,987

Year -10,350 11,023 9,861 9,086 7,584

Earnings Per Share ($) 2010 0.01 0.15 2009 -0.12 0.12 2008 0.05 0.44 2007 0.12 0.36 2006 0.07 0.40 2005 0.09 0.20

E0.26 -0.02 -0.16 0.22 0.06 0.28

E0.22 0.16 -0.08 0.15 0.07 0.10

E0.78 0.13 0.24 0.84 0.61 0.67

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.005 0.005 0.005 0.005

11/19 01/28 05/19 07/15

12/08 03/02 06/07 08/24

12/10 03/04 06/09 08/26

01/07/10 03/25/10 06/23/10 09/16/10

Dividends have been paid since 1976. Source: Company reports. ➤

Our 12-month target price of $17 values the shares at an enterprise value-to-EBITDAR (EBITDA plus aircraft rent) multiple of 8X our 2010 EBITDAR estimate, a premium to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: LUV

Southwest Airlines Co. Business Summary October 04, 2010 CORPORATE OVERVIEW. Southwest Airlines was the largest provider of scheduled domestic passenger air travel in the U.S. in 2008. Overall, the airline ranks as the fifth largest in U.S., based on total revenue passenger miles (RPMs). At December 31, 2009, it served 68 cities in 35 states. LUV specializes in low-fare, point-to-point, short-haul, high-frequency service. Although 80% of its work force belongs to unions, the company believes that it has generally enjoyed harmonious labor relations. LUV began service to four new airports in 2009: Minneapolis-St. Paul, New York's La Guardia, Boston's Logan International, and Milwaukee International. The company expects to start service to Panama City, Florida in May 2010. On September 27, 2010, LUV announced that it had reached an agreement to acquire AirTran Holdings, the parent company of AirTran Airlines (AAI), for $3.75 a share in cash plus 0.321 of a LUV share for each AAI share. Based on LUV's closing price on September 24, the deal was valued at $1.4 billion, or $3.4 billion including the assumption of debt and operating leases. Completion of the acquisition was subject to approval by AirTran stockholders and regulatory authorities, among other things. AirTran is a low-cost carrier based primarily in the southeast U.S. with 2009 revenues of $2.3 billion.

comprised around 5.9% of total industry revenues. Southwest also has an approximate 10.3% market share when measured by RPMs, as of April 2009. Southwest was profitable in 2009 for the 37th consecutive year and was profitable throughout the industry downturn that took place after 9/11/01, with net income totaling $2.1 billion in 2001-2005. Over the same period, S&P believes the 10 largest U.S. airlines lost about $58.6 billion. COMPETITIVE LANDSCAPE. The industry consists of about 50 mainline commercial passenger airlines, of which about 20 are considered major airlines, defined as airlines with annual revenues in excess of $1.0 billion. Major competitors include Delta Air Lines (22.2% market share, as measured by RPMs, as of April 2009), AMR Corp.'s American Airlines (17.1%), UAL Corp.'s United Airlines (13.7%), Continental (10.8%), US Airways (8.0%) and JetBlue Airways (3.6%). The U.S. airline industry is fragmented, and highly competitive. Barriers to entry are high, and there are highly entrenched competitors. Pricing is extremely competitive. Fuel costs, the second largest cost category for Southwest, have risen sharply over the past three years, although Southwest is partly protected by a fuel hedging position that we think is by far the best in the industry.

MARKET PROFILE. The U.S. airline industry is a $186 billion market, according to 2008 data (latest available) from the U.S. Department of Transportation. With 2008 revenues of $11.0 billion (which fell 6%, to $10.4 billion, in 2009), LUV Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.36 0.96 0.13 0.12 0.02 14% 11.78 4.95 91 38

2008 6.69 1.05 0.24 0.23 0.02 8% 16.77 7.05 70 29

2007 10.49 1.56 0.84 0.83 0.02 2% 16.96 12.12 20 14

2006 8.23 1.23 0.61 0.60 0.02 3% 18.20 14.61 30 24

2005 8.38 1.25 0.67 0.62 0.02 3% 16.95 13.05 25 19

2004 7.04 0.91 0.38 0.30 0.02 5% 17.06 12.88 45 34

2003 6.40 1.00 0.54 0.48 0.02 3% 19.69 11.72 36 22

2002 5.69 0.74 0.30 0.23 0.02 6% 22.00 10.90 73 36

2001 5.23 1.03 0.63 0.61 0.01 2% 23.32 11.25 37 18

2000 4.57 1.14 0.79 NA 0.01 1% 23.32 10.00 30 13

10,350 944 616 165 164 39.6% 99.0 93.2

11,023 1,058 599 130 278 36.0% 178 169

9,861 1,371 555 119 1,058 39.0% 645 635

9,086 1,449 515 77.0 790 36.8% 499 489

7,584 1,289 469 83.0 874 37.3% 548 504

6,530 985 431 49.0 489 36.0% 313 236

5,937 867 384 58.0 708 37.6% 442 385

5,522 774 356 89.3 393 38.6% 241 188

5,555 949 318 49.3 828 38.2% 511 486

5,650 1,302 281 42.3 1,017 38.5% 625 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,593 Current Assets 3,358 Total Assets 14,269 Current Liabilities 2,676 Long Term Debt 3,325 Common Equity 5,466 Total Capital 8,981 Capital Expenditures 585 Cash Flow 715 Current Ratio 1.3 % Long Term Debt of Capitalization 37.0 % Net Income of Revenue 1.0 % Return on Assets 0.7 % Return on Equity 1.9

1,803 2,893 14,308 2,806 3,498 4,953 10,355 923 777 1.0 33.8 1.6 1.2 3.0

2,779 4,443 16,772 4,838 2,050 6,941 11,526 1,331 1,200 0.9 17.8 6.5 4.3 9.6

1,390 2,601 13,460 2,887 1,567 6,449 10,120 1,399 1,014 0.9 15.5 5.5 3.6 7.6

2,280 3,620 14,218 3,848 1,394 6,675 9,965 1,210 1,017 0.9 14.0 7.2 4.3 9.0

1,305 2,172 11,337 2,142 1,700 5,524 8,834 1,775 744 1.0 19.2 4.8 3.0 5.9

1,865 2,313 9,878 172 1,332 5,052 7,804 1,238 826 13.4 17.1 7.4 4.7 9.3

1,815 2,232 8,954 1,434 1,553 4,422 7,202 603 597 1.6 21.6 4.4 2.7 5.7

2,280 2,520 8,997 2,239 1,327 4,014 6,399 998 829 1.1 20.7 9.2 6.5 13.7

523 832 6,670 1,298 761 3,451 5,065 1,135 906 0.6 15.0 11.1 10.1 19.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: P.O. Box 36611, Dallas, TX 75235-1611. Telephone: 214-792-4000. Website: http://www.southwest.com Chrmn, Pres & CEO: G.C. Kelly

CEO: J.O. Parker, Jr. COO & EVP: M.G. Van De Ven EVP & Secy: R. Ricks SVP, CFO & Chief Acctg Officer: L.H. Wright

Investor Contact: L. Wright (214-792-4415) Board Members: D. W. Biegler, D. H. Brooks, W. H. Cunningham, J. G. Denison, T. C. Johnson, G. C. Kelly, N. B. Loeffler, J. Montford, D. D. Villanueva

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1967 Domicile: Texas Employees: 34,726

Stock Report | October 23, 2010 | NYS Symbol: SE | SE is in the S&P 500

Spectra Energy Corp S&P Recommendation BUY

★★★★★

Price $23.78 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Storage & Transportation

12-Mo. Target Price $27.00

Investment Style Large-Cap Blend

Summary This integrated natural gas holding company is engaged in gas gathering and processing, and gas transportation and storage, in the U.S. and Canada, and has retail gas distribution to 1.3 million customers in Ontario, Canada.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $23.86– 18.57 Trailing 12-Month EPS $1.45 Trailing 12-Month P/E 16.4 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.55 1.81 15.3 648.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$15.410 4.21 $1.00 65

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.89 13 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's large market capitalization and the lower risk inherent in its regulated gas transmission and distribution businesses, offset by its investments in higher-risk gas gathering and processing businesses.

30 25 20 15

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

C

B-

NR B

B+

A-

A

Relative Strength Rank 4

3

3

3

2

A+ STRONG

4

72 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Tanjila Shafi on August 16, 2010, when the stock traded at $ 21.02. Highlights ➤

➤

➤

We believe that 2011 earnings will benefit from the company's fee-based businesses. We expect EBIT of $2.3 billion to $2.4 billion in 2011. We see improving earnings at the company's Distribution segment, reflecting higher storage and transportation revenues. We expect its U.S. Transmission business to benefit from contributions from new projects placed into service. We see the company's Western Canada Transmission and Processing segment being aided by higher contracted volumes and revenues from expansions. The company has budgeted $1 billion in expansion capital expenditures for 2010 with another $0.6 billion for maintenance and upgrades of existing plants, pipelines and infrastructure. In addition, it has targeted $1 billion for expansion projects in 2011. SE paid a cash distribution of $0.25 per unit for the second quarter of 2010, unchanged from the previous year's second quarter distribution. For 2010, we see cash distributions of $1.00.

Investment Rationale/Risk ➤

➤

➤

Our buy recommendation is based on our view of improving fundamentals at the company's field services and U.S. transmission segments, reflecting higher volumes and prices. We believe the company's fee-based businesses and expansion projects will enhance earnings growth for the remainder of 2010 and 2011. In July, SE announced that it had entered into a definitive agreement to purchase the Bobcat Gas Storage assets and development project from privately-held Haddington Energy Partners III LP and GE (GE 15****) for $540 million. We believe that the pending acquisition will expand SE's footprint in the natural gas storage area. We are also encouraged with management's consideration to increase its quarterly distribution from its current $0.25 per share rate. Risks to our opinion and target price include slower natural gas production growth, lower natural gas prices, and a less favorable credit environment. Our 12-month target price of $27 is based on our revised 9.8X enterprise value-to-2010 EBITDA estimate, in line with its historical multiples.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,480 1,063 2009 1,384 937.0 2008 1,608 1,141 2007 1,401 985.0 2006 NA NA 2005 ---

3Q -933.0 1,080 959.0 NA --

4Q -1,298 1,261 1,397 ---

Year -4,552 5,074 4,742 4,532 4,132

Earnings Per Share ($) 2010 0.53 0.27 2009 0.47 0.22 2008 0.58 0.47 2007 0.37 0.29 2006 NA NA 2005 ---

E0.35 0.29 0.49 0.38 NA --

E0.38 0.33 0.27 0.45 ---

E1.55 1.31 1.81 1.49 NA 1.07

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.250 0.250

01/05 04/26 07/06 10/19

02/10 05/12 08/11 11/09

02/12 05/14 08/13 11/12

03/15/10 06/14/10 09/13/10 12/13/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SE

Spectra Energy Corp Business Summary August 16, 2010 CORPORATE OVERVIEW. SE owns and operates a diversified portfolio of natural gas-related energy assets and is primarily a natural gas midstream company. The company operates in three areas of the natural gas industry: transmission and storage, distribution, and gathering and processing. SE also owns a natural gas distribution company, Union Gas, and participates in a 50%-owned joint venture, DCP Midstream. MARKET PROFILE. The company manages its business in four segments: U.S. Transmission, Distribution, Western Canada Transmission and Processing, and Field Services. The U.S. Transmission segment provides transportation and storage of natural gas for customers in the eastern and southeastern U.S. and the Maritime provinces of Canada. The segment had 14,300 miles of natural gas at year-end 2009. The company's largest pipeline, Texas Eastern Transmission, is 8,700 miles, has a capacity of 6.7 billion cubic feet per day (bcf/d), and has 74 bcf of storage capacity. The pipeline connects Gulf Coast gas supply to demand centers in the Northeast, as well as to the East Tennessee Natural Gas and Algonquin Gas Transmission pipelines. The Algonquin pipeline can transport 2.2 bcf/d and connects to both the Texas Eastern and Maritimes and North-

east pipelines to provide gas to areas between Boston, MA, and northern New Jersey. The East Tennessee pipeline brings gas from the Texas Eastern pipeline through eastern Tennessee as far as Roanoke, VA. The 44%-owned Gulfstream pipeline brings natural gas into the fast growing state of Florida. The Maritimes and Northeast pipeline provides Sable Island area Canadian natural gas down into the Boston area and helps to supply the Algonquin pipeline. The segment also operates other pipeline interconnection assets and storage assets. The Distribution segment provides retail natural gas distribution in Ontario, Canada, as well as natural gas transportation and storage services to other utilities and energy market participants in Ontario, Quebec and the U.S. Union Gas is the company's regulated transmission and distribution subsidiary, serving 1.3 million customers in communities throughout Ontario. Union Gas distributes its gas through 37,300 miles of distribution pipelines and owns 3,000 miles of transmission pipelines and 156 bcf of high deliverability storage.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.91 2.24 1.31 1.33 1.00 76% 20.78 11.21 16 9

2008 3.53 2.72 1.81 1.71 0.96 53% 29.18 13.36 16 7

2007 4.60 2.31 1.49 1.46 0.88 59% 30.00 21.24 20 14

2006 NM NA NA NA Nil Nil 29.00 27.50 NA NA

2005 NA 2.04 1.07 NA Nil Nil NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

4,552 NA 562 610 1,271 27.8% 843 852

5,074 2,061 569 636 1,688 29.4% 1,129 1,060

4,742 1,967 525 651 1,458 30.4% 944 928

4,532 1,804 606 605 1,376 28.7% 936 926

4,132 1,697 458 607 862 41.7% 502 NA

13,255 NA NA 744 1,156 123.8% -489 NA

10,784 NA NA 806 719 29.2% 404 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 196 Current Assets 1,429 Total Assets 24,079 Current Liabilities 2,495 Long Term Debt 8,947 Common Equity 7,665 Total Capital 17,663 Capital Expenditures 1,336 Cash Flow 1,441 Current Ratio 0.6 % Long Term Debt of Capitalization 53.9 % Net Income of Revenue 18.5 % Return on Assets 3.7 % Return on Equity 12.8

214 1,450 21,924 3,044 8,290 5,540 15,346 2,030 1,698 0.5 54.0 22.3 5.0 18.2

94.0 1,379 22,970 2,422 8,345 6,857 16,008 1,202 1,469 0.6 52.1 19.9 4.4 15.1

299 1,625 20,345 2,358 7,726 5,639 16,910 987 1,542 0.7 45.7 20.7 3.4 10.9

NA 18,601 21,442 2,052 7,957 5,225 16,100 NA 960 NA Nil 12.2 NA NA

NA NA NA NA NA NA NA NA NA NA Nil NM NA NA

NA NA NA NA NA NA NA NA NA NA Nil 3.8 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5400 Westheimer Court, Houston, TX 77056-5310. Telephone: 713-627-5400 . Website: http://www.spectraenergy.com Chrmn: W.T. Esrey

Pres & CEO: G.L. Ebel COO: A.N. Harris CFO: J.P. Reddy Chief Admin Officer: D.M. Ables

Investor Contact: J. Arensdorf (713-627-4600) Board Members: A. A. Adams, P. Anderson, P. L. Carter, F. A. Comper, G. L. Ebel, W. T. Esrey, P. B. Hamilton, D. Hendrix, M. McShane, J. H. Netherland, Jr., M. E. Phelps

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2006 Domicile: Delaware Employees: 5,400

Stock Report | October 23, 2010 | NYS Symbol: S | S is in the S&P 500

Sprint Nextel Corp S&P Recommendation BUY

★★★★★

Price $4.85 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Wireless Telecommunication Services

12-Mo. Target Price $6.50

Investment Style Large-Cap Value

Summary This leading provider of wireless and other telecommunications services was formed in August 2005 through the merger of Sprint Corp. and Nextel Communications, Inc.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$5.31– 2.78 $-1.05 NM NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.55 -0.13 NM 2,984.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$14.475 Nil Nil 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.11 NA BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Given that we think S is one of the weakest national wireless carriers, its free cash flow could continue to be pressured in the near term. We believe this risk is partly offset by our view of the company's strong balance sheet and operating expense reductions.

20

8 4 2

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 300 200 100 0

D

C

B-

B B

B+

A-

A

Relative Strength Rank

5

STRONG

4

3

2

A+

75 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by James Moorman, CFA on July 29, 2010, when the stock traded at $ 4.71. Highlights ➤

➤

Investment Rationale/Risk

Following 9.5% lower revenues in 2009, we expect flat revenues in 2010 and 2.3% growth in 2011, as S continues to work on maintaining its subscriber base in its wireless business (87% of projected revenues) while attracting new subscribers. We believe the company is beginning to make progress in improving its network quality and customer satisfaction and continues to see sequential quarterly improvement in subscriber losses. Within global markets, we see revenues declining roughly 9% in 2010 due to competitive pressures.

➤

We estimate total EBITDA margins of 18.1% in 2010 and 19.4% in 2011, versus 19.8% in 2009. While we believe most of the cost-cutting measures have been completed, we expect some margin improvement in 2011 as revenue growth resumes and the company benefits from its lower cost structure.

➤

➤ ➤

We estimate operating losses per share of $0.55 in 2010 and $0.13 in 2011, following an operating loss per share of $0.36 in 2009.

Our buy recommendation is largely based on valuation. In our view, the company is in a transition, trying to regain favor with customers, as competitors take market share. However, we believe S is making progress, as subscriber losses continue to decline sequentially. The company has also done a good job of continuing to bring on new and exciting handsets and smartphones to retain and draw subscribers. While we think S has more work to do in turning around its operations, we believe the shares are nonetheless attractive at recent levels. Risks to our recommendation and target price include higher capital spending to deploy new services, liquidity issues relating to declining cash flow, and increased competition from nationwide peers that could lead to delayed growth in subscriber additions. Our 12-month target price of $6.50 assumes an enterprise value of 5.5X our 2011 EBITDA estimate, slightly below larger-cap telecom peers, to reflect S's subscriber losses, and below smaller pure-play wireless carriers that we think have stronger growth prospects.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 8,085 8,025 2009 8,209 8,141 2008 9,334 9,055 2007 10,092 10,163 2006 11,548 10,014 2005 6,936 7,113

3Q -8,042 8,816 10,044 10,496 9,335

4Q -7,868 8,430 9,847 10,444 11,296

Year -32,260 35,635 40,146 41,028 34,680

Earnings Per Share ($) 2010 -0.29 -0.25 2009 -0.21 -0.13 2008 -0.18 -0.12 2007 -0.07 0.01 2006 0.14 0.10 2005 0.32 0.40

E-0.12 -0.17 -0.11 0.02 0.08 0.23

E-0.10 -0.34 -0.57 -10.36 0.09 0.07

E-0.55 -0.84 -0.98 -10.31 0.34 0.87

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2007.

Stock Report | October 23, 2010 | NYS Symbol: S

Sprint Nextel Corp Business Summary July 29, 2010 CORPORATE OVERVIEW. Sprint Nextel, a leading provider of wireless and other telecommunications services, was formed in August 2005 through the merger of Sprint Corp. and Nextel Communications, Inc. The company has a balanced mix of consumer, business and government wireless customers. S spun off the local telephone business to shareholders in May 2006. As of the end of the second quarter of 2010, S provided service to roughly 48.2 million wireless subscribers, with 69% of them direct post-paid customers, while 23% were prepaid (Boost Mobile and Virgin Mobile), and 8% were wholesale customers. S also generates revenues from wireline voice and data communication services, and services to the cable multiple systems operators that use S's network and back-office capabilities. COMPETITIVE LANDSCAPE. In most major U.S. metropolitan markets, four national carriers offer competing wireless services to customers along with some regional carriers. Wireless carriers such as S have adjusted to potential substitutes by integrating the service features into the handsets. Until recently, S had a unique service with push-to-talk service through Nextel's iDEN network, but AT&T (formerly Cingular) has launched a competing nationwide service aimed at the consumer segment, in contrast to S's dominant position with small business and enterprise firms.

Wireless services are very price elastic. For the consumer market, service rate plans have taken on new features such as $9.99 for each family member added to the account. S realized 1.85% post-paid churn in the second quarter of 2010, its best ever, but generated $55 in average revenue per user (ARPU). Pre-paid customers had a 5.61% churn rate and generated $28 in ARPU. The company has simplified its pricing with plans that include a $100 plan with unlimited voice, data, text and other features, as well as a $90 plan for unlimited voice and texting. We believe this translates to roughly $80 for unlimited voice and compares to recent offers by the other three major wireless companies of $100 for unlimited voice alone. In our view, this is a good move that will help change S's image, but we do not expect the plans to drive big changes in customer growth. S also provides a $50 unlimited prepaid plan under its Boost Mobile brand on its iDEN and CDMA networks that we believe continues to be very successful, although we believe a handset shortage limited Boost's net additions in the second quarter.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.73 -0.84 -0.91 Nil Nil 5.94 1.83 NM NM

2008 NM 1.96 -0.98 -0.66 Nil Nil 13.16 1.35 NM NM

2007 NM -7.17 -10.31 -0.05 0.10 NM 23.42 12.96 NM NM

2006 NM 3.67 0.34 0.30 0.13 37% 26.89 15.92 79 47

2005 0.88 3.93 0.87 0.86 0.30 34% 27.20 21.57 31 25

2004 3.85 2.56 -0.71 -0.72 0.50 NM 25.80 15.74 NM NM

2003 14.40 3.12 0.33 1.20 0.50 152% 16.76 10.22 51 31

2002 11.45 4.14 1.18 1.26 0.50 42% 20.47 6.65 17 6

2001 11.41 2.60 -0.16 -0.12 0.50 NM 29.31 18.50 NM NM

2000 13.95 4.00 1.45 NA 0.50 34% 67.81 19.63 47 14

32,260 NA 7,416 1,416 -3,494 30.3% -2,436 -2,632

35,635 7,664 8,396 1,362 -4,060 NM -2,796 -1,864

40,146 10,282 9,023 1,433 -29,945 NM -29,580 -155

41,028 12,283 9,592 1,533 1,817 26.9% 1,329 849

34,680 10,220 6,269 1,351 2,906 38.0% 1,801 1,772

27,428 8,148 4,720 1,248 -1,603 NM -1,012 -1,036

14,185 4,376 2,519 236 434 32.3% 294 1,096

15,182 4,488 2,645 295 1,453 28.0% 1,046 1,132

16,924 4,238 2,449 57.0 -129 NM -146 -112

17,688 5,101 2,267 76.0 2,170 40.5% 1,292 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,924 Current Assets 8,593 Total Assets 55,424 Current Liabilities 6,785 Long Term Debt 20,293 Common Equity 18,095 Total Capital 39,156 Capital Expenditures 1,603 Cash Flow 4,980 Current Ratio 1.3 % Long Term Debt of Capitalization 51.8 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

3,719 8,344 58,252 6,281 20,992 19,605 47,793 3,882 5,600 1.3 43.9 NM NM NM

2,440 8,661 64,109 9,104 20,469 21,999 51,157 6,322 -20,557 1.0 40.0 NM NM NM

2,061 10,304 97,161 9,798 21,011 53,131 84,237 7,556 10,919 1.1 24.9 3.2 1.3 2.5

10,665 19,092 102,580 14,050 Nil 51,937 52,184 5,057 8,063 1.4 Nil 5.2 2.5 5.5

4,556 9,975 41,321 6,902 15,916 13,521 29,684 3,980 3,701 1.4 53.6 NM NM NM

1,635 4,378 21,862 2,359 2,627 13,372 17,632 1,674 2,821 1.9 14.9 2.1 1.3 2.3

641 3,327 23,043 4,320 2,736 11,814 16,385 2,181 3,698 0.8 16.7 6.9 4.4 8.8

134 3,485 24,164 6,298 3,258 11,704 16,514 5,295 2,310 0.6 19.7 NM NM NM

122 4,512 23,649 5,004 3,482 12,343 17,101 4,105 3,566 0.9 20.4 7.3 5.7 11.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 6200 Sprint Pkwy, Overland Park, KS 66251-6117. Telephone: 800-829-0965. Email: [email protected] Website: http://www.sprint.com

Chrmn: J.H. Hance, Jr. Pres & CEO: D. Hesse SVP & Treas: R.S. Lindahl CFO: R.H. Brust

Chief Acctg Officer & Cntlr: R.H. Siurek Board Members: R. R. Bennett, G. M. Bethune, L. C. Glasscock, J. H. Hance, Jr., D. Hesse, V. J. Hill, F. Ianna, S. Nilsson, W. R. Nuti, R. O'Neal

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1925 Domicile: Kansas Employees: 40,000

Stock Report | October 23, 2010 | NYS Symbol: SWK | SWK is in the S&P 500

Stanley Black & Decker Inc S&P Recommendation HOLD

★★★★★

Price $61.11 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Household Appliances

12-Mo. Target Price $65.00

Investment Style Large-Cap Blend

Summary This diversified global provider of hand tools, power tools and related accessories and systems resulted from the March 2010 merger of Stanley Works and Black & Decker.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $66.27– 44.60 Trailing 12-Month EPS $0.52 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $14,715

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.73 4.49 16.4 165.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.124 2.23 $1.36 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.29 12 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment takes into account our positive view of SWK's strong brand names and solid competitive position, offset by our negative view of industry cyclicality.

70 60 50 40

Quantitative Evaluations

30

S&P Quality Ranking Vol.

D

B-

B+ B

B+

A-

A

A+

29

Mil. 9 6 3 0 5

C

Relative Strength Rank

MODERATE

51 LOWEST = 1

5 3

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: P

Highlights ➤

The 12-month target price for SWK has recently been changed to $65.00 from $60.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on SWK from MarketScope, see below.

➤

10/20/10 11:21 am ET ... S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF STANLEY BLACK & DECKER (SWK 61.13***): Adjusted for certain items, SWK reports Q3 EPS of $0.97, vs. $0.77, and $0.18 greater than our view on better-than-expected margins, as sales of $2.4B were in line with our forecast. Looking ahead, we raise our '10 EPS estimate by $0.24 to $3.73 and '11's by $0.45 to $4.49 on Q3 results and revised sales and margin forecasts. We continue to think SWK will benefit from an improvement in the global industrial economy, but also believe there is limited upside potential to our $65 target price, which we raise by $5 on higher estimates and revised valuation analyses. / M.Christy,CFA

Revenue (Million $) 1Q 2Q 2010 1,262 2,366 2009 913.0 919.2 2008 1,097 1,154 2007 1,062 1,123 2006 968.7 1,018 2005 796.3 814.7

3Q -935.5 1,120 1,131 1,013 834.9

4Q -969.4 1,086 1,167 1,019 839.4

Year -3,737 4,426 4,484 4,019 3,285

Earnings Per Share ($) 2010 -1.11 0.28 2009 0.48 0.89 2008 0.85 0.95 2007 0.80 1.01 2006 0.45 0.90 2005 0.78 0.77

E0.79 0.77 0.98 1.09 1.09 0.89

E0.81 E0.72 0.07 1.11 1.04 0.75

E3.73 2.82 2.82 4.00 3.47 3.18

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.330 0.330 0.340 0.340

10/16 02/16 07/16 10/15

12/02 03/01 09/01 12/01

12/04 03/03 09/03 12/03

12/15/09 03/23/10 09/21/10 12/14/10

Dividends have been paid since 1877. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SWK

Stanley Black & Decker Inc Business Summary August 04, 2010 CORPORATE OVERVIEW. Stanley Black & Decker, the result of the March 2010 merger of Stanley Works and Black & Decker, is a diversified global provider of hand tools, power tools and related accessories, mechanical access solutions and electronic security solutions, engineered fastening systems, and more. The company offers a broad line of hand tools and has many well-known brands. Prior to the 2010 purchase of Black & Decker, SWK's operations were classified into three business segments in 2009: Consumer Products (34.6% of 2009 sales), Industrial Tools (23.6%), and Security Solutions (41.8%). MARKET PROFILE. In Consumer Products, SWK manufactures and markets hand tools, consumer mechanics tools and storage units, and hardware. Products are distributed directly to retailers (including home centers, mass merchants, hardware stores, and retail lumber yards) as well as third-party distributors, and include measuring instruments, hammers, knives and blades, screwdrivers, sockets and tool boxes. Among the company's brands are Stanley, FatMax, Powerlock, IntelliTools, ZAG, and National.

Brands include Stanley, Proto, Facom, USAG, MAC, Jensen, Bostich, Virax, David White, and Rolatape. The Security Solutions segment is a provider of access and security solutions primarily for retailers, educational and health care institutions, government, financial institutions, and commercial and industrial customers. Products include security integration systems, software, related installation and maintenance services, automatic doors, and locking mechanisms, and are sold on a direct sales basis. Brands include Stanley, Blick, Frisco Bay, PAC, ISR, WanderGuard, StanVision, Sargent and Greenleaf, BEST and Xmark. About 58% of Stanley Works 2009 sales were made in the U.S., 9.4% in Other Americas, 13.3% in France, 13.5% in Other Europe, and 5.7% in Asia. A large portion of SWK's products in the Consumer Products and Industrial Tools segments are sold through home centers and mass merchant distribution channels in the U.S. market. Despite the significant exposure, the company has actively reduced the amount of total sales to the mass merchant channels, reducing it from 22% of consolidated sales in 2002 to less than 6% in 2009.

The Industrial Tools segment manufactures and markets professional mechanics tools and storage systems, pneumatic tools and fasteners, hydraulic tools and accessories, assembly tools and systems, and electronic measuring tools. Products are distributed primarily through third-party distributors. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 5.31 2.82 2.88 1.30 46% 53.42 22.61 19 8

2008 NM 5.11 2.82 2.63 1.26 45% 52.18 24.19 19 9

2007 NM 5.94 4.00 4.08 1.22 30% 64.25 47.01 16 12

2006 NM 4.92 3.47 3.57 1.18 34% 54.59 41.60 16 12

2005 4.59 4.40 3.18 3.16 1.14 36% 51.75 41.51 16 13

2004 3.56 4.07 2.85 2.49 1.08 38% 49.33 36.42 17 13

2003 2.65 2.16 1.14 1.12 1.03 90% 37.87 20.84 33 18

2002 5.05 2.90 2.10 1.43 0.99 47% 52.00 27.31 25 13

2001 7.05 2.76 1.81 1.30 0.94 52% 46.97 28.06 26 16

2000 6.59 3.17 2.22 NA 0.90 41% 31.88 18.44 14 8

3,737 564 200 63.7 283 19.7% 226 232

4,426 747 183 82.0 301 25.2% 225 211

4,484 800 162 85.2 451 25.4% 337 343

4,019 567 121 69.3 367 20.8% 291 299

3,285 493 96.5 40.4 358 24.1% 272 270

3,043 513 95.0 38.6 329 27.0% 240 209

2,678 342 86.5 34.2 133 27.3% 96.7 94.7

2,594 360 71.2 28.5 273 32.1% 185 127

2,624 412 82.9 18.9 237 33.1% 158 113

2,749 424 83.3 34.6 294 33.8% 194 NA

Balance Sheet & Other Financial Data (Million $) Cash 401 Current Assets 1,412 Total Assets 4,773 Current Liabilities 1,192 Long Term Debt 1,085 Common Equity 1,985 Total Capital 3,095 Capital Expenditures 93.4 Cash Flow 427 Current Ratio 1.2 % Long Term Debt of Capitalization 35.1 % Net Income of Revenue 6.0 % Return on Assets 4.7 % Return on Equity 12.3

212 1,499 4,879 1,197 1,420 1,688 3,121 141 408 1.3 45.7 5.1 4.7 13.2

240 1,768 4,780 1,278 1,212 1,729 3,022 65.5 499 1.4 40.1 7.5 7.7 20.5

177 1,639 3,935 1,251 679 1,552 2,298 59.6 412 1.3 29.6 7.2 7.8 19.4

658 1,826 3,545 875 895 1,946 2,925 53.3 368 2.1 30.6 8.3 8.5 14.4

250 1,372 2,851 819 482 1,388 1,960 47.6 335 1.7 24.6 7.9 9.1 19.8

204 1,201 2,424 754 535 1,032 1,567 31.4 183 1.6 34.1 3.6 4.0 8.8

122 1,190 2,418 681 564 1,165 1,729 37.2 256 1.7 32.6 7.1 8.3 16.9

115 1,141 2,056 826 197 844 1,041 55.7 241 1.4 18.9 6.0 8.0 20.0

93.6 1,094 1,885 707 249 933 1,181 59.8 278 1.5 21.1 7.1 10.3 20.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1000 Stanley Drive, New Britain, CT 06053. Telephone: 860-225-5111. Website: http://www.stanleyblackanddecker.com/ Chrmn: N.D. Archibald

CEO: J.F. Lundgren COO & EVP: J.M. Loree SVP, CFO & Chief Acctg Officer: D. Allan, Jr. SVP, Secy & General Counsel: B.H. Beatt

Investor Contact: K. White (860-827-3833) Founded: 1843 Board Members: N. D. Archibald, J. G. Breen, G. W. Domicile: Connecticut Buckley, P. D. Campbell, C. M. Cardoso, V. W. Employees: 16,700 Colbert, R. B. Coutts, M. A. Fernandez, B. H. Griswold, IV, E. S. Kraus, A. Luiso, J. F. Lundgren, M. M. Parrs, R. L. Ryan, L. Zimmerman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: SPLS | SPLS is in the S&P 500

Staples Inc S&P Recommendation HOLD

★★★★★

Price $20.60 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Specialty Stores

12-Mo. Target Price $22.00

Investment Style Large-Cap Growth

Summary This leading operator of office products superstores has over 2,000 units in the U.S. and internationally.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.00– 17.45 Trailing 12-Month EPS $1.13 Trailing 12-Month P/E 18.2 $10K Invested 5 Yrs Ago $10,278

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.28 1.50 16.1 730.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$15.040 1.75 $0.36 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.85 12 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the company's business, which relies on consumer as well as business spending, and investments in emerging markets for future growth. This is offset by untapped growth areas in major domestic metro markets.

30 24 20 16

Quantitative Evaluations Vol.

S&P Quality Ranking

131

Mil. 60 40 20 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

2

MODERATE

46

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael Souers on August 25, 2010, when the stock traded at $ 18.07. Highlights ➤

➤

➤

We estimate sales growth of 2.3% in FY 11 (Jan.), following the 5.2% advance in FY 10. We expect this growth to be driven by the opening of about 40 net new stores in North America, continued international penetration, and flattish same-store sales results in North American Retail. We expect customer traffic to remain weak, but we see the average ticket rising slightly. We also project marginal improvement in the contract business as customers react to a gradual economic recovery. We expect a slight widening of gross margins in FY 11, with a growing private label business, supply chain initiatives, and lower sourcing costs. We see operating margins widening modestly, as continued cost synergies from the Corporate Express acquisition are only partially offset by a slight de-leveraging of fixed costs due to meager same-store sales gains. Following flat net interest expense and excluding integration and restructuring charges, we estimate FY 11 operating EPS of $1.28, an 11% increase from the $1.15 the company earned in FY 10, excluding integration and restructuring charges. We see FY 12 EPS of $1.50.

Investment Rationale/Risk ➤

➤

➤

We continue to favor SPLS's management, strong balance sheet, significant free cash flow generation and cost synergies from the Corporate Express acquisition that should accrue over the next few years. We also anticipate strong results for SPLS's North American Delivery division over the longer term, although we have been disappointed by the severity of the recent slowdown. Despite these positive drivers, we continue to think the office supply industry is extremely mature, with limited longterm growth potential. Following a recent pullback in price, we now find the shares fairly valued, trading at about 12X our FY 12 EPS estimate, a slight premium to the S&P 500. Risks to our recommendation and target price include a double-dip recession and weakerthan-expected capital spending and hiring by businesses. International risks include unfavorable currency movements and Europe debt contagion fears. Our 12-month target price of $22, about 15X our FY 12 EPS projection, is derived from our discounted cash flow model, which assumes a weighted average cost of capital of 9.6% and a terminal growth rate of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 6,058 5,534 2010 5,818 5,534 2009 4,885 5,075 2008 4,589 4,290 2007 4,238 3,881 2006 3,899 3,472

3Q -6,518 6,951 5,168 4,757 4,246

4Q -6,406 6,174 5,324 5,286 4,462

Year -24,275 23,084 19,373 18,161 16,079

Earnings Per Share ($) 2011 0.26 0.18 2010 0.20 0.13 2009 0.30 0.21 2008 0.29 0.21 2007 0.25 0.22 2006 0.20 0.20

E0.41 0.37 0.22 0.38 0.39 0.32

E0.39 0.37 0.40 0.47 0.46 0.39

E1.28 1.02 1.13 1.38 1.32 1.12

Fiscal year ended Jan. 31. Next earnings report expected: Early December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.083 0.090 0.090 0.090

12/08 03/09 06/07 09/14

12/21 03/24 06/23 09/22

12/23 03/26 06/25 09/24

01/14/10 04/15/10 07/15/10 10/14/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: SPLS

Staples Inc Business Summary August 25, 2010 CORPORATE OVERVIEW. Staples is the world's leading office products company, with net sales of nearly $24.3 billion in FY 10 (Jan.). Staples operates in three segments: North American Delivery (40% of total revenues in FY 10); North American Retail (39%); and International Operations (22%). Sales by product line: office supplies and services 48%; business machines and related products 32%; computers and related products 15%; and office furniture 5%. At January 30, 2010, SPLS operated 2,243 superstores, mostly in the United States (1,555 stores) and Canada (316 stores), but also in a number of other countries, including: the U.K. (137), Germany (58), the Netherlands (47), Portugal (35), Sweden (22), China (22), Norway (21), Australia (20), Belgium (6), Argentina (2), Denmark (1) and Ireland (1).

the company's Internet site, approximately 50,000 SKUs are available to customers. CORPORATE STRATEGY. Staples seeks to maintain its leadership position in the office products industry by differentiating itself from the competition, delivering industry-best execution and expanding its market share. In FY 10, it added 48 new stores in North America, filling in existing markets along with expansion into untapped metro markets. A few of the new stores were standalone copy and print shops, which average 4,000 square feet with 1,800 SKUs in supplies. We believe significant growth opportunities remain in other metropolitan markets where SPLS has yet to venture, and we expect the company to establish a strong Midwest presence over the next several years.

SPLS has approximately 8,000 stock-keeping units (SKUs) stocked in each of its typical North American retail stores and approximately 15,000 SKUs stocked in its North American Delivery fulfillment centers. On Staples.com, Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 2.89 1.79 1.02 1.06 0.33 32% 2009 25.10 14.35 25 14

2009 1.51 1.90 1.13 1.20 0.33 29% 2008 26.57 13.57 24 12

2008 5.28 1.92 1.38 1.42 0.22 16% 2007 27.66 19.69 20 14

2007 4.64 1.78 1.32 1.32 0.17 13% 2006 28.00 21.08 21 16

2006 3.84 1.56 1.12 1.05 0.17 15% 2005 24.14 18.64 22 17

2005 3.45 1.33 0.93 0.88 0.13 14% 2004 22.57 15.79 24 17

2004 3.01 1.03 0.66 0.61 Nil Nil 2003 18.58 10.49 28 16

2003 1.74 1.01 0.63 0.58 Nil Nil 2002 14.97 7.79 24 12

2002 2.63 0.73 0.42 0.32 Nil Nil 2001 12.97 7.35 31 17

2001 2.19 0.42 0.10 0.21 Nil Nil 2000 19.17 6.83 NM NM

24,275 2,019 552 237 1,156 34.5% 739 766

23,084 2,094 549 150 1,243 34.5% 805 857

19,373 1,975 389 38.3 1,554 36.0% 996 1,020

18,161 1,802 339 47.8 1,471 33.8% 974 974

16,079 1,617 304 56.8 1,314 36.5% 834 784

14,448 1,405 279 39.9 1,116 36.5% 708 667

13,181 1,081 283 20.2 778 37.0% 490 450

11,596 950 267 20.6 662 32.6% 446 413

10,744 768 249 27.2 431 38.5% 265 221

10,674 719 231 45.2 244 75.5% 59.7 147

Balance Sheet & Other Financial Data (Million $) Cash 1,416 Current Assets 6,175 Total Assets 13,717 Current Liabilities 3,782 Long Term Debt 2,500 Common Equity 6,772 Total Capital 9,423 Capital Expenditures 313 Cash Flow 1,291 Current Ratio 1.6 % Long Term Debt of Capitalization 26.5 % Net Income of Revenue 3.0 % Return on Assets 5.5 % Return on Equity 12.0

634 5,730 13,006 4,778 1,969 5,564 7,591 378 1,354 1.2 25.9 3.5 7.3 14.3

1,272 4,555 9,036 2,610 342 5,718 6,094 470 1,385 1.8 5.6 5.1 11.4 18.5

1,018 4,431 8,397 2,788 569 5,022 5,600 528 1,313 1.6 10.2 5.4 12.1 20.5

978 4,145 7,677 2,480 528 4,425 4,963 456 1,138 1.7 10.6 5.2 11.3 19.5

997 3,782 7,071 2,197 558 4,115 4,696 335 987 1.7 11.9 4.9 10.4 18.2

457 3,479 6,503 2,123 567 3,663 4,230 278 773 1.6 13.4 3.7 8.0 15.5

596 2,717 5,721 2,175 732 2,659 3,441 265 713 1.2 21.3 3.8 9.1 18.9

395 2,403 4,093 1,596 350 2,054 2,411 340 514 1.5 14.5 2.5 6.6 13.9

264 2,356 3,989 1,711 441 1,764 2,205 450 291 1.4 20.0 0.6 1.5 3.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Five Hundred Staples Dr, Framingham , MA 01702. Telephone: 508-253-5000. Email: [email protected] Website: http://www.staples.com

Chrmn & CEO: R. Sargent Pres & COO: M. Miles, Jr. EVP & CIO: B.T. Light SVP, Chief Acctg Officer & Cntlr: C.T. Komola

SVP, Secy & General Counsel: K.A. Campbell Founded: 1985 Investor Contact: N. Hotchkin (800-468-7751) Domicile: Delaware Board Members: B. L. Anderson, A. M. Blank, M. E. Employees: 91,095 Burton, J. M. King, C. M. Meyrowitz, R. T. Moriarty, R. C. Nakasone, R. Sargent, E. A. Smith, R. E. Sulentic, V. Vishwanath, P. F. Walsh

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: SBUX | SBUX is in the S&P 500

Starbucks Corp S&P Recommendation SELL

★★★★★

Price $28.49 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Restaurants

12-Mo. Target Price $20.00

Investment Style Large-Cap Growth

Summary Starbucks is the leading coffee roaster and retailer of high-quality coffee products in the world, which it sells through its approximate 16,700 retail stores globally, as well as increasingly through multiple retail channels.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.61– 18.69 Trailing 12-Month EPS $1.07 Trailing 12-Month P/E 26.6 $10K Invested 5 Yrs Ago $10,455

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.23 1.42 23.2 740.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$21.085 1.83 $0.52 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.26 8 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects uncertainties of ongoing steps to reinvigorate the Starbucks brand. We also see a threat from specialty coffee offerings by competitors. Offsetting these concerns, we think the company has significant financial strength, affording it the capacity to potentially return to moderate growth. Recent cost cutting has further bolstered the company's finances.

30 20 15 10

Vol. Mil.

Quantitative Evaluations

90 60 30 0 5

S&P Quality Ranking 5

4

4

D

C

B-

B+ B

B+

A-

A

A+

2 1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Relative Strength Rank

STRONG 82

LOWEST = 1

HIGHEST = 99

Options: ASE, CBOE, P, Ph

Analysis prepared by Mark S. Basham on July 23, 2010, when the stock traded at $ 25.38. Highlights ➤

In FY 09 (Sep.), SBUX essentially completed a restructuring plan, which included closing stores and reduced new store openings. Savings from the closings and other cost initiatives were $590 million, $90 million more than previously estimated by SBUX. Nearly all of these savings carried over into FY 10 and beyond.

➤

For FY 10, SBUX is unveiling new product, service and store initiatives to revitalize the brand. Prominently, it has introduced VIA instant coffee, which is being rolled out through multiple channels. We expect initial results from these efforts, such as initial trial sales of VIA, the opening of 250 new stores, as well as a 53rd week, to result in an 8.2% increase in revenues. We expect operating margins to widen by about 325 basis points. Including incremental EPS of $0.04 from the 53rd week, we see EPS rising to $1.20.

➤

Assuming global economic growth remains on track, we project revenues will rise about 6% in FY 11, including the effect of opening an anticipated 500 new stores. We expect operating margins will widen further on cost leverage, and see EPS rising to $1.35.

Investment Rationale/Risk ➤

We think the company's revitalization agenda is on the right track, and the restructuring and cost cutting done in FY 09 has resulted in a material improvement in fundamentals. Despite the definite improvement we see occurring at SBUX, we think the current share price reflects a stronger U.S. economic recovery than S&P currently anticipates.

➤

Risks to our recommendation and target price include a greater than anticipated positive impact from the company's revitalization initiatives on customer traffic, as well as greater cost savings from restructuring initiatives.

➤

Our 12-month target price of $20 is largely derived from our DCF model, which assumes a weighted average cost of capital of 10.5% and reflects a substantial FY 10 cash flow increase over FY 09 levels. We also assume average annual cash flow increases of 6% through FY 20, then moderation to a perpetuity growth rate of 3%. We also use a roughly peer-average P/E of 15X our FY 11 estimate, which is reflective of SBUX's recent conservative bent in its capital structure, to derive a value of $20.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,723 2,535 2009 2,615 2,333 2008 2,768 2,526 2007 2,356 2,256 2006 1,934 1,886 2005 1,590 1,519

3Q 2,612 2,404 2,574 2,359 1,964 1,602

4Q -2,422 2,515 2,441 2,003 1,659

Year -9,775 10,383 9,411 7,787 6,369

Earnings Per Share ($) 2010 0.32 0.28 2009 0.09 0.03 2008 0.28 0.15 2007 0.26 0.19 2006 0.22 0.16 2005 0.17 0.12

0.27 0.20 -0.01 0.21 0.18 0.16

E0.31 0.20 0.01 0.21 0.17 0.16

E1.23 0.52 0.43 0.87 0.73 0.61

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.130

03/24 07/21

04/05 08/02

04/07 08/04

04/23/10 08/20/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: SBUX

Starbucks Corp Business Summary July 23, 2010 CORPORATE OVERVIEW. The Starbucks brand is nearly synonymous with specialty coffee. However, a slowing economy and over-expansion under prior management led the company, beginning in FY 08 (Sep.) under returning CEO H. Schultz, to dramatically reduce expansion and begin to evolve the brand.

in international markets at September 30, 2009. A net 340 licensed store opened in FY 09, compared to 988 opened in FY 08. Revenue from retail licensees was approximately 13% of total revenues in FY 09 (11% in FY 08). The Global Consumer Products Group and a number of foodservice accounts were 3.8% of total revenues in FY 09 (4.2% in FY 08).

The number of Starbucks retail stores fell slightly, by 45, to 16,635 at September 30, 2009, from a year earlier. However, this decline gains a somewhat different perspective when compared to the 165 stores open at the end of FY 92. Company-operated retail stores accounted for 84% of net sales in both FY 09 and FY 08. Stores are typically clustered in high-traffic, high-visibility locations in each market. In FY 08 (latest available), the retail store sales mix by product type was 76% beverages, 17% food items, 3% whole bean coffees, and 4% coffee-related hardware items.

IMPACT OF MAJOR DEVELOPMENTS. At the time of the January 2008 reappointment of Howard Schultz as CEO, the company outlined a five-point agenda: 1) improve the U.S. business by focusing on the customer experience and other factors affecting store operations; 2) slow the pace of U.S. expansion and close underperforming U.S. locations; 3) re-energize the Starbucks brand and create an emotional connection to the brand with customers and employees; 4) realign and streamline management and back-end functions to better support customer-focused initiatives; and 5) accelerate expansion outside the U.S. and drive profit margins higher at international operations.

At September 30, 2009, SBUX owned and operated 6,764 (7,238 as of September 30, 2008) of its stores in the U.S., and 2,068 (1,979) stores in international markets. It closed a net 385 company stores in FY 09, compared to a net total of 681 company-owned stores opened in FY 08. There were also 4,364 (4,329) licensed retail stores in the U.S. and 3,439 (3,134) Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.66 1.24 0.52 0.53 Nil Nil 23.95 8.12 46 16

2008 2.93 1.17 0.43 0.44 Nil Nil 21.01 7.06 49 16

2007 2.74 1.51 0.87 0.86 Nil Nil 36.61 19.89 42 23

2006 2.68 1.25 0.73 0.73 Nil Nil 40.01 28.72 55 39

2005 2.56 1.06 0.61 0.53 Nil Nil 32.46 22.29 53 37

2004 3.00 0.85 0.48 0.42 Nil Nil 32.13 16.45 68 35

2003 2.52 0.66 0.34 0.29 Nil Nil 16.72 9.81 50 29

2002 2.20 0.55 0.27 0.23 Nil Nil 12.85 9.22 48 34

2001 1.78 0.45 0.23 0.18 Nil Nil 12.83 6.73 56 29

2000 1.50 0.48 0.12 NA Nil Nil 12.70 5.78 NM NM

9,775 1,331 535 42.0 559 30.1% 391 399

10,383 1,279 549 60.6 460 31.3% 316 325

9,411 1,437 491 Nil 1,056 36.3% 673 668

7,787 1,213 413 Nil 906 35.8% 581 579

6,369 1,071 367 Nil 796 37.9% 494 437

5,294 854 305 Nil 624 37.2% 392 346

4,076 646 259 Nil 436 38.5% 268 231

3,289 504 221 Nil 341 37.0% 215 181

2,649 430 177 Nil 289 37.3% 181 143

2,169 334 142 Nil 161 41.1% 94.6 NA

Balance Sheet & Other Financial Data (Million $) Cash 666 Current Assets 2,036 Total Assets 5,577 Current Liabilities 1,581 Long Term Debt 549 Common Equity 3,046 Total Capital 3,595 Capital Expenditures 446 Cash Flow 926 Current Ratio 1.3 % Long Term Debt of Capitalization 15.3 % Net Income of Revenue 4.0 % Return on Assets 7.0 % Return on Equity 14.1

322 1,748 5,673 2,190 550 2,491 3,059 984 865 0.8 18.0 3.0 5.7 13.2

281 1,696 5,344 2,156 550 2,284 2,834 1,080 1,164 0.8 19.4 7.1 13.8 29.8

313 1,530 4,429 1,936 1.96 2,229 2,230 771 994 0.8 0.1 7.5 14.6 26.9

174 1,209 3,514 1,227 2.87 2,091 2,094 644 862 1.0 0.1 7.8 14.3 21.7

299 1,368 3,328 783 3.62 2,487 2,537 386 697 1.7 0.1 7.4 12.9 17.1

201 924 2,730 609 4.35 2,082 2,120 357 528 1.5 0.2 6.6 10.9 14.1

175 848 2,293 537 5.08 1,727 1,754 375 436 1.6 0.3 6.5 10.4 13.9

113 594 1,851 445 5.79 1,376 1,406 384 358 1.3 0.4 6.8 10.8 14.4

70.8 460 1,493 313 6.48 1,148 1,180 316 367 1.5 0.5 4.4 6.9 9.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2401 Utah Avenue South, Seattle, WA 98134. Telephone: 206-447-1575. Email: [email protected] Website: http://www.starbucks.com

Chrmn, Pres & CEO: H.D. Schultz Board Members: B. Bass, W. W. Bradley, M. EVP, CFO, Chief Admin Officer & Chief Acctg Officer: T. Hobson, K. R. Johnson, O. C. Lee, S. Sandberg, H. D. Alstead Schultz, J. G. Shennan, Jr., J. G. Teruel, M. Ullman, EVP, Secy & General Counsel: P.E. Boggs III, C. E. Weatherup SVP & CIO: S. Gillett

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1985 Domicile: Washington Employees: 142,000

Stock Report | October 23, 2010 | NYS Symbol: HOT | HOT is in the S&P 500

Starwood Hotels & Resorts Worldwide Inc. S&P Recommendation HOLD

★★★★★

Price $56.96 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Hotels, Resorts & Cruise Lines

12-Mo. Target Price $59.00

Investment Style Large-Cap Blend

Summary Starwood is one of the world's largest lodging companies, with over 1,000 hotels in approximately 100 countries operating under nine brands.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $57.60– 27.66 Trailing 12-Month EPS $0.42 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $13,616

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.05 1.37 54.2 190.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.830 0.35 $0.20 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.03 15 BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

In our view, Starwood's financial flexibility has been substantially constrained by the current industry downturn. This was due in part to its decision to use cash and increase leverage to repurchase just over a quarter of its outstanding shares from 2006 to 2008. During 2009, it sold non-core assets and substantially reduced capital expenditures, enabling it to reduce its net debt position by almost $700 million.

80

40

20

10

Vol. Mil.

Quantitative Evaluations

30 20 10 0 5

S&P Quality Ranking 4

4 2

3 1

3

2

1

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+ STRONG

84 LOWEST = 1

HIGHEST = 99

Options: CBOE, Ph

Analysis prepared by Esther Y. Kwon, CFA on September 22, 2010, when the stock traded at $ 52.09. Highlights ➤

With easy year-to-year RevPAR comparisons in the first half of 2010, we think the benefits of cost-cutting and restructuring undertaken in 2009 were strongly seen in first half results. Worldwide RevPAR rose 9.5%. For the second half, comparisons are not quite as easy.

➤

For 2010, we forecast systemwide RevPAR will be up 5%. We see outsized gains in the Asia/ Pacific region, mixed results in Europe, and marginally higher RevPAR in North America. We forecast vacation ownership revenues will be about 6% higher. Reflecting 80-100 new hotels that HOT expects to open (with 10-20 likely to exit its portfolio), we see total revenues up 6%, including expected favorable foreign currency translation.

➤

We expect cash operating costs to rise somewhat less than revenues, owing to prior restructuring and asset writedowns, and we see operating profit up 10%. With a below historical 20% effective tax rate, we estimate EPS will increase to $1.05. For 2011, we expect costs to rise to support the growing worldwide portfolio but at a lower rate than the 6% revenue increase we forecast, resulting in EPS of $1.37.

Investment Rationale/Risk ➤

➤

➤

Although we do not expect the hotel industry to stage a full recovery to pre-2008 levels until some time in 2012, we believe HOT is positioned to disproportionately benefit from stronger international economies, and we expect major metropolitan markets, in which HOT has higher exposure, to outperform. Moreover, we see its premium positioning as a key differentiator. However, we believe the shares, trading at a premium to peers, already incorporate substantial prospective improvement in operating performance Risks to our recommendation and target price include the potential for industry conditions to improve at a slower rate than we currently foresee should the global economy recover later than S&P expects. Capital for some of the unfunded projects in the development pipeline may be less available under a tightening of capital market conditions. Our 12-month target price of $59 is based on an enterprise value multiple of 15X our 2011 EBITDA projection. This multiple is a premium to peers due to HOT's greater exposure to international and large metropolitan markets as well as the premium positioning of its properties.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,187 1,289 2009 1,091 1,190 2008 1,466 1,573 2007 1,431 1,572 2006 1,441 1,505 2005 1,406 1,559

3Q -1,192 1,535 1,540 1,461 1,496

4Q -1,283 1,333 1,610 1,572 1,516

Year -4,712 5,907 6,153 5,979 5,977

Earnings Per Share ($) 2010 0.16 0.42 2009 0.04 0.78 2008 0.42 0.57 2007 0.56 0.67 2006 0.34 3.01 2005 0.36 0.65

E0.26 0.20 0.62 0.61 0.71 0.18

E0.31 -1.03 -0.25 0.74 0.94 0.72

E1.05 Nil 1.37 2.57 5.01 1.88

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200

11/08

12/29

12/31

01/14/10

Dividends have been paid since 1995. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: HOT

Starwood Hotels & Resorts Worldwide Inc. Business Summary September 22, 2010 CORPORATE OVERVIEW. Starwood Hotels & Resorts (HOT) is one of the world's largest hotel companies, with owned, leased, managed or franchised hotels in approximately 100 countries. At December 31, 2009, the company's business included 992 hotels, with 298,522 rooms, vs. 942 properties with 284,800 rooms as of December 31, 2008. Of the 992 properties, 63 were wholly or majority owned, 440 were managed or operated as a joint venture, and 476 were franchised. HOT's business includes owned, managed and franchised properties. Its brands include St. Regis (luxury full-service hotels and resorts), The Luxury Collection (luxury full-service hotels and resorts), Westin (luxury and upscale full-service hotels and resorts), Sheraton (full-service hotels and resorts), W (boutique full-service urban hotels) and Four Points (moderately priced fullservice hotels). At December 31, 2009, the company's hotel business included 392 Sheratons (139,411 rooms), 165 Westins (65,521 rooms), 82 properties (14,961 rooms) in the St. Regis and Luxury Collection groups, 148 Four Points (24,930 rooms), 34 hotels (10,632 rooms) in the W chain, 105 Le Meridien properties (27,381 rooms), 39 hotels with 5,905 rooms in HOT's new boutique hotel brand, aloft, six hotels in its new green brand, element (762 rooms), and eight other hotels (1,935 rooms).

Approximately 58% of management and franchise fees in 2009 were generated outside the U.S. The company's top six domestic markets by percentage of total owned EBITDA during 2009 were: New York (9%), Hawaii (8%), Phoenix (5%), Chicago, Atlanta and San Francisco/SanMateo (4% each). The top six international markets were Canada (12%), Mexico (10%), Italy (10%), Australia (8%), Argentina (5%) and the U.K. (4%). Worldwide operating statistics for the 53 owned hotels operating in both 2008 and 2009 were: average daily rate of $199.22 in 2009, down 17.1% from $240.23 in 2008, occupancy of 64.7% vs. 71.2%, and RevPAR of $128.95, down 24.6% from $171.09. In addition, the company had 23 vacation ownership resorts as of December 31, 2009, including 22 in operation and 17 in active sales. There were 4,826 completed units, with 206 additional units under development. A potential additional 734 units were possible, based on land owned and average unit densities in existing markets. In total and assuming 52 intervals per unit, HOT had inventory of 299,832 vacation ownership intervals.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.51 Nil 0.36 0.20 NM 37.55 8.99 NM NM

2008 NM 3.12 1.37 1.31 0.90 66% 56.00 10.97 41 8

2007 NM 4.02 2.57 2.69 0.90 35% 75.45 42.78 29 17

2006 3.31 6.37 5.01 4.87 0.84 17% 68.87 49.68 14 10

2005 13.59 3.69 1.88 1.66 0.84 45% 65.22 51.50 35 27

2004 10.73 3.72 1.72 1.37 0.84 49% 59.50 34.81 35 20

2003 4.55 2.58 0.51 0.12 0.84 165% 37.60 21.68 74 43

2002 3.57 2.28 1.20 0.77 0.84 70% 39.94 19.00 33 16

2001 2.35 3.29 0.73 0.52 0.80 110% 40.89 17.10 56 23

2000 2.50 4.30 1.96 NA 0.69 35% 37.50 19.75 19 10

4,756 678 273 194 -296 99.0% -1.00 65.3

5,907 1,083 323 245 330 23.0% 254 241

6,153 1,217 306 215 733 25.8% 543 570

5,979 1,145 306 244 682 NM 1,115 1,084

5,977 1,242 407 258 642 34.1% 423 376

5,368 1,047 431 257 412 10.4% 369 291

4,630 1,698 429 287 -5.00 NM 105 27.7

4,659 1,856 222 338 252 1.59% 246 157

3,967 1,191 526 369 200 23.0% 151 107

4,345 1,509 481 439 610 33.0% 401 NA

Balance Sheet & Other Financial Data (Million $) Cash 87.0 Current Assets 1,491 Total Assets 8,761 Current Liabilities 2,027 Long Term Debt 2,955 Common Equity 1,824 Total Capital 4,805 Capital Expenditures 196 Cash Flow 272 Current Ratio 0.7 % Long Term Debt of Capitalization 61.5 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

389 2,166 9,703 2,688 3,502 1,621 5,652 476 577 0.8 61.9 4.3 2.6 13.7

358 1,824 9,622 2,101 3,590 2,076 5,720 384 849 0.9 62.8 8.8 5.8 21.4

183 1,810 9,280 2,461 1,827 3,008 4,891 371 1,421 0.7 37.4 18.6 10.2 27.1

897 2,283 12,454 2,879 2,926 5,211 8,724 464 830 0.8 33.5 7.1 3.4 8.5

326 1,683 12,298 2,128 3,823 4,788 9,518 333 800 0.8 40.2 6.9 3.1 8.1

508 1,245 11,894 1,644 4,393 4,326 9,676 307 534 0.8 45.4 NM NM NM

216 950 12,259 2,199 4,449 6,357 11,882 82.0 468 0.4 37.4 5.3 2.0 3.9

157 897 12,461 1,587 5,269 3,756 10,380 477 677 0.6 50.8 3.8 1.2 4.0

189 1,048 12,660 1,805 5,074 3,851 10,417 544 882 0.6 48.7 9.2 3.1 10.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1111 Westchester Avenue, White Plains, NY 10604. Telephone: 914-640-8100. Website: http://www.starwoodhotels.com Chrmn: B.W. Duncan

Pres & CEO: F. van Paasschen Investor Contact: V.M. Prabhu (914-640-8100) EVP & CFO: V.M. Prabhu EVP, Chief Admin Officer, Secy & General Counsel: K.S. Siegel

Board Members: A. M. Aron, C. Barshefsky, T. E. Founded: 1969 Clarke, C. C. Daley, Jr., B. W. Duncan, L. Galbreath, E. C. Domicile: Maryland Hippeau, S. R. Quazzo, T. O. Ryder, K. C. Youngblood, F. Employees: 145,000 van Paasschen

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: STT | STT is in the S&P 500

State Street Corp S&P Recommendation STRONG BUY

★★★★★

Price $40.40 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $47.00

Investment Style Large-Cap Growth

Summary This bank holding company, with about $20 trillion in assets under custody, is a leading servicer of financial assets worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.80– 32.47 Trailing 12-Month EPS $3.52 Trailing 12-Month P/E 11.5 $10K Invested 5 Yrs Ago $7,795

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.41 3.95 11.8 501.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$20.275 0.10 $0.04 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.32 7 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of solid fundamentals coupled with a strong customer base, good diversification and healthy earnings growth, offset by lower-than-peers capital ratios and our belief that the securities book is risky.

80 60 40

20

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

118

180

D

45 30 15 0

C

B-

AB

B+

A-

A

Relative Strength Rank 4

5

4

3

A+

MODERATE 60

5

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: Ph

Analysis prepared by Bret Howlett on October 20, 2010, when the stock traded at $ 40.45. Highlights ➤

➤

➤

We expect operating revenue to advance 8%-9% in 2010 and 4%-5% in 2011, as recent acquisitions and improved servicing results outweigh lower trading service revenue. We look for assets under management to benefit from a secular shift to passive investing and ETFs, along with continued market growth . An improving asset mix should also help boost servicing and management fees. Considering our expectation for a sluggish economic recovery, we do not see interest rates rising until late 2011 at the earliest, keeping a lid on net interest income. We believe long-term favorable macro trends remain intact, including the consolidation among financial processing providers, growth in worldwide pension systems, and development of more complex investment vehicles. We think the operating margin will fall in 2010 on higher compensation costs, but revenue growth and realized efficiencies should result in wider margins in 2011. We project operating EPS of $3.41 in 2010 and $3.95 in 2011. Operating earnings exclude the accretion of the discount associated with conduits consolidated on STT's balance sheet.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We believe STT is poised for double-digit earnings growth in 2011 on strong servicing fee growth, higher management fees, and cost controls. Despite the consolidation of asset conduits onto its balance sheet, we think the firm is adequately capitalized to absorb future losses. As of September 30, 2010, STT's Tier 1 common ratio stood at 13.9%, and we believe it should continue to improve based on our profitability outlook. With our view that most of STT's major risks have been removed, we look for its P/E multiple to slowly expand closer to historical levels, and we are valuing the company based on our 2011 estimated earnings. Risks to our recommendation and target price include a significant slowdown in capital markets, further securities writedowns, and further adverse litigation. Our 12-month target price is $47, or 11.9X our 2011 operating earnings estimate of $3.95. We think multiple expansion is warranted by what we view as the company's superior growth prospects compared to peers as the industry consolidates. Also, we see interest rates eventually rising, and providing another boost.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,296 2,304 2009 2,002 2,122 2008 2,577 2,672 2007 1,696 2,740 2006 2,218 2,409 2005 1,699 1,837

3Q -2,236 2,771 3,165 2,349 1,925

4Q -2,280 2,673 2,479 2,531 2,035

Year -8,640 10,693 11,818 9,510 7,496

Earnings Per Share ($) 2010 0.99 0.87 2009 1.02 0.79 2008 1.35 1.35 2007 0.93 1.07 2006 0.84 0.68 2005 0.67 0.66

E0.86 0.66 1.09 0.91 0.83 0.75

E0.88 1.00 0.54 0.57 0.91 0.74

E3.41 3.46 4.30 3.45 3.26 2.82

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

12/17 02/25 06/17 09/16

12/30 03/30 06/29 09/29

01/04 04/01 07/01 10/01

01/19/10 04/16/10 07/16/10 10/15/10

Dividends have been paid since 1910. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: STT

State Street Corp Business Summary October 20, 2010 CORPORATE OVERVIEW. State Street Corp. (STT) is a leading specialist in meeting the needs of institutional investors worldwide. Its customers include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. STT operates in 27 countries and more than 100 geographic markets worldwide including the U.S., Australia, Austria, Belgium, Canada, the Cayman Islands, Chile, France, Germany, India, Ireland, Italy, Japan, Luxembourg, Mauritius, the Netherlands, New Zealand, China, Singapore, South Africa, South Korea, Switzerland, Taiwan, Thailand, the United Arab Emirates and the United Kingdom. STT reports two lines of business: Investment Servicing and Investment Management. Investment Servicing provides services for U.S. mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody, product- and participant-level accounting, daily pricing and administration; master trust and master custody; record keeping; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financ-

ing; investment manager and hedge fund manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. Investment Management offers a broad array of services for managing financial assets, including investment management and investment research services, primarily for institutional investors worldwide. These services include passive and active U.S. and non-U.S. equity and fixed income strategies, and other related services, such as securities finance. Its exchange-traded fund (ETF)family holds onto a second place market share with nearly a quarter of industry assets under management at year-end 2009. We think the secular shift by investors to ETFs in lieu of mutual funds is a sustainable long-term trend, and STT is well positioned to increase assets under management faster than the industry average over the next few years.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 16.43 3.46 3.84 0.04 1% 55.87 14.43 16 4

2008 10.46 4.30 3.73 0.95 22% 86.55 28.06 20 7

2007 12.67 3.45 3.47 0.88 26% 82.53 59.13 24 17

2006 16.37 3.26 3.30 0.80 25% 68.56 54.39 21 17

2005 13.73 2.82 2.80 0.72 26% 59.80 40.62 21 14

2004 12.49 2.35 2.30 0.64 27% 56.90 39.91 24 17

2003 11.66 2.15 1.41 0.56 26% 53.63 30.37 25 14

2002 12.92 3.10 2.01 0.48 15% 58.36 32.11 19 10

2001 11.87 1.90 1.83 0.41 21% 63.93 36.25 34 19

2000 10.13 1.82 NA 0.35 19% 68.40 31.22 38 17

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

2,564 126 5,935 Nil 70.2% 2,525 28.6% 1,803 2.19 1,822

2,650 104 7,747 Nil 75.5% 2,564 36.0% 1,642 2.08 1,549

1,730 58.0 6,599 Nil 77.2% 1,903 33.7% 1,261 1.71 1,269

1,110 NA 5,201 Nil 71.9% 1,771 38.1% 1,096 1.25 1,107

907 42.0 4,566 Nil 73.8% 1,432 34.0% 945 1.08 939

859 45.0 4,074 -18.0 76.2% 1,192 33.1% 798 1.08 782

810 51.0 3,925 Nil 76.5% 1,112 35.1% 722 1.17 473

979 61.0 3,421 4.00 64.6% 1,555 34.7% 1,015 1.42 658

1,025 67.0 2,782 10.0 75.3% 930 32.5% 628 1.66 604

894 65.0 2,665 9.00 74.3% 906 34.3% 595 1.66 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 26,780 Investment Securities 93,576 Commercial Loans 6,710 Other Loans 4,098 Total Assets 157,946 Demand Deposits 11,969 Time Deposits 78,093 Long Term Debt 8,838 Common Equity 14,491 % Return on Assets 1.1 % Return on Equity 14.2 % Loan Loss Reserve 0.7 % Loans/Deposits 9.9 % Equity to Assets 7.6

56,548 76,017 7,287 1,844 173,631 32,785 79,440 4,419 10,721 1.0 14.9 0.2 9.2 7.0

29,841 74,559 13,822 1,980 142,543 15,039 80,750 3,636 11,299 1.0 13.6 0.1 15.3 7.4

20,699 64,992 6,617 2,329 107,353 10,194 55,452 2,616 7,252 1.1 16.1 0.2 13.6 6.6

12,039 59,870 4,152 2,312 97,968 9,402 50,244 2,659 6,367 1.0 15.1 0.3 10.9 6.5

26,829 37,571 2,352 2,277 94,040 13,671 41,458 2,458 6,159 0.9 13.4 0.4 8.4 6.6

31,694 38,215 2,768 2,253 87,534 7,893 39,623 2,222 5,747 0.8 13.7 1.2 10.6 6.1

46,342 28,071 2,052 2,122 85,794 7,279 38,189 1,270 4,787 1.3 23.5 1.5 9.2 5.5

37,991 20,781 3,289 2,052 69,896 9,390 29,169 1,217 3,845 0.9 17.7 1.1 13.9 5.1

44,083 13,740 3,476 1,797 69,298 10,009 27,928 1,219 3,262 0.9 20.1 1.1 13.9 4.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Lincoln St, Boston, MA 02111-2900. Telephone: 617-786-3000. Email: [email protected] Website: http://www.statestreet.com

Chrmn: R.E. Logue Pres & CEO: J.L. Hooley EVP & CFO: E.J. Resch EVP & Chief Admin Officer: D.C. O'Leary

EVP, Chief Acctg Officer & Cntlr: J.J. Malerba Investor Contact: S.K. MacDonald (617-786-3000) Board Members: K. F. Burnes, P. Coym, P. De Saint-Aignan, A. Fawcett, D. P. Gruber, L. A. Hill, J. L. Hooley, R. Kaplan, C. R. Lamantia, R. E. Logue, R. Sergel, R. L. Skates, G. L. Summe, R. E. Weissman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1832 Domicile: Massachusetts Employees: 27,310

Stock Report | October 23, 2010 | NNM Symbol: SRCL | SRCL is in the S&P 500

Stericycle Inc S&P Recommendation BUY

★★★★★

Price $72.21 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Environmental & Facilities Services

12-Mo. Target Price $78.00

Investment Style Large-Cap Growth

Summary SRCL provides medical waste collection, transportation, treatment and disposal services, and safety and compliance programs to health care companies throughout the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $72.88– 50.62 Trailing 12-Month EPS $2.23 Trailing 12-Month P/E 32.4 $10K Invested 5 Yrs Ago $26,489

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.45 2.75 29.5 85.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

0.22 15 NR

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that the regulated medical waste industry is relatively recession resistant, debt levels are reasonable, cash flow generation is sufficient, and ROIC is strong.

80

2-for-1

50

Quantitative Evaluations

40

S&P Quality Ranking

Vol. 27

Mil.

D

6 4 2 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

60

$6.160 Nil Nil 90

C

B-

B+ B

B+

A-

Relative Strength Rank

A

A+

MODERATE 65

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Analysis prepared by Stewart Scharf on September 30, 2010, when the stock traded at $ 69.84. Highlights ➤

➤

➤

We project revenue to rise at least 16% in 2010, and expect similar growth in 2011, driven by acquisitions and increased small-quantity (SQ) volume in the Steri-Safe regulatory program. We also see large-quantity (LQ) growth aided by the ongoing adoption of the waste management service (Bio Systems) and new medical waste contracts. We project small-quantity organic growth near 10%, while domestic and international markets should advance in the midto high single digits. In our view, gross margins should expand modesty in 2010, from 47% in 2009, as price hikes, a better mix of higher-margin SQ customer accounts and stabilizing energy costs offset acquisition-related mix issues. We believe operating margins (EBITDA) will widen further from about 30.5% in 2009, on synergies from integrating acquisitions and well-controlled SG&A expenses. We see an effective tax rate of near 37% in 2010, and estimate operating EPS of $2.45 in 2010 (before at least $0.04 of net acquisition-related and restructuring charges), followed by a 12% advance in 2011, to $2.75.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Our buy recommendation is based on favorable domestic and international trends in what we view as the recession-resistant medical waste business, and our view of the company's highly consistent operating model with solid cash flow generation. Risks to our recommendation and target price include potential new competitors, significant changes in environmental regulations for medical waste disposal, a rebound in fuel and energy costs, and problems integrating acquisitions. We attribute the stock's recent above-peers and S&P 500 multiple of over 28X our 2010 EPS estimate to the company's broad medical services network, its expanding market reach, and an acquisition strategy that has been accretive. Using historical and projected price-to-sales, P/E-to-three-year-EPS-growth (PEG) and priceto-EBITDA ratios, we derive a relative valuation of $76. Based on our DCF analysis, assuming 4% terminal growth and a 7.5% weighted average cost of capital, our intrinsic valuation estimate is $80. Blending these metrics, we arrive at our 12-month target price of $78.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 335.2 347.7 2009 277.1 289.3 2008 254.8 277.8 2007 211.1 232.9 2006 179.3 198.4 2005 140.6 149.2

3Q -297.8 277.1 237.3 203.3 153.2

4Q -313.5 274.0 251.6 208.7 166.6

Year -1,178 1,084 932.8 789.6 609.5

Earnings Per Share ($) 2010 0.56 0.61 2009 0.47 0.51 2008 0.35 0.44 2007 0.33 0.36 2006 0.26 0.28 2005 0.24 0.26

E0.64 0.54 0.45 0.37 0.31 0.26

E0.62 0.52 0.45 0.27 0.32 -0.01

E2.45 2.03 1.68 1.32 1.17 0.74

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: SRCL

Stericycle Inc Business Summary September 30, 2010 CORPORATE OVERVIEW. Stericycle, North America's largest regulated medical waste management company, serves customers throughout the U.S., Canada, Mexico, the United Kingdom, Ireland and Argentina. In addition to waste collection, transfer and disposal, the company provides OSHA compliance services, accreditation readiness monitoring software, hospital-acquired infection monitoring software, and expired medications return services. It entered the U.K. market through the June 2004 acquisition of White Rose Environmental Ltd., and the February 2006 purchase of Sterile Technologies Group Limited (STG). SRCL's global network includes 113 processing or processing/collection sites and 135 additional transfer, collection or combined transfer/collection sites. The company uses its network to provide the industry's broadest service offering, including medical waste collection, transportation and treatment, and related consulting, training and education services and products.

care facilities; and about 12,000 large-quantity (LQ) medical waste generators, such as hospitals, blood banks and pharmaceutical manufacturers. In the U.K., the mix is over 70% LQ and near 30% SQ customers. SQ customers accounted for 63% of domestic medical waste revenues in 2009, up from 33% in 1996, with a gross margin of 46.9%, up from 21% in 1996. Foreign revenues accounted for over 22% of the total in 2009, with Europe responsible for 60% (13% of total sales). MARKET PROFILE. SRCL estimates that annual revenues in the U.S. regulated medical waste services market are $3 billion, and about $10.5 billion globally. The company believes its global market share rose to 11.2% in 2009, from 10.3% in 2008. Waste generators outsource medical waste handling to reduce costs. Compliance issues have historically grown more complex, which has led to a shift toward more outsourcing.

The company's two principal groups had over 471,000 customers as of June 30, 2010, including 459,000 small-quantity (SQ) medical waste generators, such as outpatient clinics, medical and dental offices, and long-term and sub-acute Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.49 2.03 2.03 Nil Nil 58.34 44.36 29 22

2008 NM 2.08 1.68 1.72 Nil Nil 66.15 46.45 39 28

2007 NM 1.66 1.32 1.39 Nil Nil 62.56 36.52 47 28

2006 NM 1.47 1.17 1.16 Nil Nil 38.22 28.33 33 24

2005 NM 0.98 0.74 0.98 Nil Nil 31.80 21.38 43 29

2004 NM 1.08 0.85 0.79 Nil Nil 26.61 20.85 31 25

2003 NM 0.90 0.72 0.65 Nil Nil 26.01 16.03 36 22

2002 NM 0.67 0.51 0.45 Nil Nil 20.27 12.50 40 25

2001 NM 0.56 0.26 0.20 Nil Nil 15.71 6.50 60 25

2000 NM 0.47 0.18 NA Nil Nil 10.56 3.80 59 21

1,178 365 40.0 34.3 278 36.5% 176 176

1,084 316 34.2 33.1 239 37.8% 149 152

933 272 31.1 34.0 191 38.1% 118 124

790 233 27.0 28.4 173 39.0% 105 105

610 191 21.4 13.0 112 40.0% 67.2 87.6

516 169 21.8 11.2 129 39.2% 78.2 71.8

453 144 17.3 12.8 109 39.5% 65.8 59.0

402 119 15.0 21.5 75.6 39.5% 45.7 39.7

359 102 25.2 35.4 36.7 40.1% 22.0 14.0

324 91.4 23.5 39.8 23.8 39.1% 14.5 NA

Balance Sheet & Other Financial Data (Million $) Cash 16.9 Current Assets 247 Total Assets 2,183 Current Liabilities 221 Long Term Debt 923 Common Equity 846 Total Capital 1,846 Capital Expenditures 39.9 Cash Flow 216 Current Ratio 1.1 % Long Term Debt of Capitalization 50.0 % Net Income of Revenue 14.9 % Return on Assets 8.9 % Return on Equity 23.2

10.5 224 1,759 180 754 670 1,571 47.5 183 1.3 48.0 13.7 8.8 21.5

18.4 210 1,608 150 614 714 1,453 48.4 150 1.4 42.3 12.7 8.1 17.7

13.5 219 1,328 142 443 625 1,174 36.4 132 1.5 37.8 13.3 8.9 18.4

7.83 144 1,048 98.8 349 522 942 26.3 88.6 1.5 37.0 11.0 7.1 13.2

7.85 115 834 83.2 190 495 743 33.3 100.0 1.4 25.6 15.1 10.1 17.3

7.24 97.7 707 69.0 163 408 634 21.0 83.0 1.4 25.7 14.5 9.6 17.9

8.38 94.4 667 53.8 224 327 610 14.8 60.7 1.8 36.8 11.4 7.1 16.4

12.7 98.0 615 63.4 267 233 545 15.4 47.3 1.5 49.1 6.1 3.6 12.0

2.67 91.0 598 43.1 345 135 551 11.6 38.0 2.1 62.6 4.5 2.4 11.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 28161 North Keith Drive, Lake Forest, IL 60045. Telephone: 847-367-5910. Email: [email protected] Website: http://www.stericycle.com

Chrmn, Pres & CEO: M.C. Miller COO & EVP: R. Kogler EVP, CFO & Chief Acctg Officer: F.J. ten Brink

Board Members: T. D. Brown, R. Dammeyer, W. Hall, J. Founded: 1989 T. Lord, M. C. Miller, J. Patience, J. Reid-Anderson, J. Domicile: Delaware W. Schuler, R. G. Spaeth Employees: 8,199

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: SYK | SYK is in the S&P 500

Stryker Corp S&P Recommendation BUY

★★★★★

Price $51.27 (as of Oct 25, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company makes specialty surgical and medical products such as orthopedic implants, endoscopic items, and hospital beds.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.72– 42.74 Trailing 12-Month EPS $3.22 Trailing 12-Month P/E 15.9 $10K Invested 5 Yrs Ago $12,789

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.30 3.65 15.5 396.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$20.351 1.17 $0.60 61

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.90 12 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Stryker operates in very competitive areas of the global medical device industry, characterized by rapid technological innovation and market share volatility. We believe the medical/surgical supplies unit may be vulnerable to reductions in hospital capital equipment spending, but we think demand for its orthopedic products is largely immune from economic cycles.

80

60

40

30 Vol.

Quantitative Evaluations

Mil. 15 10 5 0 5

S&P Quality Ranking D 4

3

C

B-

A+ B

B+

A-

A

Relative Strength Rank

1

MODERATE 59

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

➤

➤

We expect sales to rise about 6.5% in 2011, to over $7.7 billion, following a 7.5% increase we see in 2010, to over $7.2 billion, led by improved med-surg sales, and new spine, hip and knee implant products. However, we see orthopedic implant growth continuing to be tempered by pricing pressures and elective procedure deferrals. SYK's European markets remain soft due to austerity measures and the company's 2009 decision to discontinue certain products, but sales declines there have begun to narrow sequentially and we expect this trend to continue. We project high single-/low-double-digit med-surg equipment sales to continue through 2011, aided by a recent acquisition and assuming order trends are sustainable. We think gross margins will continue to expand, partly on an improving product mix and higher cost absorption. We expect SG&A costs to continue to decline as a percentage of sales, on cost controls, while R&D costs continue to consume a slightly higher proportion of sales.

Investment Rationale/Risk ➤

➤

➤ ➤

We look for EPS of $3.65 in 2011, versus our estimate of $3.30 in 2010. Operating EPS was $2.95 in 2009.

HIGHEST = 99

2010

Analysis prepared by Phillip M. Seligman on October 25, 2010, when the stock traded at $ 51.27. Highlights

A+

4

3

Despite U.S. hospital spending constraints, SYK appears to be realizing a strong recovery in the med-surg arena. Looking ahead, we see longterm growth opportunities for SYK's orthopedic implant segment enabled by its active R&D, demographic trends, and procedure deferrals lessening over time. Meanwhile, although orthopedic implant sales are being impacted by soft volume trends and pricing pressures, we are encouraged that volume trends appear to be improving sequentially in Europe. We expect its global hip and knee sales to improve in 2011 assuming the new hip products gain more traction and FDA approval is received for an instrument system to customize knee implants. We view SYK's cash position and cash flow as healthy, providing financial flexibility.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,799 1,758 2009 1,601 1,634 2008 1,634 1,713 2007 1,426 1,464 2006 1,321 1,328 2005 1,203 1,219

3Q 1,768 1,653 1,653 1,453 1,294 1,172

4Q -1,834 1,718 1,658 1,463 1,279

Year -6,723 6,718 6,001 5,406 4,872

Earnings Per Share ($) 2010 0.80 0.80 2009 0.71 0.73 2008 0.70 0.73 2007 0.58 0.58 2006 0.36 0.52 2005 0.42 0.45

0.85 0.57 0.66 0.55 0.46 0.32

E0.90 0.76 0.69 0.66 0.55 0.45

E3.30 2.77 2.78 2.37 1.89 1.64

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Risks to our recommendation and target price include Medicare reimbursement rate reductions, intensified competition, and rejection of a promising product by the FDA.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our 12-month target price of $60 reflects a P/E of 16.5X our 2011 EPS estimate. In our view, Stryker's superior projected growth rate relative to peers warrants a premium valuation.

0.150 0.150 0.150 0.150

12/03 02/25 06/21 09/15

12/28 03/26 06/28 09/28

12/30 03/30 06/30 09/30

01/29/10 04/30/10 07/30/10 10/29/10

Dividends have been paid since 1992. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: SYK

Stryker Corp Business Summary October 25, 2010 Stryker Corp. traces its origins to a business founded in 1941 by Dr. Homer H. Stryker, a leading orthopedic surgeon and the inventor of several orthopedic products. The company has significant exposure to the artificial hip, prosthetic knee and trauma product areas. International sales accounted for 36% of the total in 2009. Orthopedic implants (61% of 2009 sales) consist of products such as hip, knee, shoulder and spinal implants, associated implant instrumentation, trauma-related products, and bone cement. Artificial joints are made of cobalt chromium, titanium alloys, ceramics, or ultra-high molecular weight polyethylene, and are implanted in patients whose natural joints have been damaged by arthritis, osteoporosis, other diseases, or injury. SYK also sells trauma-related products, used primarily in the fixation of fractures resulting from sudden injury, including internal fixation devices such as nails, plates and screws, and external fixation devices such as pins, wires and connection bars. In addition, the division sells Simplex bone cement, a material used to secure cemented implants to bone, and the OP-1 Bone Growth Device. Composed of recombinant human osteogenic protein-1 and a bioresorbable collagen matrix, the product induces the formation of new bone when implanted into existing bone, and is approved to treat long bone fractures in patients in whom use of autograft treatments has failed or is not a feasible option. In March 2009, an

FDA panel voted not to recommend the company receive broad-based marketing approval for its OP-1 putty, a new formulation of OP-1. As of April 2010, Stryker is in the process of reviewing its strategic alternatives for the use of OP-1. The medical and surgical equipment unit (39%) operates through four units. Stryker Instruments sells powered surgical drills, saws, fixation and reaming equipment, as well as other instruments used for drilling, burring, rasping or cutting bone, wiring or pinning bone fractures, and preparing hip or knee surfaces for the placement of artificial hip or knee joints. Stryker Endoscopy offers medical video cameras, light sources, arthroscopes, laparascopes, powered surgical instruments, and disposable suction/irrigation devices. Stryker Medical produces a wide variety of specialty stretchers customized for acute care and specialty surgical facilities. Stryker Leibinger makes plate and screw systems for craniomaxillofacial surgery to repair small bones in the hands, face and head, and sells a proprietary bone substitute material, BoneSource.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.58 3.74 2.77 2.69 0.15 5% 52.66 30.82 19 11

2008 11.28 3.25 2.78 2.76 0.40 14% 74.94 35.38 27 13

2007 10.84 2.79 2.37 2.37 0.33 14% 76.89 54.89 32 23

2006 7.98 2.69 1.89 1.89 0.22 12% 55.92 39.77 30 21

2005 5.75 2.34 1.64 1.57 0.11 7% 56.32 39.74 34 24

2004 4.44 1.78 1.14 1.08 0.09 8% 57.66 40.30 51 35

2003 2.98 1.71 1.12 1.08 0.07 6% 42.68 29.83 38 27

2002 1.42 1.30 0.85 0.80 0.06 7% 33.74 21.93 40 26

2001 0.65 1.09 0.67 0.63 0.05 7% 31.60 21.65 47 32

2000 0.04 0.97 0.55 NA 0.03 5% 28.88 12.22 52 22

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

6,723 2,109 385 22.4 1,624 31.8% 1,107 1,075

6,718 1,749 195 30.5 1,580 27.4% 1,148 1,141

6,001 1,506 179 22.2 1,370 28.0% 987 987

5,406 1,459 332 Nil 1,104 29.5% 778 779

4,872 1,305 290 7.70 1,003 32.7% 675 645

4,262 1,092 251 6.80 717 35.0% 466 441

3,625 901 230 22.6 652 30.5% 454 436

3,012 751 186 40.3 507 31.8% 346 324

2,602 645 172 67.9 406 33.0% 272 257

2,289 600 169 96.6 335 34.0% 221 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,955 Current Assets 5,851 Total Assets 9,071 Current Liabilities 1,441 Long Term Debt Nil Common Equity 6,595 Total Capital 6,595 Capital Expenditures 131 Cash Flow 1,493 Current Ratio 4.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 16.5 % Return on Assets 13.3 % Return on Equity 18.5

2,196 4,979 7,603 1,462 Nil 5,407 5,568 155 1,343 3.4 Nil 17.1 15.4 21.3

2,411 4,905 7,354 1,333 Nil 5,379 5,524 188 1,165 3.7 Nil 16.4 14.9 20.6

1,415 3,534 5,874 1,352 Nil 4,191 4,191 218 1,110 2.6 Nil 14.4 14.3 20.8

1,057 2,870 4,944 1,249 184 3,252 3,436 272 965 2.3 5.4 13.9 15.0 22.5

349 2,143 4,084 1,114 0.70 2,752 2,753 188 717 1.9 0.0 10.9 12.9 19.0

65.9 1,398 3,159 850 18.8 2,155 2,174 145 683 1.6 0.9 12.5 15.2 24.8

37.8 1,151 2,816 708 491 1,498 1,989 139 532 1.6 24.7 11.5 13.2 27.1

50.1 993 2,424 533 721 1,056 1,777 162 444 1.9 40.6 10.4 11.2 28.4

54.0 997 2,431 617 876 855 1,731 80.7 390 1.6 50.6 9.7 8.8 29.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2825 Airview Blvd, Portage, MI 49002-1802. Telephone: 269-385-2600. Website: http://www.stryker.com Chrmn, Pres & CEO: S.P. MacMillan

COO: L.J. Carpenter CFO: C.R. Hartman Chief Acctg Officer: T.M. McKinney Treas: J. Blondia

Investor Contact: K.A. Owen (269-385-2600) Board Members: H. E. Cox, Jr., S. M. Datar, R. F. Doliveux, R. Doliveux, D. M. Engelman, L. L. Francesconi, H. L. Lance, S. P. MacMillan, W. U. Parfet, R. E. Stryker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1946 Domicile: Michigan Employees: 18,582

Stock Report | October 23, 2010 | NYS Symbol: SUN | SUN is in the S&P 500

Sunoco Inc. S&P Recommendation HOLD

★★★★★

Price $39.20 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Refining & Marketing

12-Mo. Target Price $39.00

Investment Style Large-Cap Blend

Summary As one of the largest independent refiners in the U.S., this company has diversified operations in refining, marketing, chemicals, logistics, and cokemaking.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.63– 24.25 Trailing 12-Month EPS $-1.72 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $6,503

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.29 2.70 17.1 120.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.726 1.53 $0.60 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.61 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's weakened business profile in the volatile and competitive refining industry, and diversification into retail marketing, chemicals, logistics, and cokemaking.

80 60

40 30

Quantitative Evaluations 20

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

76 4

5 2

3

4

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, Ph

Analysis prepared by Tina J. Vital on August 02, 2010, when the stock traded at $ 35.78. Highlights ➤

➤

➤

With the economic slowdown reducing the demand for petroleum products, refining margins narrowed in 2009. As a result, SUN shut down its Eagle Point refinery in October 2009. Refining throughputs fell 8% to 667,700 b/d in the second quarter, and we look for drop of 13% for the year 2010, reflecting reduced refining capacity due to divestments and idlings. However, we are seeing signs of improved fuel demand, and as of July 2010, S&P Equity projected that U.S. Gulf Coast 3-2-1 crack spreads would widen 9% in 2010 and 3% in 2011. In June 2010, SUN announced plans to spin off its SunCoke Energy unit. Subject to necessary approvals, separation is slated for the first half of 2011. We do not like the idea, as we think it will eliminate a relatively stable source of cash flow and expose SUN's earnings to volatility from its Refining segment. First half operating EPS excluded net special charges of $0.78 related to divestments. As we expected, the Refining segment posted a profit in the second quarter, and we expect after-tax earnings to turn positive in 2010 and 2011 on improved margins, reflecting cost initiatives after a loss in 2009 on reduced demand.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

SUN's finances had deteriorated due to poor refining conditions, but on the back of cost initiatives and signs of improved demand, we believe the worst is over. In October 2009, SUN shut its Eagle Point refinery, and in April 2010, sold its polypropylene business. SUN is optimizing its refining units, and pursuing a possible oil sands joint venture for its Toledo refinery, and is expanding its logistics operations. We believe its Retail Marketing business will provide long-term earnings stability. We expect the Logistics segment to produce steady income growth in 2010 and 2011 from its expanded asset base and the July 2010 purchase of Texon which offers state-of-the art blending capabilities. Risks to our recommendation and target price include unfavorable changes in economic, industry, and operating conditions that would lead to a narrowing of margins. A blend of our DCF ($39 per share; assuming a WACC of 6.3% and a terminal growth rate of 3%) and relative valuations leads to our 12-month target of $39. This represents an expected enterprise value of about 4.7X our 2011 EBITDA estimate, a discount to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 8,192 8,964 2009 6,128 7,482 2008 12,813 15,426 2007 9,305 10,764 2006 8,593 10,590 2005 7,209 7,990

3Q -8,634 15,447 11,497 10,496 9,295

4Q -8,947 8,479 13,162 9,036 9,270

Year -31,312 51,558 44,728 38,715 33,764

Earnings Per Share ($) 2010 -0.34 1.20 2009 0.05 -0.59 2008 -0.50 0.70 2007 1.44 4.20 2006 0.59 3.22 2005 0.84 1.75

E0.45 -2.67 4.70 1.81 2.76 2.39

E0.20 -0.04 1.74 -0.08 1.00 2.12

E2.29 -3.16 6.63 7.43 7.59 7.08

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.150

02/04 05/06 07/01 09/02

02/12 05/17 08/16 11/15

02/17 05/19 08/18 11/17

03/10/10 06/10/10 09/10/10 12/10/10

Dividends have been paid since 1904. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SUN

Sunoco Inc. Business Summary August 02, 2010 CORPORATE OVERVIEW. Sunoco Inc. (SUN) has been active in the petroleum industry since 1886, and conducts its business through five operating segments: Refining and Supply (39% of 2009 revenues; segment loss of $316 million); Retail Marketing (37%; income of $86 million); Chemicals (5%; income of $1 million); Logistics (15%; income of $97 million); and Coke (4%; income of $180 million). Refining and Supply manufactures refined petroleum products and commodity petrochemicals. As of December 31, 2009, SUN owned and operated three refineries with a crude unit capacity of about 675,000 barrels per day (b/d), located in the Northeast (Marcus Hook, PA, and Philadelphia, PA) and the MidContinent (Toledo, OH). In June 2009, SUN sold its Tulsa refinery to Holly Corp. (HOC) for $65 million. In the 2009 fourth quarter, SUN permanently shut down all process units at its Eagle Point refinery in Westville, NJ, in response to weak demand and increased global refining capacity; SUN is exploring options for the site, including use for biofuels production. Production available for sale declined 12.1%, to 689,900 b/d, in 2009 (gasoline 49%, middle distillates 31%, residual fuels 8%, petrochemicals 4%, and other 8%).

SUN meets all of its crude oil requirements through purchases from third parties. Approximately 58% of SUN's 2009 crude oil supply came from West Africa (20% from Nigeria), 9% from the U.S., 11% from Canada, 14% from Central Asia, 5% from the North Sea, 2% from South and Central America, and 1% from lubes extracted from gasoil/naphtha intermediate feedstock. In the 2004 second half, the company began processing limited amounts of lower value high acid sweet crude oils in some of its Northeast refineries; during 2009, about 61,000 b/d of high acid crude oil was processed. The Chemicals segment manufactures, distributes and markets commodity and intermediate petrochemicals, consisting of aromatic derivatives (cumene, phenol, acetone and bispenol-A) and polypropylene. On March 31, 2010, SUN sold its subsidiary Sunoco Chemicals, Inc. (comprised of its propylene business) to Braskern S.A. for about $350 million. SUN will retain its phenol and derivatives business.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 19.92 1.29 -3.16 -2.36 1.20 NM 47.40 21.45 NM NM

2008 22.30 11.03 6.63 6.23 1.17 18% 73.68 21.30 11 3

2007 19.12 11.43 7.43 6.74 1.08 14% 86.40 56.68 12 8

2006 17.01 11.15 7.59 7.63 0.95 13% 97.25 57.50 13 8

2005 15.42 10.20 7.08 7.56 0.75 11% 85.29 38.10 12 5

2004 11.65 9.50 4.04 4.19 0.58 14% 42.26 25.26 10 6

2003 10.23 4.35 2.02 2.13 0.51 25% 26.30 14.84 13 7

2002 9.05 1.85 -0.31 -0.70 0.50 NM 21.13 13.51 NM NM

2001 10.88 4.38 2.43 1.88 0.50 21% 21.37 14.56 9 6

2000 10.03 4.05 2.35 NA 0.50 21% 17.28 10.97 7 5

28,804 NA 502 106 -601 59.9% -370 -277

51,558 1,988 515 72.0 1,173 33.8% 776 729

44,728 1,835 480 127 1,476 35.1% 891 808

38,715 2,049 459 89.0 1,580 38.0% 979 984

33,764 2,078 429 69.0 1,580 38.4% 974 1,040

25,508 1,501 818 97.0 995 39.2% 605 626

17,929 934 363 111 495 37.0% 312 330

14,384 313 329 108 -73.0 NM -47.0 -106

14,063 954 321 103 587 32.2% 398 307

14,300 948 298 78.0 596 31.0% 411 NA

Balance Sheet & Other Financial Data (Million $) Cash 377 Current Assets 3,764 Total Assets 11,895 Current Liabilities 4,418 Long Term Debt 2,061 Common Equity 2,557 Total Capital 5,186 Capital Expenditures 899 Cash Flow 151 Current Ratio 0.9 % Long Term Debt of Capitalization 44.6 % Return on Assets NM % Return on Equity NM

240 2,835 11,150 3,937 1,705 2,842 5,844 1,286 1,291 0.7 29.2 6.6 28.9

648 4,638 12,426 5,640 1,724 2,533 5,723 1,179 1,371 0.8 30.1 7.6 38.7

263 4,015 10,982 4,755 1,705 2,075 5,227 1,019 1,438 0.8 32.6 9.4 47.5

919 3,687 9,931 4,210 1,234 2,051 4,749 970 1,403 0.9 26.0 10.8 53.3

405 2,551 8,079 3,022 1,379 1,607 4,271 832 1,423 0.8 32.3 8.0 38.3

431 2,068 6,922 2,170 1,350 1,556 3,940 425 675 1.0 34.3 4.7 21.2

390 1,898 6,441 1,776 1,453 1,394 3,816 385 282 1.1 38.1 NM NM

42.0 1,510 5,932 1,778 1,142 1,642 3,335 331 719 0.8 34.2 7.0 23.8

239 1,683 5,426 1,646 933 1,702 2,885 465 709 1.0 32.3 7.7 25.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1735 Market St Ste LL, Philadelphia, PA 19103-7583. Telephone: 215-977-3000. Email: [email protected] Website: http://www.sunocoinc.com

Chrmn, Pres & CEO: L.L. Elsenhans SVP & CFO: B.P. MacDonald SVP & General Counsel: S.L. Fox CTO: V.J. Kelley

Chief Acctg Officer & Cntlr: J.P. Krott Investor Contact: T. Harr (215-977-6764) Investor Contact: T.P. Delaney Board Members: C. C. Casciato, G. W. Edwards, L. L. Elsenhans, U. O. Fairbairn, R. B. Greco, J. P. Jones, III, J. G. Kaiser, J. W. Rowe, J. K. Wulff

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1886 Domicile: Pennsylvania

Stock Report | October 23, 2010 | NYS Symbol: STI | STI is in the S&P 500

SunTrust Banks Inc. S&P Recommendation HOLD

★★★★★

Price $26.20 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $27.00

Investment Style Large-Cap Blend

Summary STI is one of the largest regional banks in the U.S., and is concentrated primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, Tennessee, and the District of Columbia.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.02– 18.45 Trailing 12-Month EPS $-1.98 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $4,359

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.28 0.99 NM 499.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$13.098 0.15 $0.04 75

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.30 NM BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects SunTrust's large-cap valuation and history of profitability, offset by exposure to possible further declines in residential and commercial lending credit quality.

80 40 20

Quantitative Evaluations

10

S&P Quality Ranking Vol.

D

B-

B

B+

A-

A

A+

217

Mil. 60 40 20 0 5

C

B+

Relative Strength Rank

MODERATE

50 LOWEST = 1 3

3

2

HIGHEST = 99

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Highlights ➤

The 12-month target price for STI has recently been changed to $27.00 from $25.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on STI from MarketScope, see below.

➤

10/21/10 09:41 am ET ... S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF SUNTRUST BANKS INC (STI 26.3***): Q3 EPS of $0.17, vs. a $0.76 loss, beats our loss per share estimate of $0.14 on all-around improvements in loan loss provision, net interest income and noninterest income. On Q3 results and our higher noninterest income forecast for Q4, we have narrowed our '10 loss per share estimate to $0.28 loss from $0.63. On a recent increase in peer multiples, we raise our target price by $2 to $27, based on a discount to peers 1.4X our year end estimate of tangible book value per share. This equals a premium to peers 27.2X multiple on our unchanged '11 EPS estimate of $0.99. /E. Oja

Revenue (Million $) 1Q 2Q 2010 2,272 2,522 2009 2,851 2,765 2008 3,316 3,479 2007 3,407 3,698 2006 3,130 3,299 2005 2,470 2,614

3Q -2,433 3,303 3,334 3,384 2,829

4Q -2,372 2,683 3,025 3,447 2,973

Year -10,420 12,801 13,313 13,260 10,886

Earnings Per Share ($) 2010 -0.46 -0.11 2009 -2.49 -0.41 2008 0.82 1.53 2007 1.44 1.89 2006 1.46 1.49 2005 1.36 1.28

E0.17 -0.76 0.88 1.18 1.47 1.40

E0.12 -0.64 -1.08 0.01 1.39 1.43

E-0.28 -3.98 2.13 4.55 5.82 5.47

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

11/10 02/09 04/27 08/10

11/27 02/25 05/27 08/30

12/01 03/01 06/01 09/01

12/15/09 03/15/10 06/15/10 09/15/10

Dividends have been paid since 1985. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: STI

SunTrust Banks Inc. Business Summary July 26, 2010 CORPORATE OVERVIEW. SunTrust Banks Inc. has four lines of business: Retail and Commercial Banking, Corporate and Investment Banking, Household Lending, and Wealth and Investment Management. The Retail and Commercial Banking segment generated about 45% of total segment revenues in 2009, up from 43% in 2008. Retail Banking provides lending and deposit gathering as well as other banking-related products and services to consumers and small businesses with sales up to $10 million. Commercial Banking offers financial products and services, including commercial lending, treasury management, financial risk management, and corporate bankcard services, to enterprises with sales up to $250 million.

private equity, and providing merger and acquisition advisory services for investment banking. The Household Lending segment (18% of revenues in 2009, up from 13% in 2008) offers residential mortgage products nationally through its retail, broker and correspondent channels. The Wealth and Investment Management segment (13% of revenues in 2009, down from 14% in 2008) provides wealth management products and professional services to individual and institutional clients. The remaining 11% (in 2009) and 20% (in 2008) of segment revenues are allocated to corporate, other, treasury, and reconciling items.

The Corporate and Investment Banking segment (13% of revenues in 2009, up from 10% in 2008) houses the company's corporate banking, investment banking, capital markets, commercial leasing and merchant banking activities. This segment focuses on companies with sales in excess of $250 million, and concentrates on small-cap and mid-cap growth companies, raising public and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 22.28 -3.98 -2.19 0.22 NM 30.18 6.00 NM NM

2008 33.72 2.13 1.32 2.85 134% 70.00 19.75 33 7

2007 28.41 4.55 4.37 2.92 64% 94.18 60.02 21 13

2006 26.04 5.82 5.64 2.44 42% 85.64 69.68 15 12

2005 24.67 5.47 5.39 2.20 40% 75.77 65.32 14 12

2004 23.13 5.19 5.17 2.00 39% 76.65 61.27 15 12

2003 29.73 4.73 4.80 1.80 38% 71.73 51.44 15 11

2002 25.46 4.66 4.38 1.72 37% 70.20 51.48 15 11

2001 26.67 4.70 4.50 1.60 34% 72.35 57.29 15 12

2000 25.07 4.30 NA 1.48 34% 68.06 41.63 16 10

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

4,466 123 3,511 4,064 82.3% -2,327 NM -1,564 3.04 -950

4,620 118 4,010 2,552 62.6% 728 NM 796 3.10 463

4,720 103 3,186 683 66.2% 2,250 27.4% 1,634 3.11 1,542

4,660 87.9 3,519 263 59.0% 2,986 29.1% 2,117 3.00 2,045

4,579 75.5 3,162 177 60.6% 2,866 30.7% 1,987 3.16 1,957

3,685 NA 2,646 136 67.3% 2,257 30.3% 1,573 3.15 1,570

3,320 45.0 2,179 314 68.4% 1,909 30.2% 1,332 3.08 1,351

3,244 39.5 2,187 470 61.5% 1,823 27.0% 1,332 3.41 1,253

3,253 40.8 2,003 275 59.2% 2,020 32.2% 1,369 3.58 1,310

3,108 40.4 1,767 134 58.0% 1,920 32.6% 1,294 3.55 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 5,521 Investment Securities 28,477 Commercial Loans 32,494 Other Loans 78,061 Total Assets 174,165 Demand Deposits 24,244 Time Deposits 92,059 Long Term Debt 17,490 Common Equity 17,614 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 2.7 % Loans/Deposits 93.3 % Equity to Assets 10.2

11,411 19,697 27,926 96,721 189,289 21,522 83,754 26,812 19,502 0.4 4.6 1.9 112.0 9.4

11,890 16,264 48,539 73,780 179,574 21,083 80,787 22,957 17,553 0.9 9.2 1.0 100.4 9.6

3,849 25,102 47,182 74,273 182,162 22,887 101,134 18,993 17,314 1.2 12.3 0.8 107.4 9.5

4,457 26,526 33,764 80,791 179,714 41,973 80,081 20,779 16,887 1.2 12.1 0.5 171.3 9.7

3,796 28,941 31,824 69,602 158,870 30,979 72,382 22,127 15,987 1.1 12.2 1.0 104.5 9.1

3,243 25,607 30,682 50,050 125,393 24,185 57,004 15,314 9,731 1.1 14.4 1.1 106.3 7.6

2,820 23,445 28,694 44,474 117,323 21,250 58,456 11,880 16,030 1.2 8.6 1.1 101.5 14.0

3,025 19,656 28,946 40,013 104,741 19,200 48,337 12,661 15,064 1.3 9.3 1.2 108.5 14.2

2,223 18,810 30,781 41,459 103,496 15,064 54,469 8,945 14,536 1.3 9.2 1.2 106.4 14.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 303 Peachtree St NE, Atlanta, GA 30308-3201. Telephone: 404-588-7711. Website: http://www.suntrust.com Chrmn & CEO: J.M. Wells, III

Pres: W.H. Rogers, Jr. Investor Contact: M.A. Chancy (800-568-3476) EVP & CFO: M.A. Chancy EVP & Chief Admin Officer: D.F. Dierker

Board Members: R. Beall, II, A. D. Correll, J. C. Founded: 1891 Crowe, B. P. Garrett, Jr., D. H. Hughes, M. Ivester, J. H. Domicile: Georgia Lanier, W. A. Linnenbringer, G. G. Minor, III, L. L. Employees: 28,001 Prince, F. S. Royal, T. R. Watjen, J. M. Wells, III, K. H. Williams, P. Wynn, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SVU | SVU is in the S&P 500

SUPERVALU INC. S&P Recommendation HOLD

★★★★★

Price $10.80 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Food Retail

12-Mo. Target Price $11.00

Investment Style Large-Cap Blend

Summary This company, one of the largest U.S. food wholesalers, is also one of the biggest supermarket retailers in the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$17.89– 9.67 $1.63 6.6 $4,150

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.55 1.57 7.0 212.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.06 3 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the intensely competitive environment in which the company operates, and threats of new entrants into its markets, partially offset by SVU's strong market share positions.

50 40 30 20

Quantitative Evaluations

10

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

$2.291 3.24 $0.35 88

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+ WEAK

18 4

3

3

2

3

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, P, Ph

Highlights ➤

The 12-month target price for SVU has recently been changed to $11.00 from $12.00. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on SVU from MarketScope, see below.

➤

10/19/10 10:57 am ET ... S&P REITERATES HOLD RECOMMENDATION ON SHARES OF SUPERVALU INC (SVU 10.88***): Aug-Q operating EPS of $0.28, vs. $0.35, is $0.04 below our estimate. Results were hurt by a 6.4% decline in identical food store sales and negative sales leverage, despite more effective promotional spending. We expect turnaround of retail supermarkets to be a multiyear process with EPS growth restricted until completion. With implementation of marketing, merchandising and operational initiatives taking longer than we originally expected, we are reducing our FY 11 (Feb.) EPS estimate $0.20 to $1.55 and our target price by $1 to $11, on our comparative and EV/EBITDA analyses. /J.Agnese

Revenue (Million $) 1Q 2Q 2011 11,545 8,656 2010 12,715 9,461 2009 13,347 10,226 2008 13,292 10,159 2007 5,783 10,666 2006 5,972 4,556

3Q -9,216 10,171 10,211 10,657 4,695

4Q -9,205 10,820 10,386 10,301 4,640

Year -40,597 44,564 44,048 37,406 19,864

Earnings Per Share ($) 2011 0.31 -6.94 2010 0.53 0.35 2009 0.76 0.60 2008 0.69 0.69 2007 0.57 0.61 2006 0.64 0.24

E0.36 0.51 -13.95 0.66 0.54 0.53

E0.48 0.46 -0.95 0.73 0.57 0.04

E1.55 1.85 -13.51 2.76 2.32 1.46

Fiscal year ended Feb. 28. Next earnings report expected: Mid January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.088 0.088 0.088 0.088

10/20 04/15 06/24 08/11

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1936. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: SVU

SUPERVALU INC. Business Summary July 27, 2010 CORPORATE OVERVIEW. SUPERVALU, organized in 1925 as the successor to two wholesale grocery concerns established in the 1870s, has grown into the largest U.S. food distributor to supermarkets, and the second largest conventional food retailer in the U.S. Retail operations are conducted through limited assortment stores, food stores, and combination food and drug stores. As of February 2010, the company operated about 2,350 multi-format retail food stores and was the primary grocery supplier to approximately 1,940 stores in addition to its own retail operations. CORPORATE STRATEGY. The company aims to leverage its retail food and supply chain services by benefiting from economies of scale and its low-cost supply chain network. The company operated 1,161 traditional food stores and 333 hard discount food stores as of February 2010. Traditional food store banners (Acme, Albertson's, Bristol Farms, Cub Foods, Farm Fresh, Hornbacher's, Jewel-Osco, Lucky, Shaw's, Shop 'n Save, Shoppers Food & Pharmacy and

Star Market) typically carry 40,000 to 50,000 items and average in size from 40,000 to 60,000 square feet. Hard discount food stores include Save-A-Lot stores. The company licenses 855 Save-A-Lot stores to independent operators. Save-A-Lot food stores are typically 15,000 square feet and stock 1,400 high volume food items as well as a limited number of general merchandise items. The majority of food products offered for sale are private label products. The company positions itself to offer low prices by carrying a limited selection of the most frequently purchased goods. The majority of Save-A-Lot stores are found in small town/rural communities as opposed to urban and suburban locations.

Company Financials Fiscal Year Ended Feb. 28 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 6.34 1.85 1.96 0.61 33% 2009 20.38 12.13 11 7

2009 NM -8.43 -13.51 1.85 0.69 NM 2008 37.46 8.59 NM NM

2008 NM 7.55 2.76 2.42 0.66 24% 2007 49.78 34.46 18 12

2007 NM 6.79 2.32 2.45 0.64 28% 2006 36.59 26.14 16 11

2006 7.37 3.55 1.46 1.90 0.60 41% 2005 35.88 29.55 25 20

2005 6.52 4.75 2.71 2.21 0.58 21% 2004 35.15 25.70 13 9

2004 4.84 4.34 2.07 2.03 0.57 27% 2003 28.84 12.60 14 6

2003 3.24 4.14 1.91 1.61 0.56 29% 2002 30.81 14.75 16 8

2002 2.54 4.08 1.53 1.24 0.55 36% 2001 24.10 12.60 16 8

2001 1.43 3.20 0.62 0.39 0.54 87% 2000 22.88 11.75 37 19

40,597 2,243 957 569 632 37.8% 393 417

44,564 2,682 1,077 647 -2,779 NM -2,855 396

44,048 2,788 1,030 733 977 39.3% 593 518

37,406 2,058 879 600 747 39.5% 452 477

19,864 750 311 139 329 37.4% 206 269

19,543 936 303 138 601 35.8% 386 313

20,210 919 302 166 455 38.4% 280 276

19,160 870 297 182 408 37.0% 257 217

20,909 904 341 194 344 40.1% 206 166

23,194 860 344 213 154 46.8% 82.0 51.2

Balance Sheet & Other Financial Data (Million $) Cash 211 Current Assets 3,711 Total Assets 16,436 Current Liabilities 4,167 Long Term Debt 7,022 Common Equity 2,887 Total Capital 10,522 Capital Expenditures 681 Cash Flow 1,350 Current Ratio 0.9 % Long Term Debt of Capitalization 66.7 % Net Income of Revenue 1.0 % Return on Assets 2.3 % Return on Equity 14.4

240 4,105 17,604 4,472 7,968 2,581 10,549 1,186 -1,778 0.9 75.5 NM NM NM

243 4,147 21,062 4,607 8,502 5,953 14,455 1,191 1,623 0.9 58.8 1.4 2.8 10.5

285 4,460 21,702 4,705 9,192 5,306 15,006 837 1,331 0.9 61.3 1.2 3.2 11.4

686 2,168 6,038 1,507 1,406 2,619 4,079 308 517 1.4 34.5 1.0 3.3 8.0

464 2,127 6,278 1,632 1,579 2,511 4,240 233 689 1.3 37.2 2.0 6.2 16.3

292 2,037 6,153 1,872 1,634 2,210 3,986 328 582 1.1 41.0 1.4 4.6 13.3

29.2 1,647 5,896 1,525 2,020 2,009 4,146 383 554 1.1 48.7 1.3 4.4 13.2

12.0 1,604 5,825 1,701 1,875 1,918 3,873 293 547 0.9 48.4 1.0 3.4 11.1

11.0 2,092 6,407 2,341 2,008 1,793 3,831 398 426 0.9 52.4 0.4 1.3 4.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 11840 Valley View Road, Eden Prairie, MN 55344. Telephone: 952-828-4000. Website: http://www.supervalu.com Pres & CEO: C. Herkert

EVP & CIO: W. Shurts SVP, CFO & Chief Acctg Officer: S.M. Smith Treas: J. Stoffel Secy & General Counsel: T.N. Sheldon

Investor Contact: K. Levy (952-828-4540) Founded: 1871 Board Members: D. R. Chappel, I. Cohen, R. E. Daly, S. Domicile: Delaware E. Engel, P. Francis, E. C. Gage, C. Herkert, C. M. Employees: 160,000 Lillis, S. S. Rogers, M. E. Rubel, W. C. Sales, K. P. Seifert

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: SYMC | SYMC is in the S&P 500

Symantec Corp S&P Recommendation HOLD

★★★★★

Price $15.70 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Systems Software

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary This company provides software solutions that enable customers to protect their network infrastructure from potential threats and to store their data.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.16– 12.04 Trailing 12-Month EPS $0.99 Trailing 12-Month P/E 15.9 $10K Invested 5 Yrs Ago $6,947

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

0.73 0.77 21.5 789.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.393 Nil Nil 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.80 9 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for Symantec reflects the highly competitive market in which the company operates and integration risks from recent acquisitions.

25 20 16

Quantitative Evaluations 10

S&P Quality Ranking

Vol.

D

C

B-

B B

B+

A-

A

A+

Mil. 90 60 30 0 5

Relative Strength Rank

MODERATE 66

LOWEST = 1 3

HIGHEST = 99

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Yin, CFA on August 03, 2010, when the stock traded at $ 12.96. Highlights ➤

➤

➤

We project flat revenues in FY 11 (Mar.), compared to a 2.7% decline in FY 10. Although we forecast 5% growth in overall IT spending in 2010, we think SYMC will grow slower than the industry average because we see most of the growth in hardware, not in software. We believe SYMC's sales cycles on large contracts will remain elongated, as customers negotiate for more favorable terms. We also think the company is losing market share in the business segment. We see these adverse factors being partially offset by stronger growth in endpoint management, however. We think SYMC will benefit from vendor consolidation, as customers prefer better-capitalized vendors during economic uncertainty. We project gross margins in FY 11 of 82%, the same as in FY 10. We look for operating expenses at 66% of revenues in FY 11, up from 64% in FY 10 due to added employees from acquired companies. We forecast FY 11 operating margins of 15%, down from about 16% in FY 10. Our FY 11 EPS estimate is $0.73, compared to $0.87 in FY 10. The decrease reflects our projections for flat revenues and lower operating margins amid a challenging sales environment.

Investment Rationale/Risk ➤

➤

➤

Our Hold recommendation reflects our concern about SYMC's sluggish revenue growth. We think SYMC will grow slower than the industry's average due to loss in market share and its reliance on large contracts, which we think will remain difficult to close. However, we are positive on the company's cost-savings efforts, which we think will partially offset the weakness in revenue growth. We also think the security software sector will be less affected than other IT sectors if the economy falters, because of security software's mission-critical nature. Risks to our recommendation and target price include a weaker-than-expected recovery in the global economy, lower enterprise IT spending, and integration problems associated with recent acquisitions. Our 12-month target price of $14 is based on a weighted blend of our discounted cash flow (DCF) and P/E analyses. Our DCF model assumes a 12% WACC and 3% terminal growth, yielding an intrinsic value of $16. From our P/E analysis, we derive a value of $12 based on an industry P/E-to-growth ratio of 1.8X, or 16X our FY 11 EPS estimate of $0.73.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 1,433 -2010 1,432 1,474 2009 1,650 1,518 2008 1,400 1,419 2007 1,259 1,262 2006 699.9 1,056

3Q -1,548 1,514 1,515 1,313 1,149

4Q -1,531 1,468 1,540 1,357 1,239

Year -5,985 6,150 5,874 5,199 4,143

Earnings Per Share ($) 2011 0.20 E0.14 2010 0.09 0.19 2009 0.22 0.16 2008 0.10 0.06 2007 0.09 0.12 2006 0.27 -0.21

E0.20 0.37 -8.23 0.15 0.12 0.08

E0.20 0.19 -0.30 0.22 0.07 0.11

E0.73 0.87 -8.10 0.52 0.41 0.15

Fiscal year ended Mar. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: SYMC

Symantec Corp Business Summary August 03, 2010 CORPORATE OVERVIEW. Symantec Corp. (SYMC) is a provider of security, storage and systems management solutions that enable enterprises and consumers to protect their network infrastructure from potential threats and to archive and recover their data. Its products include virus protection, firewall, virtual private network, data protection, compliance, vulnerability management, intrusion detection, remote management technologies, and security services. The company is organized into five operating segments: Consumer Products -- focuses on Internet security. Key products include Norton 360 and Norton Internet Security, which protect against viruses, worms and other security risks; Norton AntiVirus, which removes viruses, Trojan horses and worms; and Norton SystemWorks, which enables users to maintain and optimize their computers. The Consumer Products segment accounted for 29% and 31% of total revenue in FY 09 (Mar.) and FY 10, respectively.

company's enterprise security solutions address the following areas: Antivirus, Antispam, Compliance, and Managed Security Services. The Security and Compliance segment accounted for 24% and 24% of total revenue in FY 09 and FY 10, respectively. Storage and Server Management -- provides software solutions designed to protect, back up, archive and restore data across the enterprise. It also helps customers manage heterogeneous storage and server environments. This segment accounted for 40% and 38% of total revenue in FY 09 and FY 10, respectively. Services -- assists SYMC's customers in implementing, supporting and maintaining their security, storage and infrastructure software solutions. Services accounted for 7% and 7% of total revenues in FY 09 and FY 10, respectively. The Other segment is comprised of products nearing the end of their life cycle. Revenues were insignificant during FY 09 and FY 10.

Security and Compliance -- provides security throughout the network, including behind the gateway and at the client level including servers, desktop PCs, laptops and other mobile devices. Its Information Risk Management solutions enforce data security policies on email, storage systems, and archiving. The Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NM 1.77 0.87 0.83 Nil Nil 2009 18.28 12.54 21 14

2009 NM -7.09 -8.10 NA Nil Nil 2008 22.80 10.05 NM NM

2008 NM 1.46 0.52 0.55 Nil Nil 2007 21.86 15.97 42 31

2007 NM 1.24 0.41 0.40 Nil Nil 2006 22.19 14.78 54 36

2006 0.63 0.48 0.15 -0.06 Nil Nil 2005 26.60 16.32 NM NM

2005 3.07 0.86 0.74 0.59 Nil Nil 2004 34.05 17.27 46 23

2004 1.97 0.62 0.54 0.43 Nil Nil 2003 17.50 9.09 33 17

2003 2.89 0.45 0.38 0.26 Nil Nil 2002 11.55 6.80 30 18

2002 1.26 0.37 -0.05 -0.19 Nil Nil 2001 9.19 3.90 78 33

2001 0.97 0.18 0.12 0.03 Nil Nil 2000 10.20 3.42 NM NM

5,985 1,790 733 129 826 13.6% 714 683

6,150 1,918 837 29.7 -6,507 NM -6,729 NA

5,874 1,597 824 29.5 713 34.9% 464 488

5,199 1,402 811 27.2 632 36.0% 404 393

4,143 942 340 18.0 363 56.8% 157 -51.0

2,583 926 96.3 12.3 858 37.5% 536 423

1,870 611 78.8 21.2 542 31.6% 371 284

1,407 417 59.6 21.2 364 31.7% 248 157

1,071 269 238 9.17 45.5 NM -28.2 -106

854 240 105 Nil 141 54.6% 63.9 14.8

Balance Sheet & Other Financial Data (Million $) Cash 3,044 Current Assets 4,351 Total Assets 11,232 Current Liabilities 3,771 Long Term Debt 1,871 Common Equity 4,548 Total Capital 6,419 Capital Expenditures 248 Cash Flow 1,447 Current Ratio 1.2 % Long Term Debt of Capitalization 29.2 % Net Income of Revenue 11.9 % Return on Assets 6.5 % Return on Equity 16.8

1,991 3,300 10,645 3,514 2,100 3,948 6,100 272 -5,892 0.9 34.4 NM NM NM

2,427 3,730 18,092 3,800 2,100 10,973 13,293 274 1,288 1.0 15.8 7.9 2.6 4.1

2,559 4,071 17,751 3,318 2,100 11,602 14,045 420 1,216 1.2 15.0 7.8 2.3 3.2

2,316 3,908 17,913 3,478 24.9 13,668 14,187 267 497 1.1 0.2 3.8 1.3 1.8

1,091 3,688 5,614 1,701 4.41 3,705 3,798 91.5 633 2.2 0.1 20.8 10.6 17.5

2,410 2,842 4,456 1,287 606 2,426 3,077 111 453 2.2 19.7 19.8 9.6 17.7

1,706 1,988 3,266 895 607 1,764 2,371 192 308 2.2 25.6 17.7 8.6 16.1

1,375 1,563 2,503 579 604 1,320 1,924 141 210 31.3 0.3 NM NM NM

557 782 1,792 413 2.36 1,377 1,379 61.2 95.9 1.9 0.2 7.5 4.8 6.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 350 Ellis Street, Mountain View, CA 94043. Telephone: 650-527-8000. Email: [email protected] Website: http://www.symantec.com

Chrmn: J. Thompson Pres & CEO: E.T. Salem EVP & CFO: J. Beer EVP & CTO: M.F. Bregman

EVP, Secy & General Counsel: S.C. Taylor Investor Contact: H. Corcos (408-517-8324) Board Members: S. M. Bennett, M. A. Brown, W. T. Coleman, III, F. E. Dangeard, G. B. Laybourne, D. L. Mahoney, R. S. Miller, Jr., E. T. Salem, D. H. Schulman, J. Thompson, V. P. Unruh

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1983 Domicile: Delaware Employees: 17,400

Stock Report | October 23, 2010 | NYS Symbol: SYY | SYY is in the S&P 500

Sysco Corp S&P Recommendation HOLD

★★★★★

Price $29.56 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Food Distributors

12-Mo. Target Price $31.00

Investment Style Large-Cap Blend

Summary This company is the largest U.S. marketer and distributor of foodservice products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $31.99– 25.93 Trailing 12-Month EPS $1.99 Trailing 12-Month P/E 14.9 $10K Invested 5 Yrs Ago $10,668

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.95 NA 15.2 588.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.393 3.38 $1.00 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.74 4 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects SYY's operations in a relatively stable industry, in which we believe it has the largest market share.

35

28

Quantitative Evaluations

24

S&P Quality Ranking

20

D

C

B-

A+ B

B+

A-

A

A+

Vol. Mil.

Relative Strength Rank

24 16 8 0 5

MODERATE

42 LOWEST = 1

3

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Tom Graves, CFA on August 19, 2010, when the stock traded at $ 28.90. Highlights ➤

➤

➤

In FY 11 (June), we look for SYY's revenue to increase about 3% from $37.2 billion reported for FY 10, which included 53 weeks. We have a generally cautious outlook regarding SYY's most important end market -- restaurants. We look for productivity gains to bolster profit margins, but expect that costs related to a Business Transformation Project, including adoption of an SAP platform, will have a negative impact on margins in FY 11. Over time, we look for SYY's profitability to benefit from more consolidated purchasing, the addition of regional distribution centers, improved management of freight costs, and better inventory management. Our FY 11 EPS estimate is $1.95, vs. 53-week FY 10's $1.99. We expect some difficult EPS comparisons in FY 11 as FY 10 included roughly a $0.13 contribution from corporate-owned life insurance, a tax benefit, and an extra week. Also, in FY 11, we look for pension expense to be about $0.06 higher than it was in FY 10, and we expect higher spending in FY 11 related to a software system project.

Investment Rationale/Risk ➤

➤

➤

For the long term, we expect SYY to experience internal growth and to make additional acquisitions. We think SYY will at least maintain market share during the current difficult period for restaurant sales, which we believe is caused by the weak consumer discretionary environment. Restaurants accounted for 62% of SYY's FY 09 sales. Risks to our recommendation and target price include a slowing of growth rates given SYY's significant size and reach, sharp increases in gasoline prices, and a potential prolonged slowdown in restaurant sales. Our 12-month target price of $31 is a blend of our historical and relative analyses. Our historical analysis applies a P/E multiple toward the low end of the 10-year forward P/E range, to our calendar 2010 EPS estimate of $1.95. Our target multiple reflects what we see as the decreased likelihood of SYY consistently achieving its former sales growth rates, given its size and S&P's negative outlook for the restaurant sub-industry. Our peer analysis applies a premium P/E to the average of a small group of other food distributor stocks, suggesting a value of $31.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 9,081 8,869 2009 9,877 9,150 2008 9,406 9,240 2007 8,672 8,569 2006 8,010 7,971 2005 7,532 7,331

3Q 8,945 8,739 9,147 8,573 8,138 7,437

4Q 10,348 9,087 9,730 9,228 8,509 7,981

Year 37,244 36,853 37,522 35,042 32,628 30,282

Earnings Per Share ($) 2010 0.55 0.41 2009 0.46 0.40 2008 0.43 0.43 2007 0.37 0.39 2006 0.31 0.33 2005 0.35 0.36

0.42 0.38 0.40 0.35 0.30 0.34

0.57 0.53 0.55 0.49 0.41 0.44

1.99 1.77 1.81 1.60 1.35 1.47

Fiscal year ended Jun. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.250 0.250

11/17 02/19 05/21 08/27

12/29 03/30 06/30 09/29

12/31 04/01 07/02 10/01

01/22/10 04/23/10 07/23/10 10/22/10

Dividends have been paid since 1970. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: SYY

Sysco Corp Business Summary August 19, 2010 CORPORATE OVERVIEW. Sysco is the largest distributor of foodservice products in the U.S. and Canada. As of June 2009, it operated 186 distribution facilities in the U.S., Canada and Ireland. The company provides products and services to approximately 400,000 customers, including restaurants (62% of FY 09 sales), hospitals and nursing homes (11%), schools and colleges (5%), hotels and motels (6%), and others (16%).

chandise, as well as products packaged under SYY private brands. We believe that Sysco-branded products typically carry wider profit margins than other branded products distributed by the company. From its inception through the end of FY 09, the company had acquired about 150 companies or divisions of companies. At July 3, 2010, SYY's balance sheet included $1.550 billion of goodwill.

Sysco distributes food products, including frozen foods such as meats, fully prepared entrees, fruits, vegetables and desserts; canned and dry foods; fresh meats; imported specialties; and fresh produce. The company also distributes non-food products. These include paper products, tableware such as china and silverware, cookware, restaurant and kitchen equipment and supplies, and cleaning supplies. The company stresses prompt and accurate delivery of orders, and close contact with customers, and also provides customers with ancillary services, such as providing product usage reports, menu-planning advice, food safety training, and assistance in inventory control. No single customer accounted for 10% or more of sales in FY 09.

Over time, we look for SYY's profitability to benefit from an increased amount of consolidated purchasing, the addition of regional distribution centers, improved management of freight costs, and better inventory management. Among SYY's supply chain initiatives are (1) the construction of regional distribution centers (RDCs); SYY expects to build five to seven of these centers, with two already operational; and (2) improving the capability to view and manage all of SYY's inbound freight, both to RDCs and the operating companies, as a network and not as individual locations. FY 08 was the first full year SYY operated under this initiative. During FY 09, SYY began the design of an enterprise-wide project to implement an integrated software system to support the majority of its business processes.

CORPORATE STRATEGY. SYY seeks to expand its business by garnering an increased share of products purchased by existing customers, the development of new customers, the use of foldouts (new facilities built in established markets), and an acquisition program. SYY distributes nationally branded merCompany Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 3.69 2.64 1.99 2.06 0.99 50% 31.99 26.99 16 14

2009 3.08 2.41 1.77 1.65 1.16 66% 29.48 19.39 17 11

2008 3.17 2.41 1.81 1.68 0.82 45% 35.00 20.74 19 11

2007 2.99 2.23 1.60 1.59 0.72 45% 36.74 29.90 23 19

2006 2.67 1.89 1.35 1.38 0.64 47% 37.04 26.50 27 20

2005 2.35 1.96 1.47 1.39 0.56 38% 38.04 29.98 26 20

2004 2.11 1.80 1.37 1.31 0.48 35% 41.27 29.48 30 22

2003 1.68 1.59 1.18 1.08 0.40 34% 37.57 22.90 32 19

2002 1.85 1.47 1.01 0.92 0.32 32% 32.58 21.25 32 21

2001 2.07 1.27 0.88 0.82 0.23 26% 30.12 21.75 34 25

37,244 2,366 390 125 1,850 NA 1,180 1,219

36,853 2,255 382 116 1,771 40.4% 1,056 987

37,522 2,246 366 118 1,791 38.3% 1,106 1,022

35,042 2,071 363 105 1,621 38.3% 1,001 995

32,628 1,840 345 109 1,395 39.3% 846 866

30,282 1,906 317 75.0 1,525 37.0% 961 890

29,335 1,816 284 69.9 1,475 38.5% 907 868

26,140 1,597 273 72.2 1,260 38.3% 778 710

23,351 1,439 278 62.9 1,101 38.3% 680 618

21,784 1,286 248 71.0 967 38.3% 597 559

Balance Sheet & Other Financial Data (Million $) Cash 609 Current Assets 5,076 Total Assets 10,314 Current Liabilities 3,009 Long Term Debt 2,473 Common Equity 3,828 Total Capital 6,308 Capital Expenditures 595 Cash Flow 1,570 Current Ratio 1.7 % Long Term Debt of Capitalization 39.2 % Net Income of Revenue 3.2 % Return on Assets 11.5 % Return on Equity 32.4

1,087 5,271 10,322 3,150 2,467 3,450 6,444 465 1,438 1.7 38.3 2.9 10.4 30.8

552 5,175 10,082 3,499 1,975 3,409 5,925 516 1,473 1.5 33.3 3.0 11.3 33.1

208 4,676 9,519 3,415 1,758 3,278 5,037 603 1,364 1.4 34.9 2.9 10.8 31.6

202 4,400 8,992 3,226 1,627 3,052 5,403 515 1,191 1.4 30.1 2.6 9.8 29.1

192 4,002 8,268 3,458 956 2,759 4,440 390 1,278 1.2 21.5 3.2 11.9 36.1

200 3,851 7,848 3,127 1,231 2,565 4,483 530 1,191 1.2 27.4 3.1 12.3 38.1

421 3,630 6,937 2,701 1,249 2,198 3,945 436 1,051 1.3 31.7 3.0 12.0 35.9

230 3,185 5,990 2,239 1,176 2,133 3,750 416 958 1.4 31.4 2.9 12.0 32.1

136 2,985 5,469 2,090 961 2,148 3,379 341 845 1.4 28.4 2.7 11.6 30.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1390 Enclave Parkway, Houston, TX, USA 77077-2099. Telephone: 281-584-1390. Website: http://www.sysco.com Chrmn: M.A. Fernandez

Pres & CEO: W.J. DeLaney, III EVP & CFO: R.C. Kreidler SVP, Chief Acctg Officer & Cntlr: G.M. Elmer SVP & Treas: K.G. Drummond

Board Members: J. M. Cassaday, J. L. Craven, W. J. Founded: 1969 DeLaney, III, M. A. Fernandez, L. C. Glasscock, J. Domicile: Delaware Golden, J. A. Hafner, Jr., H. Koerber, N. S. Newcomb, P. Employees: 46,000 S. Sewell, R. G. Tilghman, J. M. Ward

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TGT | TGT is in the S&P 500

Target Corp S&P Recommendation BUY

★★★★★

Price $53.87 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry General Merchandise Stores

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company operates about 1,490 Target and 250 SuperTarget general merchandise stores across the U.S.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $58.52– 45.11 Trailing 12-Month EPS $3.64 Trailing 12-Month P/E 14.8 $10K Invested 5 Yrs Ago $10,476

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.90 4.40 13.8 721.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$38.864 1.86 $1.00 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.00 20 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of TGT's fairly consistent earnings track record, and its healthy balance sheet and cash flow, offset by our concerns over potential loss of market share as a result of lackluster merchandising and aggressive pricing by competitors.

60 50 40 30

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 90 60 30 0 5

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank 3

2

3

3

3

4

MODERATE

40 LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Jason N. Asaeda on August 19, 2010, when the stock traded at $ 51.97. Highlights ➤

➤

We look for a low-single digit same-store sales increase in FY 11 (Jan.), supported by an accelerated remodel program that will add fresh food to 340 Target stores; a growing assortment of value-priced consumables, including new value-priced "up & up" private label merchandise (encompassing about 800 items across 40 categories); what we see as TGT's success in better marketing its value proposition to consumers; and steps the company is taking to better align store assortments with customer preferences and in matching competitor's pricing. Also factoring in our expectations of 10 net new store openings and lower credit revenues, we see revenues reaching $67.5 billion in FY 11. We look for faster sales growth in lower-margin consumables to be offset by higher merchandise markups, supported by direct imports and disciplined inventory management, a recovery in sales of discretionary categories, and wellcontrolled dollar expense growth. We also anticipate a reduction in bad debt expense.

Investment Rationale/Risk ➤

➤

➤ ➤

Assuming moderate share repurchase activity, we forecast EPS of $3.90 in FY 11.

Our buy recommendation is based on valuation. While we anticipate a slow and uneven economic recovery, we look for TGT to accelerate same-store sales growth over the balance of FY 11 and into FY 12, supported by higher traffic and cross-shopping of categories the company is seeing in PFresh format stores; our view of improving apparel and home assortments; and incremental sales we expect from a new 5% discount REDcard (Target Credit Card, Target Visa Credit Card, or Target Check Card) holders will receive on all purchases beginning in midOctober. We also think TGT is doing a good job of managing its flow of goods, which is limiting markdown risk, and look for continued strengthening of credit card segment metrics.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 15,593 15,532 2010 14,833 15,067 2009 14,302 15,472 2008 14,041 14,620 2007 12,863 13,347 2006 11,477 11,990

3Q -15,276 15,114 14,835 13,570 12,206

4Q -20,181 19,560 19,872 19,710 16,947

Year -65,357 64,948 63,367 59,490 52,620

Earnings Per Share ($) 2011 0.90 0.92 2010 0.69 0.79 2009 0.74 0.82 2008 0.75 0.82 2007 0.63 0.70 2006 0.55 0.61

E0.69 0.58 0.49 0.56 0.59 0.49

E1.39 1.24 0.81 1.23 1.29 1.06

E3.90 3.30 2.86 3.33 3.21 2.71

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Risks to our recommendation and target price include a loss of business due to changes in consumer confidence, spending habits, and buying preferences, as well as increased promotional activity by competitors.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.170 0.250 0.250 0.250

03/11 06/09 06/09 09/09

05/18 08/18 08/18 11/17

05/20 08/20 08/20 11/20

06/10/10 09/10/10 09/10/10 12/10/10

Our 12-month target price of $60 is based on a peer-average forward P/E multiple of 15.3X applied to our FY 11 EPS estimate.

Dividends have been paid since 1965. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TGT

Target Corp Business Summary August 19, 2010 CORPORATE PROFILE. In FY 05 (Jan.), Target Corp. (TGT) shed its non-core legacy department store operations, retaining only its eponymous chain of upscale general merchandise stores that cater to middle- and upper-income consumers. As of July 31, 2010, the company operated 1,492 Target locations, and 251 SuperTarget stores. SuperTarget stores combine a full line of groceries with fashion apparel, electronics, home furnishings and other general merchandise found in Target stores. TGT's Web site serves as both a sales driver and a marketing vehicle. Target.com offers a more extensive selection of merchandise than the company's physical stores, including exclusive online products. To support sales and earnings growth, TGT offers credit to qualified customers. In FY 10, its credit card operations contributed $1.9 billion of revenues.

PRIMARY BUSINESS DYNAMICS. TGT's primary growth drivers are new store openings and same-store sales (sales results for stores open for over one year). From FY 05 through FY 10, the company increased its retail square footage at a compound annual growth rate (CAGR) of 5.9%, as its store count rose from 1,308 to 1,740. Having added a net of 46 Target and 12 SuperTarget locations to its store base in FY 10, TGT plans to add approximately 10 net new stores and to remodel 340 stores in FY 11.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 20.47 5.98 3.30 3.27 0.66 20% 2009 51.77 25.00 16 8

2009 18.10 5.22 2.86 2.73 0.60 21% 2008 59.55 25.60 21 9

2008 18.44 5.30 3.33 3.32 0.44 13% 2007 70.75 48.85 21 15

2007 18.17 4.93 3.21 3.21 0.36 11% 2006 60.34 44.70 19 14

2006 16.25 4.29 2.71 2.68 0.30 11% 2005 60.00 45.55 22 17

2005 14.63 3.45 2.07 2.06 0.26 13% 2004 54.14 36.63 26 18

2004 12.14 3.45 2.01 1.95 0.26 13% 2003 41.80 25.60 21 13

2003 10.38 3.14 1.81 1.70 0.24 13% 2002 46.15 24.90 25 14

2002 8.68 2.70 1.51 1.42 0.21 14% 2001 41.74 26.00 28 17

2001 7.27 2.41 1.38 1.37 0.20 14% 2000 39.19 21.63 28 16

65,357 6,696 2,023 804 3,872 35.7% 2,488 2,469

64,948 6,228 1,826 894 3,536 37.4% 2,214 2,117

63,367 6,931 1,659 747 4,625 38.4% 2,849 2,841

59,490 6,565 1,496 597 4,497 38.0% 2,787 2,784

52,620 5,732 1,409 532 3,860 37.6% 2,408 2,383

46,839 4,860 1,259 674 3,031 37.8% 1,885 1,876

48,163 4,839 1,320 559 2,960 37.8% 1,841 1,791

43,917 4,476 1,212 588 2,676 38.2% 1,654 1,553

39,888 3,759 1,079 464 2,216 38.0% 1,374 1,289

36,903 3,418 940 425 2,053 38.4% 1,264 1,247

Balance Sheet & Other Financial Data (Million $) Cash 2,200 Current Assets 18,424 Total Assets 44,533 Current Liabilities 11,327 Long Term Debt 15,118 Common Equity 15,347 Total Capital 32,161 Capital Expenditures 1,729 Cash Flow 4,511 Current Ratio 1.6 % Long Term Debt of Capitalization 47.0 % Net Income of Revenue 3.8 % Return on Assets 5.6 % Return on Equity 17.1

864 17,488 44,106 10,512 17,371 13,712 31,538 3,547 4,040 1.7 55.1 3.4 5.0 15.3

2,450 18,906 44,560 11,782 15,126 15,307 30,903 4,369 4,508 1.6 49.0 4.5 7.0 18.4

813 14,706 37,349 11,117 8,675 15,633 24,885 3,928 4,283 1.3 34.9 4.7 7.7 18.7

1,648 14,405 34,995 9,588 9,119 14,205 24,175 3,388 3,817 1.5 37.7 4.5 7.1 17.6

2,245 13,922 32,293 8,220 9,034 13,029 23,036 3,068 3,144 1.7 39.2 4.0 5.9 15.6

716 12,928 31,392 8,314 10,217 11,065 21,282 3,004 3,161 1.6 48.0 3.8 6.1 18.0

758 11,935 28,603 7,523 10,186 9,443 21,080 3,221 2,866 1.6 48.3 3.8 6.3 19.1

499 9,648 24,154 7,054 8,088 7,860 15,948 3,163 2,453 1.4 50.7 3.4 6.3 19.1

356 7,304 19,490 6,301 5,634 6,519 12,153 2,528 2,204 1.2 46.4 3.4 6.9 20.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1000 Nicollet Mall, Minneapolis, MN 55403-2467. Telephone: 612-304-6073. Website: http://www.target.com Chrmn, Pres & CEO: G.W. Steinhafel

Investor Contact: D.A. Scovanner EVP, CFO & Chief Acctg Officer: D.A. Scovanner EVP, Secy & General Counsel: T.R. Baer CTO & CIO: B.M. Jacob

Board Members: R. S. Austin, C. Darden, M. N. Dillon, J.Founded: 1902 A. Johnson, R. M. Kovacevich, M. E. Minnick, A. M. Domicile: Minnesota Mulcahy, D. W. Rice, S. W. Sanger, G. W. Steinhafel, J. Employees: 351,000 G. Stumpf, S. Trujillo

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TE | TE is in the S&P 500

TECO Energy Inc. S&P Recommendation BUY

★★★★★

Price $17.75 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $18.00

Investment Style Large-Cap Value

Summary This company owns Tampa Electric Co., which serves the Tampa Bay region in west central Florida and has significant diversified operations related to its core business.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $18.11– 13.71 Trailing 12-Month EPS $1.16 Trailing 12-Month P/E 15.3 $10K Invested 5 Yrs Ago $14,044

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.36 1.42 13.1 214.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.809 4.62 $0.82 55

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.88 9 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the steady cash flow we expect from the regulated electric and gas utilities, which operate within a generally supportive regulatory environment, offset by our view of the much less predictable earnings and cash flow from the unregulated coal and transport operations, particularly given uncertainties concerning tax credits related to the synthetic fuel operations.

20 16

12 10

Vol. Mil.

Quantitative Evaluations

15 10 5 0

S&P Quality Ranking

5

4

3

2

4

3

D

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 56

LOWEST = 1

HIGHEST = 99

Options: Ph

Analysis prepared by Justin McCann on August 16, 2010, when the stock traded at $ 16.33. Highlights ➤

➤

➤

Excluding one-time charges of $0.10, we expect operating EPS in 2010 to grow more than 25% from 2009's $1.08. In addition to the exceptionally cold weather in the first quarter and the unusually warm weather in the second, operating EPS in the first half of 2010 was aided by higher prices and demand for products at TECO Coal, largely driven by the recovery in the steel markets. Earnings at TE's Guatemala subsidiary remained essentially flat. For full-year 2010, we expect operating EPS to benefit from rate increases (partially offset by an expected $0.07 refund to customers), the very favorable weather, and the strength at the coal operations. While we remain cautious about the extent of the recovery, we are encouraged by signs of improvement in the local housing market. For 2011, we expect earnings to reflect a rate increase, a modest recovery in the economy, and a still strong coal market. Given the current strength of certain coal markets, we expect the TECO Coal subsidiary to have sales of approximately 9 million tons in 2010, at an average selling price of almost $77 a ton. The cost of production is expected to be $65 to $69 per ton.

Investment Rationale/Risk ➤

➤

➤

We recently raised our recommendation on the shares to buy, from hold. Given the attractive yield from the dividend (recently at 5.0%), we believe the stock has become attractive for above-average total return. The performance of the shares has been relatively flat year to date. This follows a gain of more than 30% in 2009 that reflected, in our view, the rate increases implemented in May 2009, the anticipation of the one implemented in January 2010, and a well-above-peers yield from the dividend. Earlier, we believe the stock was hurt by the weak economy and housing market, as well as by the rise in the coal operation's production costs and the slowing of international demand. Risks to our recommendation and target price include prolonged weakness in the housing market, a sharp decrease in the average P/E of the electric utility group as a whole, and much lower than anticipated earnings from the nonregulated coal operations. While TE's dividend represented 76% of its operating EPS in 2009, it is expected to represent only 60% of our EPS estimate for 2010. Our 12-month target price is $18, an approximate peer P/E of 12.7X our 2011 forecast.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 912.3 898.8 2009 824.0 825.2 2008 791.7 887.2 2007 821.3 866.5 2006 836.4 862.6 2005 684.7 719.0

3Q -896.3 926.1 990.0 922.9 836.4

4Q -765.0 770.3 858.3 826.2 770.0

Year -3,311 3,375 3,536 3,448 3,010

Earnings Per Share ($) 2010 0.26 0.35 2009 0.16 0.29 2008 0.15 0.24 2007 0.35 0.28 2006 0.26 0.29 2005 0.25 0.04

E0.42 0.30 0.27 0.44 0.38 0.45

E0.25 0.25 0.10 0.83 0.23 0.24

E1.36 1.00 0.77 1.90 1.17 1.00

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.200 0.200 0.205 0.205

10/29 02/03 05/05 08/04

11/12 02/10 05/12 08/12

11/16 02/12 05/14 08/16

11/27/09 02/26/10 05/28/10 08/27/10

Dividends have been paid since 1900. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TE

TECO Energy Inc. Business Summary August 16, 2010 CORPORATE OVERVIEW. TECO Energy (TE) is a holding company for a diverse set of energy companies including the regulated utility subsidiary Tampa Electric Company, which provides retail electric service in west central Florida. TE's other regulated utility is Peoples Gas System, which distributes natural gas in Florida's metropolitan areas. TE's unregulated businesses include TECO Coal, which has coal-mining operations, and TECO Guatemala, which participates in independent power projects and electric distribution in Guatemala. In December 2007, TE completed the sale of TECO Transport, which provided shipping and storage services for coal and other dry-bulk commodities. In 2009, Tampa Electric accounted for 66.0% of TE's consolidated revenues; TECO Coal 19.6%; Peoples Gas System 14.2%; and TECO Guatemala 0.2%.

the current state of the economy and housing market in Florida, TECO Energy plans to continue its strategy of investment in Tampa Electric. The company intends to remain focused on the reduction of its debt and to improve its already investment-grade status so as to ensure access to the credit markets and to meet its growing level of necessary capital investment. TE expects to continue its investment in the Peoples Gas infrastructure to serve more customers and to maintain its compliance with federal pipeline standards. The company believes the most significant factors affecting the results of TECO Coal in 2010 will be the cost of its coal production and the ability of its customers to accept their full contracted volumes.

CORPORATE STRATEGY. Despite the challenges and uncertainties related to Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.47 1.00 0.98 0.80 80% 16.71 8.41 17 8

2008 9.15 0.77 0.67 0.80 103% 21.99 10.50 29 14

2007 9.28 1.90 1.25 0.78 41% 18.58 14.84 10 8

2006 7.97 1.17 1.19 0.76 65% 17.73 14.40 15 12

2005 7.36 1.00 1.00 0.76 76% 19.30 14.87 19 15

2004 6.13 -2.10 -1.58 0.76 NM 15.49 11.30 NM NM

2003 8.55 -0.08 0.24 0.93 NM 17.00 9.47 NM NM

2002 13.75 1.95 1.75 1.41 72% 29.05 10.02 15 5

2001 12.94 2.24 2.04 1.37 61% 32.97 24.75 15 11

2000 11.93 1.97 NA 1.33 68% 33.19 17.25 17 9

3,311 288 188 2.28 13.8 31.6% 214 210

3,375 266 174 1.80 8.70 36.8% 162 143

3,536 264 184 2.06 6.20 40.4% 399 260

3,448 282 183 1.42 3.80 40.2% 246 248

3,010 282 168 1.25 Nil 45.1% 211 212

2,669 282 141 1.26 1.00 NM -404 -306

2,740 326 152 2.30 27.4 NM -14.7 44.4

2,676 303 162 2.43 9.60 NM 298 267

2,649 298 151 2.51 2.60 NM 304 277

2,295 268 140 2.59 0.70 6.87% 251 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 7,778 Capital Expenditures 630 Net Property 5,544 Capitalization:Long Term Debt 3,202 Capitalization:% Long Term Debt 60.6 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 2,085 Capitalization:% Common 39.4 Total Capital 5,395 % Operating Ratio 89.9 % Earned on Net Property 9.0 % Return on Revenue 6.5 % Return on Invested Capital 7.9 % Return on Common Equity 10.5

7,311 583 5,221 3,207 61.5 Nil Nil 2,008 38.5 5,226 91.4 7.6 4.8 6.1 8.1

6,894 494 4,888 3,158 61.0 Nil Nil 2,017 39.0 5,188 94.3 8.6 11.3 6.3 21.3

7,084 456 4,767 3,213 65.0 Nil Nil 1,729 35.0 4,957 91.9 9.0 7.1 8.5 14.8

6,755 295 4,567 3,709 70.0 Nil Nil 1,592 30.0 5,318 91.4 7.7 7.0 9.3 14.7

6,723 273 4,658 3,880 75.1 Nil Nil 1,284 24.9 5,691 80.2 NA NM 14.2 NM

8,040 591 5,679 4,393 73.0 Nil Nil 1,622 27.0 6,537 83.7 0.3 NM 9.6 NM

8,215 1,065 5,464 3,973 43.2 Nil Nil 5,223 56.8 9,719 84.0 7.6 11.1 6.4 6.5

7,544 966 4,838 2,043 50.9 Nil Nil 1,972 49.1 4,545 83.7 9.6 11.5 11.9 17.5

6,560 688 3,970 1,575 51.1 Nil Nil 1,507 48.9 3,564 82.8 10.9 10.9 12.4 17.2

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Teco Plaza, 702 North Franklin Street, Tampa, FL 33602. Telephone: 813-228-1111. Website: http://www.tecoenergy.com Chrmn: S.W. Hudson

Pres & CEO: J.B. Ramil SVP & General Counsel: C. Attal, III CFO & Chief Acctg Officer: S.W. Callahan Treas: K.M. Caruso

Investor Contact: M.M. Kane (813-228-1772) Board Members: D. Ausley, J. L. Ferman, Jr., S. W. Hudson, J. P. Lacher, L. A. Penn, J. B. Ramil, T. L. Rankin, W. Rockford, P. L. Whiting

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1899 Domicile: Florida Employees: 4,073

Stock Report | October 23, 2010 | NNM Symbol: TLAB | TLAB is in the S&P 500

Tellabs Inc S&P Recommendation HOLD

★★★★★

Price $7.84 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Communications Equipment

12-Mo. Target Price $10.00

Summary This company manufactures voice and data equipment used in public and private communications networks worldwide.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$9.45– 5.36 $0.52 15.1 $7,833

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.50 0.60 15.7 381.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.990 1.02 $0.08 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.82 10 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the competitive pressure the company faces, and its dependence on a consolidating telecom industry.

12 8 6

Quantitative Evaluations

4

S&P Quality Ranking D

C

B-

B B

B+

A-

A

A+

Vol. Mil.

125

60 40 20 0

Relative Strength Rank

MODERATE 64

LOWEST = 1

5

3

2

3

3

2

3

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Ari Bensinger on July 28, 2010, when the stock traded at $ 7.48. Highlights ➤

➤

➤

Following a 12% decline in 2009, we see sales advancing 9% in 2010, as improving customer demand for new products, such as the 7100 optical transport, 8600 managed edge, and 8800 multiservice router systems offset a continued decline in demand for legacy products, particularly the mature core 5500 cross connect solution. We see the broadband stimulus package boosting sales in the second half of 2010. We see 2010 gross margins widening nearly 800 basis points from 2009, to 52%, aided by a favorable product mix shift toward higher margin data products and the beneficial effects of cost reduction on new products. Despite restructuring initiatives, we expect 2010 operating expenses on an absolute basis to increase modestly from the prior year, primarily on the WiChorus acquisition. We forecast 2010 operating margins of 18.5%, up from 10% in 2009. After a 32% tax rate and factoring in our projection for continued share repurchases, we look for 2010 EPS of $0.50, versus the $0.29 posted for 2009. Our 2010 estimate includes projected stock option expense of $0.08.

Investment Rationale/Risk ➤

➤

➤

While TLAB's large legacy product base (roughly 45% of total sales) continues to shrink, we are encouraged by the improving demand for the company's new growth products. We view a continuing rapid rise in mobile data traffic, which is fueling wireless backhaul product demand, as a strong underlying growth driver for the company. Still, we are wary of increasing competition, particularly for business at large customer AT&T. Risks to our recommendation and target price include the loss of a major customer, slowing market penetration for the company's new broadband products, and a sharp dropoff in its core transport products. Our 12-month target price of $10 equates to 1.8X book value and 2X our 2010 sales per share forecast, valuation multiples that are slightly below the peer means, reflecting our view of the company's below industry average sales growth profile. Our target price also represents a multiple of 20X our 2010 EPS estimate of $0.50, in line with the industry mean. Cash and investments per share amount to roughly $3.00.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 379.7 422.7 2009 361.7 385.4 2008 464.1 432.5 2007 451.9 534.5 2006 514.7 549.3 2005 435.6 462.5

3Q -389.3 424.1 457.9 522.5 463.9

4Q -389.3 408.3 469.1 454.7 521.4

Year -1,526 1,729 1,913 2,041 1,883

Earnings Per Share ($) 2010 0.12 0.16 2009 0.02 0.04 2008 0.04 -0.10 2007 0.06 0.07 2006 0.11 0.12 2005 Nil 0.09

E0.12 0.07 -2.51 0.01 0.13 0.09

E0.12 0.16 0.03 0.02 0.07 0.20

E0.50 0.29 -2.32 0.15 0.43 0.39

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.020 0.020 0.020

01/26 04/29 07/28

02/10 05/12 08/11

02/12 05/14 08/13

02/26/10 05/28/10 08/27/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: TLAB

Tellabs Inc Business Summary July 28, 2010 CORPORATE OVERVIEW. Tellabs designs, manufactures, markets and services optical networking, next-generation switching and broadband access solutions. The company's products enable the delivery of wireline and wireless voice, data and video services. Solutions are primarily focused on the last mile of the communications network, the part of the network that is closest to homes and businesses. International sales represented 34% of total sales in 2009, up from 32% in 2008. Results are reported in three business segments: broadband, transport and services. The broadband segment, which accounts for 50% of total sales, enables service providers to deliver bundled voice, video and high-speed Internet data services over copper or fiber networks. Broadband access products include digital loop carriers, digital subscriber line access multiplexers, fiberto-the-premise (FTTP) optical line terminals for broadband passive optical networks, and voice gateways for voice over Internet protocol (VoIP). Managed access products include aggregation and transport products that deliver wireless and business services outside of the United States. Data products include next-generation packet-switched products that enable wireline and wireless carriers to deliver business services and next-generation wireless services to their customers.

The transport segment, which represents one-third of total sales, enables service providers to transport services and manage bandwidth by adding capacity when and where it is needed. Wireline and wireless providers use these to support wireless services, business services for enterprises, and triple-play voice, video and data services for consumers. Products include the company's core digital cross-connect systems, voice-quality enhancement products, and optical transport systems. The services segment (15%) delivers deployment, training, support services and professional consulting to customers. Services in the planning phase include network architecture and design, network and applications planning, network management design, migration planning and others. Building services include applications integration, program and project management, installation, testing, network integration, third-party systems integration and others.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.18 0.48 0.29 0.28 Nil Nil 7.70 3.52 27 12

2008 4.25 -2.11 -2.32 -0.69 Nil Nil 7.21 3.10 NM NM

2007 4.14 0.35 0.15 0.16 Nil Nil 13.67 6.52 91 43

2006 3.97 0.66 0.43 0.44 Nil Nil 17.28 8.84 40 21

2005 3.53 0.66 0.39 0.38 Nil Nil 11.49 6.56 29 17

2004 3.34 0.12 -0.07 -0.14 Nil Nil 11.37 7.40 NM NM

2003 3.76 -0.32 -0.58 -0.71 Nil Nil 9.73 5.07 NM NM

2002 4.45 -0.41 -0.76 -1.03 Nil Nil 17.47 4.00 NM NM

2001 5.55 -0.06 -0.44 -0.68 Nil Nil 67.13 8.98 NM NM

2000 6.26 2.09 1.82 NA Nil Nil 76.94 37.63 42 21

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

1,526 202 75.3 NA 113 NM 114 110

1,729 147 87.4 Nil -952 NM -930 -279

1,913 124 90.7 Nil 70.2 7.41% 65.0 68.7

2,041 358 104 Nil 285 31.8% 194 198

1,883 330 126 Nil 213 17.5% 176 171

1,232 152 82.3 Nil -10.2 NM -29.8 -58.9

980 -77.1 110 0.70 -245 NM -242 -295

1,317 -12.7 143 0.90 -328 NM -313 -427

2,200 70.9 158 0.51 -245 NM -182 -277

3,387 1,117 116 0.63 1,109 31.5% 760 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,358 Current Assets 1,898 Total Assets 2,623 Current Liabilities 609 Long Term Debt NA Common Equity 1,915 Total Capital 1,915 Capital Expenditures 45.9 Cash Flow 189 Current Ratio 3.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 7.5 % Return on Assets 4.4 % Return on Equity 6.0

1,331 1,936 2,508 541 Nil 1,847 1,847 50.1 -843 3.6 Nil NM NM NM

1,510 2,112 3,747 673 Nil 2,913 2,992 57.7 156 3.1 Nil 3.4 1.7 2.2

154 2,233 3,922 762 Nil 2,938 2,938 67.2 298 2.9 Nil 9.5 5.2 6.7

1,371 1,873 3,515 525 Nil 2,815 2,815 61.8 302 3.6 Nil 9.3 5.0 6.3

293 1,819 3,523 524 Nil 2,797 2,797 41.4 52.5 3.5 Nil NM NM NM

246 1,499 2,608 208 Nil 2,219 2,319 9.50 -131 7.2 Nil NM NM NM

1,019 1,534 2,623 257 Nil 2,290 2,290 34.1 -171 6.0 Nil NM NM NM

1,102 1,945 2,866 320 3.39 2,466 2,490 208 -24.5 6.1 0.1 NM NM NM

1,022 2,322 3,073 412 2.85 2,628 2,637 208 876 5.6 0.1 22.4 28.0 32.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1415 W Diehl Rd, Naperville, IL 60563-2349. Telephone: 630-798-8800. Website: http://www.tellabs.com Chrmn: M.J. Birck

Pres & CEO: R.W. Pullen COO: J.M. Brots EVP & CFO: T.J. Wiggins EVP, Chief Admin Officer, Secy & General Counsel: J.M. Sheehan

Investor Contact: T. Scottino (630-798-3602) Founded: 1974 Board Members: M. J. Birck, B. C. Hedfors, F. Ianna, L. Domicile: Delaware W. Kahangi, M. E. Lavin, S. P. Marshall, R. W. Employees: 3,295 Pullen, W. F. Souders, J. H. Suwinski, V. H. Tobkin

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: THC | THC is in the S&P 500

Tenet Healthcare Corp S&P Recommendation HOLD

★★★★★

Price $4.33 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Facilities

12-Mo. Target Price $6.00

Investment Style Large-Cap Value

Summary This company is the second largest U.S. for-profit hospital manager.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$6.46– 3.92 $0.27 16.0 $4,748

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.28 0.31 15.5 485.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

1

HIGH

Quantitative Evaluations

Vol. 149

Mil.

124

124

60 40 20 0

S&P Quality Ranking D

3

2008

2009

Analysis prepared by Steven Silver on August 11, 2010, when the stock traded at $ 4.41.

We see revenues rising about 4% in both 2010 and 2011. We continue to view THC as operating in a difficult market environment and amid weak employment in key markets. As such, we see THC struggling with commercial managed care admissions, which we view as key to revenue growth prospects. We expect the passage of health care reform to be a positive for hospitals post-2014, but until then, we see margin pressure as rate cuts and givebacks are implemented before the uninsured obtain coverage. We see EBITDA margins widening modestly in 2010 to slightly above 11%, as THC aligns its cost structure with moderating revenue growth. We look for EBITDA margins to remain essentially flat with this level in 2011. We are encouraged by the firming of bad debt trends over the first half of 2010, and we forecast such charges of around 8% of revenues in 2010 and 2011, up modestly from 7.7% of 2009. We see adjusted EPS of $0.28 in 2010 and $0.31 in 2011, excluding one-time items. We assume about 559 million shares for 2010 and 561 million for 2011.

BB

B+

A-

A

A+ WEAK

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P

Highlights

B-

22

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

C

Relative Strength Rank

3 1

1

➤

MEDIUM

Our risk assessment for THC reflects our view of its high level of debt and ongoing negative operating cash flow position. In addition, we are concerned by the company's strong dependence on third-party reimbursements, including Medicare and Medicaid, which can be unpredictable.

2

➤

2.12 5 B

Below Avg.

4

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

8

5

$2.101 Nil Nil 84

We view 2010 as a transition year for THC as it deals with extended weak volume growth, particularly in commercial admits. While we see early signs of positive impacts from steps to improve service quality and physician and managed care payor relationships, we are looking for more consistency in quarterly results. We view favorably cost controls that have contributed to rising EBITDA margins, though we note that these levels remain below those of its peers. We are also wary of its strategic focus, after its planed acquisition of Australian hospital operator Healthscope was scrapped in June 2010 given investor scrutiny of the deal's potential value. Risks to our recommendation and target price include a less favorable government or thirdparty reimbursement environment and slower physician recruitment than expected. In addition, higher self-pay volumes could negatively affect bad debt expense more than we expect. Our 12-month target price of $6.00 assumes an EV/EBITDA multiple of about 6.0X our 2010 EBITDA estimate, a discount to historical levels given our view of a challenging admissions environment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,339 2,303 2009 2,262 2,229 2008 2,178 2,132 2007 2,218 2,171 2006 2,414 2,195 2005 2,501 2,420

3Q -2,262 2,158 2,212 2,117 2,394

4Q -2,261 2,195 2,251 2,179 2,299

Year -9,014 8,663 8,852 8,701 9,614

Earnings Per Share ($) 2010 0.16 0.07 2009 0.39 Nil 2008 -0.02 -0.04 2007 0.20 -0.06 2006 -0.03 -0.95 2005 0.04 Nil

E0.05 Nil -0.24 -0.07 -0.06 -0.82

E0.06 0.04 -0.07 -0.18 -0.83 -0.54

E0.28 0.43 -0.13 -0.10 -1.85 -1.32

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Dividends, initiated in 1973, were omitted beginning in 1993. A special dividend of $0.01 a share was paid in March 2000.

Stock Report | October 23, 2010 | NYS Symbol: THC

Tenet Healthcare Corp Business Summary August 11, 2010 CORPORATE OVERVIEW. Tenet Healthcare ranks as the second largest U.S. for-profit hospital manager. At December 31, 2009, it owned or operated 50 hospitals (including one hospital not yet divested but classified as discontinued operations), with 13,601 licensed beds. The largest concentrations of hospital beds were in California, Florida and Texas. THC also owns and operates a small number of rehabilitation hospitals, a specialty hospital, skilled nursing facilities, and medical office buildings located on or near the general hospital properties. In January 2003, THC was sued by the U.S. Justice Department for allegedly submitting false claims to Medicare. In October 2003, the Justice Department served THC with a subpoena related to its investigation of Medicare outlier payments. In September 2003, the U.S. Senate launched an investigation into the company's corporate governance practices with respect to federal health care programs. In October 2004, additional investigations were announced into THC's medical directorship arrangements and physician relocation agreements.

action lawsuits as well as shareholder derivative litigation for $215 million in cash; insurance proceeds covered $75 million of the this amount. The lawsuits were filed against the company beginning in 2002 and were consolidated in January 2003. In June 2006, THC and the U.S. Department of Justice reached an agreement to settle the ongoing investigation into Medicare outlier billing. The company agreed to pay $725 million over a period of four years, plus interest, and to waive its right to collect $175 million in Medicare payments for past services. In order to fund the settlement, at that time THC announced it would sell 11 hospitals. The settlement does not involve the Securities and Exchange Commission, which is investigating THC's financial disclosures surrounding the Medicare outlier payments. In our view, the Justice Department settlement removes some risk from the stock, but we expect its valuation to continue to be driven by the company's underlying operating fundamentals.

In January 2006, THC reached an agreement to settle federal securities class Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 0.01 0.43 0.46 Nil Nil 6.39 0.78 15 2

2008 NM 0.83 -0.13 NA Nil Nil 6.88 0.99 NM NM

2007 NM 0.59 -0.10 -0.11 Nil Nil 7.80 3.06 NM NM

2006 NM -1.12 -1.85 -0.34 Nil Nil 9.27 5.77 NM NM

2005 NM -0.51 -1.32 -1.14 Nil Nil 13.06 7.27 NM NM

2004 1.63 -3.02 -3.85 -2.28 Nil Nil 18.73 9.15 NM NM

2003 4.85 -2.00 -3.01 0.27 Nil Nil 19.25 11.32 NM NM

2002 4.40 1.54 0.93 1.54 Nil Nil 52.50 13.70 56 15

2001 4.40 3.24 2.04 1.24 Nil Nil 41.85 24.67 21 12

2000 3.45 2.51 1.39 NA Nil Nil 30.50 11.29 22 8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

9,014 982 386 445 205 NM 218 228

8,663 694 335 428 43.0 NM 62.0 -1.05

8,852 669 330 430 -103 56.3% -49.0 -52.3

8,701 687 342 409 -1,129 NM -871 -159

9,614 571 382 405 -701 NM -621 -561

9,919 434 388 333 -1,616 NM -1,797 -1,061

13,212 1,072 471 296 -1,829 NM -1,404 123

8,743 1,676 302 147 777 38.5% 459 760

13,913 2,797 604 327 1,799 40.9% 1,025 607

12,053 2,244 554 456 1,156 40.1% 678 NA

Balance Sheet & Other Financial Data (Million $) Cash 703 Current Assets 2,472 Total Assets 7,953 Current Liabilities 1,783 Long Term Debt 4,272 Common Equity 312 Total Capital 4,971 Capital Expenditures 455 Cash Flow 598 Current Ratio 1.4 % Long Term Debt of Capitalization 85.9 % Net Income of Revenue 2.4 % Return on Assets 2.7 % Return on Equity 105.1

523 2,709 8,174 1,949 4,778 103 4,982 527 397 1.4 95.9 0.7 0.8 79.0

592 2,560 8,393 2,048 4,771 54.0 4,944 729 281 1.3 96.5 NM NM NM

784 3,025 8,539 1,925 4,760 995 5,862 631 -529 1.6 81.2 NM NM NM

1,373 3,508 9,812 2,292 4,784 1,760 6,756 568 -239 1.5 70.8 NM NM NM

654 3,992 10,078 2,130 4,395 2,460 7,166 454 -1,409 1.9 61.3 NM NM NM

619 4,248 12,298 2,394 4,039 4,361 8,404 753 -933 1.8 48.1 NM NM NM

210 3,792 13,780 2,381 3,872 5,723 10,121 490 761 1.6 38.3 5.2 NM NM

38.0 3,394 13,814 2,584 3,919 5,619 10,227 889 1,629 1.3 38.3 7.4 7.6 19.2

62.0 3,226 12,995 2,166 4,202 5,079 9,835 601 1,232 1.5 42.7 5.6 5.2 14.8

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1445 Ross Ave, Ste 1400, Dallas, TX 75202. Telephone: 469-893-2200. Email: [email protected] Website: http://www.tenethealth.com

Chrmn: E.A. Kangas Pres & CEO: T. Fetter COO: S.L. Newman EVP & CIO: S.F. Brown

SVP, Secy & General Counsel: G. Ruff Founded: 1967 Investor Contact: T. Rice (469-893-2522) Domicile: Nevada Board Members: J. E. Bush, T. Fetter, B. J. Gaines, K. Employees: 57,613 M. Garrison, E. A. Kangas, J. R. Kerrey, F. D. Loop, R. R. Pettingill, R. A. Rittenmeyer, J. A. Unruh

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TDC | TDC is in the S&P 500

Teradata Corp S&P Recommendation HOLD

★★★★★

Price $38.35 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry IT Consulting & Other Services

12-Mo. Target Price $37.00

Investment Style Large-Cap Blend

Summary This Ohio-based company has global operations focused on data warehousing and enterprise analytics. Teradata was spun off from NCR Corporation in 2007.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $39.93– 26.80 Trailing 12-Month EPS $1.68 Trailing 12-Month P/E 22.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.70 1.93 22.6 167.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.416 Nil Nil 79

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.91 14 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Teradata participates in a large and growing global market we see for storing, retrieving, and analyzing data produced by businesses. While competition is high for technology and pricing, we believe a stream of revenue from services, and a lack of debt, lends some stability.

40 30

20 15

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 12 8 4 0

D

C

B-

NR B

B+

A-

A

Relative Strength Rank

5

4

3

4

A+ STRONG

76

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Analysis prepared by Zaineb Bokhari on August 12, 2010, when the stock traded at $ 29.98. Highlights ➤

➤

➤

We expect revenues to rise 10% in 2010 to $1.88 billion, aided by easier year-to-year comparisons after a 3% decline in 2009, and some benefit seen from pent-up demand as the economic environment stabilizes. We think a more restrictive regulatory environment and the continuing demand for business intelligence solutions will also drive sales for TDC's solutions. We expect the pace of sales growth to slow in the 2010 second half, owing to tougher year-to-year comparisons. We see sales rising 6.6% in 2011. Despite the projected higher revenues, we expect 2010 gross margins to widen modestly as TDC gradually adds to professional services headcount. We see product gross margins impacted by the amortization of software development costs. We think operating margins will widen to 21% in 2010 from 20% in 2009, due to investment in R&D and sales. We anticipate modestly wider operating margins in 2011. A lack of long-term debt and the establishment of a $300 million credit facility indicates to us that currently negligible interest expense could rise. We estimate EPS of $1.70 for 2010 and $1.93 for 2011. We expect share repurchases to aid pershare results.

Investment Rationale/Risk ➤

➤

➤

We view Teradata as operating in a large niche of the information technology sector. A primary sales driver is rising interest among enterprises in using their transaction data to study and improve patterns of operation. The company aims to expand by entering new sales territories, and we believe it has the potential to do well based on its one-stop shopping approach to offering business intelligence hardware, software, and consulting. Despite this, we think competition remains intense, and will contribute to unpredictable and lengthy sales cycles. Based on our forward P/E analysis, we view TDC's valuation as reasonable relative to peers. Risks to our recommendation and target price include slowdowns in the general pace of spending on information technology for businesses, any failure to keep pace with rapidly evolving computer and analytical technology, and competition on price and quality of products and services. Our 12-month target price of $37 is derived from our discounted cash flow analysis. We incorporate assumptions for a 9% weighted average cost of capital and 3% terminal growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 429.0 470.0 2009 367.0 421.0 2008 375.0 455.0 2007 367.0 430.0 2006 323.0 396.0 2005 347.0 357.0

3Q -425.0 439.0 439.0 375.0 358.0

4Q -496.0 493.0 466.0 466.0 405.0

Year -1,709 1,762 1,702 1,560 1,467

Earnings Per Share ($) 2010 0.39 0.44 2009 0.26 0.36 2008 0.23 0.38 2007 0.24 0.27 2006 0.20 0.28 2005 ---

E0.41 0.36 0.33 0.16 0.31 --

E0.47 0.49 0.45 0.46 0.31 --

E1.70 1.46 1.39 1.10 1.09 1.14

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: TDC

Teradata Corp Business Summary August 12, 2010 CORPORATE OVERVIEW. Teradata Corporation aims to help its enterprise customers make smarter and faster use of their stored data to improve decision-making. It views itself as a global leader in data warehousing and enterprise analytic technologies. The company offers hardware and software, as well as services including consulting, customer support and training. In 2009, 45% of revenues were derived from products (48% for 2008), and 55% (52%) came from services. Headquartered in Dayton, Ohio, the company has offices throughout the Americas and operates in 60 countries worldwide. It earned 49% of its revenues outside the U.S. in 2009 and 2008. Teradata has a broad customer base, in our view, with the top 10 customers in 2009 representing only about 16% of sales, down from 20% in 2008. In 2009, revenue came 57% from the Americas, 25% from EMEA (Europe, Middle East, Africa), and 18% from APJ (Asia Pacific/Japan), similar to the 2008 breakout. Gross margins have typically been widest for the Americas region, near 58% compared to a company average of 55% in 2008.

gain insight, according to the company. This activity can be a significant source of intelligence for the enterprise and become a competitive advantage. Beyond mere storage of data, modern solutions allow for near real-time information access and analysis. Predictive analytics on customer or business activity may be run. Both long-term strategic and short-term tactical inquiries may be pursued. In one example of active data warehousing, a business's call center could produce raw data on call attributes (e.g., number of calls, duration, agent, customer, dropped calls, results), which could be a starting point for mapping and analyzing overall interactions with customers, including Internet communications, which could then become the basis for a plan to improve customer satisfaction. The company serves many large clients in the communications industry, as well as in media and entertainment, financial services, government, health care, manufacturing, retail, and transportation.

Data warehousing is the process of capturing, storing and analyzing data to Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.14 1.61 1.46 1.48 Nil Nil 32.24 12.75 22 9

2008 3.30 1.72 1.39 1.40 Nil Nil 27.90 11.11 20 8

2007 2.91 1.48 1.10 1.18 Nil Nil 30.08 22.35 27 20

2006 2.15 1.40 1.09 1.09 NA NA NA NA NA NA

2005 NA 1.44 1.14 1.10 NA NA NA NA NA NA

2004 NA 1.03 0.76 NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

1,709 364 63.0 NA 334 24.0% 254 256

1,762 393 60.0 Nil 338 26.0% 250 252

1,702 405 68.0 Nil 322 37.9% 200 213

1,560 367 55.0 Nil 312 36.5% 198 198

1,467 339 55.0 Nil 284 27.5% 206 200

1,349 247 48.0 Nil 199 30.7% 138 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 661 Current Assets 1,152 Total Assets 1,569 Current Liabilities 543 Long Term Debt NA Common Equity 910 Total Capital 910 Capital Expenditures 29.0 Cash Flow 280 Current Ratio 2.1 % Long Term Debt of Capitalization Nil % Net Income of Revenue 14.9 % Return on Assets 16.9 % Return on Equity 30.1

442 1,015 1,445 540 Nil 782 777 19.0 310 1.9 Nil 14.2 18.3 35.4

270 873 1,295 572 Nil 631 631 50.0 268 1.5 Nil 11.8 17.4 32.6

200 645 983 428 Nil 477 477 20.0 253 1.5 Nil 12.7 NM NM

NA 444 911 370 NA 517 517 18.0 261 1.2 Nil 14.0 NM NM

NA NA NA NA NA NA NA 14.0 186 NA 10.2 10.2 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2835 Miami Village Drive, Dayton, OH 45342. Telephone: 866-548-8348. Website: http://www.teradata.com Chrmn: J.M. Ringler

Pres & CEO: M.F. Koehler COO: B.A. Langos EVP, CFO & Chief Acctg Officer: S.M. Scheppmann CTO: S.A. Brobst

Investor Contact: G. Swearingen (937-242-4600) Founded: 1979 Board Members: E. P. Boykin, N. Cooper, C. T. Fu, D. E. Domicile: Delaware Kepler, II, M. F. Koehler, V. L. Lund, J. M. Ringler, J. G. Schwarz, W. S. Stavropoulos

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TER | TER is in the S&P 500

Teradyne Inc. S&P Recommendation SELL

★★★★★

Price $11.45 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductor Equipment

12-Mo. Target Price $9.50

Investment Style Large-Cap Blend

Summary This company makes automatic test equipment used primarily by the semiconductor and telecommunications industries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$13.37– 8.09 $1.01 11.3 $8,144

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.34 1.89 4.9 181.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$2.076 Nil Nil NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.73 NM NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the historical cyclicality of the semiconductor equipment industry, the lack of visibility in the medium term, and intense competition, which we think are only partially offset by Teradyne's market position and financial strength.

20 12 8

4

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D 5 3

4

5 3

C

B-

C B

B+

A-

A

Relative Strength Rank

STRONG

4 2

A+

74

2

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Angelo Zino on August 02, 2010, when the stock traded at $ 11.10. Highlights ➤

➤

➤

We project revenues will decline 7% in 2011 following our forecast for an increase of 114% in 2010, which is being driven by a significant rebound in the system-on-chip (SOC) test equipment market. We think SOC bookings are nearing a peak and expect tester spending by wireless and power management manufacturers to begin to slow. In addition, we believe outsourced assembly and packaging customers will remain cautious with future capital spending plans. However, we expect memory test sales to increase from current levels. We expect gross margins to narrow to 51% in 2011, versus our projection of 54% margins in 2010. While we think TER has a much improved business model, our lower margin outlook for 2011 reflects our belief that volume will decline. We see research and development expenses absorbing 11% of sales in 2010 and 2011. We think prior cost cuts will provide considerable earnings leverage for TER in the future. We estimate operating EPS of $2.34 in 2010, excluding $0.22 of non-recurring charges, and $1.89 in 2011. We model an effective tax rate of 8% for the foreseeable future.

Investment Rationale/Risk ➤

Our sell recommendation primarily reflects our intermediate-term sales outlook for TER. While we believe revenues will remain strong in the near term, driven by its system-on-chip business, we think current demand is likely to be unsustainable. We see benefits from a rise in memory spending and note that TER's overall book-to-bill ratio remains above 1.0. We view favorably TER's commanding market share position in the test equipment SOC market. TER's leadership position in the business and what we view as its strong cash position, offset in part by the competitive and low-growth environment for testers, are incorporated into our opinion. We see multiples compressing near peak orders.

➤

Risks to our recommendation and target price include wider-than-anticipated margins, higher-than-projected customer capital spending plans, a strengthening global economy, and less competitive pressure.

➤

We derive our 12-month target price of $9.50 by applying a price-to-sales (P/S) multiple of 1.13X to our 2011 sales per share forecast of $8.40, near peers. The ratio is below TER's historical three- and five-year averages of 1.6X and 2.1X.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 329.6 454.8 2009 120.6 169.6 2008 297.3 317.7 2007 258.1 288.7 2006 362.9 391.6 2005 210.4 226.2

3Q -262.2 297.3 299.5 359.1 293.6

4Q -267.1 194.8 260.4 263.2 345.2

Year -819.4 1,107 1,102 1,377 1,075

Earnings Per Share ($) 2010 0.24 0.55 2009 -0.53 -0.39 2008 0.01 0.06 2007 -0.04 0.14 2006 0.23 0.40 2005 -0.28 -0.26

E0.79 0.04 -0.14 0.19 0.33 -0.22

E0.54 0.09 -0.33 0.10 0.06 0.44

E2.34 -0.77 -0.38 0.39 1.03 -0.31

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: TER

Teradyne Inc. Business Summary August 02, 2010 CORPORATE OVERVIEW. Founded in 1960, Teradyne is a leading global supplier of automatic test equipment (ATE) for the electronics industry. As electronic systems have become more complex, the need for products to test the systems has grown dramatically. TER's product segments include Semiconductor Test (67% of 2009 revenue, 81% in 2008) and Systems Test Group (33%, 19%). Semiconductor Test products test system on a chip (SOC) semiconductor devices during the manufacturing process. These systems are used for wafer level and device packaging testing and span a broad range of end users and functionality. TER's systems help customers improve and control quality, reduce time to market, increase production yields, and improve product performance. TER's FLEX Test platform is designed for scalability and allows for simultaneous parallel testing, reducing costs. The J750 platform is designed to address the highest volume semiconductor devices such as microcontrollers, with a single circuit board providing up to 64 digital input/output channels. The J750 platform technology has been extended to create the IP 750 Image Sensor test system, which focuses on testing image sensor devices used in digital

cameras and other imaging products. The J750 platform has been expanded to include critical new devices that include high-end microcontroller, LCD drivers, and the latest generation of cameras. TER's acquisition of Nextest expanded its product base to include the Magnum test platform. The Magnum platform offers memory test products for the flash memory and dynamic random access memory (DRAM) markets. TER's Eagle Test acquisition expanded its product offerings to include the ETS platform. The ETS platform is used by chipmaker's and assembly and test subcontractors, primarily in the low pin count analog/mixed signal discrete markets that cover more cost sensitive applications. Its SmartPin technology enables multiple semiconductor devices to be tested simultaneously, or in parallel, on an individual test system, permitting greater test throughput.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.93 -0.16 -0.77 -0.76 Nil Nil 10.96 3.24 NM NM

2008 3.16 -1.92 -0.38 -1.21 Nil Nil 14.50 2.80 NM NM

2007 6.70 0.71 0.39 0.37 Nil Nil 18.53 10.02 48 26

2006 6.84 1.35 1.03 0.92 Nil Nil 18.08 11.50 18 11

2005 5.75 0.16 -0.31 -0.80 Nil Nil 17.33 10.80 NM NM

2004 5.00 1.47 0.84 0.37 Nil Nil 30.70 12.53 37 15

2003 4.33 -0.22 -1.03 -1.44 Nil Nil 26.31 8.75 NM NM

2002 4.97 -3.06 -3.93 -4.25 Nil Nil 40.20 7.10 NM NM

2001 8.69 -0.36 -1.15 -1.65 Nil Nil 47.21 18.43 NM NM

2000 9.89 3.42 2.86 NA Nil Nil 115.44 23.00 40 8

819 35.7 106 16.4 -143 6.17% -134 -132

1,107 89.6 71.3 NA -52.7 NM -65.3 -206

1,102 117 59.4 0.69 79.2 9.29% 71.9 68.3

1,377 236 73.5 11.1 230 12.0% 203 179

1,075 27.1 91.2 16.2 -80.1 NM -60.5 -161

1,792 318 124 18.8 188 12.1% 165 73.3

1,353 47.3 152 20.9 -186 NM -194 -270

1,222 -192 160 21.8 -561 NM -718 -777

1,441 -1.54 139 4.09 -326 NM -202 -290

3,044 813 102 1.84 740 30.0% 518 NA

Balance Sheet & Other Financial Data (Million $) Cash 464 Current Assets 762 Total Assets 1,235 Current Liabilities 283 Long Term Debt 141 Common Equity 665 Total Capital 808 Capital Expenditures 41.9 Cash Flow -27.8 Current Ratio 2.7 % Long Term Debt of Capitalization 17.5 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

323 679 1,560 367 Nil 1,039 706 87.2 -327 1.9 Nil NM NM NM

638 945 1,555 223 Nil 1,229 1,229 86.1 131 4.2 Nil 6.5 4.4 5.6

945 889 1,721 260 Nil 1,361 1,361 110 276 3.4 Nil 14.7 11.3 15.6

695 1,095 1,860 515 1.82 1,243 1,244 113 30.7 2.1 0.1 NM NM NM

285 806 1,923 277 399 1,134 1,532 165 290 2.9 26.0 9.2 8.9 15.9

586 769 1,785 281 408 950 1,357 30.8 -41.5 2.7 30.0 NM NM NM

541 809 1,895 279 451 1,028 1,479 46.4 -559 2.9 30.5 NM NM NM

586 1,207 2,542 296 452 1,764 2,216 198 -63.5 4.1 20.4 NM NM NM

464 1,378 2,356 619 8.35 1,707 1,737 235 620 2.2 0.5 17.0 26.4 36.2

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 600 Riverpark Dr, North Reading, MA 01864-2634. Telephone: 978-370-2700. Email: [email protected] Website: http://www.teradyne.com

Chrmn: A. Carnesale Pres & CEO: M.A. Bradley CFO, Chief Acctg Officer & Treas: G.R. Beecher Secy & General Counsel: C.J. Gray

Investor Contact: A. Blanchard (978-370-2425) Board Members: J. W. Bageley, M. A. Bradley, A. Carnesale, D. W. Christman, E. Gillis, P. Tufano, R. A. Vallee

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1960 Domicile: Massachusetts Employees: 2,900

Stock Report | October 23, 2010 | NYS Symbol: TSO | TSO is in the S&P 500

Tesoro Corp S&P Recommendation HOLD

★★★★★

Price $13.20 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Refining & Marketing

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary Tesoro is one of the largest independent refiners and marketers of petroleum products in the U.S., with operations focused on the West Coast.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $16.80– 10.40 Trailing 12-Month EPS $-1.68 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $5,080

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-0.44 1.30 NM 142.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.28 NM BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of TSO's satisfactory business profile in a competitive and volatile refining industry. While we believe the company has good asset quality, we believe it has moved into a cash conservation mode given difficult refining conditions.

60

30 20

$1.884 Nil Nil 90

2-for-1

10

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0

D

C

B-

B B

B+

A-

A

Relative Strength Rank

5

3

2

MODERATE

49

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Tina J. Vital on August 09, 2010, when the stock traded at $ 13.11. Highlights ➤

➤

➤

Second quarter refining throughputs fell 16%, to 474,000 b/d, but we look for an increase of about 10% from the second to the third quarter. The company's Anacortes refinery, shut down following a fatal fire on April 2, is scheduled for a restart in September. Results from a U.S. Chemical Safety and Hazard Investigation Board regarding this fire are expected in late August. Manufacturing costs (before depreciation and amortization) rose 24% in the second quarter, to $5.74 per throughput barrel, but we project second half costs will ease as throughput volumes rise. With signs of improved fuel demand as of July 2010, we projected U.S. Gulf Coast 3-2-1 crack spreads would widen by 9% in 2010 and another 3% in 2011. We expect an after-tax operating loss in 2010 on poor first quarter results reflecting high West Coast product inventory and high crude costs, but earnings reached positive ground in the second quarter. We expect this trend to continue into 2011 and 2012 on improved demand and cost initiatives.

Investment Rationale/Risk ➤

➤

As a small independent refiner, TSO is vulnerable to challenging industry conditions. In July 2010, TSO said it was a conducting a strategic review of its assets; details are to be provided in the fall. And with about 58% of TSO's refining capacity concentrated in three refineries (Martinez and Los Angeles, CA, and Anacortes, WA), the company is exposed to increased operational risk as well. While a significant portion of TSO's refining capacity is of lower complexity, we believe its facilities are strategically sited to benefit from local markets, particularly in above-average margined California, and we expect TSO to achieve enhanced operational efficiencies from recent refining upgrades. Risks to our recommendation and target price include worse than expected economic, industry, and operating conditions that lead to narrower refining margins or decreased sales.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,607 5,072 2009 3,280 4,181 2008 6,531 8,754 2007 3,876 5,604 2006 3,877 4,929 2005 3,171 4,033

3Q -4,742 8,698 5,902 5,278 5,017

4Q -4,669 4,326 6,533 4,020 4,360

Year -16,872 28,309 21,915 18,104 16,581

Earnings Per Share ($) 2010 -1.11 0.47 2009 0.37 -0.33 2008 -0.60 -0.03 2007 0.84 3.17 2006 0.31 2.33 2005 0.20 1.31

E0.21 -0.24 1.86 0.34 1.96 1.60

E0.02 -1.30 0.70 -0.29 1.14 0.49

E-0.44 -1.01 2.00 4.06 5.73 3.60

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050

11/09

11/27

12/01

12/15/09

Dividends have been paid since 2005. Source: Company reports. ➤

A blend of our discounted cash flow ($15 per share, assuming a WACC of 9.8% and terminal growth of 3%) and relative market valuations leads to our 12-month target price of $14. This represents an expected enterprise value of about 4.0X our 2011 EBITDA estimate, a discount to U.S. refining peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TSO

Tesoro Corp Business Summary August 09, 2010 CORPORATE OVERVIEW. Tesoro Corp. (TSO; formerly Tesoro Petroleum Corp.) is one of the largest independent refiners and marketers of petroleum products in the U.S. The company operates in two business segments: Refining (83% of 2009 revenues; 40% of operating income) and Retail (17%; 60%). The Refining segment refines crude oil and other feedstocks at its seven refineries (total refining capacity 664,500 b/d, as of December 31, 2009) in the U.S. West and Mid-Continent: California ("Wilmington" in Los Angeles, CA, 97,000 b/d; "Golden Eagle" in Martinez, CA, 166,000 b/d), the Pacific Northwest (Anacortes, WA, 120,000 b/d; and Kenai, AK, 72,000 b/d), the Mid-Pacific (Kapolei, HI, 93,500 b/d) and the Mid-Continent (Mandan, ND, 58,000 b/d; and Salt Lake City, UT, 58,000 b/d). As a result of falling demand and excess refining capacity, refining yields declined 7.4% to 579,000 b/d in 2009, and included gasoline 46%, jet fuel 12%, diesel fuel 20%, and heavy oils, residual products and other 22%. The company purchases its crude oil and other feedstocks for its refineries from various domestic (about 62% of its 2009 crude oil, with a significant amount from Alaska's North Slope) and foreign (around 38%, with a significant amount from Canada) sources through term agreements (30%), which are mainly short term, and in the spot market. TSO charters tankers to ship crude

oil from foreign and domestic sources to its California, Mid-Pacific and Pacific Northwest refineries. About 32% of its total refining throughput was heavy oil (API specific gravity of 24 or less) in 2009, steady with levels in 2008. TSO's crude pipeline system in North Dakota and in Alaska are common carriers subject to regulation by various federal, state and local agencies, including the FERC under the Interstate Commerce Act. MARKET PROFILE. TSO is one of the largest independent refiners in the U.S. The company operates the largest refineries in Hawaii and Utah, and the second largest in northern California and Alaska. Through its network of retail stations, TSO sells gasoline and diesel fuel in the western and mid-continental U.S. As of December 31, 2009, TSO's retail segment included 886 branded retail stations (under the Tesoro, Mirastar, Shell and USA Gasoline brands), comprising 387 company-operated retail gasoline stations and 499 jobber/ dealer stations. Reflecting market conditions, retail fuel sales declined 1.8%, to 1.33 billion gallons, in 2009.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 19.84 1.14 -1.01 -0.57 0.35 NM 19.16 10.62 NM NM

2008 20.78 3.97 2.00 1.73 0.40 20% 48.35 6.71 24 3

2007 19.48 5.82 4.06 4.12 0.35 9% 65.98 31.47 16 8

2006 17.09 7.50 5.73 5.73 0.20 3% 38.40 26.48 7 5

2005 12.12 4.92 3.60 3.65 0.10 3% 35.91 14.13 10 4

2004 8.31 3.50 2.38 2.42 Nil Nil 17.33 7.00 7 3

2003 5.70 1.72 0.58 0.78 Nil Nil 7.56 1.69 13 3

2002 5.00 0.11 -0.97 -0.97 Nil Nil 7.65 0.62 NM NM

2001 6.75 2.07 1.05 1.00 Nil Nil 8.25 4.85 8 5

2000 7.17 1.28 0.88 NA Nil Nil 6.50 4.47 7 5

16,872 NA 297 130 -188 25.5% -140 -79.6

28,309 787 274 111 429 35.2% 278 241

21,915 1,473 246 125 905 37.5% 566 574

18,104 1,614 247 77.0 1,286 37.7% 801 800

16,581 1,232 186 211 831 39.0% 507 514

12,262 881 154 167 547 40.0% 328 333

8,846 638 148 212 123 38.2% 76.1 101

7,119 120 131 166 -181 NM -117 -117

5,218 290 91.2 52.8 147 40.1% 88.0 77.2

5,104 205 45.5 32.7 124 40.6% 73.3 NA

Balance Sheet & Other Financial Data (Million $) Cash 413 Current Assets 2,223 Total Assets 8,070 Current Liabilities 1,889 Long Term Debt 1,810 Common Equity 3,087 Total Capital 4,906 Capital Expenditures 437 Cash Flow 157 Current Ratio 1.2 % Long Term Debt of Capitalization Nil % Return on Assets NM % Return on Equity NA

20.0 1,646 7,433 1,441 1,609 3,218 5,243 650 552 1.1 30.7 3.6 16.5

23.0 2,600 8,128 2,494 1,657 3,052 5,097 747 812 1.0 32.5 8.1 20.4

986 2,811 5,904 1,672 1,029 2,502 3,908 436 1,048 1.7 26.3 14.6 36.5

440 2,215 5,097 1,502 1,044 1,887 3,320 258 693 1.5 31.4 11.1 31.5

185 1,393 4,075 993 1,215 1,327 2,835 179 482 1.4 42.9 8.5 28.6

77.2 1,024 3,661 687 1,605 965 2,750 101 224 1.5 58.4 2.1 8.2

110 1,054 3,759 608 1,907 888 2,923 204 13.7 1.7 65.2 NM NM

51.9 878 2,662 538 1,113 757 2,006 210 173 1.6 55.4 4.2 13.0

14.1 630 1,544 382 307 505 1,084 94.0 107 1.6 28.3 4.8 12.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 19100 Ridgewood Parkway, San Antonio, TX 78259-1828. Telephone: 210-626-6000. Email: [email protected] Website: http://www.tsocorp.com

Chrmn: S.H. Grapstein Pres & CEO: G.J. Goff COO & EVP: E.D. Lewis EVP, Secy & General Counsel: C.S. Parrish

SVP, CFO & Treas: G.S. Spendlove Investor Contact: S. Phipps (210-283-2882) Board Members: R. F. Chase, G. J. Goff, R. W. Goldman, S. H. Grapstein, W. J. Johnson, J. W. Nokes, D. H. Schmude, M. E. Wiley

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1939 Domicile: Delaware Employees: 5,500

Stock Report | October 23, 2010 | NYS Symbol: TXN | TXN is in the S&P 500

Texas Instruments Inc S&P Recommendation HOLD

★★★★★

Price $28.66 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $30.00

Investment Style Large-Cap Growth

Summary One of the world's largest manufacturers of semiconductors, this company also produces handheld graphing and scientific calculator products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.98– 22.28 Trailing 12-Month EPS $2.07 Trailing 12-Month P/E 13.9 $10K Invested 5 Yrs Ago $10,058

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.41 2.46 11.9 1,195.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$34.254 1.81 $0.52 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.06 21 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the industry in which TXN operates, offset by the large number of company operations, TXN's diverse line of semiconductor products with exposure to many end markets and customers, our view of its low debt levels, and its long corporate history.

40 30

20 15

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

120 80 40 0 5

D 5

4

3

4

3

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Clyde Montevirgen on September 10, 2010, when the stock traded at $ 23.39. Highlights

➤

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

We forecast that sales will increase 2% in 2011, after a projected 33% rise in 2010. We look for sales to be aided by healthy demand from industrial markets, the telecom build-out in China, robust computer orders, and the general proliferation of semiconductors in consumer products. Furthermore, we believe that share gains for TXN's higher-margin analog and embedded businesses will help top-line results. However, we see sales growth limited by decreasing baseband revenues as the company winds down this business. We expect gross margins to remain around 54% for 2011, similar to what we see for 2010. We believe that a greater mix of analog and embedded chips and lower unit costs from 300 millimeter production will balance higher depreciation and other costs related to capacity expansion. With expenses rising to support TXN's goal of faster top-line growth, we believe operating margins will be around 31% for 2011. Our 2011 EPS estimate assumes an effective tax rate of 31% and a modest decline in the diluted share count.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B-

79

1

➤

C

Our hold opinion reflects our view of fair valuations given anticipated below-industry growth. We believe that TXN's dedication to the analog and embedded markets will provide long-term growth through market share gains and wider margins. We also think TXN's return metrics compare favorably to the industry's. However, deteriorating baseband sales and higher costs related to ramping capacity, as well as anticipated higher expenses to support sales, could lead to sub-par earnings growth over the next several quarters, in our opinion. Also, considering risks due to contracting leadtimes and inventory concerns, we believe that multiples should be near the industry average. Risks to our recommendation and target price include a slower-than-peers growth in the analog market, faster-than-anticipated declines in its baseband business, and higherthan-expected costs and expenses related to capacity additions. Our 12-month target price of $30 is based on our price-to-earnings (P/E) analysis. We apply a P/E multiple of approximately 12X, near the industry average, to our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,205 3,496 2009 2,086 2,457 2008 3,272 3,351 2007 3,191 3,424 2006 3,334 3,697 2005 2,972 3,239

3Q -2,880 3,387 3,663 3,761 3,590

4Q -3,005 2,491 3,556 3,463 3,591

Year -10,427 12,501 13,835 14,255 13,392

Earnings Per Share ($) 2010 0.52 0.63 2009 0.01 0.20 2008 0.49 0.44 2007 0.35 0.42 2006 0.33 0.47 2005 0.24 0.38

E0.66 0.42 0.43 0.52 0.45 0.38

E0.60 0.52 0.08 0.54 0.45 0.40

E2.41 1.15 1.45 1.83 1.69 1.39

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.120 0.120 0.120 0.130

01/21 04/14 07/15 09/16

01/28 04/28 07/28 10/28

02/01 04/30 07/30 11/01

02/22/10 05/17/10 08/16/10 11/22/10

Dividends have been paid since 1962. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TXN

Texas Instruments Inc Business Summary September 10, 2010 CORPORATE OVERVIEW. Texas Instruments is the world's fourth largest semiconductor company, based on 2008 revenues. The company's semiconductors are used for various functions including: converting and amplifying signals, interfacing with other devices, managing and distributing power, processing data, canceling noise and improving signal resolution. TXN's product portfolio includes the types of products that are integral to almost all electronic equipment. It offers either custom or standard products. A custom product is designed for a specific customer for a specific application, is sold only to that customer, and is typically sold directly to the customer. A standard product is designed for use by many customers and/or many applications and is generally sold through both distribution and direct channels. Standard products include both proprietary and commodity products. TXN's product segments are analog (40% of sales in 2009), embedded processing (15%), wireless (25%), and other (20%).

analog semiconductors, such as amplifiers, data converters, low-power radio frequency devices, and interface and power management semiconductors. High-performance analog products generally have long life cycles, often 10 to 20 years. The high-volume products include two product types. The first, highvolume analog, includes products for specific applications, including custom products for specific customers. The life cycles of TXN's high-volume analog products are generally shorter than those of its high-performance analog products. The second product type, standard linear and logic, includes commodity products marketed to many different customers for many different applications. Embedded processing include digital signal processors (DSPs) and microcontrollers. DSPs perform mathematical computations almost instantaneously to process and improve digital data. Microcontrollers are microprocessors that are designed to control a set of specific tasks for electronic equipment.

Analog semiconductors change real-world signals - such as sound, temperature, pressure or images - by conditioning them, amplifying them, and often converting them to a stream of digital data so the signals can be processed by other semiconductors. Analog products can be further divided by high performance and high volume. High-performance analog products include standard Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.90 1.89 1.15 1.19 0.45 39% 27.00 13.70 23 12

2008 6.43 2.25 1.45 1.40 0.41 28% 33.24 13.38 23 9

2007 6.72 2.57 1.83 1.81 0.30 16% 39.63 28.24 22 15

2006 7.08 2.37 1.69 1.68 0.13 8% 36.40 26.77 22 16

2005 6.99 2.32 1.39 1.26 0.11 8% 34.68 20.70 25 15

2004 7.13 1.93 1.05 0.86 0.09 9% 33.98 18.06 32 17

2003 6.35 1.54 0.68 0.40 0.09 13% 31.67 13.90 47 20

2002 5.73 0.78 -0.20 -0.16 0.09 NM 35.94 13.10 NM NM

2001 6.42 0.94 -0.12 -0.34 0.09 NM 54.69 20.10 NM NM

2000 6.71 2.49 1.73 NA 0.09 5% 99.78 35.00 58 20

10,427 3,128 925 NA 2,017 27.1% 1,470 1,507

12,501 3,794 1,059 Nil 2,481 22.6% 1,920 1,855

13,835 4,580 1,070 1.00 3,692 28.5% 2,641 2,609

14,255 4,419 1,052 7.00 3,625 27.2% 2,638 2,614

13,392 4,222 1,431 9.00 2,988 22.2% 2,324 2,110

12,580 3,756 1,549 21.0 2,421 23.1% 1,861 1,516

9,834 2,493 1,528 39.0 1,250 4.16% 1,198 701

8,383 1,977 1,689 57.0 -346 NM -344 -275

8,201 1,246 1,828 61.0 -426 NM -201 -587

11,875 3,715 1,376 75.0 4,578 32.6% 3,087 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,925 Current Assets 6,114 Total Assets 12,119 Current Liabilities 1,587 Long Term Debt NA Common Equity 9,722 Total Capital 9,722 Capital Expenditures 753 Cash Flow 2,395 Current Ratio 3.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 14.1 % Return on Assets 12.2 % Return on Equity 15.4

2,540 5,790 11,923 1,532 Nil 9,326 9,385 763 2,979 3.8 Nil 15.4 15.6 19.9

2,924 6,918 12,667 2,025 Nil 9,975 10,024 686 3,711 3.4 Nil 19.1 19.9 24.8

1,183 7,854 13,930 2,078 Nil 11,711 11,734 1,272 3,690 3.8 Nil 18.5 18.2 22.2

1,219 9,185 15,063 2,346 360 11,937 12,320 1,330 3,882 3.9 2.9 17.4 14.8 18.6

2,668 10,190 16,299 1,925 368 13,063 13,471 1,298 3,410 5.3 2.7 14.8 11.7 14.9

1,818 7,709 15,510 2,200 395 11,864 12,318 800 2,726 3.5 3.2 12.2 7.9 10.6

949 6,126 14,679 1,934 833 10,734 11,696 802 1,345 3.2 7.1 NM NM NM

431 5,775 15,779 1,580 1,211 11,879 13,421 1,790 1,627 3.7 9.0 NM NM NM

745 8,115 17,720 2,813 1,216 12,588 14,273 2,762 4,463 2.9 8.5 26.0 18.6 27.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: PO Box 660199, Dallas, TX 75266-0199. Telephone: 972-995-3773. Website: http://www.ti.com Chrmn, Pres & CEO: R.K. Templeton

SVP, CFO & Chief Acctg Officer: K.P. March SVP, Secy & General Counsel: J.F. Hubach Treas: B. Bull Investor Contact: R. Slaymaker (972-995-3773)

Board Members: J. R. Adams, R. W. Babb, Jr., D. L. Boren, D. A. Carp, C. S. Cox, D. Goode, S. P. MacMillan, P. H. Patsley, W. R. Sanders, R. J. Simmons, R. K. Templeton, C. T. Whitman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1930 Domicile: Delaware Employees: 26,584

Stock Report | October 23, 2010 | NYS Symbol: TXT | TXT is in the S&P 500

Textron Inc. S&P Recommendation HOLD

★★★★★

Price $20.95 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Conglomerates

12-Mo. Target Price $24.00

Investment Style Large-Cap Value

Summary This aerospace and industrial conglomerate makes Cessna business jets, Bell helicopters, and industrial equipment and components. It also operates a diversified commercial finance company.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $25.30– 15.88 Trailing 12-Month EPS $0.05 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $6,262

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.33 1.20 63.5 274.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.745 0.38 $0.08 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.82 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of TXT's history of cyclical earnings, as well as its significant debt burden and exposure to bad loans.

80 40 20

2-for-1 8

Quantitative Evaluations

4

S&P Quality Ranking Vol.

D

B-

B

B+

A-

A

A+

97

Mil. 45 30 15 0 5

C

B

Relative Strength Rank

MODERATE 58

LOWEST = 1 4

3

3

4

4

HIGHEST = 99

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Highlights ➤

The STARS recommendation for TXT has recently been changed to 3 (hold) from 4 (buy) and the 12-month target price has recently been changed to $24.00 from $28.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on TXT from MarketScope, see below.

➤

10/21/10 10:47 am ET ... S&P ADDS SHARES OF DOMINO'S PIZZA TO TOP TEN PORTFOLIO (DPZ 15.23*****): We foresee strong customer traffic trends for DPZ as it promotes new pizza items with an extensive advertising campaign. Results for Q3 released Oct. 19 showed an impressive gain in same-store sales of almost 12%. We see opportunities for international growth. Cost controls across the organization should aid margins. We estimate EPS of $1.25 for 2010, with improvement to $1.55 for 2011. Our DCF-based 12-month target price is $22. The shares replace those of aerospace and industrial conglomerate Textron (TXT 21***) which was downgraded to Hold from Buy on Oct. 20. /T.Smith-CFA

Revenue (Million $) 1Q 2Q 2010 2,210 2,709 2009 2,526 2,612 2008 3,518 3,919 2007 2,964 3,235 2006 2,632 2,820 2005 2,791 3,188

3Q -2,549 3,533 3,263 2,837 2,862

4Q -2,813 3,606 3,763 3,201 2,701

Year -10,500 14,246 13,225 11,490 10,043

Earnings Per Share ($) 2010 -0.01 0.27 2009 0.18 -0.23 2008 0.93 1.03 2007 0.78 0.85 2006 0.60 0.67 2005 0.29 0.47

E-0.17 0.02 0.85 0.95 0.68 -0.63

E0.22 -0.22 -1.44 1.02 0.77 0.63

E0.33 -0.28 1.38 3.59 2.72 1.89

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.020 0.020 0.020 0.020

10/21 02/24 04/28 07/29

12/09 03/10 06/09 09/08

12/11 03/12 06/11 09/10

01/01/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1942. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TXT

Textron Inc. Business Summary August 04, 2010 CORPORATE OVERVIEW. Textron, an $11 billion in estimated 2010 revenue aerospace and industrial conglomerate, conducts business through five operating segments. The Cessna segment (32% of sales and 42% of operating profits in 2009) primarily makes the Cessna brand aircraft. Business lines include Citation business jets, Caravan single-engine turboprops, Cessna single-engine piston aircraft, and aftermarket services. Based on revenues, Cessna is the world's third largest corporate jet maker, behind Canada's Bombardier and General Dynamics' Gulfstream division; however, it is the world's largest business jet maker in unit volume. The family of business jets currently produced by Cessna includes the Mustang, the Citation CJ1+, CJ2+, CJ3, and CJ4, the Citation Encore+, the Citation XLS+, the Citation Sovereign, and Citation X. The Citation X is the world's fastest business jet, with a maximum speed of Mach 0.92. First customer deliveries of the Citation CJ4 are scheduled to begin in 2010. The Cessna Caravan (four models) is the world's best-selling utility turboprop. Cessna also offers nine models in its single-engine piston product line.

maker, behind United Technologies' Sikorsky Unit and EADS's Eurocopter unit. Bell makes helicopters and tiltrotor aircraft (the V-22 Osprey) for both military and commercial applications, and provides spare parts and service. Bell supplies advanced military helicopters and support (including spare parts, support equipment, technical data, trainers, etc.) to the U.S. government and to military customers outside the U.S. Bell is also a leading supplier of commercially certified helicopters to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators. The V-22 Osprey is a military tiltrotor aircraft built in conjunction with Boeing, with contracts for 285 units (116 of which had been delivered as of year-end 2009). Bell also makes the Marine Corps. H-1 helicopter (AH-1Z and UH-1Z), with a program of record that calls for 349 production units. Bell's commercial offerings include the 206, 407, 412, and 429.

Bell Helicopter (27%; 64%) is the world's third largest rotary-wing aircraft Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.42 1.28 -0.28 -0.23 0.08 NM 21.00 3.57 NM NM

2008 2.06 2.81 1.38 1.11 0.92 67% 70.14 10.09 51 7

2007 2.77 4.91 3.59 3.51 0.85 24% 74.40 43.60 21 12

2006 4.86 3.95 2.72 2.66 0.78 29% 49.48 37.76 18 14

2005 8.02 3.15 1.89 2.06 0.70 37% 40.36 32.60 21 17

2004 7.35 2.69 1.33 1.01 0.66 50% 37.46 25.30 28 19

2003 8.09 2.32 1.03 0.59 0.65 63% 29.00 13.00 28 13

2002 6.46 2.61 1.30 0.14 0.65 50% 26.80 16.10 21 12

2001 6.20 2.38 0.58 -0.70 0.65 NM 30.24 15.65 52 27

2000 5.80 2.64 0.95 NA 0.65 68% 38.75 20.34 41 21

10,500 830 409 309 -149 51.0% -73.0 -63.9

14,246 1,974 358 432 658 47.7% 344 272

13,225 2,120 336 484 1,300 29.6% 915 895

11,490 1,703 290 438 437 NM 706 690

10,043 1,450 303 290 739 30.2% 516 565

10,242 1,260 353 248 528 29.4% 373 282

9,859 1,171 356 283 388 27.6% 281 161

10,658 1,285 368 330 464 21.6% 364 38.6

12,321 1,461 514 459 393 57.8% 166 -202

13,090 2,074 494 492 585 52.6% 277 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,748 Current Assets 12,761 Total Assets 18,940 Current Liabilities 4,905 Long Term Debt 3,450 Common Equity 2,826 Total Capital 6,410 Capital Expenditures 238 Cash Flow 336 Current Ratio 2.1 % Long Term Debt of Capitalization 53.8 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

531 4,766 20,020 7,406 6,779 2,366 3,924 550 702 1.8 172.7 2.4 1.7 11.7

531 4,846 19,956 7,248 6,384 3,505 10,363 401 1,251 1.2 61.6 6.9 4.9 29.8

780 4,287 17,550 2,994 6,150 2,639 8,799 431 996 1.4 69.9 6.1 4.1 23.9

796 4,975 16,499 3,147 7,079 3,266 10,816 365 819 1.6 65.4 5.1 3.2 14.9

732 4,168 15,875 2,975 6,141 3,642 10,246 302 726 1.4 59.9 3.6 2.4 10.2

843 3,592 15,090 2,256 6,144 3,680 10,224 301 637 1.6 60.1 2.9 1.8 7.9

307 3,887 15,505 2,239 7,038 3,395 10,842 296 732 1.7 64.9 3.4 2.3 9.9

260 4,017 16,052 3,075 5,962 3,923 10,253 532 680 1.3 58.1 1.3 1.0 4.2

289 3,914 16,370 3,263 6,648 3,982 10,957 527 771 1.2 60.7 2.1 1.7 6.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 40 Westminster Street, Providence, RI 02903-2525. Telephone: 401-421-2800. Website: http://www.textron.com Chrmn, Pres & CEO: S. Donnelly

EVP & CFO: F.T. Connor EVP, Secy & General Counsel: T. O'Donnell SVP, Chief Acctg Officer & Cntlr: D. Yates Chief Admin Officer: J.D. Butler

Investor Contact: D.R. Wilburne (401-457-2353) Founded: 1928 Board Members: K. M. Bader, R. K. Clark, S. Donnelly, I. Domicile: Delaware J. Evans, L. Fish, J. T. Ford, P. Gagne, D. M. Hancock, C. Employees: 32,000 D. Powell, L. G. Trotter, T. B. Wheeler, J. Ziemer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TMO | TMO is in the S&P 500

Thermo Fisher Scientific Inc S&P Recommendation STRONG BUY

★★★★★

Price $49.66 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Life Sciences Tools & Services

12-Mo. Target Price $68.00

Investment Style Large-Cap Growth

Summary Formed through the November 2006 merger of Thermo Electron and Fisher Scientific, TMO is a leading manufacturer and developer of analytical and laboratory instruments and supplies for life science, drug discovery, and industrial applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $57.40– 41.74 Trailing 12-Month EPS $2.30 Trailing 12-Month P/E 21.6 $10K Invested 5 Yrs Ago $16,438

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.49 3.92 14.2 407.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$20.233 Nil Nil 91

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.80 13 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects TMO's broad product lines and geographic coverage, spread across the life sciences, health care, and industrial markets, which we believe reduces risk. However, TMO has a proactive acquisition strategy that we believe raises its risk profile.

80 60

40 30

Quantitative Evaluations Vol. Mil. 24 16 8 0

57

S&P Quality Ranking

54

D 5

5

5

4

3

C

B-

BB

B+

A-

Relative Strength Rank

A

A+

MODERATE 59

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Jeffrey Loo, CFA on August 20, 2010, when the stock traded at $ 44.09. Highlights ➤

➤

➤

We expect 2010 and 2011 sales, with a neutral foreign exchange impact, to increase 6% each year to $10.7 billion and $11.35 billion, rebounding from a 4% decline in 2009. We look for 2010 sales within the laboratory products unit to rise 6% and analytical technologies to advance 8%. We expect better instrument sales as we see improvement in industrial end-markets, but we forecast only a flat or modest advance in the pharmaceutical sector as R&D spending remains modest amid a cautious environment. We believe pharmaceutical spending will improve in 2011. TMO has also made significant inroads in China, and we believe that country will become a key growth driver over the next several years. We see 2010 gross margins widening 80 basis points, mainly on improved efficiency and facility closures, and operating margins improving 100 basis points, after the 90 basis point decline in 2009, on leverage and improvement from global sourcing. We estimate EPS of $3.49 and $3.92 in 2010 and 2011, before amortization of intangible assets.

Investment Rationale/Risk ➤

We recently raised our opinion on the shares to strong buy from buy. At 12.7X and 11.3X our 2010 and 2011 EPS estimates, respectively, below peers and well below historical levels, TMO is undervalued, in our view. Although the economic environment remains challenging, we believe TMO, with its comprehensive product offering and broad geographic coverage, will be able to capture market share and grow faster than the market. We believe several of TMO's end-markets are beginning to stabilize, and we think its industrial end-markets are recovering faster than we had anticipated. We think clients continue to seek efficiency and consolidate suppliers, and we believe TMO will be a main beneficiary as the challenging environment has adversely affected TMO's smaller peers to a greater extent.

➤

Risks to our opinion and target price include a slower than expected recovery in TMO's endmarkets and loss of market share.

➤

Our 12-month target price of $68 assumes a PEG ratio of 1.5X, in line with peers, based on our 2010 EPS estimate of $3.49 and a projected three-year EPS growth rate of 13%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,675 2,649 2009 2,255 2,484 2008 2,554 2,710 2007 2,338 2,386 2006 684.3 713.5 2005 559.2 653.6

3Q -2,531 2,588 2,401 725.0 679.4

4Q -2,839 2,646 2,621 1,669 740.8

Year -10,110 10,498 9,746 3,792 2,633

Earnings Per Share ($) 2010 0.55 0.57 2009 0.35 0.49 2008 0.54 0.56 2007 0.31 0.42 2006 0.26 0.30 2005 0.28 0.35

E0.84 0.53 0.50 0.51 0.30 0.25

E0.97 0.65 0.68 0.53 0.08 0.34

E3.49 2.01 2.27 1.76 0.82 1.21

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: TMO

Thermo Fisher Scientific Inc Business Summary August 20, 2010 CORPORATE OVERVIEW. In November 2006, Thermo Electron Corp. and Fisher Scientific completed a stock-for-stock merger. The combined company was renamed Thermo Fisher Scientific (TMO) and is a leading provider of life science and laboratory analytical instruments, equipment, reagents and consumables, software and services for research, analysis, discovery and diagnosis. Following the merger the company had annual revenues in excess of $9 billion, with over 30,000 employees in 38 countries providing services and sales in over 150 countries. Major end-markets served include drug discovery, proteomics research, biopharma services, molecular diagnostics, immunohistochemistry, cell screening, environmental regulatory compliance, and food safety. TMO believes these markets represent a combined $70 billion to $80 billion annual marketplace. We believe TMO is the largest company within its marketplace, with the broadest product offering and geographic coverage. The legacy Thermo Electron business focuses primarily on the development and manufacture of analytical systems, instruments and components and provides solutions to monitor, collect and analyze data. These instruments are used primarily in life science, drug discovery, clinical, environmental and industrial laboratory applications. The legacy Fisher Scientific business focuses

on providing a broad range of over 600,000 scientific research, health care and safety-related products and services. Customers included pharmaceutical and biotechnology companies, colleges and universities, medical research institutions, hospitals and reference labs, and research and development labs. The company now reports through two business segments: Analytical Technologies and Laboratory Products and Services. Analytical Technologies should account for about 40% of sales and focuses on scientific instruments, bioscience reagents, lab informatics and automation, diagnostics, environmental monitoring instruments and industrial process instruments. Analytical Technologies is comprised primarily of the legacy Thermo Electron business. Laboratory Products and Services, comprised primarily of legacy Fisher Scientific business should account for about 60% of sales and focuses on lab equipment and consumables and biopharma outsourcing services.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.27 3.88 2.01 1.99 Nil Nil 49.70 30.83 25 15

2008 NM 4.10 2.27 2.16 Nil Nil 62.77 26.65 28 12

2007 NM 3.46 1.76 1.78 Nil Nil 62.02 43.60 35 25

2006 NM 2.00 0.82 0.83 Nil Nil 46.34 29.95 57 37

2005 2.32 1.95 1.21 1.01 Nil Nil 31.87 23.94 26 20

2004 6.19 1.70 1.31 1.18 Nil Nil 31.40 24.00 24 18

2003 5.00 1.35 1.04 0.79 Nil Nil 25.40 16.89 24 16

2002 3.79 1.35 1.12 0.50 Nil Nil 24.60 14.33 22 13

2001 1.33 0.81 0.27 0.02 Nil Nil 30.62 16.55 NM NM

2000 6.34 0.94 0.36 NA Nil Nil 31.24 14.00 87 39

10,110 1,905 787 118 927 8.18% 851 847

10,498 2,059 793 130 1,150 14.0% 989 941

9,746 1,823 757 140 881 11.5% 780 785

3,792 528 241 51.9 209 20.6% 166 169

2,633 404 123 26.7 286 30.6% 198 164

2,206 319 66.1 11.0 259 15.8% 218 196

2,097 292 58.5 18.7 219 21.0% 173 131

2,086 264 56.4 Nil 288 32.3% 195 79.3

2,188 265 98.5 71.8 70.7 38.1% 49.6 5.63

2,281 296 97.5 Nil 185 60.7% 62.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,571 Current Assets 4,531 Total Assets 21,601 Current Liabilities 1,639 Long Term Debt 2,066 Common Equity 15,431 Total Capital 17,497 Capital Expenditures 208 Cash Flow 1,639 Current Ratio 2.8 % Long Term Debt of Capitalization 11.8 % Net Income of Revenue 8.4 % Return on Assets 4.0 % Return on Equity 5.6

1,288 4,346 21,090 1,540 2,044 14,927 16,979 264 1,781 2.8 12.0 9.4 4.7 6.7

639 3,665 21,207 1,902 2,046 14,488 18,814 176 1,536 1.9 10.9 8.0 3.7 5.5

667 3,660 21,262 2,152 2,181 13,912 18,650 76.8 407 1.7 11.7 4.4 1.3 2.0

214 1,354 4,252 792 469 2,793 3,327 43.5 322 1.7 14.1 7.5 5.1 7.3

327 1,470 3,577 579 226 2,666 2,907 50.0 285 2.5 7.8 9.9 6.3 8.7

304 1,395 3,389 685 230 2,383 2,624 46.1 231 2.0 8.7 8.2 4.9 7.8

339 1,772 3,647 1,104 451 2,033 2,495 51.2 252 1.6 18.1 9.4 5.2 9.9

298 1,965 3,825 1,142 728 1,908 2,650 84.8 148 1.7 27.4 2.3 1.1 2.2

506 2,466 4,863 729 1,528 2,534 4,098 74.0 160 3.4 37.3 2.7 1.2 2.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 81 Wyman St PO Box 9046, Waltham, MA 02254-9046. Telephone: 781-622-1000. Website: http://www.fishersci.com Chrmn: J.P. Manzi

Pres & CEO: M.N. Casper SVP & CFO: P.M. Wilver SVP, Secy & General Counsel: S.H. Hoogasian Chief Acctg Officer: P.E. Hornstra

Investor Contact: K.J. Apicerno (781-622-1111) Board Members: M. N. Casper, T. Jacks, J. C. Lewent, T. Lynch, P. J. Manning, J. P. Manzi, W. G. Parrett, M. E. Porter, S. M. Sperling, E. S. Ullian

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1956 Domicile: Delaware Employees: 35,400

Stock Report | October 23, 2010 | NYS Symbol: MMM | MMM is in the S&P 500

3M Co S&P Recommendation BUY

★★★★★

Price $90.44 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Conglomerates

12-Mo. Target Price $101.00

Investment Style Large-Cap Growth

Summary This diversified global company provides enhanced product functionality in electronics, healthcare, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical properties.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $90.90– 67.98 Trailing 12-Month EPS $5.48 Trailing 12-Month P/E 16.5 $10K Invested 5 Yrs Ago $13,793

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.79 6.16 15.6 713.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$64.496 2.32 $2.10 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.82 10 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong historical earnings and dividend growth, its leading position in many of the markets it serves, its strong balance sheet with a relatively low amount of debt, and free cash flow that has averaged more than net income over the past 10 years.

100 80

50 40

Quantitative Evaluations

Vol. 61

Mil.

S&P Quality Ranking

30 20 10 0 5

D 4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Mathew Christy, CFA on September 15, 2010, when the stock traded at $ 84.29. Highlights Following an 8.5% decline in 2009 revenues due to the weak global economy, we project that revenues will increase more than 14% this year as a result of greater volumes, pricing, and the positive effects of currency translation. In addition, our forecast is based on projected strength across all of 3M's business units -- especially higher results at the industrial, electronics, display & graphics and consumer & office units -- as the economy continues to recover. In 2011, we forecast that revenue will rise more than 5%, and we expect modest gains across the business platform. We think 3M's strong product portfolio, innovation-based culture and continual investment in research and development provide operating margin resilience, which we believe was seen in 2009's operating margin performance, down only 80 basis points. We expect that 3M will continue to pursue innovation, and see this leading to higher pricing and margins in 2010 and 2011. Assuming an effective tax rate of about 28% this year and next year, we estimate EPS of $5.79 rising to $6.16 in the respective years.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B

64 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

A+

We view positively 3M's ability to generate strong returns on capital and free cash flows. In addition, we like the company's early cycle, innovative, consumable-product business mix, and believe the company's strategy of marketing new and innovative products to capture market share and increase operating margins will continue to benefit results. We view the shares, recently trading at about 15X our 2010 EPS estimate, below the peer average but at a historical premium, as attractively valued. Risks to our recommendation and target price include slower global economic growth, execution risk associated with acquisitions, failure to market new and innovative products, and inability to promote growth in developing markets. Our 12-month target price of $101 is based on a blend of valuations. Our DCF model, which assumes 3% growth in perpetuity and a 9.1% discount rate, indicates intrinsic value of about $95. In terms of relative valuation, we apply a multiple of about 18.5X, ahead of peers, to our 2010 EPS estimate, suggesting a value of $107.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,348 6,731 2009 5,089 5,719 2008 6,463 6,739 2007 5,937 6,142 2006 5,595 5,688 2005 5,166 5,294

3Q -6,193 6,558 6,177 5,858 5,382

4Q -6,122 5,509 6,206 5,782 5,325

Year -23,123 25,269 24,462 22,923 21,167

Earnings Per Share ($) 2010 1.29 1.55 2009 0.74 1.12 2008 1.38 1.33 2007 1.85 1.25 2006 1.17 1.15 2005 1.03 1.00

E1.50 1.35 1.41 1.32 1.18 1.10

E1.46 1.30 0.77 1.17 1.57 1.04

E5.79 4.52 4.89 5.60 5.06 4.16

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.510 0.525 0.525 0.525

11/10 02/09 05/11 08/09

11/18 02/17 05/19 08/18

11/20 02/19 05/21 08/20

12/12/09 03/12/10 06/12/10 09/12/10

Dividends have been paid since 1916. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: MMM

3M Co Business Summary September 15, 2010 CORPORATE OVERVIEW. 3M Co. is a global manufacturer operating a broadly diversified business. The company classifies its business into six reportable segments -- Industrial & Transportation, Health Care, Display & Graphics, Consumer & Office, Electro & Communications, and Safety, Security and Protection. Most 3M products involve expertise in product development, manufacturing and marketing with many of the company's products involving some form of coating, sealant, adhesive, film, or chemical additive that increases the products overall functionality. As of the end of 2009, the company employed nearly 75,000 people. The Industrial & Transportation segment (30% of 2009 revenues, with an 18.6% operating margin) serves a broad range of markets, from appliances and electronics to paper and packaging, food and beverages, automotive, automotive aftermarket, aerospace and marine, and other transportation-related industries. Products include pressure-sensitive tapes, abrasives, adhesives, specialty materials, supply chain management software and solutions, insulation components, films, masking tapes, fasteners and adhesives, to name a few.

The Health Care segment (18% and 31.9%) serves markets worldwide, including medical and surgical, pharmaceutical, dental, health information systems and personal care, with a variety of medical and surgical, infection prevention, pharmaceutical, drug delivery, dental, personal care and other products and systems. The Display & Graphics segment (13% and 19.5%) serves markets that include electronic display, touch screen, commercial graphics and traffic control materials. Optical products include Vikkuiti display enhancement films for electronic displays, lens systems for projection televisions, and 3M MicroTouch touch screens and touch monitors.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.87 6.16 4.52 4.40 2.04 45% 84.32 40.87 19 9

2008 3.93 6.52 4.89 3.77 2.00 41% 84.76 50.10 17 10

2007 13.40 7.06 5.60 4.68 1.92 34% 97.00 72.90 17 13

2006 7.04 6.48 5.06 4.26 1.84 36% 88.35 67.05 17 13

2005 8.13 5.43 4.16 4.13 1.68 40% 87.45 69.71 21 17

2004 9.62 5.01 3.75 3.66 1.44 38% 90.29 73.31 24 20

2003 6.62 4.23 3.02 2.91 1.32 44% 85.40 59.73 28 20

2002 4.91 3.70 2.49 1.71 1.24 50% 65.78 50.00 26 20

2001 6.23 3.15 1.79 0.94 1.20 67% 63.50 42.93 35 24

2000 7.17 3.60 2.32 NA 1.16 50% 61.47 39.09 26 17

23,123 6,180 1,157 219 4,632 30.0% 3,193 3,110

25,269 6,640 1,153 215 5,108 31.1% 3,460 2,672

24,462 6,584 1,072 210 6,115 32.1% 4,096 3,418

22,923 6,252 1,079 122 5,625 30.6% 3,851 3,242

21,167 5,995 986 82.0 4,983 34.0% 3,234 3,227

20,011 5,577 999 69.0 4,555 33.0% 2,990 2,918

18,232 4,677 964 84.0 3,657 32.9% 2,403 2,319

16,332 4,000 954 80.0 3,005 32.1% 1,974 1,356

16,079 3,274 1,089 124 2,186 32.1% 1,430 750

16,724 3,898 1,025 111 2,974 34.5% 1,857 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,784 Current Assets 10,795 Total Assets 27,250 Current Liabilities 4,897 Long Term Debt 5,097 Common Equity 13,302 Total Capital 18,399 Capital Expenditures 903 Cash Flow 4,350 Current Ratio 2.2 % Long Term Debt of Capitalization 27.7 % Net Income of Revenue 13.8 % Return on Assets 12.1 % Return on Equity 27.6

2,222 9,598 25,646 5,839 5,224 9,879 15,548 1,471 4,613 1.6 33.6 13.7 13.8 32.0

2,475 9,838 24,694 5,362 4,088 11,747 16,515 1,422 5,168 1.8 24.8 16.7 17.8 37.7

1,918 8,946 21,294 7,323 1,047 10,097 11,433 1,168 4,930 1.2 9.4 16.8 18.4 37.3

1,072 7,115 20,513 5,238 1,309 10,100 11,409 943 4,220 1.4 11.5 15.3 15.7 31.6

2,757 8,720 20,708 6,071 727 10,378 11,105 937 3,989 1.4 6.5 14.9 15.6 32.7

1,836 7,720 17,600 5,082 1,735 7,885 9,620 677 3,367 1.5 18.0 13.2 14.6 34.6

618 6,059 15,329 4,457 2,140 5,993 8,133 763 2,928 1.4 26.3 12.1 13.2 32.7

616 6,296 14,606 4,509 1,520 6,086 7,606 980 2,519 1.4 20.0 8.9 9.8 22.7

302 6,379 14,522 4,754 971 6,531 7,502 1,115 2,882 1.3 12.9 11.1 13.1 29.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3M Center, St. Paul, MN 55144-1000. Telephone: 651-733-1110. Email: [email protected] Website: http://www.3m.com

Chrmn, Pres & CEO: G.W. Buckley COO: I.G. Thulin EVP & CTO: F.J. Palensky SVP & CFO: P.D. Campbell

SVP & General Counsel: M.I. Smith Founded: 1902 Investor Contact: M. Colin (651-733-8206) Domicile: Delaware Board Members: L. G. Alvarado, G. W. Buckley, V. D. Employees: 74,835 Coffman, M. L. Eskew, W. J. Farrell, H. L. Henkel, E. M. Liddy, R. S. Morrison, A. L. Peters, R. J. Ulrich

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TIF | TIF is in the S&P 500

Tiffany & Co. S&P Recommendation BUY

★★★★★

Price $50.48 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Specialty Stores

12-Mo. Target Price $55.00

Investment Style Large-Cap Growth

Summary Tiffany is a leading international retailer, designer, manufacturer and distributor of fine jewelry and gift items.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $52.19– 35.81 Trailing 12-Month EPS $2.48 Trailing 12-Month P/E 20.4 $10K Invested 5 Yrs Ago $14,405

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.61 3.02 19.3 126.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.374 1.98 $1.00 95

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.76 10 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of TIF's favorable market position as a premier global luxury brand, offset by a weak outlook for U.S. consumer discretionary spending.

50 40 30

Quantitative Evaluations

20

S&P Quality Ranking Vol.

D

C

B-

AB

B+

A-

A

A+

Mil. 24 16 8 0 5

Relative Strength Rank

STRONG 83

LOWEST = 1

5

4

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on September 02, 2010, when the stock traded at $ 41.13. Highlights ➤

We see global expansion along with innovative new collections and categories supporting sales and profit gains in FY 11 (Jan.) and beyond. First half consolidated same store sales rose 7%, led by an 18% gain in Europe and 14% in Asia-Pacific. A modest slowdown in merchandise sales under $500 suggests the entry level/aspirational shopper is splurging less on silver trinkets and is focused on paying down debt. Despite this, we see double digit growth with continued European and Asian expansion.

Investment Rationale/Risk ➤

➤ ➤

➤

We see an 11% sales advance in FY 11 and FY 12, led by double-digit gains in Asia/Pacific, Europe and the Americas as TIF opens 14 stores in FY 11 and same-store sales increase an estimated 7%. Japan remains a weak link, and we see sales declining about 10% in constant currency. We look for about a 210 basis point EBIT margin improvement to 18.4% reflecting gross margin expansion in FY 11 and see another 100 basis point EBIT margin expansion in FY 12. We estimate FY 11 EPS of $2.61 after net interest expense of $49 million and a 34% effective tax rate (32% in FY 10) and estimate $3.02 for FY 12 with a 35% effective tax rate.

➤

Despite weak economic fundamentals that we see limiting a strong recovery in discretionary spending this year, we expect TIF to gain domestic market share as the retail jewelry industry contracts and benefits from the return of the luxury shopper. Globally, we believe TIF's strong brand is under-penetrated, with lucrative expansion opportunities in Asia, Europe and Eastern Europe. We believe these trends support our buy recommendation. Risks to our recommendation and target price include lower-than-expected sales; a doubledip recession; weaker-than-expected global consumer demand for luxury goods; and increased competition from European luxury brands and independent high-end jewelers. We employ DCF methodology to derive our 12-month target price of $55, incorporating our assumptions of a 2% terminal growth rate and an 8% weighted average cost of capital. This is supported by our P/E valuation in which we apply TIF's historical 3-year forward peer forward multiple of 18X to our FY 12 EPS estimate, in line with global luxury peers. This leads to a $54 valuation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 633.6 668.8 2010 517.6 612.5 2009 668.2 732.4 2008 595.7 662.6 2007 539.2 574.9 2006 509.9 526.7

3Q -598.2 618.2 627.3 547.8 500.1

4Q -981.4 841.2 1,053 986.4 858.5

Year -2,710 2,860 2,939 2,648 2,395

Earnings Per Share ($) 2011 0.50 0.53 2010 0.22 0.46 2009 0.50 0.63 2008 0.36 0.63 2007 0.30 0.29 2006 0.27 0.35

E0.37 0.34 0.35 0.73 0.21 0.16

E1.21 1.09 0.25 0.89 1.02 0.97

E2.61 2.12 1.74 2.40 1.80 1.75

Fiscal year ended Jan. 31. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.170 0.200 0.250 0.250

11/19 02/18 05/20 08/19

12/17 03/18 06/17 09/16

12/21 03/22 06/21 09/20

01/11/10 04/12/10 07/12/10 10/11/10

Dividends have been paid since 1988. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TIF

Tiffany & Co. Business Summary September 02, 2010 CORPORATE OVERVIEW. Charles Lewis Tiffany founded Tiffany & Co. in 1837. Jewelry is the company's primary sales driver, accounting for 90% of FY 10 (Jan.) net sales. The Tiffany & Co. brand also encompasses timepieces, sterling silver merchandise, china, crystal, stationery, fragrances and personal accessories. Additionally, TIF sells other brands of timepieces and tableware in its U.S. stores. TIF divides its worldwide business into four reportable segments: Americas (52% of FY 10 net sales), comprised of 91 company-owned stores, catalog and Internet, business-to-business and wholesale distribution; Asia-Pacific (35%), including 102 retail locations, Internet, business-to-business and wholesale distribution, with its wholly owned subsidiary, Tiffany & Co. Japan , Inc. accounting for 19% of FY 10 net sales; Europe (12%), with 27 retail locations and a limited amount of business-to-business and Internet and wholesale sales; and other (1%), consisting primarily of wholesale sales of diamonds and earnings and fees received from a licensing agreement with Luxottica and The Swatch Group, respectively, for sales transacted under Tiffany & Co. trademarks.

sold, and purchased the remaining and almost all non-jewelry merchandise from third-party vendors. Products containing one or more diamonds accounted for 48% of FY 10 sales. In FY 10 TIF increased the proportion of polished diamonds it produced from rough diamonds to 70% from 40%, significantly reducing those purchased from third parties. To drive sales, TIF introduces new products annually; however, we believe outside designers, whose jewelry is licensed and sold exclusively under the Tiffany & Co. brand such as Jean Schlumberger, Elsa Peretti and Paloma Picasso, are important differentiators for TIF. TIF believes that its multi-channel distribution represents a competitive advantage in a large and fragmented industry. In recent years, TIF has expanded its direct marketing business, with a focus on e-commerce. In FY 09, TIF reduced U.S. catalog distribution 7%, to 18.2 million, and in FY 10, another 35% or about 6 million catalogs, to 12 million catalogs distributed. Its U.S. consumer website, www.tiffany.com, was launched in FY 00, and e-commerce purchase capabilities were extended to the U.K. in FY 02 and to Japan and Canada in FY 06. An informational website for China was launched in FY 07.

CORPORATE STRATEGY. Diamonds are at the heart of TIF's merchandise offering, which also includes colored gemstones and silver and gold fashion jewelry. In FY 10, TIF produced approximately 60% of Tiffany merchandise Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 14.79 3.23 2.12 2.17 NA NA 2009 44.49 16.70 21 8

2009 12.70 2.83 1.74 1.99 0.66 31% 2008 49.98 16.75 29 10

2008 12.92 3.28 2.40 1.95 0.38 16% 2007 57.34 38.17 24 16

2007 13.28 2.64 1.80 1.84 0.38 16% 2006 41.29 29.63 23 16

2006 12.85 2.50 1.75 1.80 0.30 17% 2005 43.80 28.60 25 16

2005 11.77 2.79 2.05 1.22 0.23 11% 2004 45.22 27.00 22 13

2004 10.01 2.06 1.45 1.37 0.19 13% 2003 49.45 21.60 34 15

2003 8.34 1.80 1.28 1.16 0.16 13% 2002 41.00 19.40 32 15

2002 7.15 1.58 1.15 1.09 0.16 14% 2001 38.25 19.90 33 17

2001 6.34 1.56 1.26 1.20 0.15 12% 2000 45.38 27.09 36 22

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

2,710 579 139 50.5 390 31.9% 266 271

2,860 633 138 29.0 346 36.4% 220 252

2,939 640 122 16.2 522 36.6% 331 269

2,648 533 118 26.1 404 37.2% 254 260

2,395 492 109 23.1 368 30.8% 255 261

2,205 403 108 22.0 472 35.6% 304 181

2,000 446 90.4 14.9 343 37.1% 216 204

1,707 397 78.0 15.1 300 36.6% 190 173

1,607 375 64.6 19.8 289 40.0% 174 164

1,668 374 46.7 16.2 318 40.0% 191 181

Balance Sheet & Other Financial Data (Million $) Cash 786 Current Assets 2,446 Total Assets 3,488 Current Liabilities 600 Long Term Debt 520 Common Equity 1,883 Total Capital 2,610 Capital Expenditures 75.4 Cash Flow 405 Current Ratio 4.1 % Long Term Debt of Capitalization 19.9 % Net Income of Revenue 9.8 % Return on Assets 8.1 % Return on Equity 15.3

160 2,049 3,102 602 425 1,588 2,014 154 358 3.4 21.1 7.7 7.3 13.6

247 1,844 2,922 585 343 1,637 2,046 186 453 3.2 16.8 11.3 11.5 19.3

177 1,707 2,846 453 406 1,805 2,211 182 372 3.8 18.4 9.6 9.0 14.0

394 1,699 2,777 365 427 1,831 2,257 157 364 4.7 18.9 10.6 9.4 14.4

188 1,608 2,666 400 398 1,701 2,132 142 412 4.0 18.7 13.8 12.0 19.2

276 1,348 2,391 395 393 1,468 1,884 273 306 3.4 20.9 10.8 10.0 16.1

156 1,070 1,924 300 297 1,208 1,505 220 268 3.6 19.7 11.1 10.7 16.9

174 954 1,630 341 179 1,037 1,216 171 238 2.8 14.7 10.8 10.9 17.7

196 1,005 1,568 337 242 925 1,168 108 237 3.0 20.7 11.4 13.1 22.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 727 Fifth Avenue, New York, NY 10022. Telephone: 212-755-8000. Website: http://www.tiffany.com Chrmn & CEO: M.J. Kowalski

Pres: J.E. Quinn EVP & CFO: J.N. Fernandez SVP, Secy & General Counsel: P.B. Dorsey Chief Acctg Officer & Cntlr: H. Iglesias

Investor Contact: M.L. Aaron (212-230-5301) Founded: 1837 Board Members: R. M. Bravo, G. E. Costley, L. Fish, A. F. Domicile: Delaware Kohnstamm, M. J. Kowalski, C. K. Marquis, P. W. Employees: 8,400 May, J. T. Presby, W. A. Shutzer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TWC | TWC is in the S&P 500

Time Warner Cable Inc S&P Recommendation HOLD

★★★★★

Price $57.39 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Cable & Satellite

12-Mo. Target Price $60.00

Investment Style Large-Cap Growth

Summary This company is the largest pure-play U.S. cable multiple system operator (MSO), recently counting more than 12.8 million customers, mostly located in New York, the Carolinas, Ohio, Southern California and Texas.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.47– 38.24 Trailing 12-Month EPS $3.20 Trailing 12-Month P/E 17.9 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.62 4.15 15.9 355.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$20.397 2.79 $1.60 87

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.65 12 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as the company's strong leadership position in a highly consolidated pay TV industry and a relatively strong balance sheet, combined with increased flexibility after a separation from its parent company, offset by increased competition and regulatory risk factors.

120

60 40

20

Quantitative Evaluations

Vol. 40 1-for-3

Mil.

S&P Quality Ranking

15 10 5 0 5

D 5 3

C

B-

NR B

B+

A-

A

Relative Strength Rank

3

A+

MODERATE 60

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

LOWEST = 1

HIGHEST = 99

2010

Revenue/Earnings Data Analysis prepared by Tuna N. Amobi, CFA, CPA on August 25, 2010, when the stock traded at $ 50.67. Highlights ➤

➤

➤

We expect consolidated revenues to advance 6.0% in 2010, to more than $18.9 billion, and 4.5% in 2011, to almost $19.8 billion, mainly on further penetration of bundled residential (and increasingly commercial) high-speed data and digital phone products. We project relatively modest gains in video revenues, with the potential benefits of annual rate hikes and higher average pricing on advanced video offerings (HD and DVR), while assuming relatively moderate levels of basic subscriber losses. We also expect a strong rebound in advertising revenues (local and national) over the next two years. We see margins being slightly pressured by programming and marketing expenses, versus some cost savings (lower head count, call center consolidation and efficiency gains) and higher-margin ad revenues. We project 2010 and 2011 adjusted EBITDA up 6.2% and 4.7%, to about $6.9 billion and $7.2 billion, respectively. After higher D&A and interest expense (with $21 billion of long-term debt), and taxes at an effective rate of 37%-38%, we forecast 2010 and 2011 operating EPS of $3.62 and $4.15, respectively.

Investment Rationale/Risk ➤

➤

➤

Despite somewhat softer-than-expected unit growth in a seasonally slow second quarter, we think TWC's encouraging results for the 2010 first half showed continued traction from the nascent commercial market, as the company also pursues digital video and wireless broadband initiatives. With TWC's declining capital intensity and a strong management team, we see potentially sustainable double-digit free cash flow growth in the next few years. Having recently achieved its target leverage ratio -following its 2009 spin-off that we think also enhanced its corporate governance -- TWC appears to have regained ample financial flexibility for sustainable dividends. Risks to our recommendation and target price include heightened regulatory overhang on a potential reclassification of broadband (Title II); a slower-than-expected economic (and housing) recovery; increased competition from satellite TV/telcos; and dilutive acquisitions. Our 12-month target price of $60 reflects 6.1X 2010E EV/EBITDA, or $3,200 per subscriber, which we view as adequate relative to peers -noting the stock's ample dividend yield of 3.0%.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 4,599 4,734 2009 4,364 4,474 2008 4,160 4,298 2007 3,851 4,014 2006 2,385 2,721 2005 2,302 2,357

3Q -4,498 4,340 4,001 3,209 2,227

4Q -4,532 4,402 4,089 3,651 2,315

Year -17,868 17,200 15,955 11,767 9,498

Earnings Per Share ($) 2010 0.60 0.94 2009 0.48 0.89 2008 0.75 0.84 2007 0.84 0.84 2006 0.60 0.87 2005 0.90 1.29

E0.86 0.76 0.93 0.75 0.69 0.60

E0.97 0.91 -25.08 0.99 0.75 1.20

E3.62 3.05 -22.56 3.45 2.85 3.75

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.400 0.400 0.400

01/28 04/26 07/30

01/24 05/26 08/27

02/26 05/28 08/31

03/15/10 06/15/10 09/15/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TWC

Time Warner Cable Inc Business Summary August 25, 2010 CORPORATE OVERVIEW. Time Warner Cable Inc. (TWC) is the second largest cable operator in the U.S., with more than 12.8 million video subscribers as of June 30, 2010. After its July 2006 acquisition of Adelphia Communications (for about $8.9 billion in cash plus 16% of its common stock) -- which added a net 3.2 million subscribers -- TWC became a public company on February 13, 2007 (effective date of Adelphia's reorganization plan), and its Class A shares began trading as of March 1, 2007 (the non-trading Class B shares are held by its parent). In March 2009, TWC was spun off from its former 84% equity owner Time Warner (TWX 34, Buy). As of June 30, 2010, TWC's cable systems passed over 27 million U.S. homes (including the distribution on January 1, 2007, of the Texas/Kansas City JV), nearly 85% of which were located in New York, the Carolinas, Ohio, Southern California and Texas. Nearly 9.3 million (34.2% penetration) of TWC's homes passed subscribed to a residential high-speed data service such as Road Runner, and over 4.3 million (or 15.8%) to residential digital phone service. Also, there were 405,000 commercial customers (315,000 for data and 90,000 for digital phone). Nearly all of the homes passed in its legacy systems and more than 94% in the acquired systems were served by a system with at least 750 MHz of capacity.

CORPORATE STRATEGY. After its 2004 initial launch of digital phone service, TWC now offers the triple-play bundle substantially across its footprint, while it is in the relatively early stages of launching data and digital phone services to small to medium-sized businesses -- a potential opportunity that the company recently quantified at about $10 billion). In May 2008, TWC invested $550 million in a JV to build a nationwide WiMAX network with Sprint, Clearwire and others. In 2006, a cable consortium including TWC won 137 Advanced Wireless Spectrum (AWS) licenses in an FCC auction. An industry leader in advanced digital services (so-called Enhanced TV offerings), TWC is also pursuing a number of network-bandwidth reclamation initiatives (e.g., all-digital, switched digital video etc.), while adding a growing number of HD channels (now up to 100 in some of its systems). In August 2009, TWX unveiled pilot testing of its Web TV authentication technology with about a dozen TV programmers under the TV Everywhere initiative.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 11.84 3.05 3.14 Nil Nil 68.23 20.19 22 7

2008 NM -2.32 -22.56 7.68 Nil Nil 94.68 48.90 NM NM

2007 NM 12.60 3.45 3.12 Nil Nil 126.34 70.81 37 21

2006 NM 9.05 2.85 2.88 NA NA NA NA NA NA

2005 NA 8.75 3.75 NA NA NA NA NA NA NA

2004 NA 6.72 2.19 NA NA NA NA NA NA NA

2003 NA 6.29 1.71 NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

17,868 NA NA 1,324 1,912 42.9% 1,070 1,104

17,200 76.0 33.5 25.8 -13,072 NM -7,344 2,511

15,955 5,765 2,976 907 2,028 36.5% 1,123 1,019

11,767 4,285 2,050 646 1,664 37.3% 936 945

9,498 NA 1,664 501 1,535 13.8% 1,253 NA

8,484 NA 1,514 491 1,305 39.6% 726 NA

7,699 NA 1,461 514 987 38.9% 541 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 1,048 Current Assets NA Total Assets 43,694 Current Liabilities NA Long Term Debt 22,631 Common Equity 8,685 Total Capital NA Capital Expenditures NA Cash Flow 4,155 Current Ratio 0.7 % Long Term Debt of Capitalization 72.3 % Net Income of Revenue 6.0 % Return on Assets 2.3 % Return on Equity 8.3

5,552 57.1 47,889 387 17,727 17,164 36,301 3,522 -59.1 2.3 48.8 NM NM NM

232 1,163 56,600 2,536 13,877 24,706 53,598 3,433 4,099 0.5 25.9 7.0 2.0 4.7

51.0 910 55,743 2,490 300 23,564 38,390 2,718 2,986 0.4 0.8 8.0 1.9 4.2

12.0 NA 43,677 NA 4,455 21,331 29,193 1,975 2,917 0.3 17.3 13.2 2.9 6.1

102 NA 43,138 NA 4,898 20,039 28,304 1,712 2,240 0.3 19.6 8.6 NA NA

NA NA NA NA NA NA NA 1,637 2,002 NA Nil 7.0 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 60 Columbus Cir, New York, NY 10023-5802. Telephone: 212-364-8200. Website: http://www.timewarnercable.com Chrmn, Pres & CEO: G.A. Britt

COO: L.C. Hobbs EVP & CFO: R.D. Marcus EVP & CTO: M. LaJoie EVP, Secy & General Counsel: M. Lawrence-Apfelbaum

Investor Contact: W. Osbourn, Jr. (203-351-2015) Founded: 2003 Board Members: C. Black, G. A. Britt, T. H. Castro, D. C. Domicile: Delaware Chang, J. E. Copeland, Jr., P. R. Haje, D. A. James, D. Employees: 47,000 Logan, N. J. Nicholas, Jr., W. H. Pace, E. D. Shirley, J. E. Sununu

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TWX | TWX is in the S&P 500

Time Warner Inc. S&P Recommendation BUY

★★★★★

Price $31.52 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Movies & Entertainment

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary This company owns some of the world's leading media and entertainment brands, including Warner Bros. (film/TV studio), Turner cable networks (TNT, TBS, CNN), HBO/Cinemax premium channels, as well as several newspaper and magazine brands through its Time Inc. publishing businesses.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.07– 26.43 Trailing 12-Month EPS $2.18 Trailing 12-Month P/E 14.5 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.30 2.58 13.7 1,124.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$35.435 2.70 $0.85 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.09 12 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's leading content-oriented businesses, ample financial flexibility, and what we view as an adequate governance framework, offset by cyclical and secular pressures and a relatively volatile earnings stream.

1-for-3 50 40 30

20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 60 40 20 0 5

D

C

B-

BB

B+

A-

Relative Strength Rank 4

3

A

A+

MODERATE

41 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tuna N. Amobi, CFA, CPA on August 05, 2010, when the stock traded at $ 32.87. Highlights ➤

➤

➤

We see consolidated revenues rising about 7% in 2010, to $27.1 billion, and 5% in 2011, to more than $28.4 billion, mainly on affiliate revenues and improved ad sales at the Turner networks (TNT, TBS, CNN), HBO subscriptions, and healthy film/TV studio contributions (theatrical/home video releases and growing video games revenues). Also, the publishing division should see a gradual recovery in print ads, as well as growing online revenues, versus stagnant circulation. We expect recent restructuring actions to significantly enhance TWX's operating leverage over the next two years, resulting in sizable margin expansion. Results should also reflect increased contributions from higher-margin digital revenues, as well as merchandise licensing and other ancillary businesses. After D&A and lower net interest expense (on debt paydown and ample cash), we estimate 2010 operating EPS of $2.30 (consistent with TWX's guidance of at least 20% growth). With further share buybacks under a current $3 billion plan, we see 2011 EPS of $2.58.

Investment Rationale/Risk ➤

➤

➤

We think TWX's stronger-than-expected results for the 2010 second quarter showed continued overall improvement in underlying business trends across its core content-oriented businesses. Other potential catalysts we see include Turner networks' strong upfront sales, gains from international expansion, a film slate featuring the final two installments of Harry Potter (among other 3D releases), and growing contributions from video games, e-readers and other digital initiatives. We see ample financial capacity for dividends and share buybacks. Risks to our recommendation and target price include a slower-than-expected economic and ad rebound; potential ratings issues for the Turner networks; a sharp slowdown in the home video market; dilutive acquisitions; and continued secular challenges for publishing. Our 12-month target price of $38 is a blend of what we view as an ample EV/EBITDA of 10.2X our 2010 estimate and our sum-of-the-parts valuation. The dividend recently yielded 2.6%. We expect TWX to generate over $5 million in aggregate free cash flow in 2010 and 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,322 6,377 2009 6,086 6,013 2008 11,417 11,555 2007 11,184 10,980 2006 10,327 10,519 2005 10,483 10,744

3Q -6,366 11,706 11,676 10,912 10,538

4Q -7,320 12,306 12,642 12,466 11,887

Year -25,785 46,984 46,482 44,224 43,652

Earnings Per Share ($) 2010 0.62 0.48 2009 0.39 0.35 2008 0.63 0.66 2007 0.90 0.75 2006 0.78 0.60 2005 0.60 -0.21

E0.62 0.49 0.90 0.72 0.99 0.57

E0.57 0.51 -13.41 0.84 1.29 0.87

E2.30 1.74 -11.22 3.24 3.63 1.86

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.188 Stk.

04/22 11/16

11/24 08/27

11/27 08/31

12/09/09 09/15/10

Dividends have been paid since 2005. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TWX

Time Warner Inc. Business Summary August 05, 2010 CORPORATE OVERVIEW. Time Warner is one of the major media conglomerates -- creating and providing entertainment and information content across its key film, television and publishing divisions. The company's revenues are derived from three primary sources: content (43% of 2009 revenues), subscriptions (34%), advertising (20%), and other (3%). In March 2009, the company completed a full spin-off of its cable systems businesses owned by Time Warner Cable (TWC 59, Hold). In December 2009, the company also spun off its online subscription and advertising businesses owned by AOL (AOL 23, NR). For the company as presently constituted, the Filmed Entertainment segment (42% of 2009 revenues) includes the Warner Bros. and New Line Cinema studios, and home entertainment businesses, with key franchises such as Harry Potter, Lord of the Rings and Batman. In 2008, the company closed its two specialty film labels -- Warner Independent Films, and Picturehouse.

(14%) includes Time Inc., with 112 magazine titles worldwide (20 in the U.S., 90 outside the U.S.) -- including Time, People, Sports Illustrated, and Fortune. CORPORATE STRATEGY. CEO Jeffrey Bewkes recently articulated several key priorities, including continued delivery of quality content, improved operating efficiency, international expansion, and exploiting advances in digital technology. Over the next few years, TWX plans up to 20 3-D films in the Imax format. The company provides its titles to Netflix and Redbox after a 28-day DVD window. In so doing, TWX aims balance the dynamics of its content distribution strategy -- optimizing incremental payoff from emerging VOD platforms, electronic sell-through outlets like Apple's iTunes, Amazon.com and Wal-Mart's Vudu (as well as Netflix and Redbox) -- with minimal jeopardy to the traditional DVD window. Separately, in May 2009, TWX invested $241.5 million in Central European Media Enterprises for about a 31% equity stake in the European broadcaster.

The Networks segment (44%) includes cable networks CNN, HBO/Cinemax and Turner (TNT, TBS). In September 2006, TWX's WB broadcast network merged with CBS's UPN to create the CW network. The Publishing segment Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.54 1.74 1.86 0.75 43% 33.45 17.81 19 10

2008 NM -2.46 -11.22 -6.72 0.75 NM 50.70 21.00 NM NM

2007 NM 11.58 3.24 2.85 0.71 22% 69.46 48.51 21 15

2006 NM 8.57 3.63 3.21 0.63 17% 66.76 47.10 18 13

2005 NM 6.18 1.86 2.49 0.30 16% 58.93 48.30 32 26

2004 NM 6.39 2.07 1.86 Nil Nil 59.71 46.23 29 22

2003 NM 6.00 2.04 1.26 Nil Nil 54.97 29.70 27 15

2002 NM -27.96 -28.29 -10.32 Nil Nil 98.77 26.10 NM NM

2001 NM 2.90 -3.60 -3.24 Nil Nil 175.55 82.21 NM NM

2000 7.53 1.85 1.35 NA Nil Nil 250.15 98.26 NM NM

25,785 6,092 998 1,293 3,283 36.4% 2,040 2,212

46,984 19,229 10,481 2,275 -18,623 NM -13,402 -7,981

46,482 19,217 10,488 2,509 6,795 34.4% 4,051 3,579

44,224 14,837 6,953 1,971 6,826 19.6% 5,114 4,551

43,652 14,312 6,781 1,622 4,007 27.2% 2,921 3,929

42,081 13,535 6,743 1,754 5,206 33.0% 3,239 2,938

39,496 11,839 6,086 1,926 4,763 29.0% 3,164 1,999

36,955 NA NA 1,900 -44,156 NM -42,003 -15,240

33,765 NA NA 1,576 -4,465 NM -5,313 -4,771

7,703 2,271 444 55.0 1,884 38.9% 1,152 NA

Balance Sheet & Other Financial Data (Million $) Cash 4,800 Current Assets 13,007 Total Assets 65,730 Current Liabilities 8,765 Long Term Debt 15,357 Common Equity 33,383 Total Capital 49,142 Capital Expenditures 561 Cash Flow 3,038 Current Ratio 1.5 % Long Term Debt of Capitalization 31.3 % Net Income of Revenue 7.9 % Return on Assets 2.3 % Return on Equity 5.4

6,682 16,602 113,896 13,976 37,916 42,288 92,379 4,377 -2,921 1.2 41.0 NM NM NM

1,516 12,451 133,830 12,193 37,304 58,536 113,898 4,430 14,539 1.0 32.8 8.7 3.1 6.8

1,549 10,851 131,669 12,780 35,233 60,389 112,857 4,085 12,067 0.8 31.2 11.6 4.0 8.2

4,220 13,463 122,745 12,608 20,238 62,679 103,760 3,246 9,702 1.1 19.5 6.7 2.4 4.7

6,139 14,639 123,149 14,673 20,703 60,719 103,285 3,024 9,982 1.0 20.0 7.7 2.6 5.5

3,040 12,268 121,748 15,518 23,458 56,131 NA 2,761 9,250 0.8 NA 8.0 2.7 5.8

1,730 11,155 115,508 13,395 27,354 52,891 NA 3,023 -41,515 0.8 NA NM NM NM

771 10,274 209,429 12,972 22,792 150,667 NA 3,634 4,282 0.8 NA NM NM NM

2,610 4,671 10,827 2,328 1,411 6,778 8,189 485 1,596 2.0 17.2 15.0 10.9 17.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Time Warner Ctr, New York, NY 10019-6038. Telephone: 212-484-8000. Email: [email protected] Website: http://www.timewarner.com

Chrmn & CEO: J.L. Bewkes Pres: R.E. Grant EVP & CFO: J.K. Martin, Jr. EVP & General Counsel: P.T. Cappuccio

SVP, Chief Acctg Officer & Cntlr: P. Desroches Founded: 1985 Investor Contact: J.E. Burtson Domicile: Delaware Board Members: J. L. Barksdale, W. P. Barr, J. L. Employees: 31,000 Bewkes, S. F. Bollenbach, F. J. Caufield, R. C. Clark, M. Dopfner, J. P. Einhorn, F. Hassan, M. A. Miles, K. J. Novack, D. C. Wright

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TIE | TIE is in the S&P 500

Titanium Metals Corp S&P Recommendation SELL

★★★★★

Price $18.84 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Diversified Metals & Mining

12-Mo. Target Price $15.00

Investment Style Large-Cap Blend

Summary This company is a worldwide integrated producer of titanium metal products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$22.93– 8.39 $0.23 81.9 $18,184

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.46 0.78 41.0 180.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.394 Nil Nil 32

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.76 69 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's low debt levels and its large share of the markets it serves. Partly offsetting this is its heavy reliance on aerospace industry demand and the volatility of raw material costs.

40

20

8

Quantitative Evaluations

4

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0

C

B-

BB

B+

A-

A

Relative Strength Rank

5

3

WEAK

21

5

4

A+

3

LOWEST = 1

3

2

HIGHEST = 99

2

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Leo J. Larkin on August 19, 2010, when the stock traded at $ 19.75. Highlights ➤

➤

➤

Following a sales decline of 33% in 2009, we look for a rise of 18% in 2010, with a forecasted increase in the volume of shipments for both segments offsetting an anticipated drop in average realized selling prices for both melted and mill products. Our sales outlook assumes GDP growth of 2.8% in 2010, versus a decline of 2.6% in 2009, which we see boosting demand for durable goods. Also, we expect demand to be aided by the rebuilding of inventories in the aerospace supply chain following large destocking through nearly all of 2009. We look for margin expansion and a sizable gain in operating profit in 2010, as an increased volume of shipments offsets a decline in selling prices. After minimal interest expense and taxes, we project operating EPS of $0.46 in 2010, versus EPS of $0.19 in 2009. Longer term, we forecast higher earnings on an eventual rebound in the commercial aerospace industry, growing use of titanium in other industrial applications, and a secular rise in titanium consumption in Asia.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We believe TIE shares are overvalued, recently trading at close to 26X our 2011 EPS estimate. In our view, the P/E is excessive and the stock is vulnerable to a decline on that basis. Longer term, we have a favorable view of TIE as a beneficiary of a recovery in commercial aerospace, growing acceptance of titanium in other industrial markets, and a secular rise in Asian demand for titanium. While its EPS substantially declined in 2009, TIE remained free cash flow positive, reflecting lower capital spending and reduced working capital. We believe this, combined with its low debt levels, should enable TIE to capitalize on a cyclical upturn in titanium demand.

➤

Risks to our recommendation and target price include increases in volume and pricing for both segments in 2011 in excess of what we project.

➤

Our 12-month target price of $15 is 19.2X our 2011 EPS estimate, which is the mid-point of the company's 10-year historical range. Based on our target multiple, TIE would trade about in line with the P/E we apply to its specialty metals peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 217.5 212.0 2009 203.4 205.7 2008 293.7 297.3 2007 341.7 341.2 2006 286.9 300.9 2005 155.2 183.8

3Q -181.4 295.4 297.3 271.8 190.0

4Q -183.5 265.2 298.6 323.5 220.8

Year -774.0 1,152 1,279 1,183 749.8

Earnings Per Share ($) 2010 0.09 0.11 2009 0.11 0.05 2008 0.22 0.26 2007 0.41 0.42 2006 0.32 0.31 2005 0.23 0.21

E0.13 0.01 0.22 0.29 0.29 0.20

E0.14 0.03 0.19 0.61 0.61 0.23

E0.46 0.19 0.89 1.46 1.53 0.86

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid since 2008.

Stock Report | October 23, 2010 | NYS Symbol: TIE

Titanium Metals Corp Business Summary August 19, 2010 CORPORATE OVERVIEW. Titanium Metals Corp. is the one of the world's largest producers of titanium melted and mill products and the largest U.S. producer of titanium sponge (the raw material for titanium). TIE estimates that it accounted for some 18% of global industry shipments of titanium mill products in 2009 and 6% of worldwide sponge production. Melted and mill products and sponge are sold principally to the commercial aerospace industry. Other sources of product demand include the military, industrial and emerging markets. As of December 31, 2009, 27.5% of TIE's common shares were held by Contran Corporation and its subsidiaries, and an additional 8.6% were held by a trust sponsored by Contran. Products include titanium sponge; melted products (ingot, electrodes and slab); mill products, including billet and bar, plate, strip and pipe; and fabricated products such as spools, pipe fittings, manifolds and vessels. In 2009, mill products accounted for 82% of sales, melted products 9%, and other products

(titanium fabrications, titanium scrap and titanium tetrachloride), 9%. Sales by market sector in 2009 were: aerospace, 60%; military, 20%; industrial and emerging markets, 11%; and other, 9%. In 2009, North America accounted for 65% of sales, Europe for 27% and other regions for 8%. CORPORATE STRATEGY. The company's long-term strategy is to maximize the value of its core aerospace business while expanding its presence in nonaerospace markets. Additionally, the company seeks to develop new applications for its products.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.15 0.47 0.19 0.23 Nil Nil 13.18 4.04 69 21

2008 5.94 1.15 0.89 0.80 0.30 34% 26.79 5.31 30 6

2007 6.16 1.65 1.46 1.35 0.08 5% 39.80 25.26 27 17

2006 4.92 1.68 1.53 1.29 Nil Nil 47.63 15.96 31 10

2005 2.91 0.96 0.86 0.82 Nil Nil 19.86 2.91 23 3

2004 1.41 0.47 0.28 0.29 Nil Nil 3.33 1.06 12 4

2003 1.20 0.19 -0.11 -0.08 Nil Nil 1.51 0.39 NM NM

2002 1.18 -0.24 -0.53 -0.37 Nil Nil 1.35 0.23 NM NM

2001 1.92 -0.01 -0.33 -0.41 Nil Nil 3.60 0.59 NM NM

2000 2.32 0.03 -0.30 NA Nil Nil 2.23 0.78 NM NM

774 106 51.5 0.80 56.5 36.6% 34.5 42.5

1,152 269 47.7 1.80 237 29.1% 163 145

1,279 420 41.1 2.60 394 29.7% 268 243

1,183 403 34.1 3.43 418 30.7% 281 230

750 177 31.5 3.96 185 13.2% 156 136

502 43.8 32.8 12.5 39.0 NM 39.9 37.9

385 17.2 36.6 16.4 -11.3 NM -12.9 -9.92

367 -9.02 37.1 3.38 -54.5 NM -67.2 -46.4

487 28.2 40.1 4.06 4.47 NM -41.8 -51.7

427 1.81 41.9 7.70 -43.1 NM -38.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 169 Current Assets 807 Total Assets 1,379 Current Liabilities 105 Long Term Debt NA Common Equity 1,104 Total Capital 1,124 Capital Expenditures 33.0 Cash Flow 85.8 Current Ratio 7.7 % Long Term Debt of Capitalization Nil % Net Income of Revenue 4.5 % Return on Assets NA % Return on Equity NA

45.0 789 1,368 152 0.20 1,076 1,101 121 210 5.2 Nil 14.1 11.7 14.7

90.0 898 1,420 178 0.50 1,129 1,168 101 304 5.1 Nil 21.0 20.3 27.2

86.2 758 1,217 211 Nil 804 918 101 309 3.6 Nil 23.8 26.5 44.5

17.6 550 907 167 57.2 430 660 61.1 175 3.3 8.7 20.8 19.4 43.4

54.4 344 666 162 12.2 206 404 23.6 68.4 2.1 3.0 8.0 6.5 19.5

35.0 276 567 78.5 9.77 159 180 12.5 23.7 3.5 5.4 NM NM NM

6.21 263 564 92.6 217 159 388 7.77 -30.1 2.8 56.0 NM NM NM

24.5 309 699 122 221 298 533 16.1 -1.63 2.5 41.4 NM NM NM

9.80 248 759 116 229 357 604 11.2 3.91 2.1 37.9 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5430 LBJ Freeway, Suite 1700, Dallas, TX 75240-2697. Telephone: 972-233-1700. Website: http://www.timet.com Chrmn: H.C. Simmons

Pres & CEO: B.D. O'Brien Vice Chrmn: S.L. Watson CFO: J.W. Brown CTO: M.W. Kearns

Board Members: K. R. Coogan, G. R. Simmons, H. C. Simmons, T. P. Stafford, S. L. Watson, T. N. Worrell, P. J. Zucconi

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1950 Domicile: Delaware Employees: 2,205

Stock Report | October 23, 2010 | NYS Symbol: TJX | TJX is in the S&P 500

TJX Companies Inc (The) S&P Recommendation BUY

★★★★★

Price $44.86 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel Retail

12-Mo. Target Price $48.00

Investment Style Large-Cap Growth

Summary TJX operates eight chains of off-price apparel and home fashion specialty stores in the U.S., Canada, Germany, Ireland and the U.K.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $48.50– 35.75 Trailing 12-Month EPS $3.30 Trailing 12-Month P/E 13.6 $10K Invested 5 Yrs Ago $23,115

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

3.35 3.70 13.4 400.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.974 1.34 $0.60 93

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.60 14 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of TJX's leadership position in off-price retail and promising new merchandising and productivity initiatives that could boost sales and profit margins. This is offset by what we see as an inconsistent earnings track record and an uncertain outlook for consumer discretionary spending.

50 40

25 20

Vol.

Quantitative Evaluations

Mil. 45 30 15 0 5

S&P Quality Ranking D 4

4

4

3

C

B-

A+ B

B+

A-

A

Relative Strength Rank

1

MODERATE

52

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE

➤

➤

➤

Following a 6% increase in FY 10 (Jan.), we look for consolidated same-store sales on a constant currency basis to rise 3% in FY 11. We think TJX's strong value proposition across brands, focus on off-price buys (purchases made opportunistically and closer to need during a season), and ability to quickly respond to changes in customer buying preferences position the company solidly for continued growth. Coupled with planned global addition of 130 net new stores, we expect net sales to reach $21.5 billion in FY 11. We forecast gross margin expansion, supported by an increase in off-price buys, which carry higher mark-ups than upfront buys (purchases made before or early in a season), and lower markdowns as a result of improved inventory management. We also look for TJX to partially offset new store expenses and higher marketing spend with cost controls. FY 11 second quarter results included a $0.01 benefit from a reduction in the company's provision for computer intrusion related costs. Excluding this non-operating items but factoring in planned share repurchase activity, we project 18% EPS growth in FY 11, to $3.35.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Jason N. Asaeda on August 18, 2010, when the stock traded at $ 42.14. Highlights

A+

4

Our buy recommendation is based on valuation. We think TJX, with what we view as its compelling values on brand-name merchandise, is gaining marketshare at a time when consumers are growing increasingly cost-conscious. We see the company's core Marmaxx division generating ample operating cash flow to fund various growth initiatives such as expansion of T.K. Maxx and HomeSense in Europe; further testing of the Marshalls Shoe Mega Shop (U.S.) and StyleSense (Canada) family footwear and accessories retail concepts; investments in infrastructure; and $900 million to $1 billion in additional share buybacks in FY 11. Risks to our recommendation and target price include sales shortfalls due to changes in consumer spending habits and buying preferences; merchandise availability; increased promotional activity by competitors, particularly bankruptcy-related clearance sales in the U.S.; and difficult same-store sales comparisons in FY 11. Our 12-month target price of $48 applies a forward P/E multiple of 14.4X, near TJX's 10-year historical median, to our FY 11 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 5,017 5,068 2010 4,354 4,748 2009 4,364 4,621 2008 4,108 4,313 2007 3,871 3,964 2006 3,652 3,648

3Q -5,245 4,762 4,737 4,473 4,042

4Q -5,942 5,380 5,488 5,097 4,716

Year -20,288 19,000 18,647 17,405 16,058

Earnings Per Share ($) 2011 0.80 0.74 2010 0.49 0.61 2009 0.43 0.45 2008 0.34 0.45 2007 0.34 0.29 2006 0.28 0.23

E0.89 0.81 0.58 0.54 0.48 0.32

E0.93 0.94 0.58 0.66 0.51 0.60

E3.35 2.84 2.07 1.66 1.63 1.41

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.120 0.150 0.150 0.150

12/01 04/06 06/02 09/09

02/09 05/11 08/10 11/08

02/11 05/13 08/12 11/11

03/04/10 06/03/10 09/02/10 12/02/10

Dividends have been paid since 1980. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TJX

TJX Companies Inc (The) Business Summary August 18, 2010 COMPANY PROFILE. With over $20 billion in annual revenues, TJX Companies is the largest U.S. off-price family apparel and home fashion retailer via its eight retail concepts. As of August 17, 2010, the company's core Marmaxx Group division operated 903 T.J. Maxx and 820 Marshalls stores. TJX also operated 154 A.J. Wright units and 328 HomeGoods stores in the U.S.; 21 HomeSense and 283 T.K. Maxx stores in Europe; and 79 HomeSense, 208 Winners and three StyleSense (a new family footwear and accessories test concept) stores in Canada. The company sold its 34-store Bob's Store chain to private equity firms Versa Capital Management and Crystal Capital in August 2008. TJX believes it derives a competitive advantage by offering rapidly changing assortments of quality brand name and designer merchandise at prices usually 20% to 60% below department and specialty store regular prices. With over 2,700 stores, the company has substantial buying power with more than 12,000 vendors worldwide. TJX purchases later in the buying cycle than department and specialty stores. Generally, purchases are for current selling seasons, with a limited quantity of packaway inventory intended for a future selling season. A combination of opportunistic buying, an expansive distribution in-

frastructure, and a low expense structure enable the company to offer everyday savings to its customers. PRIMARY BUSINESS DYNAMICS. TJX's primary growth drivers are new store openings and same-store sales (sales results for stores open for all or a portion of two consecutive fiscal years). From FY 06 through FY 09, the company increased its retail selling square footage at a compound annual growth rate (CAGR) of 5%, as its total store count rose from 2,192 to 2,652. In FY 10, TJX saw opportunities to negotiate more favorable leases and to relocate stores to better locations. As a result, the company committed to fewer new store openings and retail square footage grew by only an estimated 3.5%. TJX ended FY 10 with 2,743 stores. The company is targeting 5% to 6% annual retail square footage growth from FY 11 through FY 13.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 6.62 3.86 2.84 2.88 0.47 17% 2009 40.64 19.16 14 7

2009 4.74 2.97 2.07 2.03 0.42 15% 2008 37.52 17.80 18 9

2008 4.55 2.43 1.66 1.63 0.27 16% 2007 32.46 25.74 20 16

2007 4.65 2.35 1.63 1.64 0.23 14% 2006 29.84 22.16 18 14

2006 3.71 2.23 1.41 1.40 0.17 12% 2005 25.96 19.95 18 14

2005 3.06 1.86 1.30 1.22 0.14 10% 2004 26.82 20.64 21 16

2004 2.74 1.75 1.28 1.21 0.13 10% 2003 23.70 15.54 19 12

2003 2.36 1.46 1.08 1.01 0.12 11% 2002 22.45 15.30 21 14

2002 2.14 1.34 0.97 0.91 0.11 11% 2001 20.30 13.56 21 14

2001 1.85 1.23 0.93 0.90 0.07 7% 2000 15.75 6.97 17 7

20,288 2,426 435 39.5 1,952 37.8% 1,214 1,229

19,000 1,833 398 38.1 1,451 37.0% 915 893

18,647 1,811 365 39.9 1,243 37.9% 772 756

17,405 1,616 353 39.2 1,247 37.7% 777 778

16,058 1,444 405 39.0 1,009 31.6% 690 687

14,913 1,394 288 33.5 1,080 38.5% 664 615

13,328 1,334 238 27.3 1,068 38.4% 658 619

11,981 1,171 208 25.4 938 38.3% 578 546

10,709 1,104 204 25.6 874 38.2% 540 506

9,579 1,064 176 34.7 865 37.8% 538 519

Balance Sheet & Other Financial Data (Million $) Cash 1,745 Current Assets 4,804 Total Assets 7,464 Current Liabilities 2,895 Long Term Debt 774 Common Equity 2,889 Total Capital 3,664 Capital Expenditures 429 Cash Flow 1,649 Current Ratio 1.7 % Long Term Debt of Capitalization 21.1 % Net Income of Revenue 6.0 % Return on Assets 17.8 % Return on Equity 48.3

454 3,626 6,178 2,768 384 2,135 2,646 583 1,313 1.3 14.5 4.8 14.3 42.9

733 3,992 6,600 2,761 853 2,131 3,028 527 1,137 1.5 28.2 4.1 12.2 34.9

857 3,749 6,086 2,383 808 2,290 3,120 378 1,130 1.6 25.9 4.5 13.4 37.1

466 3,140 5,496 2,252 807 1,893 2,700 496 1,096 1.4 29.9 4.3 13.1 37.9

307 2,905 5,075 2,204 599 1,653 2,405 429 953 1.3 24.9 4.5 14.0 41.4

246 2,452 4,397 1,691 692 1,552 2,369 409 897 1.5 29.2 4.9 15.8 44.5

492 2,241 3,940 1,566 694 1,409 2,145 397 786 1.4 32.3 4.8 15.3 42.1

493 2,116 3,596 1,315 702 1,341 2,043 449 744 1.6 34.4 5.0 16.6 42.2

133 1,722 2,932 1,229 319 1,219 1,538 257 714 1.4 20.8 5.6 18.8 46.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 770 Cochituate Road, Framingham, MA 01701-4666. Telephone: 508-390-1000. Website: http://www.tjx.com Chrmn: B. Cammarata

Pres & CEO: C.M. Meyrowitz EVP, CFO, Chief Admin Officer & Chief Acctg Officer: J.G. Naylor EVP, Secy & General Counsel: A. McCauley Investor Contact: S. Lang (508-390-2323)

Board Members: J. B. Alvarez, A. Bennett, D. A. Brandon, B. Cammarata, D. T. Ching, M. Hines, A. B. Lane, C. M. Meyrowitz, J. F. O'Brien, W. B. Shire, F. H. Wiley

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1956 Domicile: Delaware Employees: 154,000

Stock Report | October 23, 2010 | NYS Symbol: TMK | TMK is in the S&P 500

Torchmark Corp S&P Recommendation SELL

★★★★★

Price $55.37 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $47.00

Investment Style Large-Cap Blend

Summary This financial services company derives most of its earnings from its life and health insurance operations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.54– 39.61 Trailing 12-Month EPS $5.57 Trailing 12-Month P/E 9.9 $10K Invested 5 Yrs Ago $11,270

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.30 6.75 8.8 80.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.66 4 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

30 20

Vol. 13

MEDIUM

HIGH

Our risk assessment reflects our view of the company's below peer average capital cushion and potential for further investment losses and adverse credit migration in its fixed income portfolio. This is offset by TMK's varied product lineup and limited exposure to structured investments. Also, we think TMK generates strong cash flow and statutory earnings and uses excess cash flow to pay its dividend and repurchase shares.

40

Mil.

LOW

Below Avg.

60

19

6 4 2 0 5

$4.475 1.16 $0.64 77

Quantitative Evaluations S&P Quality Ranking 3

2

D

C

B-

A B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

MODERATE

2010

58 Options: ASE

LOWEST = 1

HIGHEST = 99

Analysis prepared by Bret Howlett on August 02, 2010, when the stock traded at $ 54.38. Highlights ➤

➤

We forecast that total life sales will increase 8%-9% in 2010, on higher producing agent counts and strong results from the American Income Agency channel, tempered by poor consumer confidence and a decline in LNL Agency sales. We expect sales at American Income to increase 15%-20%, although we are concerned about agent retention. We expect life underwriting margins to increase 9%-10% in 2010 on solid premium growth, favorable mortality, lower commission expense and improved persistency. We see sluggish sales growth in direct response, although that segment should benefit from improved claims costs. We expect health segment sales to continue to decline in 2010 as TMK de-emphasizes that business. However, we forecast strong sales of medical supplemental products. We believe new health business written will improve margins, but we do not anticipate underwriting margin expansion until early next year. We think administrative expenses will likely grow 2%-3%.

Investment Rationale/Risk ➤

➤

➤ ➤

We forecast EPS of $6.30 for 2010 and $6.75 for 2011. Our estimates exclude realized investment gains or losses.

Although TMK generates solid cash flow, produces consistent earnings, and is repurchasing its shares, we believe the company's growth prospects are relatively weak versus the group. We view positively TMK's reducing its below investment grade bonds to 8% of total fixed maturities, from 15% at the end of the second quarter of 2009, although we expect elevated investment losses, and capital charges stemming from adverse credit migration, to weigh on TMK's stock. In addition, we believe fundamentals in the health business are poor and expect lower health income to remain a drag on earnings. At current levels, we believe the shares are overvalued, as they trade at a sizable premium to the group on a price-to-book value basis. Risks to our recommendation and target price include lower than expected investment losses, less competition for some products, lower loss ratios for TMK's Medicare Part D business, and favorable mortality experience. Our 12-month target price of $47 is based on 1.0X our 2010 book value estimate, in line with the peer group average, but below historical levels.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 874.8 865.0 2009 809.6 819.7 2008 872.4 860.5 2007 906.0 876.6 2006 857.0 869.1 2005 783.0 804.8

3Q -784.9 753.4 863.6 837.9 769.0

4Q -808.2 840.6 840.5 857.1 769.1

Year -2,687 2,758 3,487 3,421 3,126

Earnings Per Share ($) 2010 1.46 1.53 2009 0.91 1.38 2008 1.29 1.47 2007 1.37 1.32 2006 1.16 1.26 2005 1.09 1.25

E1.61 1.22 0.72 1.41 1.28 1.14

E1.58 1.36 1.61 1.41 1.43 1.21

E6.30 4.88 5.11 5.50 5.13 4.68

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150 0.150 0.160

10/23 03/01 06/24 08/12

01/04 03/30 06/30 09/29

01/06 04/02 07/02 10/02

02/01/10 04/30/10 07/30/10 11/01/10

Dividends have been paid since 1933. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TMK

Torchmark Corp Business Summary August 02, 2010 CORPORATE OVERVIEW. TMK's subsidiaries offer a full line of nonparticipating ordinary individual life products and health insurance, as well as fixed and variable annuities (VAs), although its VA offering is small. Traditional whole life insurance constituted 61% of life insurance in force at the end of 2009 as measured by annualized premiums, interest-sensitive whole life 5.9%, term life 30%, and other life products 3.5%. Medicare supplemental insurance accounted for 46% of supplemental health insurance in force at the end of 2009, as measured by annualized premiums, limited-benefit plans 35%, and Medicare Part D 19%. The number of individual health policies in force (excluding Medicare Part D) was 1.66 million at December 31, 2009, versus 1.54 million at prior year-end. Medicare Part D enrollees to begin the 2010 plan year were 158,000 at December 31, 2009, and the company believes enrollees are not expected to increase for the 2010 plan. Annuity separate account assets totaled $793.0 million at December 31, 2009, up nearly 4.6% from the yearearlier level. Life segment premium revenue accounted for 62% of total premium revenue in 2009 (59% in 2008), the health segment 38% (41%), and the annuity segment 0.4% (0.5%).

distribution system. Distribution is through direct solicitation, independent agents, and exclusive agents. The Liberty National exclusive agency markets products to middle-income families in the Southeastern U.S. through full-time sales representatives. In 2009, TMK combined its United American Agency Branch with its Liberty National Exclusive Agency and focused the combined sales force on writing life and supplemental health products in middle income markets. The United American branch office agency focused on health insurance to over-age-50 individuals through exclusive producing agents. The American Income exclusive agency focuses on members of labor unions, credit unions, and other associations in the U.S., Canada and New Zealand. The United Investors agency markets to middle-income Americans through independent agents. The military agency consists of a nationwide independent agency comprised of former commissioned and noncommissioned military officers who sell exclusively to military officers and their families. The United American independent agency focuses primarily on health insurance in the U.S. and Canada to individuals over the age of 50.

CORPORATE STRATEGY. A key corporate strategy for TMK is to improve its Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 77.55 NA 4.88 6.08 0.42 9% 47.25 16.16 10 3

2008 19.52 NA 5.11 5.81 0.69 14% 66.00 26.27 13 5

2007 31.74 NA 5.50 5.35 0.52 9% 70.54 58.50 13 11

2006 31.39 NA 5.13 5.07 0.48 9% 64.59 53.91 13 11

2005 29.49 NA 4.68 4.29 0.44 9% 57.50 50.05 12 11

2004 28.16 NA 4.25 4.03 0.44 10% 57.57 44.61 14 10

2003 25.39 3.87 3.73 3.68 0.38 10% 45.75 33.00 12 9

2002 20.91 3.51 3.18 3.39 0.36 11% 42.17 30.02 13 9

2001 17.24 3.12 3.11 2.73 0.36 12% 43.25 32.56 14 10

2000 14.34 2.85 2.82 NA 0.36 13% 41.19 18.75 15 7

152,525 1,660 1,018 675 3,222 660 NA 405 505

147,780 1,617 1,127 671 3,327 715 NA 452 514

145,349 1,570 1,237 649 3,487 797 NA 528 514

141,134 1,524 1,238 629 3,421 774 NA 519 512

139,233 1,468 1,015 603 3,126 732 NA 495 455

134,640 1,396 1,049 577 3,072 721 NA 476 452

126,737 1,246 1,034 557 2,931 655 446 430 424

118,660 1,221 1,019 519 2,738 580 424 383 408

113,055 1,144 1,011 492 2,707 597 393 391 343

108,319 1,082 911 472 2,516 553 365 362 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 411 Premiums Due 197 Investment Assets:Bonds 9,696 Investment Assets:Stocks 16.7 Investment Assets:Loans 384 Investment Assets:Total 10,507 Deferred Policy Costs 3,457 Total Assets 16,024 Debt 796 Common Equity 3,399 % Return on Revenue 12.6 % Return on Assets 2.7 % Return on Equity 14.4 % Investment Yield 7.1

223 152 7,817 16.3 360 8,489 3,395 13,529 499 2,223 13.6 3.1 16.2 7.3

193 96.8 9,226 21.3 344 9,772 3,159 15,241 598 3,325 15.1 3.5 15.6 6.7

185 78.8 9,127 41.2 329 9,703 2,956 14,980 598 3,459 15.2 3.5 15.1 6.5

178 67.3 8,837 48.0 317 9,649 2,768 14,769 353 3,433 15.8 3.4 14.5 6.3

164 73.4 8,715 36.9 338 9,405 2,506 14,252 540 6,840 15.5 3.4 7.1 6.4

155 80.7 8,103 57.4 704 8,795 2,330 13,461 693 3,240 14.7 3.3 14.1 6.7

140 70.4 7,194 24.5 401 7,784 2,184 12,361 552 2,851 14.0 3.1 14.3 7.0

129 67.5 6,526 0.57 393 7,154 2,066 12,428 681 2,497 14.4 3.1 16.6 7.2

154 75.0 5,950 0.54 374 6,471 1,942 12,963 366 2,202 14.4 2.9 17.2 7.5

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3700 S Stonebridge Dr, McKinney, TX 75070-5934. Telephone: 972-569-4000. Website: http://www.torchmarkcorp.com Chrmn & CEO: M.S. McAndrew

EVP & CFO: G.L. Coleman EVP & Chief Admin Officer: V.D. Herbel EVP & General Counsel: L.M. Hutchison Chief Acctg Officer: D.H. Almond

Investor Contact: J.L. Lane (972-569-3627) Board Members: C. E. Adair, D. L. Boren, J. M. Buchan, R. W. Ingram, M. S. McAndrew, L. W. Newton, S. R. Perry, D. M. Rebelez, L. Smith, P. J. Zucconi

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1900 Domicile: Delaware Employees: 3,505

Stock Report | October 23, 2010 | NYS Symbol: TSS | TSS is in the S&P 500

Total System Services Inc. S&P Recommendation HOLD

★★★★★

Price $15.98 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $17.00

Investment Style Large-Cap Growth

Summary This company processes data, transactions, and payments for domestic and international issuers of credit, debit, commercial, and private-label cards.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $17.75– 13.41 Trailing 12-Month EPS $1.10 Trailing 12-Month P/E 14.5 $10K Invested 5 Yrs Ago $9,278

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.98 1.05 16.3 197.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.155 1.75 $0.28 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.99 8 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that the company is navigating past a difficult period with sizable customer losses. We continue to view TSS as a leading provider of card processing services, but we expect the environment to improve gradually as organic growth remains modest.

30

20 15

10

Quantitative Evaluations

Vol. 23

Mil. 18

9 6 3 0 5

S&P Quality Ranking D

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Zaineb Bokhari on October 22, 2010, when the stock traded at $ 15.77. Highlights We forecast operating revenues (before reimbursable items) of $1.4 billion in 2010, about 2% greater than 2009, aided by contributions from a recent joint venture with First National Bank of Omaha. We think TSS sees growth opportunities in international markets, but we look for this to be offset by year-over-year declines in domestic operations, attributable to slowing internal growth, customer loss, price erosion, and the domestic economy. We forecast growth of about 5% for operating revenues in 2011. We see total revenue rising 2% and 4% in 2010 and 2011, respectively. We look for operating margins to narrow to approximately 18.5% in 2010, from 20.3% in 2009 (on a restated basis), reflecting our outlook for lower North American Services revenues and anticipated shifts in TSS's customer base, which the company is responding to with planned headcount and expense reductions. We expect ongoing investment in international operations to limit benefits from anticipated expense reductions. We see modestly wider operating margins in 2011 reflecting our revenue growth outlook. We see EPS of $0.98 in 2010 and $1.05 in 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, Ph

➤

AB

68 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

TSS continues to navigate through a difficult period for its financial institution customers, some of whom experienced considerable financial losses in the recent recession. In this environment and after the recent credit card regulation, card issuance has declined and issuers have purged inactive consumer card accounts. Business has also been lost due to client consolidation. TSS continues to add new customers, but we think the revenue hole created by recent business losses will be replaced slowly. We see TSS continuing to manage costs until the economic recovery becomes firmer, but as it expands overseas, we expect investment. Risks to our recommendation and target price include greater competition from other payment processors, and an increased potential for business disruptions or loss due to ongoing industry consolidation. We expect the pace of economic recovery and the prevailing regulatory environment to impact card growth. We derive our 12-month target price of $17 by applying a 16.4 P/E to our 2011 estimate, consistent with the recent average for data processing and outsourced services peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 415.4 433.8 2009 408.9 412.0 2008 461.7 483.1 2007 429.6 460.2 2006 412.3 429.2 2005 350.0 410.2

3Q -432.3 500.4 457.6 441.8 422.0

4Q -434.8 493.4 458.5 503.9 420.7

Year -1,688 1,939 1,806 1,787 1,603

Earnings Per Share ($) 2010 0.26 0.25 2009 0.26 0.27 2008 0.29 0.32 2007 0.29 0.33 2006 0.26 0.29 2005 0.23 0.26

E0.24 0.29 0.33 0.35 0.28 0.24

E0.24 0.31 0.34 0.23 0.44 0.25

E0.98 1.12 1.27 1.20 1.26 0.99

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.070 0.070 0.070 0.070

12/08 02/25 06/01 08/26

12/21 03/16 06/15 09/14

12/23 03/18 06/17 09/16

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1990. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TSS

Total System Services Inc. Business Summary October 22, 2010 CORPORATE PROFILE. Total System Services provides electronic payment processing, merchant processing and associated services to financial and non-financial institutions in the U.S., Canada, Mexico, Europe, and the Caribbean. Electronic payment processing services are generated primarily from charges based on the number of accounts on file, transactions and authorizations processed, statements mailed, and other processing services for cardholder accounts on file. These services are provided to issuers of consumer credit, debit, retail, stored value cards as well as government services and commercial card accounts. As of December 2009, TSS had 344.8 million accounts on file, down from 352.5 million in 2008 and 375.5 million in 2007. The company divides its services into three operating segments: North America Services (60% of 2009 revenues), Global (or International) Services (20%), and Merchant Services (20%). PRIMARY BUSINESS DYNAMICS. TSS serves large financial institutions under long-term contracts. This results in revenue concentration that we view as a risk, since these large customers can be acquired, move to a competitor, or in some case, move processing of transactions in-house. In 2008, 2007 and 2006, the company's three largest customers contributed 32.4%, 32.4% and 39.2%, respectively, of total revenues. In 2006, Bank of America moved

processing on its consumer card portfolio of about 46 million accounts inhouse. In 2007, customer JPMorgan Chase ended its outsourcing agreement with TSS and moved its processing in-house, using a system licensed from TSS. Recent consolidation among financial institutions involving TSS clients include JPMorgan's acquisition of Washington Mutual Bank and Wells Fargo's acquisition of TSS client Wachovia. In 2009, Bank of America accounted for 12.9% of TSS's total revenues. MARKET PROFILE. The domestic market for third-party card processing is fairly concentrated, with three vendors serving most of the national market. In 2008, TSS believed that 42% of the domestic credit card processing was done using its systems. The company includes cards that are processed in-house, but using software licensed from TSS in this assessment of market share. In 2009, the comparable market share number was 19%, reflecting business losses. TSS's market share was 42% in 2007, 39% in 2006 and 2005 and 21% in 2004.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.04 1.83 1.12 1.12 0.28 25% 17.71 11.33 16 10

2008 3.07 1.53 1.27 1.27 0.28 22% 28.19 10.36 22 8

2007 3.51 1.44 1.20 1.20 3.31 NM 35.05 24.35 29 20

2006 5.40 2.20 1.26 1.26 0.27 21% 26.61 17.87 21 14

2005 4.49 1.75 0.99 0.95 0.22 22% 25.88 17.76 26 18

2004 4.01 1.31 0.76 0.74 0.14 18% 31.27 19.47 41 26

2003 3.57 1.21 0.71 0.69 0.08 11% 31.50 13.25 44 19

2002 3.06 1.01 0.64 0.60 0.07 11% 29.44 11.01 46 17

2001 2.57 0.82 0.53 0.51 0.06 11% 35.84 18.91 68 36

2000 2.10 0.70 0.44 NA 0.05 11% 22.75 14.88 52 34

1,688 481 156 4.10 346 35.1% 220 219

1,939 433 50.5 11.3 383 34.4% 250 250

1,806 415 47.1 3.13 383 37.5% 237 237

1,787 542 185 0.57 376 33.6% 249 249

1,603 438 151 0.37 298 34.7% 195 188

1,187 311 109 0.94 228 33.9% 151 145

1,053 289 98.4 Nil 212 33.4% 141 136

955 232 74.5 1.10 184 31.5% 126 119

650 193 57.4 Nil 156 33.9% 103 99.5

601 164 51.6 Nil 132 35.0% 85.6 NA

Balance Sheet & Other Financial Data (Million $) Cash 450 Current Assets 811 Total Assets 1,711 Current Liabilities 221 Long Term Debt 192 Common Equity 1,176 Total Capital 1,389 Capital Expenditures 34.0 Cash Flow 359 Current Ratio 3.7 % Long Term Debt of Capitalization 13.9 % Net Income of Revenue 13.1 % Return on Assets 13.5 % Return on Equity 20.3

220 625 1,539 249 210 989 1,260 48.0 301 2.5 16.7 12.9 16.6 27.3

240 587 1,479 274 257 844 1,177 55.3 285 2.1 21.8 13.2 15.3 23.0

389 745 1,634 296 3.63 1,217 1,296 26.5 434 2.5 0.3 13.9 16.4 22.3

238 512 1,411 277 3.56 1,013 1,106 40.9 346 1.8 0.3 12.1 14.4 20.7

232 448 1,282 278 4.51 865 1,004 53.9 259 1.6 0.4 12.7 13.2 18.9

123 274 1,001 147 29.7 733 854 125 239 1.9 3.5 13.4 15.8 21.1

113 266 783 114 0.07 602 668 14.8 200 2.3 0.0 13.2 17.5 22.7

56.0 206 652 103 Nil 501 550 30.8 160 2.0 Nil 15.8 16.4 22.6

80.1 211 604 147 Nil 409 446 31.8 137 1.4 Nil 14.2 16.0 23.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: One TSYS Wy, Columbus, GA 31902. Telephone: 706-649-2267. Email: [email protected] Website: http://www.tsys.com

Chrmn & CEO: P.W. Tomlinson Pres & COO: M.T. Woods EVP & CFO: J.B. Lipham EVP & CTO: S.W. Humber

EVP, Chief Acctg Officer & Cntlr: D.K. Weaver Investor Contact: S. Roberts (706-644-6081) Board Members: R. E. Anthony, J. H. Blanchard, R. Y. Bradley, K. Cloninger, III, W. W. Driver, Jr., G. W. Garrard, Jr., S. E. Harris, M. H. Lampton, W. W. Miller, Jr., H. L. Page, P. W. Tomlinson, J. T. Turner, R. W. Ussery, M. T. Woods, J. D. Yancey, R. K. Yarbrough

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1982 Domicile: Georgia Employees: 7,620

Stock Report | October 23, 2010 | NYS Symbol: TRV | TRV is in the S&P 500

Travelers Companies Inc (The) S&P Recommendation STRONG BUY

★★★★★

Price $55.10 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $65.00

Investment Style Large-Cap Value

Summary Formed via the 2004 merger of Travelers Property Casualty Corp. and Saint Paul Cos., TRV is a leading provider of commercial property-liability and homeowners and auto insurance.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $55.70– 47.35 Trailing 12-Month EPS $6.66 Trailing 12-Month P/E 8.3 $10K Invested 5 Yrs Ago $14,269

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.85 6.25 9.4 470.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$25.896 2.61 $1.44 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.58 3 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of TRV as a leading property-casualty underwriter with a diversified mix of business and sound capital management practices. Offsetting this is our view that TRV may have to add to loss reserves for certain "long tail" liability lines of coverage, and could see impairments to its fixed income investment portfolio.

60 50 40

30

Vol.

Quantitative Evaluations

Mil. 30 20 10 0 5

S&P Quality Ranking 4

3

4

D

5

C

B-

NR B

B+

A-

A

Relative Strength Rank

1

MODERATE 68

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

➤

➤

➤

We expect earned premium growth of 1% to 3% in 2010 and in 2011, versus a fractional decline in 2009. This reflects our view of ongoing price competition in many core lines and the impact of a weak economic climate in 2009. Our forecast of modestly higher premiums in coming periods is predicated on a modest economic recovery, coupled with TRV's ability to retain its existing client base and leverage new business opportunities. We believe net investment income trends will be mixed in 2010, as a recovery in the non fixedincome portfolio is offset by pressure in the fixed income portfolio due to lower reinvestment rates. We estimate operating EPS of $5.85 in 2010 and $6.25 in 2011, versus $6.29 in 2009. Our 2010 estimate assumes that underwriting results will remain under pressure (but remain profitable) due to competitive pricing pressures and a resumption of "normal" catastrophe loss trends. We also assume per-share results will continue to be aided by share buybacks, which totaled 69.4 million during 2009 and 66.8 million in the first nine months of 2010.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Cathy A. Seifert on October 21, 2010, when the stock traded at $ 54.78. Highlights

A+

Although our outlook remains tempered by concerns we have that both the underwriting and investment environments will remain challenging through 2010 and possibly into 2011, we believe TRV's shares do not adequately reflect the actions the company has taken in recent years to improve its underwriting results and to better capitalize on what we see as a flight to quality within the property-casualty insurance market. We also view TRV as a prudent underwriter with an above-average quality balance sheet. Risks to our recommendation and target price include deterioration in asbestos and environmental claims and reserve development, erosion in underwriting trends, a surge in catastrophe losses, and erosion in the credit quality of TRV's investment portfolio. Our 12-month target price of $65 assumes a multiple of 10.4X our 2011 operating EPS estimate. Our target multiple reflects our assumption that TRV shares will trade at the midpoint of their historical valuation range, but at a premium to some peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 6,119 6,179 2009 5,735 6,162 2008 6,232 6,295 2007 6,427 6,612 2006 6,050 6,255 2005 6,105 6,037

3Q -6,327 6,145 6,526 6,316 6,042

4Q -6,456 5,805 6,491 6,469 6,181

Year -24,680 24,477 26,017 25,090 24,365

Earnings Per Share ($) 2010 1.25 1.35 2009 1.11 1.27 2008 1.54 1.54 2007 1.56 1.86 2006 1.41 1.36 2005 1.25 1.33

E1.81 1.65 0.36 1.81 1.47 0.11

E1.43 2.36 1.35 1.64 1.68 0.26

E5.85 6.33 4.82 6.86 5.91 2.95

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.330 0.330 0.360 0.360

10/22 02/03 04/23 08/04

12/08 03/08 06/08 09/08

12/10 03/10 06/10 09/10

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 2003. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TRV

Travelers Companies Inc (The) Business Summary October 21, 2010 CORPORATE OVERVIEW. The Travelers Companies (TRV) is a leading property-casualty underwriter. Net written premiums of $21.3 billion in 2009 (versus $21.7 billion in 2008) were divided as follows: business insurance 51%; personal lines 34%; and financial, professional and international lines 15% (all of which were not significantly different from the business mix in 2008).

in the U.K., Canada and Ireland. Net written premiums of $3.3 billion in 2009 (versus $3.5 billion in 2008) were divided as follows: general liability 28%, fidelity and surety 30%, international 38%, and other 4%. Underwriting results in this segment deteriorated slightly in 2009. As a result, the combined (loss and expense) ratio equaled 88.1% in 2009, versus 87.2% in 2008.

The business insurance lines segment offers a broad array of coverages distributed through about 6,300 independent brokers and agencies in the U.S. Business insurance net written premiums of $10.9 billion in 2009 were divided as follows: commercial multi-peril 27%, workers' compensation 23%, commercial automobile 18%, commercial property 16%, and general liability and other 16%. This segment's underwriting results in 2009 improved largely due to a decline in catastrophe losses. The combined loss and expense ratio declined to 86.1% in 2009 (consisting of a loss ratio of 53.9% and an expense ratio of 32.2%), from 90.2% in 2008 (consisting of a loss ratio of 57.7% and an expense ratio of 32.5%).

The personal lines segment underwrites an array of coverage for personal risks (primarily personal automobile and homeowners' coverage) via a network of independent agencies. Net premiums written of $7.1 billion in 2009 were divided as follows: personal auto 51%, and homeowners' and other 49%. At year-end 2009, the personal lines segment had approximately 7.5 million policies in force (consisting primarily of personal auto and homeowners' insurance policies). Underwriting results in 2009 improved, largely due to a decline in the level of catastrophe losses, partly offset by a rise in noncatastrophe loss costs. Consequently, the combined ratio in 2009 was 94.6%, versus 97.0% in 2008.

The financial, professional and international lines segment underwrites a number of specialized lines of business, including lines of coverage related to the surety bond business, the construction industry, and certain types of professional and managerial liability. This unit operates throughout the U.S. and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 48.03 NA 6.33 6.25 1.23 19% 54.47 33.07 9 5

2008 36.08 NA 4.82 5.10 1.19 25% 58.57 28.91 12 6

2007 35.56 NA 6.86 6.67 1.13 16% 56.99 47.26 8 7

2006 31.85 NA 5.91 5.87 1.01 17% 55.00 40.23 9 7

2005 25.66 NA 2.95 2.87 0.91 31% 46.97 33.70 16 11

2004 20.93 NA 1.53 1.50 0.74 48% 43.31 16.55 28 11

2003 9.52 NA 1.68 3.71 0.28 17% 17.42 12.98 10 8

2002 10.29 NA 0.23 0.14 Nil Nil 19.50 12.09 85 53

2001 6.66 NA 1.06 2.42 NA NA NA NA NA NA

2000 NA NA 1.71 NA NA NA NA NA NA NA

21,418 2,776 486 24,680 4,711 NA 3,622 3,548

21,579 2,792 106 24,477 3,716 NA 2,924 3,087

21,470 3,761 825 26,017 6,216 NA 4,601 4,464

20,760 3,517 813 25,090 5,725 NA 4,208 4,171

20,341 3,165 859 24,365 2,671 NA 2,061 2,001

19,038 2,663 20,271 22,934 1,128 NA 955 937

12,545 1,869 725 15,139 2,229 NA 1,696 1,615

11,155 1,881 1,234 14,270 -260 NA 216 41.1

9,411 2,034 786 12,231 1,389 NA 1,062 803

NA NA NA 11,071 1,864 NA 1,312 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 1,080 Premiums Due 5,471 Investment Assets:Bonds 65,847 Investment Assets:Stocks 451 Investment Assets:Loans Nil Investment Assets:Total 74,403 Deferred Policy Costs 1,758 Total Assets 109,824 Debt 6,527 Common Equity 27,336 Property & Casualty:Loss Ratio 57.3 Property & Casualty:Expense Ratio 31.9 Property & Casualty Combined Ratio 89.2 % Return on Revenue 14.7 % Return on Equity 13.8

1,173 5,954 61,275 379 Nil 70,199 1,774 109,751 6,181 25,230 59.4 32.5 91.9 12.0 11.3

1,132 6,142 64,920 488 Nil 74,818 1,809 115,224 6,242 26,504 56.6 30.8 87.4 17.8 17.9

1,286 6,181 62,666 476 Nil 72,268 1,615 113,761 4,588 25,006 57.5 30.6 88.1 20.3 17.8

1,098 6,124 58,983 579 145 68,287 1,527 113,187 5,850 33,077 71.9 29.4 101.3 8.5 6.3

933 6,201 54,256 791 191 64,710 1,559 111,815 5,709 32,323 NA NA 107.7 4.2 3.7

714 4,090 33,046 733 211 38,652 925 64,872 2,675 11,987 NA NA 96.9 11.2 15.3

432 3,861 30,003 852 258 38,425 873 64,138 2,744 10,137 NA NA 117.4 1.6 NA

865 NA NA NA 32,843 32,619 NA 57,599 3,755 9,729 80.7 27.3 108.0 8.7 10.7

196 NA NA NA NA 30,754 NA 53,850 NA 9,214 NA NA 100.2 11.9 NA

Income Statement Analysis (Million $) Premium Income Net Investment Income Other Revenue Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 385 Washington Street, Saint Paul, MN 55102. Telephone: 651-310-7911. Website: http://www.stpaultravelers.com Chrmn & CEO: J.S. Fishman

Pres & COO: B.W. MacLean EVP & Chief Admin Officer: A. Bessette EVP & Treas: M. Olivo EVP & General Counsel: A.D. Schnitzer

Investor Contact: M. Parr (860-277-0779) Board Members: A. L. Beller, J. H. Dasburg, J. M. Dolan, K. M. Duberstein, J. S. Fishman, L. G. Graev, P. L. Higgins, T. R. Hodgson, C. L. Killingsworth, Jr., B. J. McGarvie, D. J. Shepard, L. J. Thomsen

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Auditor: KPMG LLP Founded: 1853 Domicile: Minnesota Employees: 32,000

Stock Report | October 25, 2010 | NNM Symbol: TROW | TROW is in the S&P 500

T. Rowe Price Group Inc S&P Recommendation HOLD

★★★★★

Price $54.69 (as of Oct 25, 2010)

GICS Sector Financials Sub-Industry Asset Management & Custody Banks

12-Mo. Target Price $55.00

Investment Style Large-Cap Growth

Summary This company (formerly T. Rowe Price Associates) operates one of the largest no-load mutual fund complexes in the United States.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.44– 42.81 Trailing 12-Month EPS $2.39 Trailing 12-Month P/E 22.9 $10K Invested 5 Yrs Ago $19,057

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.48 2.72 22.1 26.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$1.447 1.97 $1.08 69

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.71 26 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's strong market share and our view of its consistent net client inflows and impressive relative investment performance, offset by industry cyclicality.

60

40 30

Quantitative Evaluations

20

S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

C

B-

AB

B+

A-

A

Relative Strength Rank

A+ STRONG

79 4

3

LOWEST = 1

3

2

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Christopher Maimone on October 25, 2010, when the stock traded at $ 54.96. Highlights ➤

➤

➤

Recent stock market appreciation and increased advisory fees drove strong third quarter revenues as assets under management grew at a faster pace than peers. We look for continued robust flows into TROW's target-date retirement and fixed income funds as baby boomers approach retirement and retail investors remain concerned about economic growth. We see TROW's robust net sales continuing as strong marketing and a growing international presence attract more inflows. We think the pretax margin will rise modestly in 2011, even as TROW boosts advertising and promotion spending by 40%. We think TROW's investment to strengthen its already strong brand will bolster mutual fund inflows. Assuming economic conditions improve, we see operating margins widening in 2011 to roughly 46.9%, from our 2010 estimate of 44.9%. We see future compensation expense and advertising expense ratios below historical norms as advisory fee and net inflow revenue growth converge to offset growth in expenses. We project EPS of $2.48 in 2010 and $2.72 in 2011.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We believe TROW's relative investment performance is strong, with 89%, 86% and 71% of funds outperforming their comparable Lipper averages on a one-, three- and five-year performance basis. We think this will help attract client assets into its mutual funds and separately managed accounts as market conditions improve. We also view favorably its low debt levels, consistent dividend payout and continued share repurchases. We view TROW's stock option grants as generous, especially given reductions at competitors, and we would like to see more independent directors on the board. Risks to our recommendation and target price include stock and bond market depreciation, heightened regulatory scrutiny, and increased competition. Our 12-month target price of $55 assumes a multiple of 20.2X our 2011 EPS estimate of $2.72. We value TROW at a premium to its peer multiple of 14X to reflect our view of TROW's low debt levels, strong relative fund performance, and an asset mix that favors equities in an improving market environment.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 556.2 577.4 2009 384.5 442.2 2008 560.4 587.7 2007 508.4 551.1 2006 429.3 446.0 2005 358.0 364.5

3Q 586.1 498.1 555.9 571.0 450.6 389.6

4Q -542.6 417.3 597.8 489.1 403.8

Year -1,872 2,121 2,233 1,819 1,516

Earnings Per Share ($) 2010 0.57 0.59 2009 0.19 0.38 2008 0.55 0.60 2007 0.51 0.58 2006 0.42 0.49 2005 0.35 0.38

0.64 0.50 0.56 0.63 0.46 0.43

E0.68 0.57 0.09 0.68 0.53 0.43

E2.48 1.65 1.82 2.40 1.90 1.58

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.270 0.270 0.270 0.270

02/18 06/03 09/03 10/18

03/12 06/10 09/10 12/10

03/16 06/14 09/14 12/14

03/29/10 06/28/10 09/28/10 12/28/10

Dividends have been paid since 1986. Source: Company reports.

Stock Report | October 25, 2010 | NNM Symbol: TROW

T. Rowe Price Group Inc Business Summary October 25, 2010 CORPORATE OVERVIEW. T. Rowe Price Group (TROW) is the successor to an investment counseling business formed by the late Thomas Rowe Price, Jr. in 1937. It is now the investment adviser to the T. Rowe Price family of no-load mutual funds, and is one of the largest publicly held U.S. mutual fund complexes. At the end of 2009, TROW had about $391 billion in assets under management, up from $276 billion at the end of 2008, but still below the $400 billion under management at the end of 2007. As of year-end 2009, 74% of assets under management were invested in stock and blended asset portfolios, and 26% were invested in bond and money market portfolios. T. Rowe Price offers mutual funds and separate accounts that employ a broad range of investment styles, including growth, value, sector-focused, taxefficient, and quantitative index-oriented approaches. The company's investment approach is based upon a strong commitment to proprietary research, sophisticated risk-management processes, and a strict adherence to stated investment objectives. The company employs both fundamental and quantitative methods in performing security analyses, using internal equity and fixed income investment research capabilities. We believe T. Rowe Price's broad

line of no-load mutual funds makes it easy for investors to reallocate assets among funds (which is not the case at some smaller fund companies), contributing to increased client retention. All of the company's Investor class funds are sold without a sales commission, known as no-load funds. Its Advisors and R class funds, distributed through third-party financial intermediaries, carry 12b-1 fees to cover distribution costs. TROW also manages private accounts for individuals and institutions. Revenues primarily come from investment advisory fees for managing portfolios, which depend largely on the total value and composition of assets under management. At December 31, 2009, the six largest Price funds -Growth Stock, Equity Income, Mid-Cap Growth, Blue Chip Growth, Value, and Capital Appreciation -- accounted for 26% of investment advisory revenues in 2009 and 21% of assets under management.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.57 1.90 1.65 1.72 1.00 61% 55.48 20.09 34 12

2008 7.09 2.05 1.82 2.03 0.96 53% 70.20 24.26 39 13

2007 7.97 2.60 2.40 2.40 0.75 31% 65.46 44.59 27 19

2006 6.63 2.07 1.90 1.90 0.59 31% 48.50 34.87 26 18

2005 5.21 1.80 1.58 1.43 0.49 31% 37.70 27.10 24 17

2004 3.98 1.48 1.26 1.16 0.40 32% 31.70 21.92 25 17

2003 2.66 1.11 0.89 0.78 0.35 40% 23.80 19.19 27 22

2002 1.91 0.96 0.76 0.67 0.33 43% 21.35 10.63 28 14

2001 1.68 20.71 0.76 0.65 0.31 40% 21.97 11.72 29 15

2000 1.21 1.33 1.04 NA 0.27 26% 24.97 15.03 24 14

Income Statement Analysis (Million $) Income Interest Income Other Total Income General Expenses Interest Expense Depreciation Net Income S&P Core Earnings

7.00 1,865 1,872 1,101 4.50 65.2 434 451

6.40 2,115 2,121 1,206 5.00 61.7 491 548

5.90 2,227 2,233 1,179 4.80 54.0 671 671

5.40 1,814 1,819 982 4.30 47.0 530 530

4.28 1,512 1,516 814 4.03 42.0 431 391

3.78 1,277 1,280 638 3.30 40.0 337 309

3.91 995 999 585 3.29 45.3 227 198

3.06 923 926 552 4.96 50.6 194 169

32.8 995 1,028 603 12.7 80.5 196 167

59.1 1,153 1,212 690 9.72 53.7 269 NA

Balance Sheet & Other Financial Data (Million $) Cash 743 Receivables 246 Cost of Investments 906 Total Assets 3,210 Loss Reserve Nil Short Term Debt Nil Capitalization:Debt Nil Capitalization:Equity 2,882 Capitalization:Total 2,882 Price Times Book Value:High 6.5 Price Times Book Value:Low 2.3 Cash Flow 499 % Expense/Operating Revenue 62.5 % Earnings & Depreciation/Assets 16.5

619 177 721 2,819 Nil Nil Nil 2,489 2,489 9.0 3.4 553 56.8 18.4

785 265 1,002 3,177 Nil Nil Nil 2,777 2,777 8.2 5.6 725 55.4 24.4

773 224 762 2,765 Nil Nil Nil 2,427 2,427 7.3 5.3 577 52.3 22.7

804 175 378 2,311 Nil Nil Nil 2,036 2,036 7.2 5.2 473 56.7 22.3

500 158 329 1,929 Nil Nil Nil 1,697 1,697 7.9 5.5 377 63.8 21.7

237 121 273 1,547 Nil Nil Nil 1,329 1,329 9.0 7.2 273 65.8 18.7

111 96.8 216 1,370 Nil Nil Nil 1,189 1,189 11.2 5.6 245 65.7 18.3

79.7 104 154 1,313 Nil Nil 104 1,078 1,181 13.1 7.0 276 67.8 19.9

80.5 131 250 1,469 Nil Nil 312 991 1,304 20.6 12.4 323 62.2 26.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 100 East Pratt Street, Baltimore, MD 21202. Telephone: 410-345-2000. Email: [email protected] Website: http://www.troweprice.com

Chrmn: B.C. Rogers Pres & CEO: J.A. Kennedy Vice Chrmn: E.C. Bernard CFO: K.V. Moreland

Chief Acctg Officer & Treas: J.M. Hiebler Founded: 1937 Board Members: E. C. Bernard, J. T. Brady, J. A. Domicile: Maryland Broaddus, Jr., D. B. Hebb, Jr., J. A. Kennedy, R. F. Employees: 4,802 MacLellan, B. C. Rogers, A. Sommer, D. S. Taylor, A. M. Whittemore

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TYC | TYC is in the S&P 500

Tyco International Ltd S&P Recommendation HOLD

★★★★★

Price $38.54 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Industrial Conglomerates

12-Mo. Target Price $40.00

Investment Style Large-Cap Blend

Summary Tyco split into three separate publicly traded companies in June 2007, with the company maintaining its former Fire & Security and Engineered Products divisions.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.61– 32.94 Trailing 12-Month EPS $2.23 Trailing 12-Month P/E 17.3 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.60 3.00 14.8 497.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.30 13 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as strong cash flow characteristics and high levels of recurring revenues in a number of Tyco's businesses. However, at the same time, we believe that many of Tyco's business segments are highly cyclical in nature.

200

80 40 20

$19.181 2.18 $0.84 88

1-for-4

Quantitative Evaluations Vol. 195

Mil.

159

30 20 10 0 5

S&P Quality Ranking D

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+

MODERATE

44

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Michael W. Jaffe on August 13, 2010, when the stock traded at $ 36.57. Highlights ➤

➤

➤

In April 2010, TYC announced plans to spin off its Electrical & Metal Products businesses. We will include the segment in our forecast until the transaction takes place, which is expected in the first half of FY 11 (Sep.). We see an 8% increase in revenues in FY 11, largely reflecting benefits that we see from the apparent start of a recovery in the global economy, and expected stabilization of U.S. housing markets. We also expect revenues to be aided by the full-year inclusion of Broadview Security (formerly Brink's Home Security), which was acquired in May 2010. We forecast improved margins in FY 11, aided largely by the expected start of a revival in demand for TYC's products and services. We also see profitability being aided by cost controls, and further incremental savings related to TYC's restructuring actions. Our FY 11 forecast compares with an FY 10 estimate that excludes total charges of $0.18 a share in the first nine months, mostly from restructuring activities and a loss on the extinguishment of debt. Operating EPS was $2.36 in FY 09.

Investment Rationale/Risk ➤

➤

➤

We think TYC's results will soon start to benefit from the likely ongoing recovery of the global economy. We also think Tyco's executive team is making solid decisions, including its May 2010 expansion of its electronic security business through the purchase of Brink's Home Security, and its plan to spin off its very volatile Electrical and Metal Products division. Yet, despite these mostly positive views, our valuation model finds the shares fairly valued. Risks to our opinion and target price include a resumption of the downturn in global economies, and a lack of success with TYC's current business initiatives. The stock recently traded at 12X our calendar 2011 EPS forecast of $3.09, in line with the S&P 500. We think this is near an appropriate level. We have positive views of TYC's actions over the past few years, and think major concerns were resolved by its class action settlement in June 2007. At the same time, we think mixed conditions in Tyco's various businesses will limit the level of its expected business rebound in the coming year. Based on these factors, our 12-month target price is $40, or about 13X our calendar 2011 forecast.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,246 4,169 2009 4,426 4,150 2008 4,870 4,866 2007 10,329 10,838 2006 9,603 10,093 2005 10,065 10,456

3Q 4,274 4,240 5,215 5,085 10,504 10,562

4Q -4,421 5,284 5,028 10,760 10,030

Year -17,237 20,199 18,781 40,960 39,727

Earnings Per Share ($) 2010 0.63 0.65 2009 0.57 -5.40 2008 0.74 0.56 2007 1.48 1.68 2006 1.56 2.08 2005 1.40 0.44

0.50 0.51 0.41 -6.13 1.72 2.24

E0.66 0.44 0.55 0.42 2.52 1.68

E2.60 -3.87 2.25 -5.09 7.88 6.04

Fiscal year ended Sep. 30. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.226 0.224 0.211 0.211

-12/10 07/08 09/09

10/28 01/27 07/28 10/27

10/30 01/29 07/30 10/29

11/24/09 02/24/10 08/25/10 11/23/10

Dividends have been paid since 1975. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TYC

Tyco International Ltd Business Summary August 13, 2010 CORPORATE OVERVIEW. At the close of trading on June 29, 2007, Tyco International divided its portfolio of businesses into three separate publicly traded companies. TYC maintained the units that had been part of its Fire & Security and Engineered Products & Services divisions, and spun off its Healthcare (now Covidien; COV) and Electronics (trading as Tyco Electronics; TEL) units. Tyco now divides its businesses into five separate segments, ADT Worldwide; Fire Protection Services; Flow Control; Safety Products; and Electrical and Metal Products. In April 2010, Tyco announced plans to spin-off its Electrical and Metals Products businesses; it expected to complete that transaction in the first half of FY 11 (Sep.). The company derived 52% of its revenues outside the U.S. in FY 09, with more than half of that total in the Europe, Middle East and Africa region. ADT Worldwide (41% of TYC's revenues in FY 09) sells, installs, services and monitors electronic security systems. The Fire Protection Services segment (20%) provides and services fire detection and fire suppression systems. Both ADT and Fire Protection serve commercial, industrial and governmental customers, while ADT also serves residential clients. Safety Products (9%) makes

fire protection, security and life safety products, including fire suppression products, breathing apparatus, intrusion security, access control and video management systems. Tyco expanded its ADT business through the May 2010 acquisition of Brink's Home Security Holdings (now operating as Broadview Security), a monitored North American security company (about $565 million of annual revenues), for a total of about $2.0 billion in cash and stock. The company's Flow Control division (22% of FY 09 revenues) manufactures and services valves, pipe fittings, valve automation and heat tracing products for the water and wastewater, oil, gas and other energy, and general process industries. The Electrical and Metal Products division (8%) makes steel tubing, armored wire and cable and other cable products, used primarily by trade contractors in the construction and modernization of non-residential structures.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.17 -1.48 -3.87 0.61 NM 37.33 17.25 NM NM

2008 2.84 4.61 2.25 0.35 16% 47.95 15.17 21 7

2007 2.49 -2.76 -5.09 1.90 NM 137.92 37.46 NM NM

2006 10.92 11.79 7.88 1.20 15% 127.44 98.60 16 13

2005 5.56 9.78 6.04 1.60 26% 146.32 102.64 24 17

2004 NM 9.35 5.64 0.20 4% 145.68 104.04 26 18

2003 NM 5.01 2.08 0.20 10% 108.72 44.80 52 22

2002 NM -2.09 -6.16 0.20 NM 235.24 27.92 NM NM

2001 NM 14.88 10.20 0.20 2% 252.84 156.96 25 15

2000 1.68 14.39 10.56 0.20 2% 236.75 128.00 22 12

17,237 2,570 1,133 301 -1,751 NM -1,833

20,199 3,324 1,154 396 1,431 23.4% 1,095

18,781 1,720 1,151 313 -2,181 NM -2,519

40,960 7,754 2,065 713 4,884 16.4% 4,075

39,727 7,637 2,100 815 4,192 23.5% 3,199

40,153 7,957 2,176 963 4,159 27.4% 3,005

36,801 5,568 1,472 1,148 1,803 42.4% 1,035

35,644 6,509 2,033 1,077 -2,811 NM -3,070

34,037 8,865 2,141 776 6,004 21.4% 4,671

28,932 7,393 1,644 845 6,465 29.8% 4,520

Balance Sheet & Other Financial Data (Million $) Cash 2,354 Current Assets 7,967 Total Assets 25,553 Current Liabilities 4,716 Long Term Debt 4,029 Common Equity 12,941 Total Capital 16,983 Capital Expenditures 709 Cash Flow -700 Current Ratio 1.7 % Long Term Debt of Capitalization 23.7 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

1,519 8,541 28,804 5,657 3,709 15,494 19,217 734 2,249 1.5 19.3 5.4 3.6 7.0

1,894 12,345 32,815 9,101 4,076 15,624 19,767 669 -1,368 1.4 20.6 NM NM NM

2,926 18,785 63,722 11,066 9,365 35,419 44,838 1,569 6,140 1.7 20.9 9.9 6.4 12.0

3,196 18,537 62,621 11,835 10,600 32,450 43,111 1,272 5,299 1.6 24.6 8.1 5.1 10.2

4,467 18,545 63,667 11,152 14,617 30,292 44,977 1,015 5,181 1.7 32.5 7.5 4.7 10.6

4,329 17,240 63,545 10,572 18,251 26,369 44,733 1,170 2,507 1.6 40.8 2.8 1.6 4.1

6,383 19,765 66,414 19,632 16,487 24,791 41,320 1,709 -1,037 1.0 39.9 NM NM NM

2,587 NA 111,287 NA 38,503 31,737 70,542 1,798 6,812 1.3 54.6 13.7 6.2 19.2

1,265 12,816 40,404 11,679 9,462 17,033 27,630 1,704 6,165 1.1 34.2 15.6 12.4 30.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: Freier Platz 10, Schaffhausen, Switzerland 8200. Telephone: 41 52 633 02 44. Email: [email protected] Website: www.tyco.com

Chrmn & CEO: E.D. Breen EVP & CFO: C.J. Coughlin EVP & General Counsel: J.A. Reinsdorf SVP, Chief Acctg Officer & Cntlr: C.A. Davidson

SVP & Treas: A. Nayar Founded: 1960 Investor Contact: E.C. Arditte (609-720-4621) Domicile: Bermuda Board Members: E. D. Breen, M. E. Daniels, T. M. Employees: 106,000 Donahue, B. Duperreault, B. S. Gordon, R. L. Gupta, J. Krol, B. R. O'Neill, W. S. Stavropoulos, S. S. Wijnberg, R. D. Yost

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: TSN | TSN is in the S&P 500

Tyson Foods Inc. S&P Recommendation STRONG BUY

★★★★★

Price $15.63 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Packaged Foods & Meats

12-Mo. Target Price $21.00

Investment Style Large-Cap Blend

Summary Tyson is one of the world's largest suppliers of beef, chicken and pork products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $20.57– 11.94 Trailing 12-Month EPS $0.32 Trailing 12-Month P/E 48.8 $10K Invested 5 Yrs Ago $9,332

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.06 2.00 7.6 377.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.17 UR BB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's cyclical operations, which can be significantly affected by exposure to commodity crop and meat markets, and regulations related to international trade.

20 15 10

Quantitative Evaluations

5

S&P Quality Ranking

Vol. Mil.

73

D

30 20 10 0 5

$4.805 1.02 $0.16 87

C

B-

BB

B+

A-

A

Relative Strength Rank

WEAK

20

5

4

3

A+

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Tom Graves, CFA on August 30, 2010, when the stock traded at $ 16.53. Highlights ➤

➤

➤

We look for sales of $29.3 billion in FY 11 (Sep.), up about 4% from the $28.4 billion that we project for FY 10, reflecting prospects for a more stable global economic environment and some improved pricing power. In FY 09, TSN's fiscal year had a 53rd week. In FY 11, with the prospect of higher grain feed costs and a possible rise in chicken industry production, we look for operating profit to decline about 5%, but for this to be partly offset by lower interest expense (excluding losses on FY 10 note repurchases). In FY 10, we expect the chicken segment profit margin to improve significantly from what it was in FY 09, at least partly due to the expiration of adverse commodity hedging contracts in mid-FY 09. Also, in FY 10, in both the beef and the pork segments, we look for wider margins and sizable profit improvement. We estimate FY 11 EPS of $2.00, down from the $2.06 that we project for FY 10, which excludes a net adverse impact of about $0.06 a share from special items in the first nine months of FY 10.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

Over time, we think TSN, as a major diversified protein supplier, is positioned to benefit from improving economic conditions, including rising incomes and changing diets in developing international markets. We also expect TSN's strategy to include a focus on expansion in value-added food products. We have some concern about the prospect of restrictions or tariffs on sales to Russia and China, but we look for TSN to benefit over time from changing diets in developing markets. Risks to our recommendation and target price include weaker-than-expected demand and prices, industry production that is higher than anticipated, and an adverse impact from currency exchange rate fluctuations. Our 12-month target price of $21 is based on our view that an outlook for improving economic environments, and expected rising demand for protein-related products, should help the stock to trade at a P/E of 10.4X our four-quarter forward EPS estimate of $2.01, which is a discount to the median such P/E in recent years.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 6,635 6,916 2009 6,521 6,307 2008 6,766 6,612 2007 6,558 6,501 2006 6,454 6,251 2005 6,452 6,359

3Q 7,438 66,620 6,849 6,958 6,383 6,708

4Q -7,214 7,201 6,883 6,471 6,495

Year -26,704 26,862 26,900 25,559 26,014

Earnings Per Share ($) 2010 0.44 0.42 2009 -0.30 -0.24 2008 0.10 -0.01 2007 0.16 0.20 2006 0.11 -0.37 2005 0.14 0.21

0.68 0.37 -0.01 0.31 -0.15 0.36

E0.50 -1.22 0.13 0.09 -0.15 0.28

E2.06 -1.47 0.24 0.75 -0.56 0.99

Fiscal year ended Sep. 30. Next earnings report expected: Late November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.040 0.040 0.040 0.040

11/23 02/04 05/06 08/04

02/25 05/27 08/30 11/29

03/01 06/01 09/01 12/01

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1976. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: TSN

Tyson Foods Inc. Business Summary August 30, 2010 CORPORATE OVERVIEW. Tyson Foods is one of the world's largest suppliers of beef, chicken and pork products. It produces a wide variety of brand name protein-based and prepared food products, marketed in the U.S. and about 90 countries around the world. Most of TSN's operations are in the U.S., and about 97% of FY 09 (Sep.) sales to external customers were sourced from the U.S. TSN's export sales totaled $2.7 billion in FY 09, down from $3.2 billion in FY 08. Major export markets include Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, Russia, South Korea, Taiwan and Vietnam. In FY 09, TSN's largest customer, Wal-Mart Stores, Inc., accounted for 13.8% of FY 09's consolidated sales CORPORATE STRATEGY. TSN's seeks to identify target markets for valueadded products; concentrate production, sales and marketing efforts to enhance product demand; and utilize national distribution systems and customer support services. We think the company's scale and diversified product mix is a competitive advantage.

ucts. Operations include sales from allied products such as hides and variety meats. The company's products are marketed to various channels, including food retailers, foodservice distributors, restaurant operators and others. The company does not have facilities of its own to raise cattle, but has cattle buyers located in cattle producing areas who visit independent feed yards and buy live cattle on the open spot market. The chicken segment (36%) includes fresh, frozen and value-added chicken products sold domestically through various channels, including retailers, foodservice distributors, restaurant operators and foodservice establishments such as schools, hotel chains, health care facilities and the military; and also to international markets. Included in this segment are sales from allied products and TSN's chicken breeding stock subsidiary. The segment's raw material includes live chickens that are raised primarily by independent contractors. Also, corn and soybean meal are major production costs, and in FY 09 represented roughly 45% of TSN's cost of growing a live chicken.

The beef segment (40% of FY 09 revenues) includes the slaughter of live cattle and fabrication into primal and sub-primal meat cuts and case-ready prodCompany Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 5.98 -0.22 -1.47 0.05 0.16 NM 14.25 7.51 NM NM

2008 6.30 1.57 0.24 0.20 0.16 67% 67.00 4.40 81 18

2007 5.96 2.20 0.75 0.64 0.16 21% 24.32 13.50 32 18

2006 5.05 1.31 -0.56 -0.56 0.16 NM 17.33 12.57 NM NM

2005 5.66 2.39 0.99 1.06 0.16 16% 19.91 12.50 20 13

2004 4.49 2.50 1.13 1.10 0.16 14% 21.28 12.97 19 11

2003 3.17 2.26 0.96 0.64 0.16 17% 15.10 7.25 16 8

2002 2.92 2.39 1.08 1.02 0.16 15% 15.71 9.27 15 9

2001 1.71 1.91 0.40 0.39 0.16 40% 14.20 8.10 35 20

2000 NM -1.97 0.68 NA 0.16 24% 17.38 8.50 26 13

26,704 817 455 313 -526 NM -536 21.4

26,862 878 471 218 154 44.2% 86.0 71.1

26,900 1,130 514 232 410 34.6% 268 228

25,559 510 517 268 -293 NM -191 -190

26,014 1,266 501 227 528 33.1% 353 379

26,441 1,415 490 275 635 36.5% 403 392

24,549 837 458 592 523 35.6% 337 224

23,367 1,407 467 305 593 35.4% 383 365

10,751 650 335 144 165 35.2% 88.0 87.5

7,268 643 294 116 234 35.5% 151 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,004 Current Assets 4,375 Total Assets 10,595 Current Liabilities 1,993 Long Term Debt 3,333 Common Equity 4,352 Total Capital 8,002 Capital Expenditures 368 Cash Flow -81.0 Current Ratio 2.2 % Long Term Debt of Capitalization 41.7 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

250 4,361 10,850 2,103 2,888 5,014 8,193 425 557 2.1 35.3 0.3 0.8 1.8

42.0 3,596 10,227 2,115 2,642 4,731 7,740 285 782 1.7 34.1 1.0 2.5 5.6

28.0 4,187 11,121 2,846 2,987 4,900 8,382 531 326 1.5 35.6 NM NM NM

40.0 3,485 10,504 2,157 2,869 4,615 8,141 571 854 1.6 35.2 1.4 3.4 7.9

33.0 3,532 10,464 2,293 3,024 4,912 8,631 486 893 1.5 35.0 1.5 3.8 8.5

25.0 3,371 10,486 2,475 3,114 3,954 7,790 402 795 1.4 40.0 1.4 3.2 8.8

51.0 3,144 10,372 2,093 3,733 3,662 8,038 433 850 1.5 46.4 1.6 3.6 10.9

70.0 3,290 10,632 2,416 4,016 3,354 7,979 261 423 1.4 50.3 0.8 1.1 3.2

43.0 1,576 4,854 886 1,357 2,175 3,917 196 445 1.8 34.6 2.1 3.0 7.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2200 Don Tyson Pkwy, Springdale, AR 72762-6999. Telephone: 479-290-4000. Email: [email protected] Website: http://www.tyson.com

Chrmn: J.H. Tyson Pres & CEO: D. Smith COO: J.V. Lochner EVP & CFO: D. Leatherby

EVP & General Counsel: D.L. Van Bebber Investor Contact: R. Wisener Board Members: L. V. Hackley, J. D. Kever, K. M. McNamara, B. T. Sauer, R. C. Thurber, B. A. Tyson, D. Tyson, J. H. Tyson, A. C. Zapanta

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1935 Domicile: Delaware Employees: 117,000

Stock Report | October 23, 2010 | NYS Symbol: UNP | UNP is in the S&P 500

Union Pacific Corp S&P Recommendation HOLD

★★★★★

Price $86.31 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Railroads

12-Mo. Target Price $86.00

Investment Style Large-Cap Blend

Summary Union Pacific operates the largest U.S. railroad, with over 32,000 miles of rail serving the western two-thirds of the country.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $87.32– 54.20 Trailing 12-Month EPS $4.53 Trailing 12-Month P/E 19.1 $10K Invested 5 Yrs Ago $27,881

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

5.37 5.78 16.1 497.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.18 16 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects UNP's exposure to economic cycles, regulations, and labor and fuel costs, coupled with significant capital expenditure requirements, offset by our view of the company's historically positive cash flow generation and moderate financial leverage.

80

60 50

2-for-1

40

$42.945 1.53 $1.32 84

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

A B

B+

A-

A

Relative Strength Rank 3

STRONG 77

3

2

A+

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Analysis prepared by Kevin Kirkeby on October 07, 2010, when the stock traded at $ 83.63. Highlights ➤

➤

➤

We look for revenues to rise nearly 19% in 2010, incorporating a 13% increase in volume, with intermodal and automotive-related shipments being the primary contributors. For 2011, we expect revenues to rise another 6%, reflecting a 4% volume increase and a modest improvement in core pricing and fuel surcharges. The impact of customer wins and contract renewals achieved in 2010 will carry over into 2011, in our view. However, we expect volumes to become more balanced as both coal and grain are forecast to rise. We expect operating expenses to rise as volumes recover into 2011, due to higher wages and incentive compensation. However, we still anticipate a widening of margins due to improved pricing and greater asset utilization, like increases in both cars per train and ton-miles per employee. We also look for UNP's focus on fuel efficiency and distributed power to reduce overall fuel consumption. Our EPS estimate for 2010 of $5.22 incorporates an effective tax rate of 38%, as well as the buyback of about 10 million shares made during the April through July period.

Investment Rationale/Risk ➤

➤

➤

Recent data suggests the economy is recovering, and is contributing to growth in nearly all of UNP's freight categories. At this point, we think a valuation above the midpoint of the historical range is warranted, as we balance near-term volume gains and our expectation that operating costs will start to rise as certain volume thresholds are reached with what we see as UNP's above peer average investment requirements. Risks to our recommendation and target price include a slower-than-expected recovery in the economy, reduced coal consumption by utilities as a result of government efforts to control carbon dioxide emissions, and more regulatory oversight of railroad pricing. Our relative valuation model suggests an enterprise value-to-EBITDA multiple, using our fourquarter forward estimate, of about 8.3X, which is above the 10-year average, and produces a value of $91. Our discounted cash flow model, which assumes a 10.5% cost of equity, annual free cash flow growth of 5% for five years, and a 3.5% terminal growth rate, estimates an intrinsic value of $81. Blending, we arrive at our 12-month target price of $86.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,965 4,182 2009 3,415 3,303 2008 4,270 4,568 2007 3,849 4,046 2006 3,710 3,923 2005 3,152 3,344

3Q -3,671 4,846 4,191 3,983 3,461

4Q -3,754 4,286 4,197 3,962 3,621

Year -14,143 17,970 16,283 15,578 13,578

Earnings Per Share ($) 2010 1.01 1.40 2009 0.72 0.92 2008 0.85 1.02 2007 0.71 0.83 2006 0.58 0.72 2005 0.24 0.44

E1.56 1.02 1.38 1.00 0.77 0.69

E1.33 1.08 1.31 0.93 0.89 0.55

E5.37 3.75 4.54 3.46 2.96 1.93

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.270 0.270 0.330 0.330

11/19 02/04 05/06 07/29

11/25 02/24 05/26 08/27

11/30 02/26 05/28 08/31

01/04/10 04/01/10 07/01/10 10/01/10

Dividends have been paid since 1900. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: UNP

Union Pacific Corp Business Summary October 07, 2010 CORPORATE OVERVIEW. Union Pacific operates the largest U.S. railroad, with a network that spans about 32,200 miles, linking Pacific Coast and Gulf Coast ports to midwestern and eastern gateways. The rail lines touch 23 states, as well as the Mexican and Canadian borders. Energy accounted for 23% of freight revenues and 26% of carloadings in 2009. UNP is a major transporter of low-sulfur coal, with about 67% of its energy traffic consisting of coal originating in the Powder River Basin of Wyoming and Montana, primarily delivered to power utilities. In 2009, UNP's intermodal business represented 19% of freight revenue, and accounted for a much larger 36% of total carloads. The industrial products category represented another 16% of freight revenues, while chemicals, agricultural products and automotive contributed 16%, 20% and 6%, respectively, of 2009 freight revenues. COMPETITIVE LANDSCAPE. The U.S. rail industry has an oligopoly-like structure, with over 80% of revenues generated by the four largest railroads: UNP and Burlington Northern Santa Fe Corp. operating on the West Coast, and CSX Corp. and Norfolk Southern Corp. operating on the East Coast. Railroads simultaneously compete for customers while cooperating by sharing assets, interfacing systems, and completing customer movements. Railroads also com-

pete with trucking, shipping, and pipeline transportation. Rail rates are generally lower than trucking rates, as service is slower and less flexible, in our view, than trucking, which provides most U.S. transportation. We believe the rising price of fuel increases the cost attractiveness of railroads over less fuel-efficient trucking, which should help support industry volumes over the next five years. While large freight integrators, coal and utility companies may exert more pricing power than smaller customers, there has been an increase in shippers across the rail industry filing complaints with the Surface Transportation Board (STB) alleging excessive pricing. In a July 2009 ruling, the STB determined that UNP was seeking rate increases from Oklahoma Gas & Electric that exceeded permissible levels. The STB ordered UNP to reimburse the shipper for amounts already collected, and effectively capped the rate on those particular moves through 2018. We note that 67% of UNP's contracts that have not been repriced since 2004 are in the energy (coal) category.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 33.00 6.61 3.75 3.52 1.08 29% 66.73 33.28 18 9

2008 30.70 7.23 4.54 4.29 0.98 22% 85.80 41.84 19 9

2007 31.73 5.92 3.46 3.37 0.75 22% 68.78 44.79 20 13

2006 28.34 5.23 2.96 2.86 0.60 20% 48.75 38.81 16 13

2005 25.58 4.13 1.93 1.66 0.60 31% 40.63 29.09 21 15

2004 24.25 3.27 1.15 1.05 0.60 52% 34.78 27.40 30 24

2003 23.93 3.96 2.04 1.88 0.50 24% 34.75 25.45 17 13

2002 21.00 4.60 2.53 1.92 0.42 16% 32.58 26.50 13 10

2001 19.15 3.93 1.89 1.41 0.40 21% 30.35 21.88 16 12

2000 17.54 3.67 1.67 NA 0.40 24% 26.41 17.13 16 10

14,143 4,836 1,444 600 2,987 36.5% 1,898 1,782

17,970 5,462 1,387 511 3,656 36.1% 2,338 2,209

16,283 4,696 1,321 482 3,009 38.4% 1,855 1,808

15,578 4,121 1,237 477 2,525 36.4% 1,606 1,553

13,578 2,970 1,175 504 1,436 28.6% 1,026 886

12,215 2,406 1,111 527 856 29.4% 604 551

11,551 3,200 1,067 574 1,637 35.5% 1,056 972

12,491 3,530 1,206 633 2,016 33.5% 1,341 1,003

11,973 2,072 1,174 701 1,533 37.0% 966 708

11,878 2,043 1,140 723 1,310 35.7% 842 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,850 Current Assets 3,680 Total Assets 42,410 Current Liabilities 2,682 Long Term Debt 9,636 Common Equity 16,941 Total Capital 26,789 Capital Expenditures 2,384 Cash Flow 3,342 Current Ratio 1.4 % Long Term Debt of Capitalization 36.0 % Net Income of Revenue 13.4 % Return on Assets 4.6 % Return on Equity 11.7

1,249 2,813 39,722 2,880 8,607 15,447 34,336 2,780 3,725 1.0 25.1 13.0 6.0 15.1

878 2,594 38,033 3,041 7,543 15,585 33,178 2,496 3,176 0.9 22.7 11.4 5.0 12.0

827 2,411 36,515 3,539 6,000 15,312 31,008 2,242 2,843 0.7 19.3 10.3 4.5 11.1

773 2,325 35,620 3,384 6,760 13,707 29,949 2,169 2,201 0.7 22.6 7.6 2.9 7.8

977 2,290 34,589 2,516 7,981 12,655 29,816 1,876 1,715 0.9 26.8 4.9 1.8 4.8

527 2,089 33,460 2,456 7,822 12,354 29,345 1,752 2,123 0.9 26.7 9.1 3.2 9.2

369 2,152 32,764 2,701 8,928 10,651 28,057 1,887 2,547 0.8 31.8 10.7 4.2 13.3

113 1,542 31,551 2,692 9,386 9,575 26,843 1,736 2,140 0.6 35.0 8.1 3.1 10.6

105 1,285 30,499 2,962 9,644 8,662 25,449 1,783 1,982 0.4 37.9 7.1 2.8 10.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1400 Douglas Street, Omaha, NE 68179. Telephone: 402-544-5000. Website: http://www.up.com Chrmn, Pres, CEO & COO: J.R. Young

EVP & CFO: R.M. Knight, Jr. SVP & Chief Admin Officer: C.R. Eisele SVP & Secy: B.W. Schaefer SVP & General Counsel: J.M. Hemmer

Investor Contact: J. Hamann (402-544-4227) Board Members: A. H. Card, Jr., E. B. Davis, Jr., T. J. Donohue, Jr., A. W. Dunham, J. R. Hope, C. C. Krulak, M. R. McCarthy, M. W. McConnell, T. F. McLarty, III, S. Rogel, J. H. Villarreal, J. R. Young

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1862 Domicile: Utah Employees: 43,531

Stock Report | October 23, 2010 | NYS Symbol: UNH | UNH is in the S&P 500

UnitedHealth Group Inc

★★★★★

S&P Recommendation BUY

Price $37.26 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Managed Health Care

12-Mo. Target Price $40.00

Investment Style Large-Cap Growth

Summary This leading health care services company was providing health benefit services to over 32 million individuals across the U.S. as of March 31, 2010.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.26– 25.19 Trailing 12-Month EPS $3.72 Trailing 12-Month P/E 10.0 $10K Invested 5 Yrs Ago $6,600

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.95 3.45 9.4 1,124.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$41.890 1.34 $0.50 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.93 4 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects UNH's leadership in the highly fragmented managed care market and its wide geographic, market and product diversity, which we believe permits stable operational performance even during periods of economic downturn. However, we see commercial enrollment growth slowing from an expanding base and from intensifying competition.

60

40 30

20

Vol.

Quantitative Evaluations

Mil. 90 60 30 0 5

S&P Quality Ranking D 4

3

3

C

B-

A+ B

B+

A-

A

Relative Strength Rank

1

STRONG 81

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P

➤

➤

➤

We look for operating revenues to rise 5.0% in 2011, to $98.4 billion, following an 8.2% rise we see in 2010, to $93.6 billion. Contributors we see include premium rate hikes, a modest rise in commercial membership, assuming a gradual decline in the unemployment rate, and continued increases in Medicare Advantage (MA; Medicare managed care), Medicaid and Medicare Part D (drug plan) enrollment. We expect medical costs to rise as a percentage of premium revenues (medical loss ratio, or MLR) by 240 basis points (bps) in 2011. The health care reform law requires health insurers to spend a minimum portion of the premium proceeds to cover medical costs (80% for individuals/small groups, 85% for large groups) for commercial members starting that year. In addition, we believe medical cost trends will pick up after moderating in 2010, and we see a further decrease in MA rates, albeit slower than the drop in 2010. On a positive note, we believe the SG&A cost ratio will decline slightly, as revenue leverage outweighs IT upgrade spending. We look for EPS of $3.45 in 2011, versus our operating EPS estimate of $3.95 in 2010. Operating EPS in 2009 was $3.24.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Phillip M. Seligman on October 21, 2010, when the stock traded at $ 36.41. Highlights

A+

4

In our view, UNH has been executing well in a weak economic environment, and we expect it to continue to do so. We think its scale, cash flow and diversification should temper the margin pressure and enable it to manage better than most peers amid health care reform. In this regard, we believe UNH will be a consolidator should reform lead to a shake-out in the health insurance industry. We also believe UNH's ability so far to realize MLRs below the required floors provides it with the opportunity to add benefits, thereby increasing its competitive strength and reducing the rebate it may have to return to policyholders. Headwinds we see in 2011 include a still-high unemployment rate, state budget pressures clouding the Medicaid reimbursement environment, and a shortened Medicare selling season. Our 2011 EPS outlook is clouded by the final MLR regulations not yet having been released by the U.S. Dept. of Health & Human Services. Risks to our recommendation and target price include a sharp rise in medical costs and intensified competition. Our 12-month target price of $40 assumes an above-peer P/E of 11.5X our 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 23,193 23,264 2009 22,004 21,655 2008 20,304 20,272 2007 19,047 18,926 2006 17,581 17,863 2005 10,887 11,111

3Q 23,668 21,695 20,156 18,679 17,970 11,322

4Q -21,784 20,454 18,705 18,128 12,045

Year -87,138 81,186 75,431 71,542 45,365

Earnings Per Share ($) 2010 1.03 0.99 2009 0.81 0.73 2008 0.78 0.27 2007 0.66 0.87 2006 0.63 0.70 2005 0.58 0.61

1.14 0.89 0.75 0.95 0.80 0.64

E0.79 0.81 0.60 0.92 0.84 0.65

E3.95 3.24 2.40 3.42 2.97 2.48

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.030 0.125 0.125

02/10 05/26 08/04

04/01 06/03 09/10

04/06 06/07 09/14

04/20/10 06/21/10 09/28/10

Dividends have been paid since 1990. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: UNH

UnitedHealth Group Inc Business Summary October 21, 2010 CORPORATE OVERVIEW. UnitedHealth Group, a U.S. leader in health care management, provides a broad range of health care products and services, including health maintenance organizations (HMOs), point of service (POS) plans, preferred provider organizations (PPOs), and managed fee for service programs. The company reports results in four business segments, organized by product basis: The Health Benefits Services segment (79% of 2009 revenues and 73% of operating earnings before eliminations) consists of the following business units: UnitedHealthcare coordinates network-based health and well-being services on behalf of multistate mid-sized and local employers and for individuals. Uniprise provides these services to large, self-insured accounts in return for administrative fees; it generally assumes no responsibility for health care costs. AmeriChoice facilitates and manages health care services for state Medicaid programs and their beneficiaries. Ovations delivers health and wellbeing services to Americans over the age of 50. At September 30, 2010, risk and fee-based Health Care Services enrollment totaled 32,745,000, versus 31,995,000 at December 31, 2009, including commercial risk-based (9,330,000 versus 9,415,000), commercial fee-based (15,370,000 versus 15,210,000), Medicare Advantage (2,060,000 versus 1,790,000), Medicaid (3,235,000 versus

2,900,000), and Standardized Medicare Supplement (2,750,000 versus 2,680,000). In addition, there are 6,480,000 Medicare Part D Prescription Drug Plan members, versus 5,935,000. OptumHealth (5% and 10%) provides specialized benefits such as behavioral, dental and vision offerings, and financial services. Ingenix (2% and 5%) is a leader in the field of health care data, analysis and application, serving pharmaceutical companies, health insurers and other payers, physicians and other health care providers, large employers and governments. We view Ingenix as key to the other segments' competitive strengths. Prescription Solutions (14% and 12%) offers pharmacy benefit management and specialty pharmacy management services to employer groups, union trusts, seniors -- through Medicare prescription drug plans, and commercial health plans.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM NA 3.24 3.23 0.03 1% 33.25 16.18 10 5

2008 NM 3.19 2.40 2.95 0.03 1% 57.86 14.51 24 6

2007 1.18 4.00 3.42 3.40 0.03 1% 59.46 45.82 17 13

2006 1.55 3.44 2.97 2.94 0.03 1% 62.93 41.44 21 14

2005 NM 2.82 2.48 2.36 0.02 1% 64.61 42.63 26 17

2004 0.04 2.26 1.97 1.86 0.02 1% 44.38 27.73 23 14

2003 1.24 1.72 1.48 1.37 0.01 1% 29.34 19.60 20 13

2002 0.79 1.26 1.07 0.99 0.01 1% 25.25 16.96 24 16

2001 0.88 0.90 0.70 0.62 0.01 1% 18.20 12.63 26 18

2000 0.61 0.73 0.55 NA 0.00 1% 15.86 5.80 29 11

87,138 NA NA 551 5,808 34.2% 3,822 3,815

81,186 7,281 981 639 4,624 35.6% 2,977 3,655

75,431 8,821 796 544 7,305 36.3% 4,654 4,629

71,542 6,783 670 456 6,528 36.3% 4,159 4,108

45,365 5,826 453 241 5,132 35.7% 3,300 3,137

37,218 4,475 374 128 3,973 34.9% 2,587 2,443

28,823 3,234 299 95.0 2,840 35.7% 1,825 1,689

25,020 2,441 255 90.0 2,096 35.5% 1,352 1,260

23,454 1,831 265 94.0 1,472 38.0% 913 812

21,122 1,215 247 72.0 1,155 36.3% 736 NA

Balance Sheet & Other Financial Data (Million $) Cash 9,800 Current Assets NA Total Assets 59,045 Current Liabilities NA Long Term Debt 9,858 Common Equity 23,606 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 0.9 % Long Term Debt of Capitalization 29.5 % Net Income of Revenue 4.4 % Return on Assets 6.7 % Return on Equity 17.2

7,426 14,990 55,815 19,761 11,338 20,780 33,473 791 3,958 0.8 33.9 3.7 5.6 14.6

9,619 15,544 50,899 18,492 9,063 20,063 29,126 871 5,450 0.8 31.1 6.2 9.4 22.8

10,940 16,044 48,320 18,497 5,973 20,810 26,783 728 4,829 0.9 22.3 5.9 9.3 21.5

5,421 10,640 41,374 16,644 3,850 17,733 21,583 5,876 3,753 0.6 17.8 7.3 9.5 23.2

3,991 8,241 27,879 11,329 3,350 10,717 14,067 350 2,961 0.7 23.8 7.0 11.4 32.7

2,262 6,120 17,634 8,768 1,750 5,128 6,878 352 2,124 0.7 25.4 6.3 11.5 38.2

1,130 5,174 14,164 8,379 950 4,428 5,378 419 1,607 0.6 17.7 5.4 10.1 32.5

1,540 4,946 12,486 7,491 900 3,891 4,791 425 1,178 0.7 18.8 3.9 7.8 24.1

1,419 4,405 11,053 6,570 650 3,688 4,338 245 983 0.7 15.0 3.5 6.9 19.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 9900 Bren Rd E, Minnetonka, MN 55343. Telephone: 952-936-1300. Website: http://www.unitedhealthgroup.com Chrmn: R.T. Burke

Pres & CEO: S.J. Hemsley COO & EVP: D.S. Wichmann EVP & CFO: G.L. Mikan, III SVP & Chief Acctg Officer: E. Rangen

Board Members: W. C. Ballard, Jr., R. T. Burke, R. J. Darretta, S. J. Hemsley, M. J. Hooper, D. W. Leatherdale, G. M. Renwick, K. I. Shine, G. Wilensky

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1974 Domicile: Minnesota Employees: 80,000

Stock Report | October 23, 2010 | NYS Symbol: UPS | UPS is in the S&P 500

United Parcel Service Inc S&P Recommendation BUY

★★★★★

Price $69.83 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Air Freight & Logistics

12-Mo. Target Price $84.00

Investment Style Large-Cap Growth

Summary UPS is the world's largest express delivery company, and has established itself as a facilitator of e-commerce.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $70.89– 53.17 Trailing 12-Month EPS $2.67 Trailing 12-Month P/E 26.2 $10K Invested 5 Yrs Ago $11,123

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.54 4.00 19.7 990.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$50.628 2.69 $1.88 68

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.85 14 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as UPS's geographically diversified and increasing revenue base, a strong balance sheet with ample cash and low debt relative to total capitalization, and a track record of earnings and cash flow growth.

80

60 50 40

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 4

MODERATE

4

3

A+

62 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Jim Corridore on July 28, 2010, when the stock traded at $ 64.66. Highlights ➤

➤

➤

We expect 2010 revenues to rise 11%, following a 12% decline in 2009. We see gains in U.S. domestic as well as international shipping, driven by strengthening in the U.S. and global economies. We see a 14% rise in supply chain and freight revenues after a 14% drop in 2009. Fuel surcharges are likely to be a drag on revenues, since fuel prices have come down sharply. Should oil prices start to move back up, revenue growth would pick up on increased fuel surcharges. We see operating margins improving in 2010, mainly from fixed cost leverage on a higher number of package deliveries. UPS should also benefit from an improved package mix, as we think consumers are likely to shift toward faster delivery methods as the economy strengthens. We also see productivity gains from new technology and reduced costs from restructuring actions. The company froze management salaries in 2009 and suspended its 401k matching program, which is likely to be restored in 2010, leading to a rise in compensation costs. We estimate 2010 EPS of $3.45, up 49% from 2009 operating EPS of $2.31. For 2011, we see EPS of $4.00.

Investment Rationale/Risk ➤

➤

➤

We think UPS will likely see increased international and domestic volumes and higher pricing once the economy starts to show improvement, leading to our forecast of material EPS improvement in 2010. We think the company is a strong generator of cash, and we favor its historical use of its funds to pay dividends and repurchase stock. These positives support our buy opinion on the stock, despite a valuation being toward the high end of its historical P/E range. UPS has temporarily slowed its share repurchase program, but we expect it to eventually resume buybacks, which should provide support for the stock. Risks to our recommendation and target price include a much slower economic recovery than we expect, and a possible price war with competitors. Regarding corporate governance, we are concerned that Class A shareholders have 10 votes per share on many matters. Our 12-month target price of $84 values the stock at 21X our 2011 EPS estimate, in the middle of UPS's five-year historical P/E range. We view positively return on assets and cash flow from operations.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 11,728 12,204 2009 10,938 10,829 2008 12,675 13,001 2007 11,906 12,189 2006 11,521 11,736 2005 9,886 10,191

3Q -11,153 13,113 12,205 11,662 10,550

4Q -12,377 12,697 13,392 12,628 11,954

Year -45,297 51,486 49,692 47,547 42,581

Earnings Per Share ($) 2010 0.53 0.84 2009 0.40 0.44 2008 0.87 0.85 2007 0.78 1.04 2006 0.89 0.97 2005 0.78 0.88

E0.93 0.55 0.96 1.02 0.96 0.86

E1.06 0.75 0.25 -2.52 1.04 0.95

E3.54 2.14 2.94 0.36 3.86 3.47

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.450 0.470 0.470 0.470

11/05 02/04 05/06 08/05

11/12 02/11 05/13 08/12

11/16 02/16 05/17 08/16

12/03/09 03/03/10 06/02/10 09/01/10

Dividends have been paid since 2000. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: UPS

United Parcel Service Inc Business Summary July 28, 2010 CORPORATE OVERVIEW. United Parcel Service is the world's largest express and package delivery company. It is also a leading commerce facilitator, offering various logistics and financial services. The company, which was privately held since its founding in 1907, had its IPO of Class B stock in November 1999. CORPORATE STRATEGY. The company seeks to position itself as the primary coordinator of the flow of goods, information and funds throughout the entire supply chain (the movement from the raw materials and parts stage through final consumption of the finished product). Domestic package delivery services accounted for 62% of revenues in 2009, up from 61% in 2008. About 83% of the 13.1 million daily domestic shipments handled by the company in 2009 were moved by its ground delivery service, which is available to every address in the 48 contiguous states in the U.S. Domestic air delivery is provided throughout the U.S., including next-day air, which is guaranteed by 10:30 a.m. to more than 75% of the U.S. population, and by noon to an additional 15% of the population.

UPS entered the international arena in 1975. In 2009, it handled 2.0 million international shipments per day. S&P believes the international package delivery service (21% of total revenues in 2009) is likely to grow faster than its domestic business over the next several years, though it declined 14% in 2009. UPS delivers international shipments to more than 200 countries and territories worldwide and provides delivery within one to two business days to the world's major business centers. Services include export (packages that cross national borders) and domestic (packages that stay within a single country's boundaries). UPS has a portfolio of domestic services in 20 major countries. Transborder services within the European Union are expected to continue to be a growth engine for the company. Asia continues to be an area in which UPS is investing in infrastructure and technology.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 4.96 3.88 2.14 2.09 1.80 84% 59.75 37.99 28 18

2008 4.29 4.71 2.94 2.61 1.80 61% 75.08 43.32 26 15

2007 9.04 2.00 0.36 0.20 1.68 NM 78.99 68.66 NM NM

2006 11.46 5.46 3.86 3.78 1.52 39% 83.99 65.50 22 17

2005 12.44 4.94 3.47 3.40 1.32 38% 85.84 66.10 25 19

2004 12.84 4.33 2.93 2.87 1.12 38% 89.11 67.51 30 23

2003 12.03 3.91 2.55 2.46 0.92 36% 74.87 53.00 29 21

2002 11.09 4.20 2.87 2.48 0.76 26% 67.10 54.25 23 19

2001 9.14 3.41 2.12 1.70 0.76 36% 62.50 46.15 29 22

2000 8.58 3.50 2.50 NA 0.81 32% 69.75 49.50 28 20

45,297 5,789 1,747 445 3,366 36.1% 2,152 2,107

51,486 7,771 1,814 490 5,015 40.1% 3,003 2,664

49,692 8,758 1,745 313 431 11.4% 382 212

47,547 8,383 1,748 211 6,510 35.5% 4,202 4,109

42,581 7,787 1,644 172 6,075 36.3% 3,870 3,784

36,582 6,532 1,543 149 4,922 32.3% 3,333 3,261

33,485 5,994 1,549 121 4,370 33.7% 2,898 2,790

31,272 5,560 1,464 173 5,009 35.0% 3,254 2,820

30,646 5,358 1,396 184 3,937 38.4% 2,425 1,948

29,771 5,685 1,173 205 4,834 39.3% 2,934 NA

Balance Sheet & Other Financial Data (Million $) Cash 2,100 Current Assets 9,275 Total Assets 31,883 Current Liabilities 6,239 Long Term Debt 8,420 Common Equity 7,630 Total Capital 16,863 Capital Expenditures 1,602 Cash Flow 3,899 Current Ratio 1.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 4.8 % Return on Assets NA % Return on Equity NA

1,049 8,845 31,879 7,817 7,797 6,780 16,231 2,636 4,817 1.1 48.0 5.8 8.5 31.7

2,604 11,760 39,042 9,840 7,506 12,183 22,309 2,820 2,127 1.2 33.7 0.8 1.1 2.8

794 9,377 33,210 6,719 3,133 15,482 21,144 3,085 5,950 1.4 14.8 8.8 12.3 26.0

1,369 11,003 35,222 6,793 3,159 16,884 20,043 2,187 5,514 1.6 15.8 9.1 11.3 23.3

5,197 12,605 33,026 6,483 3,261 16,384 25,027 2,127 4,876 1.9 13.0 9.1 10.6 21.3

2,951 9,853 28,909 5,518 3,149 14,852 18,001 1,947 4,447 1.8 17.5 8.7 10.5 21.2

2,211 8,738 26,357 5,555 3,495 12,455 15,950 1,658 4,718 1.6 21.9 10.4 12.8 28.7

1,616 7,597 24,636 4,629 4,648 10,248 14,896 2,372 3,821 1.6 31.2 7.9 10.5 24.3

1,952 7,124 21,662 4,501 2,981 9,735 12,716 2,147 4,107 1.6 23.4 9.9 13.1 26.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 55 Glenlake Parkway NE, Atlanta, GA 30328. Telephone: 404-828-6000. Website: http://www.ups.com Chrmn & CEO: D.S. Davis

COO & SVP: D.P. Abney SVP, CFO, Chief Acctg Officer & Treas: K. Kuehn SVP, Secy & General Counsel: T.P. McClure SVP & CIO: D. Barnes

Investor Contact: M. Vale (404-828-6703) Board Members: F. D. Ackerman, M. J. Burns, D. S. Davis, S. E. Eizenstat, M. L. Eskew, W. R. Johnson, A. M. Livermore, R. Markham, C. T. Randt, Jr., J. Thompson, C. B. Tome

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1907 Domicile: Delaware Employees: 408,000

Stock Report | October 23, 2010 | NYS Symbol: USB | USB is in the S&P 500

U.S. Bancorp S&P Recommendation BUY

★★★★★

Price $23.59 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Diversified Banks

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This bank holding company was formed through the February 2001 merger of Minneapolis-based U.S. Bancorp and Milwaukee-based Firstar Corp.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $28.43– 20.44 Trailing 12-Month EPS $1.39 Trailing 12-Month P/E 17.0 $10K Invested 5 Yrs Ago $9,721

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.69 1.98 14.0 1,917.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$45.226 0.85 $0.20 66

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.98 35 A+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment for U.S. Bancorp reflects our view of the company's solid fundamentals and prudent underwriting practices, along with good geographic and product diversification.

40 30 20 15

Quantitative Evaluations 10

S&P Quality Ranking Vol.

D

Mil.

B-

B+ B

B+

A-

A

A+

335

257

120 80 40 0 5

C

Relative Strength Rank

MODERATE 57

LOWEST = 1 4

3

3

HIGHEST = 99

4

3

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Highlights ➤

The STARS recommendation for USB has recently been changed to 4 (buy) from 3 (hold). The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on USB from MarketScope, see below.

➤

10/20/10 09:23 am ET ... S&P RAISES OPINION ON SHARES OF U.S. BANCORP TO BUY FROM HOLD (USB 22.81****): Q3 EPS of $0.45, vs. $0.30, beats our $0.44 EPS estimate on better than expected net interest income driven by increased lending activity, which was better than at peers who have already reported Q3 results. On Q3 results, we are raising our '10 EPS estimate to $1.69 from $1.68. We have a positive view of USB's ability to grow net interest income faster than peers while maintaining credit quality. We keep our target price of $26, which is based on a slight premium to peers 13.1X multiple on our unchanged '11 EPS estimate of $1.98. /E. Oja

Revenue (Million $) 1Q 2Q 2010 4,911 5,105 2009 4,655 4,895 2008 5,249 4,907 2007 4,883 5,091 2006 4,505 4,773 2005 3,817 4,106

3Q -4,950 4,469 5,178 4,897 4,294

4Q -4,990 4,604 5,156 4,934 4,379

Year -19,490 19,229 20,308 19,109 16,596

Earnings Per Share ($) 2010 0.34 0.45 2009 0.24 0.12 2008 0.62 0.53 2007 0.63 0.65 2006 0.63 0.66 2005 0.57 0.60

E0.45 0.30 0.32 0.62 0.66 0.62

E0.45 0.30 0.15 0.53 0.66 0.62

E1.69 0.97 1.61 2.43 2.61 2.42

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

12/08 03/16 06/15 09/21

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 1863. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: USB

U.S. Bancorp Business Summary July 22, 2010 CORPORATE OVERVIEW. U.S. Bancorp (USB) consists of several major lines of business, which include wholesale banking, consumer banking, wealth management & securities services, payment services, and treasury and corporate support. Wholesale banking offers lending, equipment finance and small ticket leasing, depository, treasury management, capital markets, foreign exchange, international trade services and other financial services to middle-market, large corporate and public sector clients. Consumer banking delivers products and services through banking offices, telephone servicing and sales, online services, direct mail and ATMs. It encompasses community banking, metropolitan banking, in-store banking, small business banking, including lending guaranteed by the Small Business Administration, consumer lending, mortgage banking, consumer finance, workplace banking, student banking, and 24-hour banking.

wealth management, corporate trust, FAF Advisors, institutional trust and custody, and fund services. Payment services includes consumer and business credit cards, stored-value cards, debit cards, corporate and purchasing card services, consumer lines of credit, and merchant processing. CORPORATE STRATEGY. USB has several goals in order to achieve long-term success, including: 10%-plus EPS growth, a 20%-plus ROE, reducing credit and earnings volatility, providing high-quality customer service, investing in future growth, and targeting an 80% return on earnings to shareholders. In banking, USB is maintaining what we view as its low-cost, highly efficient model and plans to grow organically and through smaller, fill-in acquisitions in higher-growth markets.

Wealth management & securities services provides trust, custody, private banking, financial advisory, investment management, retail brokerage services, insurance, custody and mutual fund servicing through five businesses: Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.21 0.97 0.96 0.20 21% 25.59 8.06 26 8

2008 3.97 1.61 1.49 1.70 106% 42.23 20.22 26 13

2007 6.31 2.43 2.54 1.63 67% 36.84 29.09 15 12

2006 5.34 2.61 2.59 1.39 53% 36.85 28.99 14 11

2005 5.62 2.42 2.41 1.23 51% 31.36 26.80 13 11

2004 5.87 2.18 2.16 1.02 47% 31.65 24.89 15 11

2003 5.77 1.92 1.89 0.86 45% 30.00 18.56 16 10

2002 4.93 1.73 1.59 0.78 45% 24.50 16.05 14 9

2001 4.64 0.88 0.66 0.75 85% 26.06 16.50 30 19

2000 7.11 1.32 NA 0.65 49% 28.00 15.38 21 12

8,518 198 7,952 5,557 50.3% 2,632 15.0% 2,205 3.67 1,783

7,732 134 6,811 3,096 47.4% 4,033 27.0% 2,946 3.66 2,606

6,689 75.0 7,157 792 49.6% 6,207 30.3% 4,324 3.47 4,470

6,741 49.0 6,832 544 45.4% 6,863 30.8% 4,751 3.65 4,674

7,055 33.0 6,151 666 44.3% 6,571 31.7% 4,489 3.97 4,470

7,111 28.6 5,624 670 45.3% 6,176 32.5% 4,167 4.25 4,135

7,189 28.2 5,068 1,254 45.7% 5,651 34.4% 3,710 4.49 3,655

6,840 36.6 5,569 1,349 83.7% 5,103 34.8% 3,326 4.61 3,062

6,409 55.9 5,030 2,529 57.5% 2,634 35.2% 1,707 4.45 1,280

2,699 45.1 1,505 222 55.0% 1,927 31.4% 1,284 4.73 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets Nil Investment Securities 44,768 Commercial Loans 82,885 Other Loans 112,523 Total Assets 281,176 Demand Deposits 38,186 Time Deposits 145,056 Long Term Debt 32,580 Common Equity 24,463 % Return on Assets 0.8 % Return on Equity 10.3 % Loan Loss Reserve 2.6 % Loans/Deposits 106.6 % Equity to Assets 7.8

Nil 39,521 89,831 95,398 265,912 37,494 121,856 38,359 18,369 1.2 15.3 1.9 116.2 7.6

Nil 43,116 80,281 73,546 237,615 33,334 98,111 43,440 20,046 1.9 21.2 1.3 118.1 8.8

Nil 40,117 74,835 68,762 219,232 32,128 92,754 37,602 20,197 2.2 23.6 1.4 117.6 9.4

Nil 39,768 71,405 66,401 209,465 32,214 92,495 37,069 20,086 2.2 22.7 1.5 111.9 9.8

Nil 41,481 67,758 58,557 195,104 30,756 89,985 22,807 19,539 2.2 21.5 1.6 105.8 10.1

Nil 43,334 65,768 52,467 189,286 32,470 86,582 33,816 19,242 2.0 19.7 2.0 100.5 10.2

1,332 28,488 68,811 47,440 180,027 35,106 80,428 31,582 18,101 1.9 19.2 2.0 100.6 9.8

1,607 26,608 71,703 42,702 171,390 31,212 74,007 28,542 16,461 1.0 10.8 2.1 111.4 9.4

200 13,866 28,498 25,208 77,585 10,980 45,298 3,877 6,528 1.7 20.0 1.3 95.4 8.5

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: US Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402. Telephone: 651-466-3000. Website: http://www.usbank.com Chrmn, Pres & CEO: R.K. Davis

COO & CTO: J. von Gillern EVP & Treas: K.D. Nelson EVP, Secy & General Counsel: L.R. Mitau SVP & Chief Acctg Officer: C.E. Gifford

Investor Contact: J.T. Murphy (612-303-0783) Founded: 1929 Board Members: D. M. Baker, Jr., Y. M. Belton, A. D. Domicile: Delaware Collins, Jr., R. K. Davis, V. B. Gluckman, J. W. Employees: 58,229 Johnson, O. F. Kirtley, J. W. Levin, D. B. O'Maley, O. M. Owens, R. G. Reiten, C. D. Schnuck, P. T. Stokes

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: X | X is in the S&P 500

United States Steel Corp S&P Recommendation BUY

★★★★★

Price $42.28 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Steel

12-Mo. Target Price $57.00

Investment Style Large-Cap Value

Summary This company manufactures and sells a wide variety of steel sheet, plate, tubular and tin products, coke, and taconite pellets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $70.95– 33.25 Trailing 12-Month EPS $-5.24 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $12,790

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-1.33 5.52 NM 143.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.070 0.47 $0.20 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.70 NM BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's exposure to highly cyclical industries such as autos and construction along with what we view as its high ratio of liabilities to assets and its unfunded pension and health care liabilities of $4.6 billion at the end of 2009.

200

80 40 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 90 60 30 0

D

4

3

2

B-

B

B+

A-

A

Relative Strength Rank

5

4

5

C

B A+ WEAK

16

2

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE

Analysis prepared by Leo J. Larkin on July 30, 2010, when the stock traded at $ 43.77. Highlights ➤

➤

➤

Following a sales decrease of 53% in 2009, we look for a 55% rise in 2010, on an anticipated rebound in tons shipped and steel prices. Our forecast rests on several assumptions. First, S&P forecasts GDP growth of 3.1% in 2010, versus a 2.6% decrease in GDP in 2009. We see a resumption of GDP growth leading to rising demand for durable goods. Second, we think demand for oil country tubular goods will rise from 2009's depressed levels as drilling activity picks up. Third, we see distributors adding to inventory in 2010 after destocking through most of 2009. Fourth, we expect that demand for durable goods in Europe will recover from 2009's depressed levels. We look for a return to operating profit in 2010 on higher volume and increased revenue per ton. But, after interest expense, taxes and more shares outstanding, we estimate a loss per share of $1.33, versus a per-share loss of $10.48 in 2009, which excludes special gains of $0.06. We think earnings over the long term will increase on industry consolidation, rising demand for oil country tubular goods, and a gradual decline in costs for employee pensions and health care.

Investment Rationale/Risk ➤

➤

➤

We look for a solid recovery in sales and a much smaller loss in 2010, and EPS in 2011. Beyond 2011, we see X's earnings generally rising on a gradual decline in pension and health care costs, well controlled raw material costs in domestic operations, consolidation of the global steel industry, and a secular increase in demand for oil country tubular goods used for oil and gas exploration. In particular, we believe that the concentration of steel output in the hands of fewer companies should result in greater pricing and production discipline. In turn, we think this will lead to less volatile swings in pricing and profits over the course of the business cycle and result in generally higher valuations for steel companies. Risks to our recommendation and target price include a decline in steel prices and steel shipments in 2011 instead of the gains we project. Our 12-month target price of $57 is based on our view that the shares should trade at a multiple of 10.3X our 2011 EPS estimate. On this projected multiple, X's valuation would be just above the mid-point of its historical range of the past 10 years and would be at a discount to the P/E we apply to its peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 3,896 4,681 2009 2,750 2,127 2008 5,196 6,744 2007 3,756 4,228 2006 3,728 4,107 2005 3,787 3,582

3Q -2,817 7,312 4,354 4,106 3,200

4Q -3,354 4,502 4,535 3,774 3,470

Year -11,048 23,754 16,873 15,715 14,039

Earnings Per Share ($) 2010 -1.10 -0.17 2009 -3.78 -2.92 2008 1.98 5.65 2007 2.30 2.54 2006 2.04 3.22 2005 3.51 1.91

E-0.20 -2.11 7.79 2.27 3.42 0.71

E0.15 -1.86 2.50 0.30 2.50 0.85

E-1.33 -10.42 17.96 7.40 11.18 7.00

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

10/27 01/26 04/27 07/27

11/06 02/08 05/10 08/09

11/11 02/10 05/12 08/11

12/10/09 03/10/10 06/10/10 09/10/10

Dividends have been paid since 1991. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: X

United States Steel Corp Business Summary July 30, 2010 CORPORATE OVERVIEW. Following its acquisition of Stelco Inc. and Lone Star Technologies in 2007, U.S. Steel is the fifth largest steel producer in the world, the largest integrated steel producer headquartered in North America, and one of the largest integrated flat-rolled producers in Central Europe. In 2009, X produced 11.7 million tons of steel in North America and 5.1 million tons of steel in Europe. By way of comparison, X produced 19.2 million tons of steel in North America and 6.4 million tons in Europe in 2008. The company's other business activities include the production of coke in North America and Central Europe; and the production of iron ore pellets from taconite, transportation services (railroad and barge operations), real estate operations, and engineering and consulting services in North America. CORPORATE STRATEGY. The company seeks to boost its revenues and earnings by expanding its value-added product mix, becoming a prime supplier of steel to growing European markets, strengthening its balance sheet, and becoming more cost competitive.

ticular. The two largest end markets for steel products in the U.S. are autos and construction, which together accounted for 28.3% of shipments in 2009. Other end markets include appliances, containers, machinery, and oil and gas. Distributors, also known as service centers, accounted for 20.6% of industry shipments in the U.S. in 2009. Distributors are the largest single market for the steel industry in the U.S. Because distributors sell to a wide variety of OEMs, it is impossible to trace the final destination of much of the industry's shipments. Consequently, consumption of steel by the auto, construction and other industries may be higher than the shipment data would suggest. U.S. production was 64.2 million tons in 2009. X's largest end markets in 2009 were distributors (19.2% of tons shipped), appliances (6.7%), converters (26.4%), construction (15.3%), automotive (11.0%), containers (12.1%), oil and gas (4.3%), and other (5.0%). U.S. consumption decreased at a compound annual rate (CAGR) of 7.9% from 2000 through 2009. Global steel production totaled 1.22 billion metric tons in 2009, versus 1.33 billion metric tons in 2008.

MARKET PROFILE. The primary factor affecting demand for steel products is economic growth in general, and growth in demand for durable goods in parCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 18.62 -5.50 -10.42 -9.64 0.45 NM 58.19 16.66 NM NM

2008 25.85 23.26 17.96 14.34 1.10 6% 196.00 20.71 11 1

2007 28.81 11.66 7.40 7.42 0.60 8% 127.26 68.83 17 9

2006 36.82 14.69 11.18 11.76 0.25 2% 79.01 48.05 7 4

2005 25.63 11.54 7.00 6.64 0.28 4% 63.90 33.59 9 5

2004 32.30 11.17 8.37 8.74 0.20 2% 54.06 25.22 6 3

2003 7.98 -0.57 -4.09 -1.06 0.20 NM 37.05 9.61 NM NM

2002 15.81 4.24 0.62 -4.10 0.20 32% 22.00 10.66 35 17

2001 28.16 1.42 -2.45 -8.47 0.55 NM 22.00 13.00 NM NM

2000 21.54 3.72 -0.33 NA 1.00 NM 32.94 12.69 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

11,048 -1,056 661 159 -1,845 23.8% -1,401 -1,296

23,754 3,406 605 176 3,007 28.4% 2,112 1,686

16,873 1,804 506 163 1,108 19.7% 879 882

15,715 2,143 441 117 1,723 18.8% 1,374 1,438

14,039 1,740 366 107 1,312 27.8% 910 847

14,108 1,964 382 138 1,461 24.0% 1,077 1,104

9,458 316 363 148 -860 NM -406 -109

7,054 478 350 136 13.0 NM 61.0 -398

6,375 -61.0 344 153 -546 NM -218 -755

6,090 422 360 115 -1.00 NM -21.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,218 Current Assets 5,015 Total Assets 15,422 Current Liabilities 2,474 Long Term Debt 3,345 Common Equity 4,676 Total Capital 8,343 Capital Expenditures 619 Cash Flow -740 Current Ratio 2.1 % Long Term Debt of Capitalization 40.1 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

724 5,732 16,087 2,778 3,064 4,895 8,132 896 2,735 2.1 37.7 8.9 13.3 40.5

401 4,959 15,632 3,003 3,147 5,531 8,736 692 1,385 1.7 36.0 5.2 6.7 17.8

1,422 5,196 10,586 2,702 943 4,365 5,346 612 1,807 1.9 17.6 8.7 13.5 36.6

1,479 4,831 9,822 2,749 1,363 3,108 4,719 741 1,258 1.8 28.9 6.5 8.7 25.6

1,037 4,243 10,956 2,531 1,363 3,754 5,959 579 1,441 1.7 22.9 7.8 11.5 45.8

316 3,107 7,838 2,130 1,890 867 2,989 316 -59.0 1.5 63.2 NM NM NM

243 2,440 7,977 1,372 1,408 2,027 3,658 258 411 1.8 38.5 0.9 0.7 2.7

147 2,073 8,337 1,259 1,434 2,506 4,672 287 126 1.6 30.7 NM NM NM

219 2,717 8,711 1,391 2,485 1,917 5,070 244 331 2.0 49.0 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 600 Grant Street, Pittsburgh, PA 15219-2702. Telephone: 412-433-1121. Email: [email protected] Website: http://www.ussteel.com

Chrmn & CEO: J.P. Surma, Jr. COO & EVP: J.H. Goodish EVP & CFO: G.R. Haggerty SVP & General Counsel: J.D. Garraux

Chief Admin Officer: D.H. Lohr Founded: 2001 Investor Contact: N. Harper (412-433-1184) Domicile: Delaware Board Members: D. O. Dinges, J. G. Drosdick, R. A. Employees: 43,000 Gephardt, C. R. Lee, J. M. Lipton, F. J. Lucchino, G. G. McNeal, S. E. Schofield, G. Spanier, J. P. Surma, Jr., D. S. Sutherland, P. A. Tracey

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: UTX | UTX is in the S&P 500

United Technologies Corp S&P Recommendation BUY

★★★★★

Price $74.94 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Aerospace & Defense

12-Mo. Target Price $85.00

Investment Style Large-Cap Growth

Summary This aerospace-industrial conglomerate's portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $77.09– 61.42 Trailing 12-Month EPS $4.42 Trailing 12-Month P/E 17.0 $10K Invested 5 Yrs Ago $16,345

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.72 5.25 15.9 929.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$69.625 2.27 $1.70 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.03 10 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment is based on our view of UTX's history of steady growth in both earnings and dividends over the past 10 years, as reflected in its S&P Quality Ranking of A+. We also consider UTX's balance sheet to be strong, with long-term debt at 31% of total capital and cash at 9% of assets as of September 2010.

80

60 50 40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

45 30 15 0 5

D 5

4

5

4

4

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Richard Tortoriello on October 21, 2010, when the stock traded at $ 74.99. Highlights We estimate a 3% sales increase in 2010, following a 10% decline in 2009. For 2011, we project a 6% increase, with 7% growth at Carrier on a moderate recovery in U.S. residential housing as well as demand for repair and replacement, 5% growth at Otis, and 7% growth at Fire & Security, aided by the GE Security acquisition (which closed in March 2010). On the aerospace side, we project 6% growth at Hamilton Sundstrand and 5% at Pratt & Whitney, driven by increases in both OEM and aftermarket demand as commercial aerospace continues to recover, and 4% growth at Sikorsky, driven by military helicopter demand.

Investment Rationale/Risk ➤

➤

We estimate operating margins of 13.6% in 2010, up from 12.2% in 2009, and a further increase to 14.4% in 2011, on much lower restructuring spending, significantly improved operating leverage as a result of prior restructuring activities, and volume increases. We estimate EPS of $4.72 in 2010, rising to $5.25 in 2011. Our outlook for 2011 includes projected significant increases in both income tax rates and pension expense.

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

➤

B

66 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

1

➤

C

A+

We see the following trends positively affecting UTX's business: large backlogs of commercial aircraft at both Airbus and Boeing, which we view as providing good production levels through at least 2011; the expected service entry of the 787 in early 2011; an expected large rise in commercial aerospace aftermarket spending; continued strong growth in emerging economies; and improvement in the U.S. residential housing market. We expect headwinds of commodity price inflation and increased pension and tax expense to be offset by our view of UTX's strong operating leverage. Risks to our opinion and target price include the possibility that the U.S. economy re-enters recession, operational issues in UTX's business segments, and a sustained rise in the dollar. Our 12-month target price of $85 is based on an enterprise value-to-estimated 2011 EBITDA multiple of about 9X, above the 20-year historical average multiple of 8X, reflecting our view that UTX's strong operating leverage and anticipated 2011 record EPS merit an above-average valuation.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 12,091 13,890 2009 12,199 13,060 2008 13,577 15,535 2007 12,278 13,904 2006 10,446 12,046 2005 9,309 10,974

3Q -13,187 14,702 13,863 11,972 10,832

4Q -13,979 14,299 14,714 12,654 11,172

Year -52,920 58,681 54,759 47,829 42,725

Earnings Per Share ($) 2010 0.93 1.20 2009 0.78 1.05 2008 1.03 1.32 2007 0.82 1.16 2006 0.76 1.09 2005 0.64 0.95

E1.30 1.14 1.33 1.21 0.99 0.81

E1.29 1.15 1.23 1.08 0.87 0.71

E4.72 4.12 4.90 4.27 3.71 3.12

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.425 0.425 0.425 0.425

02/08 04/14 06/09 10/13

02/17 05/12 08/18 11/17

02/19 05/14 08/20 11/19

03/10/10 06/10/10 09/10/10 12/10/10

Dividends have been paid since 1936. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: UTX

United Technologies Corp Business Summary October 21, 2010 CORPORATE OVERVIEW. United Technologies is a multi-industry holding company that conducts business through six business segments: Carrier, Otis, Pratt & Whitney, UTC Fire & Security, Hamilton Sundstrand, and Sikorsky. Carrier (21% of sales and 11% of operating profits in 2009) is the world's largest maker of heating, ventilating and air-conditioning (HVAC) and refrigeration systems. It offers HVAC, refrigeration systems and food service equipment, and refrigeration-related controls for residential, commercial, industrial and transportation applications. In addition, Carrier provides installation, retrofit, and parts and services for its products, as well as those of other HVAC and refrigeration makers. International sales, including U.S. export sales, accounted for 55% of segment sales in 2009. Otis (22% of sales and 35% of operating profits) is the world's largest maker of elevators and escalators. Otis designs, manufactures, sells, installs, maintains and modernizes a wide range of passenger and freight elevators for low-, medium- and high-speed applications, as well as a broad line of escalators and moving walkways. International revenues were 80% of total segment revenues in 2009.

cial, business & general aviation, and military aircraft. P&W also sells industrial gas turbines (for industrial power generation) and space propulsion systems. P&W's Global Services provides maintenance, repair and overhaul services, and fleet management services for large commercial engines. Airbus accounted for 11% of segment sales in 2009, and the U.S. government accounted for 31%. International revenues were 51% of total segment revenues in 2009. UTC Fire & Security (10% and 7%) is a global provider of security and fire safety products and services, including intruder alarms, access control systems and video surveillance systems, specialty hazard detection and fixed supression products, portable fire extinguishers, and other firefighting equipment. In March 2010, UTX purchased GE Security, from General Electric, for $1.8 billion. International sales accounted for 82% of total segment sales in 2009.

Pratt & Whitney (24% and 26%) is a major supplier of jet engines for commerCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.25 5.48 4.12 4.05 1.54 37% 70.89 37.40 17 9

2008 NM 6.19 4.90 3.81 1.35 27% 77.14 41.76 16 9

2007 2.45 5.38 4.27 4.17 1.17 27% 82.50 61.85 19 14

2006 NM 4.74 3.71 3.64 1.02 27% 67.47 54.20 18 15

2005 0.91 4.09 3.12 3.05 0.88 28% 58.89 48.43 19 16

2004 1.84 3.73 2.76 2.59 0.70 25% 53.14 40.34 19 15

2003 2.32 3.14 2.35 2.16 0.57 24% 48.38 26.76 21 11

2002 1.46 2.93 2.21 1.32 0.49 22% 38.88 24.42 18 11

2001 1.66 2.81 1.92 1.14 0.45 23% 43.75 20.05 23 10

2000 0.95 2.63 1.78 NA 0.41 23% 39.88 23.25 22 13

52,920 8,488 1,258 705 5,760 27.5% 3,829 3,756

58,681 9,031 1,228 689 6,936 27.2% 4,689 3,648

54,759 8,223 1,173 666 6,384 28.8% 4,224 4,125

47,829 7,131 1,033 606 5,492 27.2% 3,732 3,653

42,725 6,166 984 498 4,684 26.8% 3,164 3,089

37,445 5,448 978 363 4,107 26.4% 2,788 2,619

31,034 4,644 799 375 3,470 27.1% 2,361 2,147

28,212 4,384 727 381 3,276 27.1% 2,236 1,298

27,897 4,138 905 426 2,807 26.9% 1,938 1,113

26,583 3,999 859 382 2,758 30.9% 1,808 NA

Balance Sheet & Other Financial Data (Million $) Cash 4,449 Current Assets 23,194 Total Assets 55,762 Current Liabilities 17,913 Long Term Debt 8,257 Common Equity 20,066 Total Capital 29,645 Capital Expenditures 826 Cash Flow 5,087 Current Ratio 1.3 % Long Term Debt of Capitalization 27.9 % Net Income of Revenue 7.2 % Return on Assets 6.8 % Return on Equity 21.3

4,327 24,099 56,469 19,434 9,337 15,917 27,379 1,216 5,917 1.2 35.6 8.0 8.5 25.2

2,904 22,071 54,575 17,469 8,015 21,355 30,282 1,153 5,319 1.3 26.5 7.7 8.3 21.9

2,546 18,844 47,141 15,208 7,037 17,297 25,170 954 4,765 1.2 28.0 7.8 8.0 21.8

2,247 17,206 45,925 15,345 5,935 16,991 23,704 929 4,148 1.1 25.0 7.4 7.3 20.2

2,265 15,522 40,035 12,947 4,231 14,008 19,149 795 3,766 1.2 22.1 7.4 7.4 21.7

1,623 12,364 34,648 10,295 4,257 11,707 16,673 530 3,160 1.2 25.5 7.6 7.4 23.9

2,080 11,751 29,090 7,903 4,632 10,506 16,445 586 2,963 1.5 28.2 7.9 8.0 23.0

1,558 11,263 26,969 8,371 4,237 8,369 13,899 793 2,843 1.3 30.5 6.9 7.4 24.2

748 10,662 25,364 9,344 3,476 7,662 12,514 937 2,667 1.1 27.8 6.8 7.3 24.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Financial Plz, Hartford, CT 06103. Telephone: 860-728-7000. Email: [email protected] Website: http://www.utc.com

Chrmn, Pres & CEO: L.R. Chenevert SVP & CFO: G.J. Hayes SVP & General Counsel: C.D. Gill, Jr. CTO: J.M. McQuade

Treas: T.I. Rogan Founded: 1934 Investor Contact: J. Moran (860-728-7062) Domicile: Delaware Board Members: L. R. Chenevert, J. V. Faraci, J. P. Employees: 206,700 Garnier, J. S. Gorelick, C. M. Gutierrez, E. A. Kangas, C. R. Lee, R. D. McCormick, H. McGraw, III, R. B. Myers, H. P. Swygert, A. Villeneuve, C. T. Whitman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: UNM | UNM is in the S&P 500

Unum Group S&P Recommendation HOLD

★★★★★

Price $22.42 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Life & Health Insurance

12-Mo. Target Price $24.00

Investment Style Large-Cap Value

Summary The largest provider of individual and group disability insurance products in the U.S. and the U.K., Unum provides other products and services as well.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $26.42– 18.48 Trailing 12-Month EPS $2.58 Trailing 12-Month P/E 8.7 $10K Invested 5 Yrs Ago $12,257

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.79 3.10 8.0 326.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

10

Vol. Mil. 24 16 8 0

HIGH

Quantitative Evaluations 3

S&P Quality Ranking

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

D

Analysis prepared by Bret Howlett on August 17, 2010, when the stock traded at $ 21.03. Highlights

Investment Rationale/Risk

We project earnings for Unum US to increase 5% to 7% on a lower expense ratio and higher investment income, although premium growth should be tempered by the weak economy and mixed sales results. While we expect persistency to hold steady, we see the benefit ratio rising due to high unemployment. In 2009, Unum US benefited from reduced claim activity, which we do not believe is sustainable. We expect sales to be challenged in the core market due to the weak labor market and the reluctance of employers to add new benefits to existing accounts. We expect earnings to decline in the mid-single digits in supplemental and voluntary lines, as we believe these products are more economically sensitive.

➤

We look for earnings to rise modestly at Colonial, as favorable agent recruitment trends and lower expenses should more than offset pricing pressure and an increase in the benefit ratio. We expect earnings at Unum UK to decline modestly on higher claims and unfavorable foreign currency shifts.

➤

We project operating EPS of $2.79 in 2010 and $3.10 in 2011. Our estimates exclude realized investment gains or losses.

➤

While we are encouraged by UNM's recent solid underwriting results, we believe that the challenging macro environment will temper sales growth, increase claims, and restrict disability margins and enrollment levels. We believe UNM will continue to experience a decline in sales and poor risk results in the large case market. However, UNM maintains a conservative investment portfolio, and we think its strong capital position will be a competitive advantage that should enable the company to gain market share in some businesses. We expect UNM to use its excess capital and liquidity to repurchase its shares in 2010. We view favorably UNM's lack of exposure to the equity markets in this environment. Risks to our recommendation and target price include worse-than-expected client retention and sales following income protection product price increases; unfavorable claims handling in the group income protection area; higherthan-forecast costs for reassessed claims; and investment losses. Our 12-month target price of $24 is 0.9X our 2010 book value per share (ex-FAS 115) estimate, below UNM's historical multiple.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE

43

Options: ASE, CBOE, P

➤

MEDIUM

Our risk assessment reflects regulatory scrutiny surrounding certain claims practices. Although the largest lawsuits have been settled, UNM faces the possibility of additional suits and increased reserving for benefit costs in its claims reassessment. Our risk assessment also reflects the poor macro environment and the possibility of lower sales going forward. However, we believe UNM maintains a strong financial position relative to peers, and we believe its investment losses will be lower than the group's.

15

➤

1.72 5 BBB-

Below Avg.

20

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

25

5

$7.326 1.65 $0.37 93

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,562 2,511 2009 2,449 2,628 2008 2,541 2,675 2007 2,601 2,666 2006 2,600 2,622 2005 2,572 2,657

3Q -2,518 2,443 2,610 2,617 2,544

4Q -2,497 2,324 2,644 2,696 2,665

Year -10,091 9,982 10,520 10,535 10,437

Earnings Per Share ($) 2010 0.69 0.63 2009 0.50 0.80 2008 0.46 0.69 2007 0.49 0.43 2006 0.23 0.37 2005 0.49 0.55

E0.66 0.67 0.32 0.52 -0.19 0.17

E0.76 0.60 0.13 0.45 0.79 0.43

E2.79 2.57 1.62 1.89 1.21 1.64

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.083 0.083 0.093 0.093

01/11 04/12 07/16 10/07

01/21 04/22 07/28 10/21

01/25 04/26 07/30 10/25

02/19/10 05/21/10 08/20/10 11/19/10

Dividends have been paid since 1925. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: UNM

Unum Group Business Summary August 17, 2010 CORPORATE OVERVIEW. UNM is the largest provider of disability insurance products in the United States and the U.K. through its subsidiaries. The company offers other products, including long-term care insurance, life insurance, group benefits, and related services. The company has five operating segments: Unum US, Unum UK, Colonial, Individual Disability - Closed Block, and Corporate and Other. Unum US accounted for 61% of operating revenue in 2009, Unum UK 8.8%, Colonial 11%, Individual Disability - Closed Block 17%, and Corporate and Other 2.0%. In 2009, premium income for Unum US declined 3.1%, Unum UK premium income declined roughly 1.3%, and Colonial premium income increased 3.3%. The Unum US segment includes group income protection insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business. The Unum UK segment includes group long-term income protection insurance, group life products, and individual income protection products issued by Unum Limited and sold primarily in the U.K. through field sales personnel and independent brokers and consultants. The Colonial segment includes a broad line of products sold mainly to employees at their

workplaces, including income protection, life, and cancer and critical illness products. The Corporate and Other segment includes investment income on unallocated corporate assets, interest expense, and certain unallocated corporate income and expense items. In addition, the segment includes products that are no longer actively marketed, with the exception of the closed block business, including individual life and corporate-owned life insurance, reinsurance pools and management operations, group pension, health insurance, and individual annuities. The Individual Disability Closed Block segment mainly includes individual income protection insurance written on a noncancelable basis with a fixed annual premium. Generally, the policies are individual disability insurance policies designed to be distributed to individuals in a non-workplace setting and written prior to UNM's restructuring of its individual disability business, where the focus was changed to workplace distribution.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 32.48 NA 2.57 2.64 0.31 12% 23.25 7.61 9 3

2008 18.34 NA 1.62 2.43 0.30 19% 27.50 9.33 17 6

2007 21.72 NA 1.89 2.10 0.30 16% 28.20 19.79 15 10

2006 21.93 NA 1.21 1.29 0.30 25% 24.44 16.15 20 13

2005 23.76 NA 1.64 1.81 0.30 18% 22.90 15.50 14 9

2004 23.45 NA -0.65 -0.26 0.30 NM 18.25 11.41 NM NM

2003 22.94 NA -0.96 -0.54 0.37 NM 19.54 5.91 NM NM

2002 25.58 2.52 1.68 2.35 0.59 35% 29.70 16.30 18 10

2001 21.74 2.44 2.39 2.30 0.59 25% 33.75 22.25 14 9

2000 20.29 2.37 2.33 NA 0.59 25% 31.94 11.94 14 5

677,278 1,603 5,873 2,347 10,091 1,292 NA 853 878

629,069 1,620 6,163 2,389 9,982 824 NA 553 824

692,012 1,641 6,261 2,410 10,520 997 NA 672 748

773,070 1,761 6,187 2,321 10,535 465 NA 404 428

833,363 7,816 1,787 2,188 10,437 710 NA 514 570

908,034 5,985 1,855 2,159 10,465 -260 NA -192 -77.1

787,199 1,800 5,816 2,158 9,992 -435 NA -265 -150

712,826 1,683 5,770 2,086 9,613 1,019 614 817 568

642,988 1,554 5,524 2,003 9,395 825 593 582 564

583,848 1,448 5,608 2,060 9,432 866 NA 564 NA

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 714 Premiums Due 1,732 Investment Assets:Bonds 37,914 Investment Assets:Stocks Nil Investment Assets:Loans 4,282 Investment Assets:Total 43,295 Deferred Policy Costs 2,483 Total Assets 54,506 Debt 2,550 Common Equity 8,500 % Return on Revenue 8.5 % Return on Assets 1.6 % Return on Equity 11.5 % Investment Yield 5.8

656 1,785 31,926 208 4,029 37,866 2,472 49,417 2,259 6,398 5.5 1.1 7.7 6.1

791 1,915 35,655 Nil 3,705 40,951 2,381 52,433 2,515 8,040 6.4 1.3 8.5 5.9

768 2,057 35,002 Nil 944 40,163 2,983 52,823 2,660 7,719 3.9 0.8 5.4 5.8

688 NA 34,857 13.6 3,941 39,357 2,913 51,867 3,262 7,364 4.9 1.0 7.0 5.8

719 NA 32,488 12.9 3,572 36,588 2,883 50,832 2,862 7,224 NM NM NM 6.0

663 NA 31,187 39.1 3,353 35,028 3,052 49,718 2,789 7,271 NM NM NM 6.5

734 NA 27,486 27.9 3,344 31,152 2,982 45,260 1,914 9,398 8.5 1.9 9.1 7.0

2,515 NA 24,393 10.9 3,510 28,324 2,675 42,443 2,304 5,940 6.2 1.4 10.1 7.3

NA NA 22,589 24.5 3,679 26,604 2,424 40,364 1,915 5,576 6.0 1.4 10.7 7.8

Income Statement Analysis (Million $) Life Insurance in Force Premium Income:Life Premium Income:A & H Net Investment Income Total Revenue Pretax Income Net Operating Income Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Fountain Square, Chattanooga, TN 37402-1307. Telephone: 423-294-1011. Website: http://www.unum.com Chrmn: J.S. Fossel

Pres & CEO: T.R. Watjen Pres, CEO & EVP: J.F. McGarry EVP, CFO & Chief Acctg Officer: R.P. McKenney EVP & General Counsel: E.L. Bishop, III

Investor Contact: T.A. White (423-294-8996) Founded: 1887 Board Members: E. M. Caulfield, J. S. Fossel, P. H. Domicile: Delaware Godwin, R. E. Goldsberry, K. T. Kabat, T. A. Kinser, G. C. Employees: 9,700 Larson, A. MacMillan, Jr., E. J. Muhl, M. J. Passarella, W. J. Ryan, T. R. Watjen

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: URBN | URBN is in the S&P 500

Urban Outfitters Inc S&P Recommendation BUY

★★★★★

Price $30.28 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel Retail

12-Mo. Target Price $44.00

Investment Style Large-Cap Growth

Summary This company primarily operates three specialty retail brands -- Urban Outfitters, Anthropologie, and Free People -- in multi-channel settings.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.84– 29.03 Trailing 12-Month EPS $1.54 Trailing 12-Month P/E 19.7 $10K Invested 5 Yrs Ago $9,631

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

1.69 1.95 17.9 165.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.999 Nil Nil 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.05 15 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as URBN's strong balance sheet and rising cash flow, offset by fashion risk.

40 30

Quantitative Evaluations

20 15

S&P Quality Ranking D

C

B-

B+ B

B+

A-

A

A+

Vol. Mil.

Relative Strength Rank

30 20 10 0 5

WEAK

14 LOWEST = 1 4

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Marie Driscoll, CFA on August 20, 2010, when the stock traded at $ 32.95. Highlights ➤

➤

➤

URBN's broad and shallow merchandise strategy with frequent inventory flows delivers newness to the stores, while perpetuating exclusivity and driving full-price sales. That's a strategy we like. Moreover, we are impressed with caliber of the URBN management team, and its approach to brand development. URBN has numerous concepts in various stages including a wedding lifestyle concept planned for 2011. We see URBN doubling its retail brand portfolio over the next five years. We look for 18% sales growth in FY 11 (Jan.), assuming a high single digit comp, about 45 new stores, and 20% growth in the DTC channel. For FY 12, we project 15% sales growth. We see 190 basis points (bps) of EBIT margin improvement in FY 11, to 19.4% (on top of 140 bps of expansion in FY 10) on improved initial markups (IMUs) and continued gains in inventory management, resulting in reduced markdowns. We see another 10 bps in FY 12. Longer term, URBN's increasing scale and improved sourcing should support further IMU expansion and drive a 20% operating margin. New concept development is expected to reduce FY 11 EPS by about $0.03.

Investment Rationale/Risk ➤

We regard URBN's retail concepts and growth opportunities as superior, given its strong management and merchant and design teams, and under-penetrated niche brands that we see providing above-average long-term sales and earnings growth. We see URBN benefiting from a growing demand for authenticity and value, and its relatively small base of 341 stores across its three main retail brands provide ample opportunity for store expansion globally. URBN has communicated a 1,000-store goal, which we regard as appropriate and conservative.

Revenue (Million $) 1Q 2Q 2011 480.0 552.2 2010 384.8 458.6 2009 394.3 454.3 2008 314.5 348.5 2007 270.0 285.6 2006 231.3 253.4

3Q -505.9 478.0 379.3 308.4 288.8

4Q -588.5 508.1 465.4 360.8 318.6

Year -1,938 1,835 1,508 1,225 1,092

Earnings Per Share ($) 2011 0.31 0.42 2010 0.18 0.29 2009 0.25 0.33 2008 0.17 0.33 2007 0.12 0.15 2006 0.16 0.18

E0.44 0.36 0.35 0.27 0.21 0.22

E0.53 0.45 0.24 0.32 0.21 0.21

E1.69 1.28 1.17 0.95 0.69 0.77

Fiscal year ended Jan. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data ➤

Risks to our recommendation and target price include the possibility that URBN will fail to continue to source brand-appropriate merchandise while executing an aggressive growth strategy. A slowdown in store level productivity would likely adversely affect sales and profits.

➤

Our 12-month target price of $44 is based on a 26X multiple of our FY 11 EPS estimate, which is about a 35% premium to peers and compares with URBN's average forward multiple over the past 60 months of 27X (in a range of 10X to 41X).

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: URBN

Urban Outfitters Inc Business Summary August 20, 2010 CORPORATE OVERVIEW. Urban Outfitters operates specialty retail stores under the Urban Outfitters, Anthropologie and Free People brands, as well as a wholesale division. The company opened its first store in Philadelphia in 1970, near the University of Pennsylvania. URBN's strategy is to provide unified store environments that establish emotional bonds with the customer. The company also offers products directly to the consumer through its ecommerce websites (www.urbn.com, www.anthropologie.com and www.freepeople.com) and the Urban Outfitters, Anthropologie and Free People catalogs. MARKET PROFILE. The U.S. apparel market generated $188.5 billion in sales at retail in 2009, down 4%, according to NPD Fashionworld consumer estimated data. Sales of women's apparel represented 55%, men's 27%, and kids' the remaining 18%. While the U.S. apparel market is mature, it is fragmented, with national brands marketed by 20 companies accounting for about 30% of total apparel sales. Private label (or store) brands account for an estimated 40% of apparel sales. With 17 Urban Outfitters stores in Europe and its directto-consumer catalogs and websites, URBN's breadth is international. In addition to URBN's apparel and accessories product offerings, its merchandise mix includes furniture and home ware and apartment ware, a more fragmented, faster-growing market that S&P estimates at $120 billion at retail.

COMPETITIVE LANDSCAPE. The retail landscape is consolidating, with share accruing to mass merchants and specialty chains as traditional department stores lose ground. Specialty chains, we believe, compete on customer knowledge garnered in daily interactions, focus groups and market intelligence, with this knowledge combined with high customer service levels resulting in an attractive price/value equation for consumers, in our view. By channel, specialty stores account for the largest share of apparel sales, at about 31% of 2009 apparel sales. This penetration varies by age for a high of 42% for teenagers (13-19 year olds), to less than 20% for those 45 years and older. Upheaval in the department store and specialty retail channels creates a window of opportunity over the coming 18-24 months for adept retailers and apparel brands to capture increased share. In the past few years, a number of new concepts targeting the 25+ age group launched to questionable success. We believe URBN's distinct market positioning is an ample barrier to new competition, and its design and merchandising competency is not easily replicated.

Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 7.69 1.79 1.28 1.28 NA Nil 2009 35.84 13.63 28 11

2009 6.28 1.63 1.17 1.19 Nil Nil 2008 38.40 12.33 33 11

2008 5.14 1.35 0.95 0.94 Nil Nil 2007 29.40 19.20 31 20

2007 4.09 1.02 0.94 0.69 Nil Nil 2006 29.89 13.65 43 20

2006 3.40 1.00 0.77 0.42 Nil Nil 2005 33.77 18.93 44 25

2005 2.47 0.73 0.54 0.40 Nil Nil 2004 24.24 9.17 43 16

2004 1.82 0.44 0.30 0.27 Nil Nil 2003 10.32 2.09 34 7

2003 1.45 0.29 0.18 0.17 Nil Nil 2002 4.65 2.21 13 NA

2002 1.05 0.22 0.11 0.10 Nil Nil 2001 3.11 0.95 29 9

2001 0.94 0.16 0.08 0.06 Nil Nil 2000 3.68 0.80 48 11

1,938 425 86.2 NA 344 36.2% 220 219

1,835 379 79.5 Nil 309 35.6% 199 203

1,508 294 68.7 Nil 234 31.6% 160 160

1,225 220 55.7 Nil 170 31.7% 116 116

1,092 247 39.3 Nil 212 38.4% 131 71.0

828 180 31.9 Nil 150 39.8% 90.5 65.9

548 103 22.4 Nil 81.3 40.5% 48.4 43.7

423 63.6 18.2 Nil 46.1 40.5% 27.4 25.8

349 41.0 15.5 Nil 25.2 40.5% 15.0 13.6

295 29.9 12.0 Nil 17.8 41.0% 10.5 8.81

Balance Sheet & Other Financial Data (Million $) Cash 502 Current Assets 806 Total Assets 1,636 Current Liabilities 189 Long Term Debt NA Common Equity 1,297 Total Capital 1,297 Capital Expenditures 109 Cash Flow 306 Current Ratio 4.3 % Long Term Debt of Capitalization Nil % Net Income of Revenue 11.4 % Return on Assets 14.8 % Return on Equity 18.7

366 624 1,323 141 Nil 1,054 1,054 113 279 4.4 Nil 10.9 16.2 20.9

185 434 1,143 167 Nil 853 853 115 229 2.6 Nil 10.6 15.7 21.0

222 366 899 135 Nil 675 675 212 172 2.7 Nil 9.5 13.9 18.8

257 385 769 134 Nil 561 561 128 170 2.9 Nil 12.0 19.7 27.2

219 288 557 98.3 Nil 402 402 75.1 122 2.9 Nil 10.9 19.2 26.1

139 176 360 57.8 Nil 290 290 33.1 70.8 3.0 Nil 8.8 15.1 18.8

95.1 145 278 43.1 Nil 224 224 22.2 45.6 3.4 Nil 6.5 11.6 14.8

28.3 82.1 195 40.8 Nil 146 146 22.3 30.5 2.0 Nil 4.3 8.2 10.9

16.6 65.0 169 33.3 Nil 130 130 36.9 22.5 2.0 Nil 3.6 6.5 8.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 5000 S Broad St, Philadelphia, PA 19112-1495. Telephone: 215-454-5500. Website: http://www.urbanoutfitters.com Chrmn & Pres: R.A. Hayne

CEO: G.T. Senk CFO: E. Artz Chief Admin Officer: F. Zausner Chief Acctg Officer & Cntlr: F.J. Conforti

Investor Contact: J.E. Kyees Board Members: S. A. Belair, H. S. Cherken, Jr., R. A. Hayne, J. S. Lawson, III, G. T. Senk, R. H. Strouse

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1976 Domicile: Pennsylvania Employees: 14,000

Stock Report | October 23, 2010 | NYS Symbol: VLO | VLO is in the S&P 500

Valero Energy Corp S&P Recommendation HOLD

★★★★★

Price $17.65 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Refining & Marketing

12-Mo. Target Price $19.00

Investment Style Large-Cap Blend

Summary This company is North America's largest oil refiner, one of the largest independent U.S. refined petroleum products retailers, and operates refineries that can process sour and acidic crudes.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $21.49– 15.49 Trailing 12-Month EPS $-2.79 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $3,999

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.51 2.68 11.7 566.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.994 1.13 $0.20 74

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.09 NM BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of VLO's strong business profile in the volatile and competitive oil refining industry. The company possesses above-average refining complexity, which allows it to process a large amount of lower-cost heavy and sour crudes.

80 60 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 90 60 30 0

D

C

B-

B B

B+

A-

A

Relative Strength Rank

5

3

2

4

4

A+

MODERATE

39

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Tina J. Vital on September 29, 2010, when the stock traded at $ 17.43. Highlights ➤

➤

Light-heavy crude differentials widened in the first half of 2010, and diesel and secondary product margins widened sequentially in the second quarter on improved demand. We expect third-quarter throughput rates to rise 4% from the second quarter. Overall, we project that U.S. Gulf Coast 3-2-1 crack spreads will narrow 5% in 2010, but widen 16% in 2011. In June 2010, VLO sold its discontinued operations at Delaware City to PBF Energy Partners for $220 million (or $1,048 per barrel of crude production capacity), and in September 2010, agreed to sell its Paulsboro refinery to PBR Energy Partners for $360 million (or $1,946 per barrel); we view both deal values as fair considering difficult market conditions. VLO is exploring options for its Aruba refinery. In June, maintenance began at the refinery (shut down in July 2009) with the potential to restart in 2010.

Investment Rationale/Risk ➤

➤

➤ ➤

VLO posted an after-tax operating loss in the first quarter on narrowed margins, but profitability was restored in the second quarter. We expect continued improvement through 2012 on a better economic outlook and strategic actions.

VLO is focused on the refining of heavy and sour crudes. While we look for refining margins to remain pressured through 2016 on surplus global refining capacity, we expect the discounts on heavy sour crude to improve as oil prices rise. With fuel demand strengthening, we expect refining throughputs to rise (which should permit lower operating expenses per barrel), and retail marketing and ethanol to contribute to solid earnings in 2010. Over the long term, we believe VLO's size and ability to refine lower cost and quality crude oils offer strategic advantages. Risks to our recommendation and target price include weaker economic conditions, excess industry refining capacity, and changes in operating conditions that lead to a narrowing of margins or reduced throughput rates. A blend of our discounted cash flow ($19 per share, assuming a WACC of 7.4% and terminal growth of 3%) and relative market valuations leads to our 12-month target price of $19. This represents an expected enterprise value of about 3.9X our 2011 EBITDA estimate, a discount to the peer average.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 19,435 21,550 2009 13,329 17,375 2008 27,945 36,436 2007 18,755 24,202 2006 20,941 26,781 2005 14,943 18,032

3Q -18,523 35,753 23,699 24,319 23,283

Earnings Per Share ($) 2010 -0.18 0.94 2009 0.59 -0.48 2008 0.48 1.38 2007 1.86 3.57 2006 1.32 2.98 2005 0.96 1.53

E0.51 -1.12 2.18 1.34 2.55 1.47

4Q Year --18,867 68,144 18,358 118,298 28,671 95,327 19,792 91,833 25,894 82,162

E0.24 -0.32 -6.36 1.02 1.80 2.06

E1.51 -0.65 -2.16 7.72 8.64 6.10

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.050 0.050 0.050

10/15 01/27 04/29 07/29

11/06 02/12 05/17 08/16

11/11 02/17 05/19 08/18

12/09/09 03/17/10 06/16/10 09/15/10

Dividends have been paid since 1997. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: VLO

Valero Energy Corp Business Summary September 29, 2010 CORPORATE OVERVIEW. Incorporated in 1981 under the name Valero Refining and Marketing Co., the company changed its name to Valero Energy Co. (VLO) in 1997. In 2001, VLO merged with Ultramar Diamond Shamrock, and in 2005 with Premcor Inc., creating the largest refiner in North America, based on atmospheric distillation capacity.

ed 53% of VLO's throughput volumes; sweet crude oil 28%; and blendstocks and other feedstocks 19%. About 55% of VLO's current crude oil feedstock requirements were purchased through term contracts, with the remainder generally purchased on the spot market. About 75% of 2009 crude oil feedstocks were imported from foreign sources.

The company operates in three business segments: Refining (87% of 2009 operating revenues, 19% of 2009 operating income), Ethanol (11%; 52%), and Retail (2%, 29%). VLO serves customers in the U.S. (86% of 2009 revenues), Canada (9%), and other countries (5%); no single customer accounted for over 10% of consolidated operating revenues.

The Ethanol segment includes sales of internally produced ethanol and distillers grains. As of April 2010, VLO owned 10 ethanol plants with production capacity of about 1.11 billion gallons per year; three of these facilities were acquired in the 2010 first quarter. Operations are located in the central plains region of the U.S.

The Refining segment includes refining operations, wholesale marketing, product supply and distribution, and transportation operations. As of year-end 2009, the company owned and operated 15 refineries in the U.S., Canada and Aruba, with a combined throughput capacity of 2.78 million barrels per day (b/d). These capacities by region include: Gulf Coast (eight refineries, 58% of 2009 throughput capacity), the Mid-Continent (three, 16%), the West Coast (two, 11%), and the Northeast (two, 15%).

VLO is one of the largest independent retailers of refined products in the central and southwest U.S. and eastern Canada. Its retail operations are segregated geographically into two groups: Retail-U.S. System (991 company-operated sites - 79% owned, 21% leased - in 2009) and Retail-Canada (479 retail stores or cardlocks, owned or leased).

During 2009, sour crude oils, acidic sweet crude oils and residuals representCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.67 2.17 -0.65 -0.67 0.60 NM 26.20 15.29 NM NM

2008 29.82 0.18 -2.16 2.32 0.57 NM 71.12 13.94 NM NM

2007 31.75 9.55 7.72 7.73 0.48 6% 78.68 47.66 10 6

2006 23.33 10.47 8.64 8.32 0.30 3% 70.75 46.84 8 5

2005 15.82 7.57 6.10 6.02 0.19 3% 58.63 21.01 10 3

2004 9.55 3.24 3.27 3.25 0.15 4% 23.91 11.43 7 3

2003 5.86 2.31 1.27 1.25 0.15 11% 11.77 8.05 9 6

2002 3.24 1.23 0.21 0.14 0.10 48% 12.49 5.79 60 28

2001 3.90 2.75 2.21 2.14 0.09 4% 13.15 7.88 6 4

2000 6.28 1.86 1.40 NA 0.08 6% 9.66 4.63 7 3

67,271 NA 1,527 408 -449 21.6% -352 -366

118,298 20.4 1,038 340 336 NM -1,131 1,212

95,327 8,278 1,360 466 6,726 32.1% 4,565 4,572

91,833 9,165 1,155 210 8,196 33.3% 5,463 5,258

82,162 6,334 875 266 5,287 32.1% 3,590 3,534

54,619 2,979 618 260 2,710 33.4% 1,804 1,785

37,969 1,733 511 278 989 36.9% 622 604

26,976 920 449 256 164 35.5% 91.5 60.0

14,988 1,139 138 102 895 37.0% 564 547

14,671 723 112 83.0 528 35.8% 339 NA

Balance Sheet & Other Financial Data (Million $) Cash 825 Current Assets 10,923 Total Assets 35,629 Current Liabilities 7,798 Long Term Debt 7,163 Common Equity 14,725 Total Capital 22,125 Capital Expenditures 2,327 Cash Flow 1,175 Current Ratio 1.4 % Long Term Debt of Capitalization Nil % Return on Assets NM % Return on Equity NA

940 9,450 34,417 6,209 6,264 15,620 26,047 2,790 93.0 1.5 24.0 NM NM

2,495 14,792 42,722 11,914 6,470 18,507 28,998 2,260 5,529 1.2 22.3 11.4 24.6

1,590 10,760 37,753 8,822 4,657 18,605 27,309 3,187 6,616 1.2 17.1 15.5 32.5

436 8,276 32,728 7,305 5,156 14,982 20,206 2,133 4,452 1.1 25.5 13.8 31.7

864 5,264 19,392 4,534 3,901 7,590 13,710 1,292 1,791 1.2 28.5 10.3 27.3

369 3,817 15,664 3,064 4,245 5,535 11,585 976 1,128 1.2 36.6 4.1 12.5

409 3,536 14,465 3,007 4,867 4,308 10,592 628 541 1.2 45.9 0.6 2.2

346 4,113 14,337 4,730 2,805 4,203 8,884 394 701 0.9 31.6 6.0 19.7

14.6 1,285 4,308 1,039 1,042 1,527 3,149 195 451 1.2 33.0 9.3 26.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation, Depletion and Amortization Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Valero Way, San Antonio, TX 78249-1616. Telephone: 210-345-2000. Email: [email protected] Website: http://www.valero.com

Chrmn, Pres & CEO: W.R. Klesse COO & EVP: R.J. Marcogliese Investor Contact: M.S. Ciskowski (210-345-2000) EVP, CFO & Chief Acctg Officer: M.S. Ciskowski

EVP & General Counsel: K.S. Bowers Founded: 1955 Board Members: R. K. Calgaard, J. D. Choate, I. F. Domicile: Delaware Engelhardt, R. M. Escobedo, W. R. Klesse, B. Marbut, D. Employees: 20,920 L. Nickles, R. Profusek, S. K. Purcell, S. M. Waters

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: VAR | VAR is in the S&P 500

Varian Medical Systems Inc S&P Recommendation HOLD

★★★★★

Price $61.03 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $61.00

Investment Style Large-Cap Growth

Summary This leading maker of radiotherapy cancer systems also supplies X-ray tubes and flat-panel digital subsystems for imaging in medical, scientific and industrial applications.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $62.60– 35.50 Trailing 12-Month EPS $2.82 Trailing 12-Month P/E 21.6 $10K Invested 5 Yrs Ago $13,687

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.93 3.20 20.8 121.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

0.76 9 NA

STARS

MEDIUM

HIGH

Our risk assessment reflects that while Varian offers some of the more technologically advanced products in the oncology equipment industry, it operates in a competitive industry characterized by technological innovation and new product entrants. In addition, although we believe radiation therapy will continue to be an integral component of global cancer treatment protocols, the continued development of drug-based oncology treatments represents a substantial threat to the company's radiation therapy equipment business. In our view, tight credit market conditions globally could also negatively affect capital expenditure decisions by Varian's customers.

50 40

30

Vol. Mil.

5 3

LOW

Below Avg.

60

5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

9 6 3 0

$7.423 Nil Nil 92

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Quantitative Evaluations S&P Quality Ranking

B+

Options: ASE

Analysis prepared by Phillip M. Seligman on August 06, 2010, when the stock traded at $ 55.47. Highlights ➤

➤

➤

We look for total sales in FY 11 (Sep.) to rise about 6%, following a 7% increase we see in FY 10. We see a modest pickup in demand for RapidArc, partly on demand for the new TrueBeam platform in the U.S., and continued strength in lower-end radiation oncology systems, particularly outside the U.S. We expect strong demand for VAR's X-ray products to continue, assuming the diagnostic imaging market recovery is sustainable, but think sales comparisons become tougher in FY 11. We assume currency exchange will remain unfavorable to FY 10 growth through year end, but will be neutral in FY 11. We see gross margins continuing to widen through FY 11, mainly as the benefits of product mix shifts and cost-control initiatives outweigh pricing pressures. We also expect the SG&A cost ratio to be stable in FY 11, after declining in FY 10 on cost control, but we see the R&D cost ratio gradually rising, reflecting VAR's intention to boost R&D spending. Our FY 10 EPS estimate for continuing operations is $2.93, versus $2.65 earned FY 09, and we look for $3.20 in FY 11.

Investment Rationale/Risk ➤

➤

➤

VAR's radiation oncology systems are bigticket items and their order rates have been hurt in the U.S., where hospitals face tightened capital budgets. We see U.S. hospitals prioritizing radiation oncology modernization assuming their budgets expand meaningfully, which we do not see in the near term. Oncology orders grew in the U.S. in the second quarter after a year of declines, reflecting interest in VAR's new TrueBeam linear accelerator. Still, a significant number of the TrueBeam orders were backlog upgrades. Although more than half were new orders, we are cautious regarding the sustainability of growth of new systems following purchases by early adopters. However, VAR is seeing healthy orders from overseas markets where healthcare is government-run. Risks to our recommendation and target price include unfavorable changes in Medicare reimbursements, competitive pricing, and further deterioration in the outlook for hospital spending plans in 2010. Our 12-month target price of $61 is 20.5X our calendar 2010 EPS estimate of $2.97, a valuation discount to VAR's historical averages.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

D

C

B-

B

B+

A-

A

Relative Strength Rank

A+

MODERATE 59

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 540.9 585.6 2009 508.7 553.6 2008 451.2 518.4 2007 387.9 442.6 2006 334.2 413.9 2005 299.0 350.8

3Q 578.0 509.8 507.4 423.7 395.7 346.5

4Q -642.0 592.7 522.4 454.0 386.2

Year -2,214 2,070 1,777 1,598 1,383

Earnings Per Share ($) 2010 0.63 0.73 2009 0.56 0.64 2008 0.46 0.57 2007 0.37 0.46 2006 0.30 0.41 2005 0.29 0.39

0.74 0.68 0.61 0.39 0.49 0.37

E0.83 0.78 0.68 0.61 0.61 0.45

E2.93 2.65 2.31 1.83 1.80 1.50

Fiscal year ended Sep. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data Cash dividends were last paid in 1999.

Stock Report | October 23, 2010 | NYS Symbol: VAR

Varian Medical Systems Inc Business Summary August 06, 2010 CORPORATE OVERVIEW. Varian is one of the largest manufacturers of oncology diagnostic products, X-ray tubes, and imaging subsystems. The company is focused primarily on capturing share in the global oncology radiation therapy markets. Cancer rates are expected to increase 50% by 2020. MARKET PROFILE. Driven by an aging global population and improved diagnostic methods, the number of newly diagnosed cancer cases continues to increase. According to estimates published in February 2005 by the Annals of Oncology, nearly 2.9 million new cancer cases were diagnosed during 2004, and the U.S. National Cancer Institute estimates that cancer diagnoses will rise 1.6 million per year by 2010, a 23% increase from the 1.3 million cancers per year seen in 2000. Radiation therapy is commonly used in the treatment of cancer, alone or in combination with surgery or chemotherapy. The most common type of radiotherapy uses X-rays delivered by external beams, and is administered using linear accelerators. In addition to external radiation, radioactive seeds, wires or ribbons are sometimes inserted into a tumor or into a body cavity (brachytherapy), a modality that does not require radiation to pass through healthy tissues.

kets and services hardware and software products for cancer radiation treatment, including linear accelerators, treatment simulators and verification products, and software systems for planning cancer treatment and managing information and images for radiation oncology. Products focus on enabling a new therapy that delivers high doses of radiation to tumors while reducing risk to surrounding tissues. This three-dimensional conformal radiation therapy, called Intensity Modulation Radiation Therapy (IMRT), links treatment planning, information management and driver software to the treatment delivery device, the linear accelerator. This is designed to allow clinicians to determine and deliver a clinically optimized plan of radiation for each patient. IMRT is used to treat head and neck, breast, prostate, pancreatic, lung, liver, gynecological and central nervous system cancers. VAR has also developed image-guided radiation therapy (IGRT), which improves radiation therapy precision by using technologies that compensate for tumor changes and movements during and between treatments.

Varian's oncology systems group (81% of FY 09 (Sep.) revenues) designs, marCompany Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 8.72 3.01 2.65 2.63 Nil Nil 47.78 27.10 18 10

2008 6.43 2.60 2.31 2.28 Nil Nil 65.84 33.12 29 14

2007 4.92 2.08 1.83 1.83 Nil Nil 53.22 37.30 29 20

2006 5.21 2.02 1.80 1.80 Nil Nil 61.70 41.10 34 23

2005 4.11 1.70 1.50 1.34 Nil Nil 52.92 31.65 35 21

2004 3.74 1.32 1.18 1.04 Nil Nil 46.49 29.63 39 25

2003 3.71 1.06 0.92 0.78 Nil Nil 35.65 23.70 39 26

2002 3.05 0.81 0.66 0.54 Nil Nil 25.66 15.80 39 24

2001 2.93 0.64 0.50 0.40 Nil Nil 19.31 13.50 39 27

2000 2.13 0.55 0.41 NA Nil Nil 17.75 6.88 43 17

2,214 519 44.6 4.10 475 30.2% 332 329

2,070 456 36.7 4.88 426 30.7% 295 292

1,777 367 32.2 4.79 343 30.1% 239 240

1,598 339 29.6 4.65 319 23.6% 244 245

1,383 332 27.1 4.70 308 33.0% 207 184

1,236 277 20.8 4.67 257 35.0% 167 148

1,042 219 20.3 4.38 201 35.0% 131 111

873 165 20.4 4.49 146 36.0% 93.6 75.9

774 129 19.3 4.13 107 36.5% 68.0 54.2

690 108 17.8 5.16 84.9 37.5% 53.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 554 Current Assets 1,672 Total Assets 2,308 Current Liabilities 842 Long Term Debt 23.4 Common Equity 1,312 Total Capital 1,344 Capital Expenditures 62.6 Cash Flow 376 Current Ratio 2.0 % Long Term Debt of Capitalization 1.7 % Net Income of Revenue 15.0 % Return on Assets 15.5 % Return on Equity 28.4

397 1,394 1,976 782 32.4 1,027 1,060 81.4 332 1.8 3.1 14.3 16.1 32.0

263 1,160 1,684 782 40.4 821 862 64.1 272 1.5 4.7 13.5 15.0 29.6

366 1,156 1,512 644 49.4 797 847 41.4 273 1.8 5.8 15.2 17.2 33.4

378 1,017 1,317 544 57.3 659 716 43.9 234 1.9 8.0 14.9 16.5 32.2

352 885 1,170 461 53.3 614 667 24.2 188 1.9 8.0 13.5 15.0 28.4

323 806 1,053 409 58.5 564 622 18.9 151 2.0 9.4 12.6 13.3 25.3

299 651 910 358 58.5 504 562 25.9 114 1.8 10.4 10.7 11.2 20.3

219 620 759 285 58.5 418 477 16.5 87.3 2.2 12.3 8.8 10.0 19.2

83.3 451 603 250 58.5 270 329 19.2 70.8 1.8 17.8 7.7 9.3 23.3

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3100 Hansen Way, Palo Alto, CA 94304-1030. Telephone: 650-493-4000. Website: http://www.varian.com Chrmn: R.M. Levy

Pres & CEO: T.E. Guertin SVP & CFO: E.W. Finney CTO: G.A. Zdasiuk Chief Acctg Officer & Cntlr: T. Chen

Investor Contact: S. Sias (650-424-5782) Founded: 1976 Board Members: S. L. Bostrom, J. S. Brown, R. Domicile: Delaware Eckert, T. E. Guertin, M. Laret, R. M. Levy, D. W. Martin, Employees: 5,100 Jr., R. Naumann-Etienne, V. Thyagarajan

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: VTR | VTR is in the S&P 500

Ventas Inc. S&P Recommendation HOLD

★★★★★

Price $52.35 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $54.00

Investment Style Large-Cap Blend

Summary This real estate investment trust invests in health care facilities, including seniors housing, specialty care facilities, hospitals, and medical office buildings.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $55.38– 38.87 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $22,137

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

2.78 3.07 18.8 157.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$8.223 4.09 $2.14 NM

Beta 1.43 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) 3 S&P Credit Rating BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects VTR's position as the owner of a large and diversified portfolio of health care-related properties that provide what we see as a steady and predictable stream of income.

50 40 30

Quantitative Evaluations 20

S&P Quality Ranking Vol.

D

C

B-

B+ B

B+

A-

A

A+

59

Mil. 15 10 5 0

Relative Strength Rank

MODERATE

37 LOWEST = 1

5

3

2

HIGHEST = 99

3

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Robert McMillan on July 30, 2010, when the stock traded at $ 50.91. Highlights ➤

➤

➤

We believe VTR has assembled a portfolio of health care properties that is well diversified in terms of asset type, geography, and tenant base. With its core focus on senior housing, we think VTR will benefit from increased demand driven by the aging baby boomer population. After revenue increases of 23% in 2008, on acquisitions, and 1.7% in 2009, we see 2010 revenue growth in VTR's need-based businesses of 7.3%, helped by acquisitions. Net operating income, occupancy levels and coverage levels improved for VTR's overall portfolio during the second quarter of 2010 versus the 2009 quarter. In VTR's Sunrise senior housing portfolio, average occupancy rose to 88.4% from 87.2%, while the average daily rate (ADR) rose 3.5%. In the medical office portfolio, same-space occupancy remained flat at 93.5%, while net operating income rose 2.2%. We are optimistic that VTR's recent acquisition of a large portfolio of medical office buildings will position it to benefit from an aging population and increased demand for medical services due to health care reform. We forecast per-share funds from operations (FFO) of $2.78 in 2010 and $3.07 in 2011.

Investment Rationale/Risk ➤

➤

We like the predictable nature of VTR's longterm triple net lease revenue stream, and believe the stock correlates less with macroeconomic trends than most other REITs. Amid an anemic economy, we favor what we see as VTR's stable revenue stream with minimal short-term lease expirations, its solid balance sheet, and its relatively secure dividend payout. Risks to our recommendation and target price include a faster-than-expected decline in seniors housing occupancy, and a decrease in government reimbursement rates.

Revenue (Million $) 1Q 2Q 2010 241.6 244.0 2009 229.4 231.9 2008 231.8 233.5 2007 119.2 193.8 2006 97.81 100.3 2005 63.80 74.95

3Q -235.8 238.6 226.3 109.7 95.93

4Q -239.0 234.0 232.6 120.6 98.30

Year -936.1 929.8 771.8 428.4 333.0

FFO Per Share ($) 2010 0.66 2009 0.66 2008 0.75 2007 0.68 2006 0.55 2005 0.48

E0.68 0.66 0.81 0.66 0.64 0.54

E0.73 0.66 0.69 0.66 0.69 0.55

E2.78 2.58 2.74 2.69 2.44 2.09

0.64 0.68 0.73 0.70 0.57 0.51

Fiscal year ended Dec. 31. Next earnings report expected: Late October. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) ➤

The stock recently traded at about 18.9X trailing 12-month FFO per share. Our 12-month target price of $54 is about 18.3X our forward fourquarter FFO per share estimate of $2.94, a moderately high multiple by historical standards, but reasonable, we believe, given VTR's portfolio and operating performance as well as its strong balance sheet and liquidity position. We see the valuation multiple narrowing to a more modest level over time, although we still see continued improvements in operating results, which should benefit from an aging population and a greater need for space in health care facilities.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.513 0.535 0.535 0.535

12/04 02/17 05/03 09/02

12/14 03/10 06/09 09/15

12/16 03/12 06/11 09/17

12/30/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1999. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: VTR

Ventas Inc. Business Summary July 30, 2010 CORPORATE OVERVIEW. Ventas Inc. is a health care REIT (real estate investment trust) that specializes in acquiring, financing and owning seniors housing and health care properties and leasing those properties to third parties or operating them through independent third party managers. At the end of 2009, its portfolio consisted of interests in 505 properties in the United States and Canada, including 244 seniors housing communities, 187 skilled nursing facilities, 40 hospitals and 34 medical office buildings (MOBs) and other properties in 43 states and two Canadian provinces. With the exception of its seniors housing communities, which are managed by Sunrise Medical Systems pursuant to long-term management agreements, and the majority of its MOBs, VTR leases its properties to health care operating companies under triple-net or absolute-net leases, which require the tenants to pay all property-related expenses. The trust also had real estate loan investments relating to senior housing and health care companies or properties at the end of 2009.

primarily to elderly individuals requiring various levels of assistance. Basic services for residents of these communities include housekeeping, meals in a central dining area and group activities organized by the staff with input from the residents. More extensive care and personal supervision, at additional fees, are also available for such needs as eating, bathing, grooming, transportation, limited therapeutic programs and medication administration, all of which encourage the residents to live as independently as possible according to their abilities. These needs are often met by home health providers in close coordination with the resident's physician and skilled nursing facilities. The skilled nursing facilities (18.8%) typically provide nursing care services to the elderly and rehabilitation and restoration services, including physical, occupational and speech therapies, and other medical treatment for patients and residents who do not require the high technology, care-intensive setting of an acute care or rehabilitation hospital.

VTR's seniors housing communities (65.8% of 2009 total revenues) include independent and assisted living communities, and communities providing care for individuals with Alzheimer's disease and other forms of dementia or memory loss. These communities offer residential units on a month-to-month basis Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.74 1.27 1.27 2.05 161% 44.91 19.13 35 15

2008 14.99 1.30 1.30 2.05 158% 52.00 17.31 40 13

2007 13.65 1.15 1.15 2.05 105% 47.97 23.98 42 21

2006 6.51 1.25 1.25 1.58 126% 42.40 29.54 34 24

2005 6.28 1.31 1.14 1.44 110% 32.71 24.43 25 19

2004 1.73 1.19 1.18 1.30 109% 29.48 20.56 25 17

2003 0.53 1.21 1.08 1.07 88% 22.98 11.08 19 9

2002 NM 0.75 0.70 0.95 127% 13.76 10.06 18 13

2001 NM 0.75 0.56 0.92 123% 12.85 5.56 17 7

2000 NM -0.90 NA 0.62 NM 5.81 2.68 NM NM

501 Nil 936 342 179 Nil 201 195 195

487 Nil 930 348 203 Nil 232 182 182

484 Nil 772 234 204 Nil 234 147 141

418 Nil 428 36.7 141 Nil 120 131 131

NA NA 333 115 106 NA 91.9 125 108

NA NA 237 18.3 66.8 NA 49.0 100 99.3

191 Nil 205 15.2 66.7 Nil 81.7 96.7 87.4

190 Nil 197 54.9 82.0 Nil 42.1 53.0 49.1

185 Nil 205 16.6 91.6 Nil 42.0 51.9 38.6

233 Nil 242 20.5 95.3 Nil 43.5 -61.2 NA

Balance Sheet & Other Financial Data (Million $) Cash 107 Total Assets 5,616 Real Estate Investment 6,293 Loss Reserve Nil Net Investment 5,115 Short Term Debt 203 Capitalization:Debt 2,467 Capitalization:Equity 2,466 Capitalization:Total 4,951 % Earnings & Depreciation/Assets 6.9 Price Times Book Value:High 2.9 Price Times Book Value:Low 1.2

177 5,770 NA Nil 5,173 118 3,030 2,148 5,456 7.2 3.5 1.2

82.4 5,717 6,290 Nil 5,494 Nil 3,360 1,824 5,320 8.4 3.5 1.8

1.25 3,254 6,161 Nil 3,084 Nil 2,199 710 2,939 8.5 6.5 4.5

2,528 2,639 NA NA 2,526 NA 1,803 667 2,470 NA NA NA

3.37 1,127 NA NA 1,058 NA 843 160 1,034 NA NA NA

82.1 813 1,090 Nil 681 Nil 641 56.3 56.3 20.9 43.3 20.9

39.1 896 1,221 Nil 829 Nil 708 78.3 816 10.4 NM NM

880 942 1,231 Nil 861 Nil 848 -91.1 788 9.8 NM NM

114 981 1,176 Nil 849 Nil 886 -118 799 NM NM NM

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 111 South Wacker Drive, Suite 4800, Chicago, IL 60606. Telephone: 877-483-6827. Email: [email protected] Website: http://www.ventasreit.com

Chrmn, Pres & CEO: D.A. Cafaro EVP & CFO: R.A. Schweinhart EVP, Chief Admin Officer, Secy & General Counsel: T.R. Riney Chief Acctg Officer & Cntlr: R.J. Brehl

Investor Contact: L. Weiner (312-765-0390) Founded: 1983 Board Members: D. A. Cafaro, D. Crocker, II, R. G. Domicile: Delaware Geary, J. M. Gellert, R. D. Reed, S. Z. Rosenberg, G. J. Employees: 61 Rufrano, J. D. Shelton, T. C. Theobald

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: VRSN | VRSN is in the S&P 500

VeriSign Inc S&P Recommendation STRONG SELL

★★★★★

Price $32.86 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Internet Software & Services

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary This leading provider of infrastructure services that enable secure digital communications and commerce has recently sold many of its businesses to focus on core operations.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $32.93– 21.21 Trailing 12-Month EPS $1.24 Trailing 12-Month P/E 26.5 $10K Invested 5 Yrs Ago $14,617

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.69 1.00 47.6 174.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.722 Nil Nil NM

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.74 20 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we consider the emerging nature of, and notable competition in, many of the company's businesses, substantial corporate transactional activity since 2004, and numerous one-time items appearing in the company's recent financials.

40

30 25 20

Quantitative Evaluations Vol. Mil.

S&P Quality Ranking

64

61

30 20 10 0

D

3

2

3

B-

BB

B+

A-

A

Relative Strength Rank

5

5

C

A+ STRONG

72

3 1

1

LOWEST = 1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Scott H. Kessler on August 05, 2010, when the stock traded at $ 29.55. Highlights ➤

Revenues from continuing operations rose 6% from 2009, despite the adverse effects of the global recession, including some pricing pressures. We project growth of around 10% for 2010 and 8% for 2011.

➤

We believe annual margins bottomed in 2009, reflecting a challenging economic backdrop and expenses related to notable divestiture activity. We think a more focused VRSN will be able to more effectively pursue sales opportunities and efficiencies, and we project higher margins in 2010 and 2011.

➤

VRSN continues to focus on significant stockbuyback activity, with an additional authorization of $1.1 billion in July 2010 (bringing the amount authorized and available to $1.5 billion). VRSN has pursued notable divestitures in recent years, including the late 2008 sale of a joint venture stake for some $200 million and the May 2009 sale of its communications unit for about $230 million. In May 2010, VRSN announced a proposed agreement to sell its authentication security business for $1.3 billion.

Investment Rationale/Risk ➤

Four high level executives left in 2008, including former CEO Bill Roper. Former VRSN executive Mark McLaughlin re-joined VRSN as president and COO in early 2009 and was named CEO in August 2009. We see VRSN as a more focused and profitable market leader. However, we believe the stock already reflects benefits related to divestiture and buyback activity, and we see it as notably overvalued in light of a largely mature business and substantial P/E and P/ E-to-growth multiples.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 264.4 168.7 2009 255.0 256.6 2008 232.5 239.2 2007 373.1 363.2 2006 372.8 390.7 2005 401.0 444.8

3Q -258.0 243.0 373.6 399.5 414.8

4Q -262.7 247.0 386.4 412.2 392.1

Year -1,031 961.7 1,496 1,575 1,609

Earnings Per Share ($) 2010 0.29 0.14 2009 0.24 0.22 2008 0.08 -0.07 2007 0.24 -0.02 2006 0.06 1.52 2005 0.17 0.14

E0.17 0.25 0.21 0.07 0.06 0.17

E0.21 0.33 0.24 -0.88 -0.12 0.07

E0.69 1.03 0.46 -0.61 1.53 0.53

➤

Risks to our opinion and target price include sustained strength in its core business, and more successful actions intended to generate shareholder value than we foresee.

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

➤

Applying a 37% premium to the P/E-to-growth multiple of the S&P 500 Internet Software & Services sub-industry results leads to our 12-month target price of $26. We believe VRSN should trade at a premium to peers given the barriers to entry in, and considerable profitability of its operations. However, we see the recent premium of more than 50% as excessive, especially given so much recent change at the company and a notable pending lawsuit.

No cash dividends have been paid.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data

Stock Report | October 23, 2010 | NNM Symbol: VRSN

VeriSign Inc Business Summary August 05, 2010 CORPORATE OVERVIEW. VeriSign, Inc. provides Internet infrastructure services for the networked world, offering products and services that help organizations communicate and conduct commerce. After notable divestiture activity, as of December 2008, VRSN's had two operating segments: Internet Infrastructure and Identity Services (3IS) and Other Services. 3IS consists of Naming Services, SSL Certificate Services, Identity and Authentication Services (IAS) and VeriSign Japan. Other Services includes continuing operations of non-core businesses and legacy products and services from divested businesses. In May 2010, VRSN announced the proposed sale of its authentication security businesses, including the SSL and IAS units and VeriSign Japan, for some $1.3 billion. We expect this transaction to close in August 2010. Naming Services is the directory provider for all .com, .net, .cc., .tv, .name and .jobs domain names. SSL Certificate Services enables enterprises and online merchants to implement and operate secure networks and websites, allowing customers to authenticate themselves and encrypt communications. IAS includes identity protection services, fraud detection services, managed public key infrastructure (PKI) services, and unified authentication services, all of

which are intended to help enterprises secure intranets, extranets and other applications and devices, and provide for authentication. VeriSign Japan is a majority-owned subsidiary with offerings similar to SSL Certificate Services and IAS. In June 2009, an antitrust suit filed against the company in 2005 was essentially reinstated, in our view. It challenges VRSN's .com contract, and we think that even though the company will retain this key business, this development could result in restrained price increases or even reductions. We also see significant associated legal expenses. In June 2010, a federal appeals court allowed the case to proceed. Nonetheless, in December 2009, VRSN announced registry increases, effective July 1, 2010, for the fees for .com to $7.34 from $6.86, and .net to $4.65 from $4.23, consistent with the company's agreements with ICANN (Internet Corporation for Assigned Names and Numbers), the related oversight authority.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.29 1.47 1.03 1.02 Nil Nil 24.99 16.89 24 16

2008 NM 1.10 0.46 0.73 Nil Nil 42.50 16.23 92 35

2007 2.17 0.36 -0.61 -0.30 Nil Nil 41.96 22.92 NM NM

2006 2.44 2.47 1.53 1.45 Nil Nil 26.77 15.95 17 10

2005 2.98 1.25 0.53 NA Nil Nil 33.67 19.01 64 36

2004 2.92 1.05 0.72 0.01 Nil Nil 36.09 14.94 50 21

2003 3.16 -0.61 -1.08 -1.75 Nil Nil 17.55 6.55 NM NM

2002 1.89 0.16 -20.97 -8.79 Nil Nil 39.23 3.92 NM NM

2001 3.50 1.63 -65.64 -35.05 Nil Nil 97.75 26.25 NM NM

2000 4.15 0.64 -19.57 NA Nil Nil 258.50 65.38 NM NM

1,031 416 86.3 47.4 281 28.5% 198 195

962 387 128 41.1 119 39.5% 88.3 146

1,496 309 231 18.3 -130 NM -145 -72.0

1,575 340 232 Nil 140 NM 378 359

1,609 416 191 Nil 248 42.2% 139 -1.39

1,166 242 85.6 Nil 214 12.9% 186 2.76

1,055 304 114 Nil -237 NM -260 -421

1,222 287 5,000 149 -4,951 NM -4,961 -2,080

984 277 13,687 20.7 -13,433 NM -13,356 -7,134

475 70.0 3,217 Nil -3,114 NM -3,115 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,477 Current Assets 1,709 Total Assets 2,470 Current Liabilities 886 Long Term Debt 574 Common Equity 550 Total Capital 1,173 Capital Expenditures 117 Cash Flow 284 Current Ratio 1.9 % Long Term Debt of Capitalization 49.0 % Net Income of Revenue 19.2 % Return on Assets 7.8 % Return on Equity 65.8

789 1,625 2,726 977 1,262 169 1,362 104 221 1.7 92.6 9.2 2.6 10.4

1,378 1,750 4,023 946 1,265 1,528 2,851 152 85.9 1.9 44.4 NM NM NM

501 1,332 3,974 1,359 Nil 2,377 2,449 182 609 1.0 Nil 24.0 10.6 17.1

477 1,228 3,173 938 Nil 2,032 2,092 140 330 1.3 Nil 8.6 4.8 7.4

331 1,006 2,593 700 Nil 1,692 1,728 92.5 272 1.4 Nil 16.0 7.9 12.1

394 880 2,100 555 Nil 1,414 1,443 108 -145 1.6 Nil NM NM NM

282 604 2,391 665 Nil 1,579 1,579 176 38.9 0.9 Nil NM NM NM

306 1,091 7,538 834 Nil 6,506 6,533 380 331 1.3 Nil NM NM NM

460 1,186 19,195 665 Nil 18,471 18,471 58.8 101 1.8 Nil NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 487 East Middlefield Road, Mountain View, CA 94043. Telephone: 650-961-7500. Website: http://www.verisign.com Chrmn: D.J. Bidzos

Pres & CEO: M.D. McLaughlin EVP, CFO & Chief Acctg Officer: B.G. Robins SVP & CTO: K.J. Silva SVP, Secy & General Counsel: R.H. Goshorn

Investor Contact: K. Bond (650-426-3744) Founded: 1995 Board Members: D. J. Bidzos, W. Chenevich, K. A. Domicile: Delaware Cote, M. D. McLaughlin, R. H. Moore, J. D. Roach, L. A. Employees: 2,328 Simpson, T. Tomlinson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 25, 2010 | NYS Symbol: VZ | VZ is in the S&P 500

Verizon Communications Inc S&P Recommendation HOLD

★★★★★

Price $32.35 (as of Oct 25, 2010)

GICS Sector Telecommunication Services Sub-Industry Integrated Telecommunication Services

12-Mo. Target Price $32.00

Investment Style Large-Cap Value

Summary VZ offers wireline, wireless and broadband services primarily in the northeastern United States. It acquired MCI Inc in 2006 and has since sold or spun off non-core assets. Alltel was acquired in early 2009.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.13– 25.99 Trailing 12-Month EPS $0.26 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.28 2.42 14.2 2,826.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.63 6 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of VZ's strong cash flow generation and the pricing power it has over its suppliers, offset by the competitive conditions it faces offering telecom services.

45 40 35 30 25

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

120 80 40 0 5

$91.445 6.03 $1.95 52

C

B-

B B

B+

A-

A

Relative Strength Rank

A+

MODERATE 53

4

3

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Analysis prepared by Todd Rosenbluth on October 25, 2010, when the stock traded at $ 32.43. Highlights ➤

➤

We forecast revenues of $107 billion in 2010 and $108 billion in 2011, driven by increases in wireless and data services. On the wireline side, we think the penetration of FiOS services will offset pressure in the mass markets consumer group, but overall segment revenues will be hurt by weakness in wholesale. Meanwhile, we expect the enterprise segment to be stable, even as unemployment remains high. We estimate that the EBITDA margin will average 33% in 2011, down slightly from the 34% we project for the 2010 fourth quarter. We expect higher pension expenses, due to weakness in VZ's investments in prior years and increased handset subsidies. However, we believe cost synergies in wireless and work force reduction benefits will provide an offset.

Investment Rationale/Risk ➤

➤

➤ ➤

We forecast operating EPS of $2.28 for 2010 and see growth to $2.42 in 2011, excluding the impact of one-time items related to taxes and work force reductions. During the first half of 2010, VZ generated $0.12 of EPS from assets that have since been spun off or sold.

Revenue/Earnings Data

2010

We believe VZ's wireless business remains in strong shape despite competitive and economic pressures. The global enterprise segment is facing some macroeconomic headwinds including high unemployment and should lag a broader market recovery. However, we are encouraged by the relative stability in VZ's wireline segment in the first nine months of 2010, helped by FiOS gains. In our view, VZ's dividend is secure and well supported by its free cash flow. We view the shares as fairly valued. Risks to our recommendation and target price include a greater impact from a depressed economy, pricing pressures, a weaker balance sheet, and the cost and level of success of fiber-based services. Our blended 12-month target price of $32 is based on a forward P/E multiple of 13X, a slight premium to the broader market to reflect VZ's relatively stronger balance sheet and the stability of its dividend payments. VZ has a 6% dividend yield, which we think offers support to the shares, given low Treasury bond yields.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 26,913 26,773 2009 26,591 26,861 2008 23,833 24,124 2007 22,584 23,273 2006 21,221 21,876 2005 18,179 18,569

3Q -27,265 24,752 23,772 22,449 19,038

Earnings Per Share ($) 2010 0.14 -0.07 2009 0.58 0.52 2008 0.57 0.65 2007 0.51 0.58 2006 0.57 0.43 2005 0.63 0.75

E0.53 0.41 0.59 0.44 0.53 0.67

4Q Year --27,091 107,808 24,645 97,354 23,840 93,469 22,598 88,144 19,326 75,112

E0.58 -0.23 0.43 0.37 0.48 0.59

E2.28 1.29 2.26 1.90 1.87 2.65

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.475 Stk. 0.475 0.488

03/05 06/01 06/03 09/02

04/07 07/02 07/07 10/06

04/09 06/07 07/09 10/08

05/03/10 07/01/10 08/02/10 11/01/10

Dividends have been paid since 1984. Source: Company reports.

Stock Report | October 25, 2010 | NYS Symbol: VZ

Verizon Communications Inc Business Summary October 25, 2010 CORPORATE OVERVIEW. As of September 2010, Verizon Communications (VZ) provided wireline service to 26.5 million access lines (down 8.5% from a year earlier excluding those sold), and, through its joint venture with Vodafone Group, had 93 million wireless customers plus approximately 8 million additional other connected devices on its network. We think the relationship with Vodafone remains strong and is unlikely to change. MARKET PROFILE. Verizon Wireless added 1 million net subscribers in the third quarter of 2010 (584,000 retail post-paid customers), and, together with peer AT&T, we think it continued to capture market share as it did in 2009. Strong wireless rivalry has raised the level of competition, in our view, with new unlimited service plans and data-equipped devices gaining significant appeal in a highly penetrated market. As of September 2010, Verizon Wireless had a 1.4% monthly total churn rate, and its retail post-paid monthly service revenue per user was $52, up 2% from a year earlier. Wireless data average revenue per user rose 19% in the third quarter of 2010 and comprised 36% of service revenues. The segment's EBITDA service margin of 47% was the best in the industry. As of September 2010, 23% of Verizon Wireless's retail postpaid customers had a smartphone, and as this percentage grows, particularly helped by Android devices, we expect data revenues to increase.

ings (8.3 million connections) and has increased the speed of its connectivity in what we view as an effort to upgrade DSL subscribers. However, the traditional DSL customer base began to decline in early 2009, slowed by the effects of the economy and new, faster fiber offerings gaining traction; this has continued in 2010. In the first nine months of 2010, revenues at VZ's global enterprise segment declined only 0.4%, year to year, versus the 4.5% decrease in the fourth quarter of 2009. In April 2010, VZ said it experienced improving long distance volume trends during the first quarter, but we still believe the segment will lag an economic recovery. COMPETITIVE LANDSCAPE. VZ's wireline segment competes for broadband and now telephony customers against cable companies Cablevision and Comcast. At the end of September 2010, nearly 13 million homes and businesses were able to buy VZ's advanced fiber-based broadband services (FiOS), many of which also had access to FiOS video.

Verizon also serves the Internet market through its wireline broadband offerCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 7.10 1.29 2.03 1.85 144% 34.76 26.10 27 20

2008 NM 7.37 2.26 1.72 1.75 77% 44.32 23.07 20 10

2007 NM 6.85 1.90 1.85 1.65 88% 46.24 35.60 25 19

2006 NM 1.87 1.87 1.87 1.62 86% 38.95 30.04 21 16

2005 NM 7.61 2.65 2.42 1.60 60% 41.06 29.13 15 11

2004 NM 7.67 2.59 2.76 1.54 60% 42.27 34.13 16 13

2003 NM 6.14 1.27 1.76 1.54 121% 44.31 31.10 35 24

2002 NM 6.56 1.67 1.91 1.54 92% 51.09 26.01 31 16

2001 NM 5.22 0.22 0.58 1.54 NM 57.40 43.80 NM NM

2000 12.79 8.43 3.95 NA 1.54 39% 66.00 39.06 17 10

107,808 16,532 NA NA 10.5% 3,651 5,778

97,354 14,565 NA NA 20.9% 6,428 4,893

93,469 14,377 NA NA 27.4% 5,510 5,370

88,144 14,545 NA NA 21.9% 5,480 5,467

75,112 14,047 NA NA 23.5% 7,397 6,774

71,283 13,910 NA NA 22.8% 7,261 7,724

67,752 13,617 NA NA 19.7% 3,509 4,859

67,625 13,423 NA NA 21.7% 4,584 5,250

67,190 13,657 NA NA 64.2% 590 1,557

64,707 12,261 NA NA 38.9% 10,810 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 228,518 Net Property 91,466 Capital Expenditures 17,047 Total Capital 145,523 Fixed Charges Coverage 4.6 Capitalization:Long Term Debt 55,051 Capitalization:Preferred Nil Capitalization:Common 41,606 % Return on Revenue 3.4 % Return on Invested Capital 9.4 % Return on Common Equity 8.8 % Earned on Net Property 15.8 % Long Term Debt of Capitalization 57.0 Capital % Preferred Nil Capitalization:% Common 43.0

215,605 86,546 17,238 137,633 9.4 46,959 Nil 41,706 6.6 10.5 13.9 19.7 53.0 Nil 47.0

213,994 85,294 17,538 125,856 8.6 28,203 Nil 50,581 5.9 9.5 11.1 18.6 35.8 Nil 64.2

204,109 82,356 17,101 121,788 5.9 28,646 Nil 48,535 6.2 9.8 12.4 17.2 37.1 Nil 62.9

193,610 75,305 15,324 120,714 6.7 31,869 Nil 39,680 9.8 10.5 19.2 37.9 44.5 Nil 55.5

185,522 74,124 13,259 120,819 5.1 35,674 Nil 37,560 10.2 8.6 20.4 36.2 48.7 Nil 51.3

180,975 75,316 11,884 118,935 2.5 39,413 Nil 33,466 5.2 5.1 10.6 28.1 54.1 Nil 45.9

178,028 74,496 11,984 122,120 5.5 44,791 Nil 33,720 6.8 7.6 13.5 34.5 36.6 Nil 42.9

169,586 74,419 17,371 116,888 3.6 45,657 Nil 32,539 0.9 4.0 1.8 50.5 58.4 Nil 41.6

158,957 69,504 17,633 115,923 3.7 42,491 Nil 36,342 16.7 15.4 33.5 38.3 53.9 Nil 46.1

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Construction Credits Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1095 Avenue of the Americas, New York, NY 10036. Telephone: 212-395-2121. Website: http://www.verizon.com Chrmn & CEO: I.G. Seidenberg

Pres & COO: L.C. McAdam EVP & CFO: J.F. Killian EVP & CTO: R.J. Lynch EVP & General Counsel: R.S. Milch

Investor Contact: C. Webster (212-395-1000) Founded: 1983 Board Members: R. L. Carrion, M. F. Keeth, R. W. Domicile: Delaware Lane, S. O. Moose, J. Neubauer, D. T. Nicolaisen, T. H. Employees: 222,927 O'Brien, Jr., C. Otis, Jr., H. B. Price, I. G. Seidenberg, R. E. Slater, J. W. Snow, J. R. Stafford

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: VFC | VFC is in the S&P 500

V.F. Corp S&P Recommendation STRONG BUY

★★★★★

Price $86.00 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Apparel, Accessories & Luxury Goods

12-Mo. Target Price $106.00

Investment Style Large-Cap Blend

Summary This global apparel company, with leading shares in denim and daypacks, is transforming itself into a designer and marketer of lifestyle apparel brands.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $89.30– 69.24 Trailing 12-Month EPS $5.01 Trailing 12-Month P/E 17.2 $10K Invested 5 Yrs Ago $18,760

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.32 6.75 13.6 108.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$9.289 2.93 $2.52 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.98 8 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of VFC's strong cash flow, offset by integration risk as VFC pursues growth via acquisitions.

100 80 60

Quantitative Evaluations

50

S&P Quality Ranking

40

D

C

B-

A B

B+

A-

A

A+

Vol. 14

Mil.

Relative Strength Rank

6 4 2 0

STRONG 73

LOWEST = 1 4

5

3

4

HIGHEST = 99

5

Revenue/Earnings Data

1 1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE

Analysis prepared by Marie Driscoll, CFA on October 22, 2010, when the stock traded at $ 85.50. Highlights ➤

➤

➤

With improving trends across its brand portfolio, we see VFC taking the offensive to expand and support its multiple growth opportunities, specifically in the areas of outdoors and action sports and contemporary brands. We view Asia, new store growth, and VFC's power brands, Vans and The North Face, as 2010 and 2011 growth drivers. We see 2010 sales up 5%, to $7.6 billion, with outdoors and action sports up 13%, jeanswear flat, imagewear up 5%, and contemporary and sportswear down 1% and 2%, respectively. We estimate 150 bps of EBIT margin expansion in 2010, to 13.4%, following the 140 bps contraction of the past two years. We see 250 bps of gross margin expansion somewhat being offset by a 100 bps increase in the SG&A expense ratio, as VFC boosts marketing spending by $95 million to support its growth brands and growing regions. We see 6% sales growth in 2011 and 90 bps of gross margin contraction on higher input costs. After lower pension expense, which is expected to benefit EPS by $0.20, and a 25% effective tax rate, we estimate EPS of $6.32 for 2010 and $6.75 for 2011.

Investment Rationale/Risk ➤

➤

➤

While we assume weak global employment will affect consumer spending trends, we think a number of VFC's brands will continue to enjoy strong momentum going forward. We believe VFC's recent lifestyle brand acquisitions have superior long-term growth potential. In addition to outdoors and action sports and contemporary brands, 2010 growth priorities include China, social media, retail expansion, and ecommerce. EPS advanced 32% in the first nine months of 2010, on a 5% sales increase. With clean inventories entering the final quarter, we see continued opportunity for gross margin expansion. Risks to our recommendation and target price include worse than expected and/or slower economic and consumer rebounds. Our 12-month target price of $106 is derived by blending historical, peer and DCF valuation methodologies. Applying a peer forward P/E multiple of 19X to our 2011 EPS estimate of $6.75 generates a $128 value; VFC's five-year average forward multiple of 13.3X (in a range of 7X to 18X) produces a $90 value; and our DCF model generates a present value of $102, assuming a 10.7% WACC and a 3% terminal growth rate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,750 1,594 2009 1,725 1,486 2008 1,846 1,677 2007 1,674 1,517 2006 1,456 1,351 2005 1,582 1,452

3Q -2,094 2,207 2,073 1,810 1,822

4Q -1,915 1,912 1,955 1,599 1,646

Year -7,220 7,643 7,219 6,216 6,502

Earnings Per Share ($) 2010 1.47 1.00 2009 0.91 0.68 2008 1.33 0.94 2007 1.17 0.93 2006 1.05 0.80 2005 1.00 0.85

E2.07 1.94 2.10 1.86 1.64 1.57

E1.61 0.60 1.05 1.46 1.24 1.13

E6.32 4.13 5.42 5.41 4.73 4.54

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.600 0.600 0.600 0.630

02/11 04/30 07/22 10/21

03/05 06/04 09/08 12/08

03/09 06/08 09/10 12/10

03/19/10 06/18/10 09/20/10 12/20/10

Dividends have been paid since 1941. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: VFC

V.F. Corp Business Summary October 22, 2010 CORPORATE OVERVIEW. VF Corp. is the world's largest apparel manufacturer, and holds the leading position in several market categories, including jeanswear, workwear and daypacks. In early 2004, VFC developed a growth plan to support its long-term sales growth target of 8%-10% annually, its 15% operating margin goal, and a 17% return on invested capital goal. The growth strategy consists of six drivers: building new, growing lifestyle brands; expanding share with successful retailers; growing internationally; leveraging supply chain and information technology; identifying, developing and recruiting qualified leaders; and expanding its direct to consumer business. MARKET PROFILE. VFC participates in the broad apparel market, spanning product categories from women's activewear to denim, as well as the outdoor market for apparel and accessories via its lifestyle brands. Apparel is a mature market, with demand mirroring population growth and a modicum related to fashion; it is fragmented, with national brands marketed by 20 companies accounting for about 30% of total apparel sales and the remaining 70% comprised of smaller and/or private label "store" brands. Deflationary pricing pressure is, we think, a function of channel competition and production steadily moving offshore to low-cost producers in Asia, especially India and China.

S&P forecast a 2% increase in 2010 apparel sales, following the 5% decrease of 2009, a 4% decline in 2008 and 4% gains in 2007 and 2006. According to the SGMA (Sporting Goods Manufacturers Association), wholesale sales of sporting goods and fitness equipment (excluding recreational transport such as bikes, boats and snowmobiles), sports apparel, athletic footwear and licensed merchandise in the U.S. declined 4%, to $71.8 billion in 2009. Apparel represents about 39% of the mix, footwear 18%, equipment 33%, and licensed merchandise 10%. Sports apparel and footwear brands more frequently serve a fashion market than a true athletic or active sports market; generally only a third of sports apparel and footwear is purchased with the intent that it will be used in an active sport, according to the NPD Group. For 2010, SGMA projects a 2% gain in branded sports apparel at wholesale and 3% for athletic footwear.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.90 5.66 4.13 5.20 2.37 57% 79.79 46.06 19 11

2008 7.54 6.72 5.42 4.98 2.33 43% 84.60 38.22 16 7

2007 7.86 6.48 5.41 5.31 2.23 41% 96.20 68.15 18 13

2006 13.18 5.74 4.73 4.82 1.94 41% 83.10 53.25 18 11

2005 8.78 5.56 4.54 4.67 1.10 24% 61.61 50.44 14 11

2004 7.56 5.53 4.21 4.36 1.05 25% 55.61 42.06 13 10

2003 8.61 4.64 3.61 3.70 1.01 28% 44.08 32.62 12 9

2002 10.91 4.35 3.24 2.75 0.97 30% 45.64 31.50 14 10

2001 9.97 0.00 1.19 0.77 0.93 78% 42.70 28.15 36 24

2000 9.71 3.73 2.27 NA 0.89 39% 36.90 20.94 16 9

7,220 1,029 170 85.9 655 30.0% 461 581

7,643 1,124 144 94.1 848 28.9% 603 554

7,219 1,081 122 72.1 906 32.3% 613 602

6,216 935 108 57.3 777 31.2% 535 544

6,502 944 116 70.6 771 32.7% 519 532

6,055 874 141 76.1 712 33.3% 475 490

5,207 718 104 61.4 599 33.5% 398 406

5,084 729 107 71.3 562 35.1% 364 303

5,519 516 169 93.4 263 47.6% 138 84.6

5,748 683 173 88.7 432 38.1% 267 NA

Balance Sheet & Other Financial Data (Million $) Cash 732 Current Assets 2,629 Total Assets 6,488 Current Liabilities 1,093 Long Term Debt 938 Common Equity 3,832 Total Capital 4,971 Capital Expenditures 85.9 Cash Flow 632 Current Ratio 2.4 % Long Term Debt of Capitalization 18.9 % Net Income of Revenue 6.4 % Return on Assets 7.1 % Return on Equity 12.5

382 2,653 6,434 1,012 1,104 3,556 4,662 124 747 2.6 24.3 7.9 9.4 16.9

322 2,645 6,447 1,134 1,145 3,577 4,722 114 735 2.3 24.2 8.5 10.3 17.9

343 2,578 5,466 1,015 635 3,265 3,901 127 643 2.5 16.3 8.6 10.1 17.6

297 2,365 5,171 1,152 648 2,808 3,479 110 635 2.1 18.6 7.9 10.2 19.5

486 2,379 5,004 1,372 557 2,513 3,096 81.4 615 1.7 18.0 7.8 10.3 21.3

515 2,209 4,246 872 956 1,951 2,938 86.6 502 2.5 32.6 7.6 10.3 22.1

496 2,075 3,503 875 602 1,658 2,297 64.5 472 2.4 26.2 7.2 9.6 19.3

332 2,031 4,103 814 904 2,113 3,062 81.6 304 2.5 29.5 2.5 3.3 6.3

119 2,110 4,358 1,006 905 2,192 3,145 125 437 2.1 28.8 4.6 6.4 12.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 105 Corporate Center Boulevard , Greensboro, NC 27408. Telephone: 336-424-6000. Email: [email protected] Website: http://www.vfc.com

Chrmn, Pres & CEO: E.C. Wiseman SVP & CFO: R.K. Shearer Chief Admin Officer, Secy & General Counsel: C.S. Cummings Chief Acctg Officer & Cntlr: B.W. Batten

Treas: F.C. Pickard, III Founded: 1899 Investor Contact: C. Knoebel (336-424-6189) Domicile: Pennsylvania Board Members: C. V. Bergh, R. T. Carucci, J. L. Employees: 45,700 Chugg, J. E. De Bedout, U. O. Fairbairn, G. Fellows, R. J. Hurst, W. A. McCollough, C. Otis, Jr., M. R. Sharp, R. Viault, E. C. Wiseman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: VIA.B | VIA.B is in the S&P 500

Viacom Inc S&P Recommendation HOLD

★★★★★

Price $37.18 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Movies & Entertainment

12-Mo. Target Price $38.00

Investment Style Large-Cap Blend

Summary Among the well-known assets of this pure-play global provider of branded entertainment content are the MTV (domestic and international) and BET networks, Paramount Pictures (film studio), and Rock Band (casual online gaming).

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $38.00– 27.35 Trailing 12-Month EPS $2.99 Trailing 12-Month P/E 12.4 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.98 3.57 12.5 608.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

15

MEDIUM

HIGH

Quantitative Evaluations

Vol. Mil.

53

S&P Quality Ranking

24 16 8 0

D 3

2

4

3

2

3

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Analysis prepared by Tuna N. Amobi, CFA, CPA on August 20, 2010, when the stock traded at $ 31.68.

Reflecting a pending transition to a new fiscal year end, we see FY 10 (Sep.) consolidated revenues down 1.7%, to $13.5 billion, then advancing 4.5% in FY 11, to almost $14.1 billion. Our overall outlook factors in a rebounding advertising environment, continued solid growth in worldwide affiliate fees, and relatively healthy contributions from worldwide TV licensing and ancillary revenues (assuming improved sales of Rock Band video games) -- versus difficult FY 10 film comparisons that should ease in FY 11. Still, improved overall results should benefit from enhanced operating leverage, reflecting recent restructuring measures. However, overall margins could be further adversely affected by continued losses on the Rock Band franchise, partly offset by higher-margin ads and growing digital revenues. We see total adjusted EBIT of about $3.6 billion and $3.7 billion in FY 10 and FY 11, respectively, and after interest and taxes, FY 10 and FY 11 operating EPS of $2.96 and $3.39 ($2.98 and $3.57 calendarized EPS for 2010 and 2011). In June, VIA.B reinstituted a $4 billion share buyback plan that was suspended in early 2009.

B-

B

B+

A-

A

Relative Strength Rank

A+

MODERATE

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

C

NR

68

1

➤

LOW

Our risk assessment reflects the company's leading demographically targeted brands, as well as our view of relatively encouraging but recently decelerating growth prospects and ample financial flexibility, offset by exposure to cyclical advertising and a volatile, hit-driven filmed entertainment business.

20

➤

1.26 9 BBB+

Below Avg.

30

➤

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

40

5

$20.679 1.61 $0.60 90

While VIA.B's mixed results in the 2010 first half showed a relatively slow pace of domestic ads recovery, we expect the MTV and BET networks to further capitalize on gains from the recent upfront sales and a continued strong scatter market. While the upcoming film slate seems somewhat weak, we see further upside on key summer titles (Iron Man 2, The Last Airbender, Shrek 4) across the DVD and ancillary windows, while encouraged by the EPIX channel's new multi-year online streaming deal with Netflix. We see ample financial flexibility for modest dividend payouts and share buybacks. Risks to our recommendation and target price include a severe macroeconomic slowdown (for ads and DVD sales); a sharp ratings decline for the domestic networks; lingering strategic challenges for Rock Band; potential loss of film distribution deals with Dreamworks Animation and/or Marvel; and currency exposure. Our 12-month target price is $38, blending sumof-the-parts analysis, 9X 2010E EV/EBITDA, and 1.4X P/E-to-growth, in line with less niche-focused entertainment peers -- also noting a recent 1.9% dividend yield on the shares.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,786 3,301 2009 2,905 3,299 2008 3,117 3,857 2007 2,746 3,186 2006 2,368 2,847 2005 2,107 2,302

3Q -3,317 3,408 3,271 2,660 2,478

4Q -4,098 4,243 4,248 3,593 2,724

Year -13,619 14,625 13,423 11,467 9,610

Earnings Per Share ($) 2010 0.40 0.68 2009 0.29 0.46 2008 0.42 0.64 2007 0.29 0.63 2006 0.43 0.58 2005 0.48 0.48

E0.79 0.73 0.62 0.67 0.50 --

E1.11 1.14 0.28 0.84 0.69 0.29

E2.98 2.62 1.97 2.41 2.19 1.73

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.150 0.150

06/09 07/27

06/17 08/27

06/21 08/31

07/01/10 10/01/10

Dividends have been paid since 2010. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: VIA.B

Viacom Inc Business Summary August 20, 2010 CORPORATE OVERVIEW. Viacom is one of the two public companies created after the January 2006 separation of the "old" Viacom into two independent public entities (the "old" Viacom was renamed CBS Corp.). Each Class A and B shareholder of the "old" Viacom received 0.5 of a share of the corresponding A or B stock of each of the new entities. We believe that the company is the faster growing of the two companies resulting from the separation, and is specifically targeted to growth-oriented investors. The company's media networks segment (58% of 2009 revenues) is mainly comprised of MTV Networks (including MTV, Nickelodeon, VH1, Comedy Central, Country Music Television, Spike TV, TV Land, Logo, Neopets, Xfire and VIVA) and BET Networks. In November 2007, Viacom launched its Rock Band music video games franchise (which had passed $1 billion in sales as of March 2009). The entertainment segment (42%) mainly comprises Paramount Pictures film studio (and home entertainment). About 34% of 2009 revenues were derived from ad sales, 29% from feature films (theatrical and home video), 22% from affiliate fees, 11% from TV licensing, and 4% from other ancillary sources (including merchandise licensing).

CORPORATE STRATEGY. We see various digital initiatives, aided by partnerships with Internet and technology companies, such as pacts with Microsoft, Yahoo, Comcast/Fancast, AOL, Bebo, Dailymotion, Veoh, GoFish, and MeeVee. The company recently operated over 500 web sites, and has made several selective digital acquisitions since 2006 (mostly in online gaming and films) -- including Xfire, Y2M, Atom Entertainment, Harmonic Music, Quizilla, Teenage Mutant Ninja Turtles and Social Express. The company's global footprint traverses Europe and emerging markets (India and China) -- with over 166 MTVN channels across 161 countries in 28 languages, reaching nearly 450 million homes. The company recently made some strategic changes aimed to stem further downside risk on its Rock Band franchise, while making a broader strategic push into the casual gaming arena through some "tuck-in" acquisitions.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.16 2.62 2.65 Nil Nil 31.56 13.25 12 5

2008 NM 2.55 1.97 2.01 Nil Nil 44.19 11.60 22 6

2007 NM 2.99 2.41 2.34 Nil Nil 45.40 33.74 19 14

2006 NM 2.70 2.19 2.22 Nil Nil 43.90 32.42 20 15

2005 NM 2.08 1.73 1.46 Nil Nil 44.95 39.78 26 23

2004 NM 1.78 1.48 1.47 NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

13,619 3,295 331 440 2,276 31.1% 1,591 1,607

14,625 3,341 364 514 1,855 32.6% 1,233 1,257

13,423 3,404 393 487 2,579 36.0% 1,630 1,588

11,467 3,137 366 472 2,322 31.8% 1,570 1,592

9,610 2,625 259 23.0 2,328 43.8% 1,304 1,165

8,132 2,534 2,522 20.0 2,017 36.4% 1,281 1,282

7,304 2,218 198 23.2 1,938 40.6% 1,147 NA

6,051 1,932 195 40.9 1,641 39.3% 994 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 298 Current Assets 4,430 Total Assets 21,900 Current Liabilities 3,751 Long Term Debt 6,650 Common Equity 8,704 Total Capital 15,450 Capital Expenditures 141 Cash Flow 1,922 Current Ratio 1.2 % Long Term Debt of Capitalization 43.0 % Net Income of Revenue 11.7 % Return on Assets 7.2 % Return on Equity 20.2

792 4,502 22,487 4,842 7,897 7,033 14,980 288 1,597 0.9 52.7 8.4 5.4 17.4

920 4,833 22,904 5,273 8,060 7,111 15,312 237 2,023 0.9 52.6 12.2 7.3 22.8

706 4,211 21,797 4,617 7,584 7,166 14,932 210 1,936 0.9 50.8 13.7 7.7 21.0

361 3,513 19,116 3,269 5,702 7,788 13,534 193 1,563 1.1 42.1 13.6 6.9 12.3

99.2 2,384 18,400 2,617 3,718 9,905 13,623 NA 1,533 0.9 27.3 15.8 NA NA

58.3 3,213 22,304 3,766 NA 15,816 16,441 114 1,345 0.9 Nil 15.7 NA NA

NA NA NA NA NA NA NA 122 1,189 NA Nil 16.4 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1515 Broadway, New York, NY 10036. Telephone: 212-258-6000. Website: http://www.viacom.com Chrmn: S.M. Redstone

Pres & CEO: P.P. Dauman Vice Chrmn: S.E. Redstone COO: T.E. Dooley EVP, CFO & Chief Acctg Officer: J.W. Barge

Investor Contact: J. Bombassei (212-258-6700) Founded: 2005 Board Members: G. S. Abrams, P. P. Dauman, T. E. Domicile: Delaware Dooley, A. C. Greenberg, R. K. Kraft, B. J. McGarvie, C. Employees: 11,200 E. Phillips, Jr., S. E. Redstone, S. M. Redstone, F. V. Salerno, W. Schwartz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: V | V is in the S&P 500

Visa Inc S&P Recommendation STRONG BUY

★★★★★

Price $79.29 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $91.00

Investment Style Large-Cap Growth

Summary Visa is the world's largest electronics payment network and leading payments brand, and provides services to consumers, businesses, and governments in more than 200 countries.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $97.19– 64.90 Trailing 12-Month EPS $3.71 Trailing 12-Month P/E 21.4 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.86 4.65 20.5 840.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$39.381 0.76 $0.60 84

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.86 20 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we view as a dynamic market environment, tempered somewhat by pending litigation risks, an evolving competitive and regulatory environment, and prospect of sluggish domestic consumer spending.

100 80

50 40

Quantitative Evaluations

Vol. Mil.

227 130

60 40 20 0

147

S&P Quality Ranking D

3

3

B-

NR B

B+

A-

A

Relative Strength Rank

5

5

C

A+ STRONG

73

3

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, Ph

Analysis prepared by Zaineb Bokhari on August 12, 2010, when the stock traded at $ 73.54. Highlights ➤

➤

➤

We expect operating revenues to rise 15% in FY 10 (Sep.), to $7.95 billion. Domestically, we think solid growth in debit payment volumes and incremental improvements in credit volumes will drive service fees. We look for rising cross border payment volumes to drive international transaction fees. We are encouraged by the increasing volumes of transactions processed on Visa's platform, but note potential for some headwind arising from U.S. debit interchange regulation. In FY 11, we see operating revenues rising 13%. We see rebates and incentives rising to 17% of gross operating revenue in FY 10 and staying near this level in FY 11. Factors driving this outlook include the impact of bank consolidations on the size of card portfolios at V's largest clients, rising card usage, the greater proportion of multi-year contracts, and pricing. Given V's operating leverage and scale, we look for operating margins to widen to roughly 58% in FY 10, from 51% in FY 09. We expect operating margins to widen more modestly in FY 11. We estimate EPS of $3.86 in FY 10, and an increase to $4.65 in FY 11.

Investment Rationale/Risk ➤

➤

➤

We see a pickup in payment volumes in FY 10 and FY 11, aided by the secular trend toward non-cash payments and strong growth prospects for cards in emerging markets, which we think will help as the global economy continues to recover. V's preponderance of debit cards, which replace cash currency and are used for everyday purchases, is a positive, in our view, although we note the uncertainty created by domestic regulation aimed at regulating interchange on debit cards. V's ability to curtail expense growth will also help boost earnings. We are optimistic about growth initiatives that include expansion in prepaid cards and newer initiatives, such as mobile payments, money transfer, and e-commerce capabilities. Risks to our opinion and target price include regulations limiting interchange fees, negative outcomes to pending litigation, customer loss, and a sharp slowdown in consumer spending. Our 12-month target price of $91 is 19.5X our FY 11 EPS estimate, above the recent mean for Data Processing and Outsourced Services peers, warranted, we think, by V's market position and EPS growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,960 1,959 2009 1,739 1,647 2008 1,488 1,453 2007 845.0 813.0 2006 --2005 ---

3Q 2,029 1,646 1,613 1,363 ---

4Q -1,879 1,709 1,466 ---

Year -6,911 6,263 5,193 3,899 --

Earnings Per Share ($) 2010 1.02 0.96 2009 0.74 0.71 2008 0.55 0.39 2007 -0.23 2006 --2005 ---

0.97 0.97 0.51 0.42 ---

E0.90 0.69 -0.45 -2.25 ---

E3.86 3.10 0.96 -1.15 0.60 --

Fiscal year ended Sep. 30. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.125 0.125 0.125 0.150

01/21 04/20 07/22 10/20

02/10 05/12 08/11 11/17

02/12 05/14 08/13 11/19

03/02/10 06/02/10 09/01/10 12/07/10

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: V

Visa Inc Business Summary August 12, 2010 CORPORATE OVERVIEW. Visa Inc. (V) operates the world's largest retail electronic payments network, providing financial institutions with a broad range of platforms for consumer credit, debit, prepaid and commercial payments. In October 2007, V completed a reorganization via which Visa U.S.A., Visa International, Visa Canada and Inovant, which operated the VisaNet transaction processing system and other related processing systems, became subsidiaries of V.

Payments volume, the basis for card service fee revenue, and transactions, which drive data processing revenue, are key drivers of V's business. Payments volume increased 1% to $2.67 trillion in FY 09, driven by 8% growth in transactions processed to $40.0 billion. V's operating revenues from its five largest customers represented approximately 32% (26% in FY 08) of its total operating revenues in FY 09. In addition, its operating revenues from its largest customer, JPMorgan Chase, accounted for 10% (8%) in FY 09.

V derives revenues primarily from card service fees, data processing fees, and international transaction fees. Service fees (39% of FY 09 (Sep.) gross operating revenue) reflect payments by customers for their participation in card programs carrying Visa brands. They also include acceptance fees, which are used to support merchant acceptance and ongoing volume growth initiatives. Data processing fees (30%) consist of fees charged to customers for providing transaction processing and other payment services, including processing services provided under V's bilateral services agreement with Visa Europe. International transaction fees (23%) are charged to customers on transactions where the issuer and the merchant are located in different countries. Its other revenues (8%) consist primarily of optional service or product enhancements, such as extended cardholder protection and concierge services, cardholder services and fees for licensing and certification, as well as licensing and other service-related fees from Visa Europe.

CORPORATE STRATEGY. V seeks to grow by expanding its core payments business in new and established geographies and market segments, as well as by broadening its processing capabilities and value-added service offerings for payments and related opportunities. The company intends to continue to expand the size of its payments network to drive the issuance, acceptance and usage of its products globally. V believes that there is a significant opportunity for expanding the usage of its products and services in high-growth geographies in which it currently operates.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.48 3.40 3.10 1.91 0.42 14% 89.69 41.78 29 13

2008 NM 0.95 0.96 1.63 0.11 11% 89.84 43.54 94 45

2007 NM NA -1.15 1.87 NA NA NA NA NA NA

2006 NA NA 0.60 0.57 NA NA NA NA NA NA

2005 NA NA NA NA NA NA NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

6,911 3,766 226 115 4,000 41.2% 2,353 2,033

6,263 3,106 237 143 1,336 39.8% 804 1,787

5,193 NA NA NA -1,007 NM -892 1,574

3,899 NA NA 104 738 37.0% 465 476

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 4,732 Current Assets 9,241 Total Assets 32,281 Current Liabilities 4,442 Long Term Debt 44.0 Common Equity 23,189 Total Capital 23,249 Capital Expenditures 306 Cash Flow 2,579 Current Ratio 2.1 % Long Term Debt of Capitalization 0.2 % Net Income of Revenue 34.1 % Return on Assets 7.0 % Return on Equity 10.6

6,287 11,174 34,981 7,165 55.0 21,141 26,143 415 1,041 1.6 0.2 12.8 2.4 3.9

7,935 11,321 33,250 6,541 40.0 19,747 24,560 NA NA 1.7 0.2 NM NA NA

NA NA NA NA NA NA NA NA NA NA Nil 11.9 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. 2007 pro forma bal. sheet (as of Dec. 31, 2007) and income statement; per share data based on Class A and Class C common stock. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: P.O. Box 8999, San Francisco, CA 94128-8999. Telephone: 415-932-2100. Website: http://www.visa.com Chrmn & CEO: J.W. Saunders

Pres: J. Partridge CFO & Chief Acctg Officer: B.H. Pollitt, Jr. Secy & General Counsel: J. Floum Investor Contact: B.H. Pollitt (415-932-2213)

Board Members: H. Al-Qadi, G. P. Coughlan, M. B. Founded: 2007 Cranston, C. T. Doyle, J. F. Fernandez-Carbajal, P. Domicile: Delaware Hawkins, S. N. Johnson, R. W. Matschullat, D. I. Employees: 5,700 McKay, C. Minehan, D. J. Pang, J. W. Saunders, C. W. Scharf, S. Schulin-Zeuthen, W. S. Shanahan, J. A.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

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Stock Report | October 23, 2010 | NYS Symbol: VNO | VNO is in the S&P 500

Vornado Realty Trust S&P Recommendation HOLD

★★★★★

Price $91.06 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Diversified REITS

12-Mo. Target Price $86.00

Investment Style Large-Cap Blend

Summary This real estate investment trust owns a diverse group of properties, including Northeast retail properties, New York City office buildings, and other interests.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $91.25– 56.54 Trailing 12-Month FFO/Share NA Trailing 12-Month P/FFO NA $10K Invested 5 Yrs Ago $14,203

S&P FFO/Sh. 2010E S&P FFO/Sh. 2011E P/FFO on S&P FFO/Sh. 2010E Common Shares Outstg. (M)

5.25 5.35 17.3 182.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$16.599 1.67 $1.52 87

Beta 1.78 S&P 3-Yr. FFO/Sh. Proj. CAGR(%) 3 S&P Credit Rating BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects VNO's large market capitalization, and what we see as its financial strength, diversified asset portfolio, and low share price volatility.

120 80 60 40

Quantitative Evaluations S&P Quality Ranking

Vol.

D

Mil.

B-

B B

B+

A-

A

A+

60

24 16 8 0 5

C

Relative Strength Rank

STRONG 73

LOWEST = 1

HIGHEST = 99

3

Revenue/FFO Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Royal F. Shepard, CFA on August 10, 2010, when the stock traded at $ 83.86. Highlights ➤

➤

We expect a challenging economic environment to limit the opportunity to sign new office tenants through 2010. However, we think leasing activity is stabilizing in the trust's core New York City and Washington, DC markets and should keep 2010 occupancy levels close to 95%. VNO's retail portfolio is also performing well in view of competition from space vacated by bankrupt retailers. We think its strength in street-level retail in urban markets will help keep occupancy close to 92% in 2010. In the second half of 2010, we expect VNO to become more aggressive in pursuing new acquisitions. In July, the trust raised $550 million for a new real estate investment fund in which its owns a 36% interest. In addition, VNO invested $116 million in LNR Property Corp., a leader servicer of commercial mortgage loans. We think the trust may use its LNR investment to help identify distressed mortgage investment opportunities.

Investment Rationale/Risk ➤

VNO has restored an all cash quarterly dividend of $0.65 in 2010, after paying a portion of its 2009 payout in common stock. With our view of its strong balance sheet, we think VNO will maintain the cash payout over the next 12 months.

3Q -671.2 677.2 853.0 678.5 657.0

4Q -719.0 696.3 888.5 723.3 697.2

Year -2,743 2,697 3,271 2,712 2,548

FFO Per Share ($) 2010 1.89 2009 1.63 2008 3.27 2007 1.65 2006 1.37 2005 1.84

E1.26 1.25 1.06 1.35 1.31 0.65

E0.95 E1.04 -0.50 1.18 1.34 1.26

E5.25 3.36 5.16 5.89 5.51 5.21

1.11 0.54 1.27 1.72 1.49 1.51

Fiscal year ended Dec. 31. Next earnings report expected: Early November. FFO Estimates based on S&P Funds From Operations Est..

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) ➤

Risks to our opinion and target price include rising interest rates, and economic declines in New York and/or Washington, DC. We also have corporate governance concerns related to anti-takeover defenses, including a classified board and blank check preferred stock.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.650 0.650 0.650 0.650

10/29 01/13 04/29 07/29

11/06 01/26 05/06 08/09

11/10 01/28 05/10 08/11

12/14/09 02/22/10 05/24/10 08/23/10

Dividends have been paid since 1990. Source: Company reports. ➤

➤

We think VNO has the financial resources to expand a strong portfolio of office and retail assets in supply-limited markets. The trust has begun to put excess cash balances to work in buying select assets, including properties from distressed sellers. In our view, new development opportunities will remain on hold until the economy recovery gains steam. In the near term, we think a well-diversified operating platform will produce a steady stream of cash flow. With the shares recently trading at a premium to diversified peers based on price to estimated 2010 FFO, we think they appropriately reflect VNO's long-term growth prospects.

Revenue (Million $) 1Q 2Q 2010 827.1 696.1 2009 678.6 673.8 2008 649.3 674.4 2007 736.3 792.8 2006 647.3 663.0 2005 598.7 594.8

Our 12-month target price of $86 represents a multiple of 16.4X our 2010 FFO per share forecast, a moderate premium to peers. We consider the premium justified by VNO's portfolio of high-quality assets earning relatively consistent investment returns.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: VNO

Vornado Realty Trust Business Summary August 10, 2010 CORPORATE OVERVIEW. Vornado Realty Trust is a diversified REIT that has interests in a wide range of properties, including office buildings, retail properties, refrigerated warehouses, a hotel, and dry warehouses, among others, primarily in the Northeast. The company conducts its business through, was the sole general partner of, and, as of December 31, 2009, owned 92.5% of the limited partnership interests in, Vornado Realty L.P. MARKET PROFILE. During 2009, VNO derived 63% of operating segment EBITDA from office properties. The market for office leases is inherently cyclical. The U.S. office market tends to track the overall economy on a lagged basis. At year-end 2009, we believe the national vacancy rate was about 17.0%, reflecting deterioration since its cyclical low of about 12.5% at the end of 2007. Local economic conditions, particularly the employment level, play an important role in determining competitive dynamics. In our opinion, VNO's principal target markets, the New York City metropolitan area and Washington DC, have vacancy rates below the average nationwide. In addition, unlike many markets, rates on new or renewed leases in Washington are often at higher rates than those previously in place. At December 31, 2009, VNO owned or had an interest in 113 office properties totaling 36.6 million sq. ft. The New

York portfolio was 95.5% occupied at December 31, 2009; the Washington, DC, portfolio was 94.9% occupied. In 2009, VNO derived about 19% of EBITDA from its retail segment. As of December 31, 2009, the retail portfolio included about 22.6 million sq. ft. in northeast U.S. states, Washington DC, and Puerto Rico. For VNO, as well as other retail oriented REITs, location and the financial health and growth of its retail tenants are among the most important factors affecting the success of its portfolio. Further, the companies in this industry enjoy relatively high barriers to entry, since developing new shopping centers requires large amounts of capital as well as time-consuming regulatory approvals which have been difficult to obtain in the recent past amid concerns about traffic and pollution. We expect VNO to focus on the re-development of acquired properties, including the Manhattan Mall, in New York City, and shopping centers acquired in Northern New Jersey and Long Island, New York.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 27.46 Nil -0.01 3.20 NM 73.96 27.01 NM NM

2008 27.79 1.16 1.13 3.65 NM 108.15 36.66 93 32

2007 34.57 2.86 2.69 3.45 107% 136.55 82.82 42 26

2006 35.22 3.13 2.62 3.25 104% 131.35 83.28 42 27

2005 31.38 3.27 3.09 3.85 118% 89.70 68.25 27 21

2004 26.86 3.75 3.62 2.89 77% 76.99 47.00 21 13

2003 24.15 2.29 3.63 2.91 127% 55.84 33.25 24 15

2002 21.68 2.18 2.15 2.97 136% 47.20 33.20 22 15

2001 21.15 2.50 2.58 2.31 92% 42.03 34.47 17 14

2000 18.31 2.21 NA 1.97 89% 40.75 29.87 18 14

Income Statement Analysis (Million $) Rental Income Mortgage Income Total Income General Expenses Interest Expense Provision for Losses Depreciation Net Income S&P Core Earnings

2,222 Nil 2,743 1,320 634 Nil 540 54.3 -1.06

2,211 Nil 2,697 1,264 608 Nil 537 241 178

1,989 Nil 3,271 2,935 635 Nil 530 510 426

1,568 Nil 2,712 1,588 478 Nil 397 607 393

1,397 Nil 2,548 1,488 341 Nil 335 507 435

1,345 Nil 1,707 825 242 Nil 243 514 476

1,261 Nil 1,503 706 230 Nil 215 285 421

1,249 Nil 1,435 668 240 Nil 206 263 236

842 Nil 986 472 173 Nil 124 267 238

695 Nil 827 366 170 Nil 99.8 235 NA

Balance Sheet & Other Financial Data (Million $) Cash 535 Total Assets 20,185 Real Estate Investment 17,950 Loss Reserve Nil Net Investment 15,455 Short Term Debt 852 Capitalization:Debt 10,088 Capitalization:Equity 5,419 Capitalization:Total 17,989 % Earnings & Depreciation/Assets 2.9 Price Times Book Value:High 2.7 Price Times Book Value:Low 1.0

1,527 21,418 17,870 Nil 15,709 357 12,292 4,841 19,567 3.5 3.9 1.3

1,858 22,479 18,972 Nil 16,565 527 12,426 5,293 20,038 5.1 3.9 2.4

2,690 17,954 13,553 Nil 11,585 778 9,056 5,322 16,335 6.3 3.7 2.4

763 13,637 11,449 Nil 9,776 398 5,857 4,260 12,208 6.6 2.9 2.2

NA 11,581 9,757 Nil 8,349 Nil 4,937 3,301 8,238 7.1 2.9 1.7

NA 9,519 7,748 Nil 6,879 Nil 3,768 2,827 8,767 5.4 2.3 1.4

NA 9,018 7,560 Nil 6,822 Nil 3,622 2,362 8,287 5.9 2.2 1.5

NA 6,777 4,690 Nil 4,184 Nil 1,643 2,101 5,693 5.9 2.0 1.6

NA 6,370 4,295 Nil 3,901 425 2,232 1,597 5,767 5.6 2.2 1.6

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 888 Seventh Avenue, New York , NY 10019-4308. Telephone: 212-894-7000. Website: http://www.vno.com Chrmn: S. Roth

Pres & CEO: M.D. Fascitelli SVP & Secy: A.J. Rice CFO, Chief Admin Officer & Chief Acctg Officer: J. Macnow CIO: R. Entin

Trustees: C. K. Beinecke, A. W. Deering, M. D. Fascitelli, R. P. Kogod, M. Lynne, D. Mandelbaum, S. Roth, R. G. Targan, R. R. West, R. B. Wight, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1941 Domicile: Maryland Employees: 4,597

Stock Report | October 23, 2010 | NYS Symbol: VMC | VMC is in the S&P 500

Vulcan Materials Co S&P Recommendation HOLD

★★★★★

Price $36.70 (as of Oct 22, 2010)

GICS Sector Materials Sub-Industry Construction Materials

12-Mo. Target Price $48.00

Investment Style Large-Cap Growth

Summary This company is the nation's largest producer of aggregates in the United States, and is also a major supplier of asphalt and concrete used in road construction and the building of commercial, residential and public buildings and infrastructure.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $59.90– 35.40 Trailing 12-Month EPS $-0.17 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $6,162

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.30 1.25 NM 128.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$4.708 2.72 $1.00 81

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.37 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that while VMC's earnings are exposed to the construction industry, about half of the aggregates volume comes from public construction, which is more stable than commercial construction. In addition, we view VMC's free cash flow generation as strong.

100 80 60

40

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0

D

5

3

2

2

2

2009

Analysis prepared by Stuart J. Benway, CFA on August 10, 2010, when the stock traded at $ 40.72.

➤

➤

➤

After a 26% revenue decline in 2009, we look for little change in 2010 levels. Demand for construction aggregates is likely to rise slightly from low levels in 2009, as we forecast that housing starts will increase 15%. However, commercial construction is likely to remain very weak. We expect spending on highways and other public infrastructure to rise due to increased federal spending, but prices for aggregates could decrease by about 2%. Operating margins fell 640 basis points in 2009, to 5.7%. Despite progress on reducing administrative costs and a relatively flexible cost structure, margins at VMC have suffered from significantly underutilized capacity. The modest recovery that we expect in 2010, coupled with the lower cost base, should lead to about a 150 basis point increase in operating margins. We project EPS of $0.30 in 2010, up from a very weak level of $0.16 in 2009. The solid growth trends that Vulcan has historically exhibited have been disrupted over the past two years, although we think the worst may be over. Our EPS estimate for 2011 is $1.25.

Investment Rationale/Risk ➤

➤

➤

B+

A-

A

A+ WEAK

LOWEST = 1

HIGHEST = 99

2010 Options: P

Highlights

B

16

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

B-

Relative Strength Rank

3

1

2007

C

B+

We expect conditions in most of Vulcan's markets to remain weak in 2010. Our forecast is for improvement in home starts, although activity is likely to remain well below historical levels. We project that commercial construction will decline again in 2010. Industrial markets should provide some stability as they are more long term in nature. We look for an increase in government infrastructure spending to moderately boost demand for construction aggregates. The shares are trading well above their average forward P/E ratio of about 20X.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 493.3 736.2 2009 600.3 721.9 2008 817.3 1,022 2007 687.2 878.8 2006 708.7 888.2 2005 528.6 782.1

3Q -778.2 1,013 904.9 929.3 830.0

4Q -590.1 799.2 856.9 816.3 754.6

Year -2,690 3,651 3,328 3,342 2,895

Earnings Per Share ($) 2010 -0.35 -0.18 2009 -0.29 0.14 2008 0.13 1.27 2007 0.91 1.46 2006 0.70 1.47 2005 0.21 0.98

E0.40 0.38 0.54 1.47 1.45 1.23

E0.15 -0.10 0.14 0.83 1.19 0.89

E0.30 0.16 2.08 4.66 4.79 3.30

Risks to our recommendation and target price include demand being weaker than we project due to a lack of recovery in residential construction activity, and public infrastructure spending being boosted less than expected by a government-sponsored stimulus plan.

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

Our discounted cash flow model, which assumes a 10.0% weighted average cost of capital, lower capital spending again in 2010, lower cash flow generation in 2010, and 3% cash flow growth in perpetuity, indicates intrinsic value of $48, which is our 12-month target price.

0.250 0.250 0.250 0.250

02/12 05/14 07/09 10/08

02/24 05/26 08/24 11/02

02/26 05/28 08/26 11/04

03/10/10 06/10/10 09/10/10 12/10/10

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy)

Dividends have been paid since 1934. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: VMC

Vulcan Materials Co Business Summary August 10, 2010 CORPORATE OVERVIEW. Vulcan Materials is the largest U.S. producer of construction aggregates, primarily crushed stone, sand, and gravel. It is also a major producer of asphalt and ready-mix concrete and a leading producer of cement in Florida. Proven and probable reserves of aggregates were estimated at 14.2 billion tons at the end of 2009. Vulcan shipped 151 million tons of aggregates in 2009 to 23 states, the District of Columbia, Mexico, the Bahamas, Canada, the Cayman Islands and Chile from 331 production facilities and distribution points. Construction aggregates were 66% of sales in 2009, asphalt mix and concrete 33%, and cement was 1%. VMC estimates that 50% of its aggregates shipments in 2009 went to publicly funded construction projects and 50% was used for privately funded residential and nonresidential construction. PRIMARY BUSINESS DYNAMICS. Public sector construction spending is generally more stable than in the private sector, in part because public sector spending is less sensitive to interest rates and is often supported by multiyear legislation and programs. Public construction is typically funded through a combination of federal state and local sources. The federal transportation bill is the principal source of federal funding for public infrastructure and transportation projects. For over two decades, the federal funding component

of these projects has been provided through a series of six-year bills. The multi-year aspect of these bills is critically important because it provides state departments of transportation with the ability to plan and execute long-term and complex highway projects. Federal highway spending is primarily determined by this six-year authorization bill and annual budget appropriations using funds largely taken from the Federal Highway Trust Fund, which receives taxes on gasoline and other levies. State highway and bridge projects supplement federal funding with state fuel taxes and vehicle registration fees. Private nonresidential construction includes a wide array of project types and generally is more aggregates intensive than residential construction but less so than public construction. Demand in private nonresidential construction is driven by job growth, vacancy rates, private infrastructure needs, and demographic trends. The majority of residential construction activity is for singlefamily houses with the remainder consisting of multi-family construction. Household formation is a primary driver of housing demand along with mortgage rates.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 2.19 3.46 0.16 NA 1.48 NM 71.26 34.30 NM NM

2008 NM 3.53 2.08 1.20 1.96 94% 100.25 39.52 48 19

2007 NM 7.33 4.66 4.22 1.84 39% 128.62 77.04 28 17

2006 14.60 7.04 4.79 4.53 1.48 31% 93.85 65.85 20 14

2005 15.05 5.43 3.30 3.17 1.16 35% 76.31 52.36 23 16

2004 13.77 4.88 2.52 2.29 1.04 41% 55.53 41.94 22 17

2003 12.01 4.87 2.18 1.89 0.97 44% 48.60 28.75 22 13

2002 11.04 4.47 1.86 1.51 0.94 51% 49.95 32.35 27 17

2001 10.02 4.89 2.17 1.81 0.90 41% 55.30 37.50 25 17

2000 9.00 4.43 2.29 NA 0.84 37% 48.88 36.50 21 16

2,690 516 395 175 -19.2 197.0% 18.7 -0.71

3,651 814 389 187 327 29.5% 231 132

3,328 954 266 53.4 668 30.6% 463 419

3,342 914 225 26.3 703 32.1% 477 452

2,895 690 221 37.1 480 28.4% 344 328

2,454 623 245 40.3 376 30.4% 261 236

2,892 618 277 54.1 311 28.3% 223 194

2,797 560 268 55.0 260 25.8% 190 155

3,020 649 278 61.3 324 31.3% 223 186

2,492 573 232 48.1 312 29.6% 220 NA

Balance Sheet & Other Financial Data (Million $) Cash 26.4 Current Assets 743 Total Assets 8,534 Current Liabilities 857 Long Term Debt 2,116 Common Equity 4,052 Total Capital 6,554 Capital Expenditures 110 Cash Flow 413 Current Ratio 0.9 % Long Term Debt of Capitalization 32.3 % Net Income of Revenue 0.7 % Return on Assets 0.2 % Return on Equity 0.5

46.9 894 9,176 1,663 2,154 3,784 6,626 401 387 0.5 32.5 6.3 2.6 6.1

34.9 1,157 8,936 2,528 1,530 3,760 5,961 483 729 0.5 25.7 13.9 7.5 16.1

55.2 731 3,424 494 322 2,001 2,611 435 702 1.5 12.3 14.3 13.6 23.1

275 1,165 3,589 579 323 2,127 2,725 216 565 2.0 11.9 11.9 9.5 16.6

271 1,418 3,665 427 605 2,014 2,967 204 506 3.3 20.4 10.6 7.2 13.7

417 1,050 3,637 543 339 1,803 2,573 194 501 1.9 13.2 7.7 6.3 12.8

171 790 3,448 298 858 1,697 2,993 249 458 2.7 28.7 6.8 5.6 11.5

101 730 3,398 344 906 1,604 2,829 287 501 2.1 32.0 7.4 6.7 14.5

55.3 695 3,229 572 685 1,471 2,426 340 452 1.2 28.3 8.8 7.2 15.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1200 Urban Center Drive, Birmingham, AL 35242. Telephone: 205-298-3000. Email: [email protected] Website: http://www.vulcanmaterials.com

Chrmn & CEO: D.M. James SVP & CFO: D. Sansone SVP & General Counsel: R.A. Wason, IV Chief Acctg Officer, Cntlr & CIO: E.A. Khan

Treas: J.P. Alford Investor Contact: M. Warren (205-298-3220) Board Members: P. W. Farmer, H. A. Franklin, D. M. James, A. M. Korologos, D. J. McGregor, J. V. Napier, R. O'Brien, J. T. Prokopanko, D. B. Rice, V. J. Trosino, K. Wilson-Thompson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1910 Domicile: New Jersey Employees: 8,479

Stock Report | October 23, 2010 | NYS Symbol: WAG | WAG is in the S&P 500

Walgreen Co S&P Recommendation BUY

★★★★★

Price $34.07 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Drug Retail

12-Mo. Target Price $38.00

Investment Style Large-Cap Growth

Summary The largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $40.26– 26.26 Trailing 12-Month EPS $2.12 Trailing 12-Month P/E 16.1 $10K Invested 5 Yrs Ago $8,026

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.50 2.79 13.6 973.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.83 15 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's strong market share positions in the relatively stable U.S. retail drug industry, offset by growth of non-traditional competitors and potential adverse legislation.

50 40

30 25

Quantitative Evaluations S&P Quality Ranking

Vol. 151

Mil. 45 30 15 0

$33.156 2.05 $0.70 67

97

D

C

B-

A+ B

B+

A-

A

Relative Strength Rank

A+ STRONG

78

5

5

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P

Analysis prepared by Joseph Agnese on September 28, 2010, when the stock traded at $ 33.75. Highlights ➤

➤

➤

Investment Rationale/Risk

We see sales advancing 7.1% in FY 11 (Aug.), to roughly $72.2 billion, from $67.4 billion in FY 10, fueled by about 250 net new store openings (approximately 3.0% square footage growth), acquisitions, a pharmacy same-store sales gain of about 3%, and front-end same-store sales growth of about 2%. We see front-end growth benefiting from the rollout of store remodelings across a majority of stores, including new merchandising initiatives that we expect to significantly boost non-pharmacy sales.

➤

We expect margins to expand on an improved product mix, lower labor costs, reduced inventory markdowns and increased sales of widermargin generic drugs, partially offset by increased drug reimbursement pressures. We think the company's investment in health clinics will be accretive to earnings in FY 11, versus a dilutive impact in FY 10. We expect interest expense to decline slightly, reflecting lower interest rates.

➤

We look for EPS to increase 17% in FY 11, to $2.50, from $2.13 (including $0.03 in restructuring and related costs associated with the rewiring for growth initiative) in FY 10.

➤

Revenue/Earnings Data

2010

The company acquired drug store chain Duane Reade in April 2010 for a total enterprise value of $1.1 billion in cash. The acquisition gives the company a leading market share position in New York City, the largest drug store market in the U.S. We see benefits from the sharing of best practices, with Duane Reade's strengths in non-pharmacy merchandising and Walgreen's strengths in pharmacy, in addition to purchasing benefits and overhead cost reductions. Risks to our recommendation and target price include a weaker-than-expected economy, increased competition from peers and other retail formats, and legislative changes that may affect drug reimbursements. We believe the shares should trade in line with their historical premium to the S&P 500 as the company makes progress on initiatives to improve merchandising and remodel existing stores, leading to an acceleration of earnings growth. Applying a multiple of 15.1X to our FY 11 EPS estimate of $2.50, in line with its historical 3% premium to the P/E multiple on the S&P 500, results in a value of $38, which is our 12-month target price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 16,364 16,987 2009 14,947 16,475 2008 14,028 15,394 2007 12,709 13,934 2006 10,900 12,163 2005 9,889 10,987

3Q 17,199 16,210 15,016 13,698 12,175 10,831

4Q 16,870 15,703 14,597 13,422 12,170 10,495

Year 67,420 63,335 59,034 53,762 47,409 42,202

Earnings Per Share ($) 2010 0.49 0.68 2009 0.41 0.65 2008 0.46 0.69 2007 0.43 0.65 2006 0.34 0.51 2005 0.32 0.48

0.47 0.53 0.58 0.56 0.46 0.40

0.49 0.44 0.45 0.40 0.41 0.32

2.12 2.02 2.17 2.03 1.72 1.52

Fiscal year ended Aug. 31. Next earnings report expected: Late December. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.138 0.138 0.175 0.175

01/15 04/12 07/14 10/13

02/16 05/18 08/17 11/10

02/18 05/20 08/19 11/15

03/12/10 06/12/10 09/11/10 12/11/10

Dividends have been paid since 1933. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WAG

Walgreen Co Business Summary September 28, 2010 CORPORATE OVERVIEW. Walgreen Co. is one of the largest drug store chains in the U.S., based on sales and store count. In 1909, the company's founder, Charles Rudolph Walgreen Sr., purchased one of the busiest drug stores on Chicago's South Side, and transformed it by constructing an ice cream fountain that featured his own brand of ice cream. The ice cream fountain was the forerunner of the famous Walgreen's soda fountain, which became the main attraction for customers from the 1920s through the 1950s. People lined up to buy a product that WAG invented in the early 1920s: the milkshake. The company continued to be innovative by pioneering computerized pharmacies connected by satellite in 1981, completing chain wide point-of-sale scanning in 1991, and introducing freestanding stores with drive-thru pharmacies in 1992.

our analysis, the company filled about 650 million prescriptions in FY 09, accounting for about 18% of the U.S. retail market. The company experienced a 6.9% growth rate in prescription volume in FY 09, outpacing our estimate of a low single digit growth rate for the industry. WAG pharmacy sales rose 7.8% in FY 09, to about $42 billion, versus our estimate of a low single digit growth rate for the total industry, on comparable prescription sales growth of 3.5%. Sales of non-pharmacy items outperformed competitors, with the company increasing market share in most of its core categories versus drug store, grocery and mass merchant competition.

MARKET PROFILE. Walgreen operates one of the largest U.S. drug store chain based on sales, generating $63.3 billion in sales in FY 09 (Aug.). According to Company Financials Fiscal Year Ended Aug. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 NA 3.16 2.12 NA 0.59 28% 37.95 26.26 18 12

2009 13.06 3.01 2.02 2.01 0.48 24% 40.69 21.39 20 11

2008 11.56 3.01 2.17 2.17 0.40 18% 39.00 21.28 18 10

2007 10.13 2.70 2.03 2.03 0.33 16% 49.10 35.80 24 18

2006 9.61 2.28 1.72 1.71 0.27 16% 51.60 39.55 30 23

2005 8.69 1.99 1.52 1.44 0.22 15% 49.01 39.66 32 26

2004 8.04 1.71 1.32 1.27 0.18 14% 39.51 32.00 30 24

2003 7.02 1.47 1.14 1.07 0.16 14% 37.42 26.90 33 24

2002 6.08 1.29 0.99 0.93 0.15 15% 40.70 27.70 41 28

2001 5.11 1.12 0.86 0.80 0.14 16% 45.29 28.70 53 33

67,420 4,488 1,030 85.0 3,373 NA 2,091 NA

63,335 4,442 975 99.0 3,164 36.6% 2,006 1,997

59,034 4,202 840 30.0 3,430 37.1% 2,157 2,158

53,762 3,827 676 Nil 3,189 36.0% 2,041 2,042

47,409 3,274 572 Nil 2,754 36.4% 1,751 1,754

42,202 2,906 482 Nil 2,456 36.5% 1,560 1,478

37,508 2,546 403 Nil 2,176 37.5% 1,360 1,302

32,505 2,194 346 Nil 1,889 37.8% 1,176 1,104

28,681 1,932 307 Nil 1,637 37.8% 1,019 955

24,623 1,668 269 3.10 1,423 37.8% 886 820

Balance Sheet & Other Financial Data (Million $) Cash 1,880 Current Assets 11,922 Total Assets 26,275 Current Liabilities 7,433 Long Term Debt 2,389 Common Equity 14,400 Total Capital 16,789 Capital Expenditures 1,014 Cash Flow 3,121 Current Ratio 1.6 % Long Term Debt of Capitalization 14.2 % Net Income of Revenue 3.1 % Return on Assets 8.1 % Return on Equity 14.5

2,587 12,049 25,142 6,769 2,336 14,376 16,712 1,927 2,981 1.8 14.0 3.2 8.4 14.7

443 10,433 22,410 6,644 1,377 12,869 14,396 2,225 2,997 1.6 9.6 3.7 10.3 18.0

255 9,511 19,314 6,744 Nil 11,104 11,263 1,785 2,717 1.4 Nil 3.8 11.2 19.2

920 9,705 17,131 5,755 Nil 10,116 10,257 1,338 2,323 1.7 Nil 3.7 11.0 18.4

577 8,317 14,609 4,481 Nil 8,890 9,130 1,238 2,042 1.9 Nil 3.7 11.2 18.3

1,696 7,764 13,342 4,078 Nil 8,228 8,556 940 1,763 1.9 Nil 3.6 10.9 17.6

1,017 6,358 11,406 3,421 Nil 7,196 7,424 795 1,522 1.9 Nil 3.6 11.0 17.5

450 5,167 9,879 2,955 Nil 6,230 6,407 934 1,327 1.7 Nil 3.6 10.9 17.8

16.9 4,394 8,834 3,012 Nil 5,207 5,344 1,237 1,155 1.5 Nil 3.6 11.1 18.8

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 200 Wilmot Road, Deerfield, IL 60015. Telephone: 847-940-2500. Email: [email protected] Website: http://www.walgreens.com

Chrmn: A.G. McNally Pres, CEO & COO: G.D. Wasson EVP & CFO: W.D. Miquelon EVP, Secy & General Counsel: D.I. Green

SVP & CIO: T.J. Theriault Investor Contact: R.J. Hans (847-940-2500) Board Members: D. J. Brailer, S. A. Davis, W. C. Foote, M. P. Frissora, G. L. Graham, A. G. McNally, N. M. Schlichting, D. Y. Schwartz, A. Silva, J. Skinner, G. D. Wasson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1901 Domicile: Illinois Employees: 238,000

Stock Report | October 23, 2010 | NYS Symbol: WMT | WMT is in the S&P 500

Wal-Mart Stores Inc S&P Recommendation STRONG BUY

★★★★★

Price $54.06 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Hypermarkets & Super Centers

12-Mo. Target Price $63.00

Investment Style Large-Cap Blend

Summary The largest retailer in North America, WMT operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $56.27– 47.77 Trailing 12-Month EPS $3.89 Trailing 12-Month P/E 13.9 $10K Invested 5 Yrs Ago $12,975

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

4.03 4.40 13.4 3,636.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$196.592 2.24 $1.21 34

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.28 9 AA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment of Wal-Mart Stores, Inc. reflects our view of the company's high-quality earnings, as reflected in its S&P Quality Ranking of A+, its dominant market share positions, continued price leadership and strong cash flow generation.

65 60 55 50 45

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 120 80 40 0 5

D

4

3

4

C

B-

A+ B

B+

A-

A

Relative Strength Rank

5

A+

MODERATE

49 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Joseph Agnese on October 14, 2010, when the stock traded at $ 53.40. Highlights ➤

➤

➤

We expect net revenues to increase 4.3% in FY 11 (Jan.), driven by 10% growth in international sales and the addition of about 4% in new retail square footage, with square footage growth (excluding acquisitions) shifting toward international markets (25 million square feet) from domestic expansion (12 million square feet), partially offset by store closures. We expect U.S. same store sales to decline 1% reflecting more aggressive price rollbacks and weak consumer demand. We do not expect food inflation to return in FY 11. We estimate that EBIT margins will widen slightly, reflecting higher sales of wider margin private label merchandise, increased sales leverage and well controlled inventory levels, partially offset by a shift in the product mix due to higher sales of food and pharmacy products and sluggish sales growth in discretionary categories such as apparel and home departments. Additionally, we see continued benefits from improved labor productivity due to the rollout of scheduling software. We project EPS of $4.03 for FY 11, up 10% from operating EPS of $3.66 in FY 10, excluding onetime tax benefits and restructuring costs.

Investment Rationale/Risk ➤

➤

➤

We believe the company is well positioned to grow market share despite a more stable economic environment in FY 11, as we think consumers will continue to seek good values and take advantage of its one-stop shopping convenience. We believe WMT's significant staples product offerings and basics discretionary offerings position it well despite weak consumer spending. Risks to our recommendation and target price include economic pressures such as rising unemployment or lower consumer confidence, which we think would negatively affect WMT's core customers and the company's results, and unfavorable foreign currency exchange rates. Our 12-month target price of $63 reflects our analysis of relative P/E ratios. Based on our expectation for the company to grow market share in a stable economic environment, we believe the stock should trade in line with its historical median forward P/E. Applying a multiple of 15.3X, in line with its five-year median P/E but at a 7% premium to the forward 12-month P/ E for the S&P 500, to our forward 12-month EPS estimate of $4.11 implies a value of $63.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 99,848 103,726 2010 94,242 100,910 2009 94,070 101,544 2008 85,387 91,990 2007 79,613 85,430 2006 71,680 76,811 Earnings Per Share ($) 2011 0.88 0.97 2010 0.77 0.88 2009 0.76 0.86 2008 0.68 0.86 2007 0.64 0.72 2006 0.58 0.67

3Q 4Q Year ---99,411 113,651 408,214 97,634 107,996 405,607 90,880 106,269 378,799 84,467 99,078 348,650 75,436 89,273 312,427

E0.91 0.84 0.77 0.70 0.62 0.57

E1.27 1.23 0.96 1.03 0.95 0.86

E4.03 3.72 3.35 3.16 2.92 2.68

Fiscal year ended Jan. 31. Next earnings report expected: Mid November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.303 0.303 0.303 0.303

03/04 03/04 03/04 03/04

03/10 05/12 08/11 12/08

03/12 05/14 08/13 12/10

04/05/10 06/01/10 09/07/10 01/03/11

Dividends have been paid since 1973. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WMT

Wal-Mart Stores Inc Business Summary October 14, 2010 CORPORATE OVERVIEW. Walmart, the largest retailer in North America, has set its sights on other parts of the world. The company's operations are divided into three divisions: Walmart U.S. (FY 10 (Jan.) sales $258.2 billion), Sam's Club ($46.7 billion), and Walmart International ($100.1 billion). Internationally, WMT recently operated 44 units in Argentina, 436 in Brazil, 317 in Canada, 519 in Central America, 254 in Chile, 283 in China (through joint ventures), 371 in Japan, 1,472 in Mexico, and 371 in the U.K.

largest supermarket operator in the U.S., commanding over 25% market share of the $500+ billion supermarket industry. Other major product categories within the Walmart division include entertainment ($34 billion in estimated sales in FY 10), hardlines ($28 billion), apparel ($26 billion), and home ($13 billion). Sam's Club is the second largest warehouse club in the U.S., with sales of $46.7 billion in FY 10. About 58% of Sam's Club sales were generated from food, beverage health and wellness categories.

MARKET PROFILE. With over 100 million people walking into Walmart stores every week, the company is a dominant player in many of the markets in which it competes. With FY 10 sales of about $155 billion within supermarket-related categories (grocery, health & wellness), the Walmart U.S. division is the Company Financials Fiscal Year Ended Jan. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 14.43 5.56 3.72 3.72 1.09 29% 2009 57.51 46.25 15 12

2009 12.75 5.06 3.35 3.42 0.95 28% 2008 63.85 43.11 19 13

2008 12.22 4.72 3.16 3.16 0.67 21% 2007 51.44 42.09 16 13

2007 11.57 4.23 2.92 2.92 0.67 23% 2006 52.15 42.31 18 14

2006 9.84 3.81 2.68 2.66 0.60 22% 2005 54.60 42.31 20 16

2005 9.12 3.44 2.41 2.41 0.52 22% 2004 61.31 51.08 25 21

2004 7.83 2.91 2.03 2.03 0.36 18% 2003 60.20 46.25 30 23

2003 6.78 2.58 1.81 1.79 0.30 17% 2002 63.94 43.72 35 24

2002 5.95 2.22 1.50 1.47 0.28 19% 2001 58.75 42.00 39 28

2001 4.99 2.04 1.40 1.39 0.24 17% 2000 69.00 41.44 49 30

408,214 31,663 7,157 2,065 22,066 32.4% 14,414 14,414

405,607 26,580 6,739 2,272 20,898 34.2% 13,254 13,505

378,799 24,784 6,317 1,467 20,198 34.2% 12,884 12,880

348,650 22,298 5,459 1,809 18,968 33.6% 12,178 12,178

312,427 23,247 4,717 1,420 17,358 33.4% 11,231 11,134

285,222 18,729 4,405 1,187 16,105 34.7% 10,267 10,267

256,329 16,525 3,852 996 14,193 36.1% 8,861 8,861

244,524 15,075 3,432 1,063 12,719 35.3% 8,039 7,955

217,799 15,367 3,290 1,326 10,751 36.2% 6,671 6,592

191,329 12,392 2,868 1,374 10,116 36.5% 6,295 6,235

Balance Sheet & Other Financial Data (Million $) Cash 7,907 Current Assets 48,331 Total Assets 170,706 Current Liabilities 55,561 Long Term Debt 33,231 Common Equity 70,749 Total Capital 110,517 Capital Expenditures 12,184 Cash Flow 21,571 Current Ratio 0.9 % Long Term Debt of Capitalization 30.1 % Net Income of Revenue 3.5 % Return on Assets 8.6 % Return on Equity 21.2

7,275 48,949 163,429 55,390 31,349 65,285 104,673 11,499 19,993 0.9 30.0 3.3 8.1 20.4

5,569 47,585 163,514 58,454 29,799 64,608 102,259 14,937 19,201 0.8 29.1 3.4 8.2 20.4

7,373 46,588 151,193 51,754 30,735 61,573 94,468 15,666 17,637 0.9 32.5 3.5 8.4 21.2

6,414 43,824 138,187 48,826 30,171 53,171 84,809 14,563 15,948 0.9 35.6 3.5 8.7 21.9

5,488 38,491 120,223 42,888 23,669 49,396 74,388 12,893 14,672 0.9 31.8 3.6 9.1 22.1

5,199 34,421 104,912 37,418 20,099 43,623 65,206 10,308 12,713 0.9 30.8 3.5 8.9 21.3

2,758 30,483 94,685 32,617 19,608 39,337 60,307 9,355 11,471 0.9 32.5 3.3 9.0 21.6

2,161 28,246 83,451 27,282 18,732 35,102 55,041 8,383 9,961 1.0 34.0 3.1 8.3 20.1

2,054 26,555 78,130 28,949 15,655 31,343 48,138 8,042 9,163 0.9 32.5 3.3 8.5 22.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 702 S.W. 8th Street, Bentonville, AR 72716. Telephone: 479-273-4000. Website: http://www.walmartstores.com Chrmn: S.R. Walton

Pres & CEO: M. Duke EVP & CFO: T.M. Schoewe EVP & Chief Admin Officer: T.A. Mars EVP & Treas: C.M. Holley, Jr.

Investor Contact: M. Beckstead (479-277-9558) Board Members: A. M. Alvarez, J. W. Breyer, M. M. Burns, J. I. Cash, Jr., R. C. Corbett, D. N. Daft, M. Duke, G. B. Penner, H. L. Scott, Jr., A. M. Sorenson, J. Walton, S. R. Walton, C. J. Williams, L. S. Wolf

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1945 Domicile: Delaware Employees: 2,100,000

Stock Report | October 23, 2010 | NYS Symbol: WPO | WPO is in the S&P 500

Washington Post Co (The) S&P Recommendation HOLD

★★★★★

Price $372.63 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Publishing

12-Mo. Target Price $411.00

Investment Style Large-Cap Growth

Summary WPO publishes The Washington Post newspaper, operates TV stations and cable systems, and provides education and database services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $547.58– 295.56 Trailing 12-Month EPS $25.42 Trailing 12-Month P/E 14.7 $10K Invested 5 Yrs Ago $5,297

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

33.55 36.25 11.1 9.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.90 8 A

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment incorporates our view of a highly competitive environment for advertising among publishers and other media, and a significant negative trend in print advertising and circulation, partially offset by the recurring nature of a significant portion of company revenues.

600 500 400 300

Quantitative Evaluations

Vol.

S&P Quality Ranking

1840

(000) 300 200 100 0 5

$2.935 2.42 $9.00 89

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 3

2

3

4

3

WEAK

17

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Joseph Agnese on September 17, 2010, when the stock traded at $ 357.16. Highlights ➤

➤

We look for revenues to rise about 6.2% in 2010. We project growth in education segment revenues to be driven by a mix of organic gains and acquisitions. We forecast an increase in cable segment revenues from the addition of new cable modem, telephone and digital video subscribers. We expect television segment revenues to improve this year on easier comparisons, increased political advertising and more stable advertising demand. Although we see declines in the newspaper segment amid persisting secular challenges, we look for cyclical challenges to ease as the year progresses.

Investment Rationale/Risk ➤

➤

We expect operating margins to widen in 2010. We see margin improvements in the cable division, coupled with less severe losses in the company's publishing businesses, offsetting a shift in mix toward the lower-margin education business. We believe publishing margins will be supported by more stable advertising demand and benefits from cost-cutting efforts. ➤

➤

After a moderate reduction in share count due to an active share repurchase program, we see EPS of $33.55 in 2010, up from operating EPS of $22.40 in 2009, excluding restructuring and early retirement charges of $10.60.

In August 2010, the company agreed to sell Newsweek magazine to Harman Media. Nevertheless, we believe diverse media and educational service operations position WPO better than many peers despite significant cyclical and secular pressures. The company's newspaper operations continue to be negatively impacted by a long-term shift of advertising revenues to digital media. However, we think an improved economic environment is helping ease cyclical pressures on ad spending. Risks to our recommendation and target price include the potential for federal rule changes to result in a significant reduction in Title IV funding for Kaplan schools. Regarding corporate governance, 28 holders of non-publicly traded Class A shares (as of January 31, 2010) have the right to elect a majority of the directors, which we believe may not be in the best interests of common (Class B) stockholders. We think WPO should trade at a discount to its peers' median EV/EBITDA multiple due to what we see as its higher risk profile. Applying a 17% peer discounted EV/EBITDA multiple of 4.0X to our 2010 EBITDA estimate of $818 million, results in our 12-month target price of $411.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,171 1,202 2009 1,054 1,128 2008 1,063 1,106 2007 985.6 1,047 2006 948.3 969.0 2005 833.9 897.6

3Q -1,149 1,129 1,023 946.9 873.7

4Q -1,238 1,164 1,126 1,041 948.7

Year -4,570 4,462 4,180 3,905 3,554

Earnings Per Share ($) 2010 4.91 10.25 2009 -2.04 1.30 2008 4.08 -0.31 2007 6.70 7.19 2006 8.48 8.17 2005 6.87 8.16

E8.79 1.81 1.08 7.60 7.60 6.89

E9.62 8.71 2.01 8.72 9.97 10.65

E33.55 9.78 6.87 30.19 34.21 32.59

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

2.250 2.250 2.250 2.250

01/21 02/23 06/10 09/23

01/25 04/22 07/22 10/21

01/27 04/26 07/26 10/25

02/05/10 05/07/10 08/06/10 11/05/10

Dividends have been paid since 1956. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WPO

Washington Post Co (The) Business Summary September 17, 2010 CORPORATE OVERVIEW. The Washington Post operates principally in four areas of the media business: newspaper publishing, television broadcasting, magazine publishing, and cable television. Through its subsidiary Kaplan, Inc., the company also provides educational services for individuals, schools and businesses. The company divides Kaplan's various educational businesses (58% of 2009 revenues) into four categories: higher education (58% of segment revenues), test preparation (17%), international (20%),and Kaplan ventures (4.7%). Higher education includes Kaplan's domestic post-secondary education businesses, including fixed facility colleges and online post-secondary and career programs. We note that approximately 71% of Kaplan's higher education revenues came from Title IV (federal financial aid) programs in 2009, and thus we believe the segment is vulnerable to budget cuts for education spending. Test preparation includes standardized test prep for college, graduate school and professional licensing and advanced designation exams and includes live tutoring services. International includes U.K., Ireland, Singapore, Australia, Hong Kong and China businesses. Kaplan ventures division manages and de-

velops business lines in markets adjacent to Kaplan's core educational businesses such as compliance training in the pharmaceutical and medical technology industries and assistance in licensure and registration filings for insurance carriers, agencies and brokers/dealers. Part of the company's strategy in the education business is to grow through acquisition; along those lines, Kaplan made two acquisitions in 2009, following nine in both 2008 and 2007. The Newspaper division (15%) includes The Washington Post, Express (a free weekly tabloid), Post-Newsweek Media, the Slate group, and other publications. WPNI holds an interest in Classified Ventures, a company that provides online classified advertising databases for cars, apartment rentals and residential real estate. Advertising represented 68% of The Washington Post's revenue, with subscription fees contributing 29%.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 97.63 44.12 9.78 13.26 8.60 88% 495.60 300.16 51 31

2008 89.89 37.42 6.87 15.82 8.60 125% 823.25 320.00 NM NM

2007 NM 55.26 30.19 25.02 8.20 27% 885.23 726.93 29 24

2006 143.64 57.76 34.21 30.53 7.80 23% 815.00 690.00 24 20

2005 103.66 53.26 32.59 26.50 7.40 23% 982.03 716.00 30 22

2004 92.76 54.04 34.59 29.88 7.00 20% 999.50 790.21 29 23

2003 64.70 43.38 25.12 15.68 5.80 23% 819.50 650.03 33 26

2002 59.82 40.93 22.61 12.98 5.60 25% 743.00 516.00 33 23

2001 50.31 38.62 24.06 -1.24 5.60 23% 651.50 470.00 27 20

2000 50.03 26.79 14.32 NA 5.40 38% 628.75 467.25 44 33

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

4,570 542 323 31.6 149 38.7% 92.8 124

4,462 598 288 24.7 145 54.7% 65.7 148

4,180 716 239 24.1 481 40.0% 289 238

3,905 682 222 25.3 519 36.5% 330 293

3,554 713 198 26.8 500 37.1% 314 255

3,300 748 185 28.0 542 38.7% 333 287

2,839 497 174 27.8 383 37.0% 241 150

2,584 549 172 33.8 354 38.8% 216 124

2,417 358 138 49.6 388 40.7% 230 -13.4

2,412 458 118 54.7 230 40.6% 136 NA

Balance Sheet & Other Financial Data (Million $) Cash 863 Current Assets 1,388 Total Assets 5,186 Current Liabilities 990 Long Term Debt 396 Common Equity 2,940 Total Capital 3,358 Capital Expenditures 258 Cash Flow 414 Current Ratio 1.4 % Long Term Debt of Capitalization Nil % Net Income of Revenue 2.0 % Return on Assets NA % Return on Equity NA

748 1,352 5,158 1,094 400 2,858 3,630 289 353 1.2 11.0 1.5 1.2 2.1

373 995 6,005 1,013 401 3,461 4,583 290 526 1.0 8.7 6.9 5.1 8.7

348 935 5,381 803 402 3,160 4,173 284 551 1.2 9.6 8.4 6.6 11.3

216 818 4,585 695 404 2,638 3,477 238 511 1.2 11.6 8.8 7.1 12.4

119 754 4,317 688 426 2,412 3,254 205 518 1.1 13.1 10.1 8.0 14.9

87.4 496 3,902 712 422 2,075 2,814 126 414 0.7 15.0 8.5 6.4 12.3

28.8 383 3,584 736 406 1,837 2,517 153 387 0.5 16.1 8.4 6.1 12.2

31.5 397 3,559 434 1,862 1,683 3,781 224 367 0.9 49.3 9.5 6.8 14.4

20.3 405 3,201 409 873 1,481 2,485 130 253 1.0 35.1 5.7 4.4 9.5

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1150 15th Street NW, Washington, DC 20071. Telephone: 202-334-6000. Website: http://www.washpostco.com Chrmn & CEO: D. Graham

Vice Chrmn: B. Jones, Jr. SVP & CFO: H. Jones SVP, Secy & General Counsel: V. Dillon CTO: Y. Kochar

Investor Contact: J.B. Morse, Jr. (202-334-6662) Founded: 1947 Board Members: L. C. Bollinger, W. E. Buffett, C. C. Domicile: Delaware Davis, B. Diller, J. L. Dotson, Jr., M. F. Gates, T. S. Employees: 21,500 Gayner, D. Graham, B. Jones, Jr., A. M. Mulcahy, R. L. Olson, G. R. Wagoner, Jr., K. Weymouth

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WM | WM is in the S&P 500

Waste Management Inc. S&P Recommendation BUY

★★★★★

Price $36.79 (as of Oct 22, 2010)

GICS Sector Industrials Sub-Industry Environmental & Facilities Services

12-Mo. Target Price $40.00

Investment Style Large-Cap Blend

Summary This Houston-based company is the largest U.S. trash hauling/disposal concern.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $37.25– 29.75 Trailing 12-Month EPS $2.09 Trailing 12-Month P/E 17.6 $10K Invested 5 Yrs Ago $15,732

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.15 2.45 17.1 477.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$17.565 3.42 $1.26 80

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.60 11 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects soft volume due to weak economic conditions, offset by our view of a solid balance sheet, with strong cash generation for dividends, share buybacks, debt paydowns, and niche acquisitions. In addition, we view corporate governance practices as sound.

45 40 35 30 25

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank

A+

MODERATE

4

62 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Stewart Scharf on August 05, 2010, when the stock traded at $ 34.29. Highlights ➤

➤

➤

We expect organic revenues to rise modestly in 2010, as at least 2% higher core prices, and rising commodity recycling prices should outweigh lower volume. We think volume will turn positive in the second half of 2010, driven by growth in special waste in landfill, and improving commercial and residential collection. Industrial and C&D waste (construction & demolition) should also slowly recover. We see revenue growth returning in 2011. In our view, gross margins (before D&A) will widen further in 2010, from 38.6% in 2009, based on price hikes, cost savings from routing initiatives and an improving landfill mix. We see the EBITDA margin expanding from 27% in 2009, as restructuring efforts, improved productivity, and lower maintenance and safety costs outweigh higher salary and information technology expenses. We also expect interest expense to rise, primarily due to interest on senior notes. We project a lower effective tax rate of below 37% for 2010, with operating EPS of $2.15 (before at least $0.07 of charges), and then an advance of 14% to $2.45 for 2011.

Investment Rationale/Risk ➤

➤

➤

Our Buy recommendation is based on our valuation metrics, the company's pricing and expansion strategy, and more favorable economic trends. We expect strong cash generation to be used for niche acquisitions, alternative energy projects, share buybacks, and dividends. Risks to our opinion and target price include a significant rise in fuel costs, a prolonged downturn in the U.S. economy, a sharp drop in recycling prices and demand, a lower customer retention rate, and an inability to raise prices enough to meet return on invested capital (ROIC) goals. We view the stock's recent dividend yield of 3.7%, above the 2.1% yield of the S&P 500, as attractive. Correlating various relative metrics, including its historical five-year average P/E multiple, we believe the shares should trade at an above-peer average P/E of near 19X our EPS estimate for 2010, valuing the stock at $41. Based on our discounted cash flow model, assuming a 7.5% weighted average cost of capital and 3% terminal growth rate, our intrinsic value estimate is $39. Blending these metrics, we derive our 12-month target price of $40.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,935 3,158 2009 2,810 2,952 2008 3,266 3,489 2007 3,188 3,358 2006 3,229 3,410 2005 3,038 3,289

3Q -3,023 3,525 3,403 3,441 3,375

4Q -3,006 3,108 3,361 3,283 3,372

Year -11,791 13,388 13,310 13,363 13,074

Earnings Per Share ($) 2010 0.37 0.51 2009 0.31 0.50 2008 0.48 0.64 2007 0.42 0.64 2006 0.34 0.76 2005 0.26 0.92

E0.65 0.56 0.63 0.54 0.55 0.38

E0.55 0.64 0.44 0.61 0.46 0.52

E2.15 2.01 2.19 2.23 2.10 2.09

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.290 0.315 0.315 0.315

11/10 02/26 05/11 08/20

11/30 03/01 05/27 09/02

12/02 03/03 06/01 09/07

12/18/09 03/19/10 06/18/10 09/24/10

Dividends have been paid since 1998. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WM

Waste Management Inc. Business Summary August 05, 2010 CORPORATE OVERVIEW. Waste Management, the largest waste disposal company in North America, provides collection, transfer, recycling and resource recovery, as well as disposal services. It also owns U.S. wasteto-energy facilities. As of December 31, 2009, it served nearly 20 million customers through 345 transfer stations and 273 owned or operated landfills (five hazardous waste landfills), 16 waste-to-energy plants, 98 recycling plants, five independent power production plants and 108 beneficial-use landfill gas projects. In 2009, revenues from the North American solid waste (NASW) business were: 58% collection; 19% landfill; 6.1% waste-to-energy (Wheelabrator Technologies unit); 10% transfer; 5.4% recycling; and 1.8% other. WM's average remaining landfill life at December 31, 2009, was 35 years, and 41 years when considering remaining permitted capacity and projected annual disposal volume. WM's internalization rate at June 30, 2010 was 68.4%, down slightly from 68.7% at 2009 year end. WM believes that for every 1% reduction in its "churn" ratio (customer turnover; 11% at June 30, 2010, up from 9% three months earlier), it adds $25 million to EBIT (earnings before interest and taxes). We project free cash flow near $1.3 billion for 2010, up from $1.21 billion in 2009, with WM targeting about $685 million for share buybacks and $615 million for dividends. WM resumed its stock repurchase program in the third quarter of 2009, buying back about 4.6 million shares for $226 million. It spent $286 million on buybacks in the first half of 2010. The company sees a strong

acquisition pipeline and more attractive valuations over the next 9 to 15 months, targeting $250 million to $350 million for mostly solid waste "tuck-in" deals, while also considering some medical waste operations. In 2009, WM spent $281 million ($200 million annualized revenues) on acquisitions. We believe capital spending for 2010 will be close to $1.2 billion, versus $1.18 billion in 2009. While the company can lose 3% to 5% of volume for every 1% price increase, it believes this method still boosts profit. CORPORATE STRATEGY. In our view, WM will use its strong cash generation primarily for acquisitions, dividends and share buybacks, with more favorable acquisition multiples leading to a rise in acquired revenues. In October 2007, the company announced an environmental initiative under which it plans to invest in waste-based energy production, recycling and new waste technologies, including up to $500 million a year for 10 years to increase the fuel efficiency of its fleet. We view this as a positive long-term environmental strategy as more methane in landfills is converted into energy. In March 2010, WM acquired a 40% interest in Shanghai Environment Group (SEG), a leading wasteto-energy company in China, for $142 million. In April 2010, it bought a wasteto-energy plant in Virginia for $150 million.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 0.85 4.38 2.01 2.01 1.16 58% 34.18 22.10 17 11

2008 0.57 4.87 2.19 2.15 1.08 49% 39.25 24.51 18 11

2007 0.52 4.64 2.23 2.18 0.96 43% 41.19 32.40 18 15

2006 1.52 4.66 2.10 2.08 0.88 42% 38.64 30.08 18 14

2005 1.10 4.50 2.09 1.90 0.80 38% 31.03 26.80 15 13

2004 0.91 3.90 1.60 1.48 0.75 47% 31.42 25.67 20 16

2003 0.24 3.44 1.21 1.09 0.01 1% 29.72 19.39 25 16

2002 0.21 5.29 1.33 1.17 0.01 1% 31.25 20.20 23 15

2001 0.43 2.97 0.80 1.04 0.01 1% 32.50 22.51 41 28

2000 NM 2.14 -0.16 NA 0.01 NM 28.31 13.00 NM NM

11,791 3,186 1,166 426 1,473 28.0% 994 994

13,388 3,577 1,323 472 1,797 37.2% 1,087 1,066

13,310 3,746 1,259 521 1,784 30.2% 1,163 1,133

13,363 3,388 1,334 545 1,518 21.4% 1,149 1,139

13,074 3,167 1,361 496 1,140 NM 1,182 1,072

12,516 3,021 1,336 455 1,214 20.3% 931 864

11,574 2,841 1,265 439 1,129 35.8% 719 643

11,142 2,870 2,444 462 1,240 34.2% 823 725

11,322 3,034 1,371 541 792 35.9% 503 653

12,492 3,216 1,429 748 344 NM -97.0 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,153 Current Assets 3,010 Total Assets 21,154 Current Liabilities 2,901 Long Term Debt 8,124 Common Equity 6,285 Total Capital 15,464 Capital Expenditures 1,179 Cash Flow 2,160 Current Ratio 1.0 % Long Term Debt of Capitalization 52.5 % Net Income of Revenue 8.4 % Return on Assets 4.8 % Return on Equity 16.3

480 2,335 20,227 3,036 7,491 5,902 15,160 1,221 2,410 0.8 49.4 8.1 5.4 18.6

348 2,480 20,175 2,598 8,008 5,792 15,521 1,211 2,422 1.0 51.5 8.7 5.7 19.3

614 3,182 20,600 3,268 7,495 6,222 15,357 1,329 2,483 1.0 48.8 8.6 5.5 18.6

666 3,451 21,135 3,257 8,165 6,121 15,931 1,180 2,543 1.1 51.3 9.0 5.6 19.6

443 2,819 20,905 3,205 8,182 5,971 14,435 1,258 2,267 0.9 56.7 7.4 4.5 16.1

135 2,588 20,656 3,332 7,997 5,563 15,473 1,200 1,984 0.8 51.7 6.2 3.5 13.2

264 2,700 19,631 3,173 8,062 5,308 13,389 1,287 3,267 0.9 60.2 7.4 4.2 15.4

730 3,124 19,490 3,721 7,709 5,392 14,241 1,328 1,874 0.8 54.1 4.4 2.6 9.9

94.0 2,457 18,565 2,937 8,372 4,801 14,067 1,313 1,332 0.8 59.5 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1001 Fannin, Suite 4000, Houston, TX 77002. Telephone: 713-512-6200. Website: http://www.wm.com Chrmn: J.C. Pope

Pres & CEO: D.P. Steiner SVP & CFO: R. Simpson SVP & General Counsel: R.L. Wittenbraker SVP & CIO: P. Bhasin

Investor Contact: J. Alderson (713-394-2281) Board Members: P. S. Cafferty, F. M. Clark, Jr., P. W. Gross, J. C. Pope, W. R. Reum, S. G. Rothmeier, D. P. Steiner, T. H. Weidemeyer

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1894 Domicile: Delaware Employees: 43,400

Stock Report | October 23, 2010 | NYS Symbol: WAT | WAT is in the S&P 500

Waters Corp S&P Recommendation HOLD

★★★★★

Price $72.53 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Life Sciences Tools & Services

12-Mo. Target Price $74.00

Investment Style Large-Cap Growth

Summary This company manufactures scientific and industrial analytical equipment such as liquid chromatography, thermal analysis and mass spectrometry products.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $73.78– 55.94 Trailing 12-Month EPS $3.56 Trailing 12-Month P/E 20.4 $10K Invested 5 Yrs Ago $20,036

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.96 4.40 18.3 92.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.676 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.07 13 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects WAT's strong market share in the liquid chromatography and mass spectrometry markets, offset by a highly competitive marketplace and a reliance on customer demand for expensive instruments.

80 60

40

Quantitative Evaluations

30

S&P Quality Ranking

Vol. 18

Mil.

D

9 6 3 0 5

C

B-

B+ B

B+

A-

Relative Strength Rank

A

A+

MODERATE 67

4

3

2

LOWEST = 1

3

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, Ph

Analysis prepared by Jeffrey Loo, CFA on August 09, 2010, when the stock traded at $ 66.58. Highlights ➤

➤

➤

We see sales growing 7% in both 2010 and 2011, to $1.6 billion and $1.72 billion, respectively, rebounding from the 5% decline of 2009. We believe WAT's end-markets are improving, albeit slowly, and we expect modest improvement throughout the year. Instrument sales to the pharmaceutical and life sciences endmarkets should grow modestly as strong sales to generic pharmaceutical and specialty biopharmaceutical firms are partially offset by continued slow sales to large pharmaceutical firms due to capital constraints. Sales to government and academic customers are slower than we had initially anticipated as NIH funding from the economic stimulus package has been rolling out slowly. But we expect WAT to benefit from stimulus packages in other countries. WAT's industrial end-markets, particularly the chemical sector, should recover nicely following the double digit decline in 2009. We expect gross margins to improve 60 basis points (bps) on manufacturing cost reductions in both 2010 and 2011, while we see operating margins improving 200 bps and 140 bps on leverage and a lower cost structure. We see 2010 EPS of $3.96, and 2011 at $4.40.

Investment Rationale/Risk ➤

Revenue/Earnings Data

2010

We believe the shares, recently trading at 16.8X our 2010 EPS estimate and at a 1.3X P/ E-to-growth ratio, both in line with peers, are fairly valued. We see a recover within WAT's industrial end-markets, but see only modest growth within the life sciences and pharmaceutical markets. We look for continued solid growth in consumables and services sales. However, we are encouraged by WAT's introduction of new products including the midrange Acquity UPLC H-Class, which we believe will appeal more to the mainstream laboratories. Early indications show robust interest in this instrument. Toward the end of the second quarter 2010, WAT began shipping two of its latest high performance systems, the Xevo G2 QT and Xevo TQ-S.

➤

Risks to our recommendation and target price include weaker-than-expected equipment sales to the life sciences and pharmaceutical endmarkets and slower-than-expected recovery in the industrial end-markets.

➤

Based on our P/E-to-growth (PEG) analysis, using our 2010 EPS forecast, a PEG ratio of 1.4X, in line with peers, and a 13% projected three-year growth rate, our 12-month target price is $74.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 367.7 391.1 2009 333.1 362.8 2008 371.7 398.8 2007 330.8 352.6 2006 290.2 301.9 2005 268.3 284.6

3Q -374.0 386.3 352.6 301.2 273.0

4Q -428.9 418.3 437.0 386.9 332.3

Year -1,499 1,575 1,473 1,280 1,158

Earnings Per Share ($) 2010 0.79 0.90 2009 0.75 0.72 2008 0.67 0.82 2007 0.54 0.59 2006 0.42 0.46 2005 0.38 0.46

E0.94 0.79 0.71 0.52 0.49 0.22

E1.30 1.08 1.01 0.96 0.78 0.71

E3.96 3.34 3.21 2.62 2.13 1.74

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: WAT

Waters Corp Business Summary August 09, 2010 CORPORATE OVERVIEW. Waters manufactures, distributes, and services analytical instruments to the pharmaceutical, life sciences, biochemical, industrial, academic, and government end-markets. Analytical instruments and components manufactured include high-performance liquid chromatography (HPLC) instruments, columns and other consumables, mass spectrometry (MS) instruments that can be integrated with other analytical instruments, and thermal analysis (TA) and rheology instruments. HPLC is the standard technique to identify and analyze constituent components of various chemicals and materials. Its unique performance capabilities let it separate and identify 80% of known chemicals and materials. HPLC is used to analyze substances in a variety of industries for R&D, quality control, and process engineering applications. Pharmaceutical and life science industries use HPLC primarily to identify new drugs. In March 2004, WAT introduced a novel technology that it describes as Ultra Performance Chromatography, the Acquity UPLC. WAT believes the Acquity UPLC provides more comprehensive chemical separation and faster analysis times compared to the HPLC. MS is an analytical technique used to identify unknown compounds, quantify known materials, and elucidate the structural and chemical properties of molecules by measuring the masses of individual molecules that have been converted into ions. These products serve diverse markets, including pharmaceutical and environmental industries. The TA In-

struments division makes and services thermal analysis and rheology instruments used for the physical characterization of polymers and related materials. Thermal analysis measures physical characteristics of materials as a function of temperature. Changes in temperature affect several characteristics of materials, such as their physical state, weight, dimension and mechanical and electrical properties, which may be measured using thermal analysis techniques. As a result, thermal analysis is widely used to develop, produce and characterize materials in industries such as plastics, chemicals and pharmaceuticals. WAT has supplemented its internal growth with various strategic acquisitions. In March 2004, it acquired NuGenesis Technologies Corp. for about $43 million. NuGenesis and Creon Lab formed the company's new Lab Informatics market segment. In March 2006, WAT acquired VICAM, a provider of bioseparation and rapid detection instruments for food safety. In August 2006, WAT acquired Thermometric AB, and in November 2006, it acquired Environmental Resource Associates, a provider of environmental testing and services. In 2007 WAT acquired Calorimetry Sciences Corporation.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.97 3.93 3.34 3.34 Nil Nil 63.09 30.00 19 9

2008 2.48 3.50 3.21 3.21 Nil Nil 81.84 32.21 25 10

2007 5.71 2.88 2.62 2.62 Nil Nil 81.53 48.55 31 19

2006 NM 2.57 2.13 2.18 Nil Nil 51.64 37.06 24 17

2005 NM 2.12 1.74 1.57 Nil Nil 51.57 33.99 30 20

2004 3.05 2.16 1.82 1.45 Nil Nil 49.80 33.10 27 18

2003 2.67 1.60 1.34 1.18 Nil Nil 33.42 19.79 25 15

2002 NM 1.40 1.12 0.99 Nil Nil 39.25 17.86 35 16

2001 3.19 1.08 0.84 1.07 Nil Nil 85.38 22.33 NM NM

2000 2.21 1.36 1.14 NA Nil Nil 90.94 21.97 80 19

1,499 452 57.3 11.0 387 16.4% 323 324

1,575 436 29.1 38.5 372 13.4% 322 322

1,473 389 27.5 56.5 323 17.1% 268 268

1,280 355 46.2 51.7 263 15.5% 222 227

1,158 330 43.7 24.7 275 26.4% 202 183

1,105 321 41.9 10.1 286 21.6% 224 179

958 271 33.8 2.37 224 23.6% 171 150

890 251 37.2 2.48 195 22.1% 152 134

859 258 34.0 1.26 147 22.3% 115 147

795 240 29.4 Nil 211 26.0% 156 NA

Balance Sheet & Other Financial Data (Million $) Cash 630 Current Assets 1,172 Total Assets 1,916 Current Liabilities 395 Long Term Debt 500 Common Equity 848 Total Capital 1,348 Capital Expenditures 93.8 Cash Flow 381 Current Ratio 2.9 % Long Term Debt of Capitalization 37.1 % Net Income of Revenue 21.6 % Return on Assets 18.3 % Return on Equity 42.9

429 956 1,623 290 500 661 1,161 69.1 352 3.3 43.1 20.5 18.4 51.7

693 1,237 1,881 658 500 586 1,086 60.3 296 1.9 46.0 18.2 15.3 56.5

514 1,000 1,617 686 500 362 862 51.4 268 1.5 58.0 17.4 14.6 68.8

494 913 1,429 604 500 284 784 51.0 246 1.5 63.8 17.4 14.0 42.0

539 974 1,460 493 250 679 929 66.2 266 2.0 26.9 20.3 17.3 35.3

357 715 1,131 379 125 590 715 34.6 205 1.9 17.5 17.8 15.9 27.2

313 636 1,011 320 Nil 665 665 37.9 189 2.0 Nil 17.1 16.0 24.3

227 523 887 281 Nil 582 582 42.4 148 1.9 Nil 13.3 14.5 22.2

75.5 344 692 221 Nil 452 452 35.4 186 1.6 Nil 19.6 24.4 42.0

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 34 Maple Street, Milford, MA 01757-3696. Telephone: 508-478-2000. Email: [email protected] Website: http://www.waters.com

Chrmn, Pres & CEO: D.A. Berthiaume CFO, Chief Admin Officer & Chief Acctg Officer: J.A. Ornell Secy & General Counsel: M.T. Beaudouin Cntlr: W. Curry

Board Members: J. Bekenstein, M. Berendt, D. A. Berthiaume, E. W. Conard, L. H. Glimcher, C. A. Kuebler, W. J. Miller, J. A. Reed, T. P. Salice

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1991 Domicile: Delaware Employees: 5,216

Stock Report | October 23, 2010 | NYS Symbol: WPI | WPI is in the S&P 500

Watson Pharmaceuticals Inc. S&P Recommendation BUY

★★★★★

Price $46.76 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Pharmaceuticals

12-Mo. Target Price $50.00

Investment Style Large-Cap Blend

Summary This company produces generic and branded drugs. In December 2009, Watson acquired international generic drugmaker Arrow Group for about $1.8 billion in cash and stock.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.53– 33.88 Trailing 12-Month EPS $2.20 Trailing 12-Month P/E 21.3 $10K Invested 5 Yrs Ago $13,243

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.40 3.80 13.8 124.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$5.839 Nil Nil 78

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.48 13 BBB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects risks common to the generic pharmaceutical business, which include the need to successfully develop generic products, obtain regulatory approvals and legally challenge branded patents. However, we believe these risks are offset by the company's wide and diverse generic portfolio and the balance afforded by WPI's branded drug business.

50 40

25 20 Vol.

Quantitative Evaluations

Mil. 9 6 3 0 5

S&P Quality Ranking D 4

3

C

B-

BB

B+

A-

Relative Strength Rank

1

MODERATE

LOWEST = 1

2008

2009

Options: ASE, CBOE, Ph

Highlights

➤

Investment Rationale/Risk

We project revenues of about $3.5 billion in 2010, up from 2009's $2.8 billion, largely reflecting the December 2009 acquisition of Arrow Group. The latter markets some 50 generic drugs in over 20 countries. Generic volume should also reflect greater contributions from new products, with 36 ANDAs filed in 2009. Key new products, in our opinion, include generic versions of Toprol XL, Cardizem LA, Concerta, Lovenox and Lotrel. Distribution revenues are likely to increase, but branded sales are expected to decline sharply, reflecting the absence of Ferrlecit.

➤

We expect 2010 gross margins to hold up relatively well, benefiting from manufacturing efficiencies and other supply chain improvements. We also see SG&A and R&D spending declining as a percentage of sales. Interest expense, however, will likely be sharply higher.

➤

After an estimated tax rate of about 36%, versus 2009's 37%, we project adjusted cash EPS (before amortization) of $3.40 for 2010, up from $3.04 in 2009. GAAP EPS in 2009 were $1.96. Boosted by new products, we forecast cash EPS of $3.80 in 2011.

We believe that WPI's diversified business platform, which comprises growing positions in generics, branded drugs and drug distribution, coupled with ongoing cost-streamlining measures, will provide the underpinnings for EPS growth over the coming years. We view the December 2009 acquisition of Arrow Group as a key strategic move, expanding Watson's generic lines and geographic base, and providing important cost synergies. Despite the recent loss of Ferrlecit, we continue to see long-term opportunities for the branded business, especially in the areas of urology and women's health. Risks to our recommendation and target price include greater-than-expected competitive pressures in principal generic and branded product lines, as well as possible R&D pipeline disappointments.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 856.5 875.3 2009 667.4 677.8 2008 627.0 622.6 2007 671.6 603.0 2006 407.2 510.4 2005 400.8 416.3

3Q -662.1 640.7 594.7 440.5 410.3

4Q -785.7 645.2 627.3 621.2 418.8

Year -2,793 2,536 2,497 1,979 1,646

Earnings Per Share ($) 2010 0.57 0.57 2009 0.43 0.46 2008 0.45 0.53 2007 0.29 0.33 2006 0.23 -0.15 2005 0.32 0.35

E0.86 0.55 0.62 0.31 0.31 0.35

E0.90 0.51 0.50 0.34 -4.80 0.19

E3.40 1.96 2.09 1.27 -4.37 1.21

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

➤ ➤

HIGHEST = 99

2010

Analysis prepared by Herman B. Saftlas on September 03, 2010, when the stock traded at $ 44.39.

➤

A+

68

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

A

4

Our 12-month target price of $50 applies a nearpeers P/E of 13.2X to our 2011 cash EPS estimate. This is supported by our DCF model, which assumes decelerating cash flow growth over the next 10 years, a WACC of 7.0%, and perpetuity growth of 2%, indicating intrinsic value of $50.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WPI

Watson Pharmaceuticals Inc. Business Summary September 03, 2010 CORPORATE PROFILE. Watson Pharmaceuticals is a leading maker of generic pharmaceuticals that targets difficult to produce niche off-patent drugs. WPI significantly expanded its U.S. generic business with the acquisitions of Andrx Corp. in 2006, and U.K.-based Arrow Group in late 2009. WPI also offers a line of specialty branded pharmaceuticals, largely in the areas of urology, cancer and women's health. Many WPI pharmaceuticals incorporate the company's novel proprietary drug delivery systems, such as transmucosal, vaginal and transdermal systems that allow for defined rates of drug release. Generic drugs accounted for about 60% of revenues and 72% of operating income in 2009, branded drugs for 16% and 23%, and distribution operations for 24% and 5%. Third-party manufactured products accounted for about 55% of Watson's net revenues in 2009. WPI markets some 170 generic drug products in the U.S. and 49 in Canada, comprising a broad cross section of therapeutic categories. Key segments include oral contraceptives, analgesics, antihypertensives, diuretics, antiulcers, antipsychotics, anti-inflammatories, analgesics, hormone replacements, antispasmodics and antidiarrheals. Arrow Group markets some 50 generic products in Europe, Asia, South Africa and Australia.

During 2009, WPI launched eight new generic products in the U.S. and filed 36 Abbreviated New Drug Applications (ANDAs) with the FDA. In total, Watson has about 110 ANDAs pending at the FDA, and over 900 applications pending outside of the U.S. Branded pharmaceuticals comprise treatments for incontinence, cancer, pain management and other conditions. Key products include Trelstar, a treatment for prostate cancer; Oxytrol oxybutynin transdermal patch and Gelnique oxytrol gel to treat urinary incontinence; Androderm, a testosterone transdermal patch; and Rapaflo, a treatment for enlarged prostates. WPI's branded rights to Ferrlecit, a nephrology product used to treat iron deficiency anemia, ended at the end of 2009. The company sells its products primarily through distributors and chain drug stores, such as McKesson Corp. (11% of net revenues in 2009) and Walgreen (13%).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.06 3.53 1.96 2.12 Nil Nil 40.25 23.05 21 12

2008 6.51 3.48 2.09 1.96 Nil Nil 32.70 20.17 16 10

2007 3.56 3.37 1.27 1.24 Nil Nil 33.91 25.02 27 20

2006 0.09 -2.23 -4.37 -4.32 Nil Nil 35.27 21.35 NM NM

2005 8.81 2.87 1.21 1.09 Nil Nil 36.93 27.99 31 23

2004 7.97 2.07 1.27 1.16 Nil Nil 49.19 24.50 39 19

2003 5.54 2.78 1.86 1.64 Nil Nil 50.12 26.90 27 14

2002 4.33 2.45 1.64 1.36 Nil Nil 33.25 17.95 20 11

2001 3.79 2.01 1.07 0.52 Nil Nil 66.39 26.50 62 25

2000 0.98 2.34 1.65 NA Nil Nil 71.50 33.69 43 20

2,793 638 189 34.2 363 38.8% 222 240

2,536 539 171 28.2 358 33.5% 238 222

2,497 515 254 44.5 224 37.1% 141 138

1,979 364 218 22.1 -411 NM -445 -441

1,646 450 207 14.5 219 37.0% 138 123

1,641 419 107 13.3 237 36.1% 151 137

1,458 439 100 25.8 318 36.2% 203 178

1,223 386 86.6 22.1 279 37.0% 176 146

1,161 404 101 27.8 199 41.5% 116 56.3

812 227 71.4 24.3 355 52.0% 171 NA

Balance Sheet & Other Financial Data (Million $) Cash 215 Current Assets 1,771 Total Assets 5,992 Current Liabilities 1,052 Long Term Debt 1,150 Common Equity 3,023 Total Capital 4,481 Capital Expenditures 71.9 Cash Flow 411 Current Ratio 1.7 % Long Term Debt of Capitalization 25.7 % Net Income of Revenue 8.0 % Return on Assets 4.6 % Return on Equity 8.7

521 1,458 3,678 482 825 2,109 3,108 100 409 3.0 26.5 9.4 6.7 12.1

216 1,174 3,472 445 899 1,849 2,928 75.1 395 2.6 30.7 5.7 3.9 8.0

161 1,262 3,761 690 1,124 1,680 3,008 44.4 -227 1.8 37.4 NM NM NM

630 1,360 3,080 246 588 2,104 2,692 78.8 345 5.5 21.8 8.4 4.4 6.4

680 1,370 3,244 256 588 2,243 2,831 69.2 258 5.4 20.8 9.2 4.6 7.0

574 1,323 3,283 339 723 2,057 2,924 151 303 3.9 24.7 13.9 6.8 10.5

273 921 2,663 375 332 1,798 2,282 87.5 262 2.5 14.5 14.4 6.8 10.1

329 890 2,528 245 416 1,672 2,274 62.0 218 3.6 18.3 10.0 4.6 7.2

238 831 2,580 280 438 1,548 2,242 34.3 242 3.0 19.6 21.0 8.4 13.1

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 311 Bonnie Circle, Corona, CA 92880-2882. Telephone: 951-493-5300. Website: http://www.watson.com Chrmn: A.L. Turner

Pres & CEO: P.M. Bisaro COO: R.A. Stewart SVP, CFO, Chief Acctg Officer & Treas: R.T. Joyce SVP, Secy & General Counsel: D.A. Buchen

Investor Contact: P. Eisenhaur (973-355-8310) Founded: 1983 Board Members: P. M. Bisaro, C. W. Bodine, M. Domicile: Nevada Fedida, M. J. Feldman, A. F. Hummel, C. M. Klema, J. Employees: 5,830 Michelson, A. S. Tabatznik, R. R. Taylor, A. L. Turner, F. G. Weiss

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WLP | WLP is in the S&P 500

WellPoint Inc S&P Recommendation BUY

★★★★★

Price $57.54 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Managed Health Care

12-Mo. Target Price $63.00

Investment Style Large-Cap Growth

Summary This managed health organization is the largest in the U.S., serving 33.5 million members mainly under the Blue Cross and/or Blue Shield license in 14 states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $70.00– 44.58 Trailing 12-Month EPS $11.23 Trailing 12-Month P/E 5.1 $10K Invested 5 Yrs Ago $7,377

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

6.25 6.65 9.2 399.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

0.97 6 A-

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects WLP's leadership in the highly fragmented managed care market. We believe that its geographic, market and product diversity and Blue Cross/Blue Shield tie are competitive strengths. However, we think enrollment growth going forward will be limited by heightened competition that we expect following consolidation in the managed care industry and from the difficult economic environment.

80 60

40 30

Vol. 122

30 20 10 0 5

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

Mil.

$23.001 Nil Nil 86

Quantitative Evaluations 4

3

2

S&P Quality Ranking

4

3

D

C

B-

B+ B

B+

A-

A

A+

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Relative Strength Rank

2010 Options: ASE, CBOE, Ph

MODERATE 64

LOWEST = 1

HIGHEST = 99

Analysis prepared by Phillip M. Seligman on August 06, 2010, when the stock traded at $ 54.51. Highlights ➤

➤

We see 2010's operating revenues declining 5.5%, to $57.5 billion, mainly on the sale of the pharmacy benefit management (PBM) unit, the divestiture of non-Blues health plans in two states, the transition of a large, fully insured account to self-funded status, and membership attrition amid the still-soft economy. We see these partly offset by 300,000 net new National Accounts members by year end and slightly higher Medicare Advantage (MA) and Medicaid membership.

Investment Rationale/Risk ➤

We expect benefit expenses as a percentage of premiums (medical loss ratio, or MLR) to rise 80 basis points (bps), mainly on the change in enrollment mix, the California rate delay, and health care reform implementation, partly offset by favorable claims reserve development. We expect the SG&A expense ratio to decline 30 bps, partly on cost control. ➤

➤

All told, we expect net income to decline in 2010, but we look for EPS of $6.25, versus nonGAAP 2009 EPS of $6.09 (before $3.79 of net one-time gains, mainly on the PBM sale), on share buybacks. We see $6.65 in 2011, assuming a higher MLR is outweighed by additional buybacks.

➤

We think WLP has been executing well in a soft economy. It has exited underperforming markets, and eliminated 1,500 positions. We also believe it has been applying pricing discipline, although its California individual account premium rate hikes remain delayed, yielding losses in that market. In addition, we are encouraged by its growth in national accounts, and we believe it has the scale, diversity and strong cash flow to manage better than most insurers amid health care reform. Meanwhile, we expect the stock to be volatile, while WLP waits for the rules on what constitutes medical costs starting 2011, given health care reform's required MLR floors. WLP is heavily exposed to individual and small group markets, many with MLRs well below the floors. The benefit mandates will raise the MLRs, but we think WLP may also have room to add competitive benefits. Risks to our recommendation and target price include enrollment losses above our expectations, higher medical cost trends, and unfavorable regulatory changes. Our 12-month target price of $63 reflects a slightly above-peer multiple of 10X our 2010 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 15,099 14,457 2009 15,143 15,413 2008 15,554 15,667 2007 15,079 15,260 2006 13,820 14,152 2005 11,100 11,299

3Q -15,425 14,961 15,234 14,426 11,305

4Q -19,047 15,070 15,561 14,556 11,432

Year -65,028 61,251 61,134 56,953 45,136

Earnings Per Share ($) 2010 1.96 1.71 2009 1.16 1.43 2008 1.07 1.44 2007 1.26 1.35 2006 1.09 1.17 2005 0.98 0.90

E1.58 1.53 1.60 1.45 1.29 1.02

E1.01 5.95 0.65 1.51 1.28 1.04

E6.25 9.88 4.76 5.56 4.82 3.94

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: WLP

WellPoint Inc Business Summary August 06, 2010 CORPORATE OVERVIEW. WellPoint, Inc. was formed by the merger consummated on November 30, 2004, between publicly traded managed care giants Anthem, Inc. and WellPoint Health Networks Inc. (WHN). All prior historical data in this report are for Anthem. WLP is the largest publicly traded commercial health benefits company in the U.S., serving 33.5 million members as of June 30, 2010 (versus 33.7 million at December 31, 2009), and an independent licensee of the Blue Cross and Blue Shield Association. It serves members as the Blue Cross licensee for California and the Blue Cross or Blue Cross and Blue Shield (BCBS) licensee in all or parts of 13 other states. WLP also serves members in various parts of the U.S. as UniCare and conducts insurance operations in all 50 states and Puerto Rico through an affiliate. WLP's network-based managed care plans include preferred provider organizations (PPOs), health maintenance organizations (HMOs), point-of-service plans (POS), traditional indemnity plans and other hybrid plans, including consumer-driven health plans (CDHPs), hospital only, and limited benefit products. It also provides managed care services to self-funded customers. In addition, WLP provides specialty and other products and services, including

pharmacy benefit management, group life and disability insurance, dental, vision, behavioral health, workers compensation and long-term care insurance. Approximately 93% of 2009 operating revenue was derived from premium income and 6% from administrative services and other revenues. The customer base includes local groups (15,198,000 members as of June 30, 2010, versus 15,643,000 as of December 31, 2009); individuals under age 65 (1,953,000 versus 2,131,000); National Accounts (multi-state employers primarily headquartered in WLP's service area with 1,000 or more eligible employees, with 5% or more located outside headquarters state -- 7,108,000 versus 6,813,000); BlueCard (enrollees of non-owned BCBS plans who receive benefits in WLP's BCBS markets -- 4,782,000 versus 4,744,000); Seniors (1,252,000 versus 1,215,000); State Sponsored (1,750,000 versus 1,733,000); and Federal Employee Program (1,449,000 versus 1,391,000).

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 7.42 NA 9.88 5.82 Nil Nil 60.89 29.32 6 3

2008 NM 5.84 4.76 6.00 Nil Nil 90.00 27.50 19 6

2007 0.60 6.24 5.56 5.50 Nil Nil 89.95 72.90 16 13

2006 2.92 4.82 4.82 4.79 Nil Nil 80.37 65.50 17 14

2005 2.78 3.94 3.94 3.82 Nil Nil 80.40 54.58 20 14

2004 2.03 2.05 3.05 2.69 Nil Nil 58.88 36.10 19 12

2003 8.44 3.59 2.73 2.49 Nil Nil 41.45 26.50 15 10

2002 5.76 2.90 2.26 1.93 Nil Nil 37.75 23.20 17 10

2001 7.71 2.23 1.65 1.16 Nil Nil 25.95 18.00 16 11

2000 7.66 1.55 1.05 NA NA NA NA NA NA NA

65,028 NA NA 447 7,403 35.9% 4,746 2,797

61,251 4,297 564 470 3,122 20.2% 2,491 3,143

61,134 6,117 411 448 5,258 36.4% 3,345 3,308

56,953 5,748 430 404 4,914 37.0% 3,095 3,077

45,136 4,750 634 226 3,890 36.7% 2,464 2,402

20,815 2,072 279 142 1,443 33.5% 960 842

16,771 1,595 245 131 1,219 36.1% 774 708

13,282 1,093 157 98.5 808 31.6% 549 467

10,445 733 121 60.2 525 35.0% 342 240

8,771 487 102 69.6 315 30.8% 216 NA

Balance Sheet & Other Financial Data (Million $) Cash 4,816 Current Assets NA Total Assets 52,125 Current Liabilities NA Long Term Debt 8,338 Common Equity 24,863 Total Capital NA Capital Expenditures NA Cash Flow NA Current Ratio 1.9 % Long Term Debt of Capitalization 25.1 % Net Income of Revenue 7.3 % Return on Assets 9.4 % Return on Equity 20.5

2,208 12,130 48,403 15,020 7,834 21,432 31,365 346 3,054 0.8 25.0 4.1 5.0 11.2

6,535 13,032 52,060 14,388 9,024 22,990 35,018 322 3,756 0.9 25.8 5.5 6.5 14.1

2,602 11,807 51,760 15,323 6,493 25,299 35,142 194 3,095 0.8 18.5 62.1 6.0 12.1

2,897 25,945 51,405 14,857 6,325 25,755 35,386 162 2,464 1.7 17.9 5.5 5.4 10.7

1,457 19,358 39,738 11,571 4,277 20,331 27,204 137 1,239 1.7 15.7 4.7 3.6 7.2

523 8,865 13,439 4,772 1,663 6,000 8,188 111 1,019 1.9 20.3 4.6 6.0 13.6

744 7,877 12,293 4,449 1,659 5,362 7,412 123 706 1.8 22.4 50.8 5.9 14.8

406 5,300 6,277 2,963 818 2,060 2,878 70.4 463 1.8 28.4 35.6 5.7 17.2

421 5,025 6,021 2,784 789 2,055 2,844 73.3 318 1.8 27.7 2.5 4.3 12.6

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 120 Monument Circle, Indianapolis, IN 46204-4903. Telephone: 317-488-6000. Email: [email protected] Website: http://www.wellpoint.com

Chrmn, Pres & CEO: A.F. Braly Investor Contact: W.S. Deveydt (317-488-6390) EVP & CFO: W.S. Deveydt EVP, Secy & General Counsel: J. Cannon, III

SVP, Chief Acctg Officer & Cntlr: M.L. Miller Founded: 1944 Board Members: L. D. Baker, Jr., S. B. Bayh, A. F. Domicile: Indiana Braly, S. P. Burke, W. H. Bush, J. A. Hill, W. Y. Jobe, W. Employees: 40,500 G. Mays, R. G. Peru, J. G. Pisano, D. W. Riegle, Jr., W. J. Ryan, G. A. Schaefer, Jr., J. M. Ward

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WFC | WFC is in the S&P 500

Wells Fargo & Co S&P Recommendation BUY

★★★★★

Price $26.11 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Diversified Banks

12-Mo. Target Price $30.00

Investment Style Large-Cap Blend

Summary This bank holding company provides banking, insurance, investment, mortgage and consumer finance services throughout North America.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $34.25– 23.02 Trailing 12-Month EPS $1.66 Trailing 12-Month P/E 15.7 $10K Invested 5 Yrs Ago $10,224

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.20 2.48 11.9 5,233.4

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.39 21 AA-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects what we see as solid business fundamentals and a strong customer base, offset by increased risk stemming from the Wachovia acquisition combined with declining tangible capital levels.

40 30 20

10

Quantitative Evaluations S&P Quality Ranking

Vol. 1438

Mil.

D

450 300 150 0 5

$136.645 0.77 $0.20 75

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE

38 3

4

3

3

4

3

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE, CBOE, P, Ph

Highlights ➤

The 12-month target price for WFC has recently been changed to $30.00 from $34.00. The Highlights section of this Stock Report will be updated accordingly.

Revenue/Earnings Data

2010

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on WFC from MarketScope, see below.

➤

10/20/10 09:00 am ET ... S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF WELLS FARGO (WFC 24.55****): Q3 EPS of $0.60, vs. $0.56, beats our $0.45 estimate on higher than expected noninterest income and a lower than expected loan loss provision, which offset lower than expected net interest income. On the results, are raising our '10 EPS estimate to $2.20 from $1.99. We see credit quality improving, and think that the national foreclosure issue is manageable for WFC. We reiterate our $30 target price, which is based on slight premium to peers multiples of 1.7X our year-end tangible book value per share estimate, and 12.1X our unchanged '11 EPS estimate of $2.48. /E. Oja

Revenue (Million $) 1Q 2Q 2010 23,526 23,417 2009 23,954 25,044 2008 13,652 13,728 2007 12,570 13,268 2006 11,217 11,882 2005 9,509 9,529

3Q -24,750 12,772 13,796 12,286 10,427

4Q -24,888 11,828 13,959 12,594 10,897

Year -98,636 51,980 53,596 47,979 40,407

Earnings Per Share ($) 2010 0.45 0.55 2009 0.56 0.57 2008 0.60 0.53 2007 0.66 0.67 2006 0.60 0.61 2005 0.54 0.56

E0.60 0.56 0.49 0.68 0.64 0.58

E0.60 0.08 -0.79 0.37 0.64 0.57

E2.20 1.75 0.75 2.38 2.49 2.25

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 0.050 0.050

10/27 01/26 04/27 07/27

11/04 02/03 05/05 08/04

11/06 02/05 05/07 08/06

12/01/09 03/01/10 06/01/10 09/01/10

Dividends have been paid since 1939. Source: Company reports.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WFC

Wells Fargo & Co Business Summary July 22, 2010 CORPORATE OVERVIEW. Wells Fargo & Co. (WFC) has three lines of business for management reporting: community banking, wholesale banking, and Wells Fargo Financial. The community banking group offers a complete line of banking and diversified financial products and services to consumers and small businesses with annual sales generally up to $20 million, in which the owner generally is the financial decision maker. Community banking also offers investment management and other services to retail customers and highnet-worth individuals, insurance, securities brokerage through affiliates, and venture capital financing. Community banking serves customers through a wide range of channels, including traditional banking stores, in-store banking centers, business centers and ATMs. In addition, Phone Bank centers and the National Business Banking Center provide 24-hour telephone service.

vices. These include traditional commercial loans and lines of credit; letters of credit; asset-based lending; equipment leasing; mezzanine financing; highyield debt; international trade facilities; foreign exchange services; treasury management; investment management; institutional fixed income and equity sales; interest rate, commodity and equity risk management; online/electronic products; insurance, corporate trust fiduciary and agency services and investment banking services. Wholesale banking manages and administers institutional investments, employee benefit trusts and mutual funds, including the Wells Fargo Advantage Funds. Wholesale banking includes the majority ownership interest in the Wells Fargo SC Trade Bank, which provides trade financing, letters of credit, and collection services, and is sometimes supported by the Export-Import Bank of the United States.

The wholesale banking group serves businesses across the U.S. with annual sales generally in excess of $10 million. Wholesale banking provides a complete line of commercial, corporate and real estate banking products and serCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.74 1.75 1.77 0.49 28% 31.53 7.80 18 4

2008 3.31 0.75 0.57 1.30 173% 44.69 19.89 63 27

2007 5.55 2.38 2.39 1.18 50% 37.99 29.29 16 12

2006 10.13 2.49 2.47 1.08 43% 36.99 30.31 15 12

2005 8.76 2.25 2.18 1.00 44% 32.35 28.81 14 13

2004 7.95 2.05 1.96 0.93 45% 32.02 27.16 16 13

2003 7.04 1.83 1.78 0.75 41% 29.59 21.64 16 12

2002 6.11 1.66 1.57 0.55 33% 26.72 21.65 16 13

2001 4.90 0.99 0.84 0.50 51% 27.41 19.13 28 19

2000 4.59 1.17 NA 0.45 39% 28.19 15.69 24 13

46,324 706 42,362 21,668 55.3% 17,998 29.6% 12,275 4.28 8,084

25,143 321 16,776 15,979 54.1% 3,585 20.7% 2,842 4.83 1,937

20,974 146 17,473 4,939 59.4% 11,627 30.7% 8,057 4.74 8,099

19,951 116 15,021 2,204 59.3% 12,745 33.4% 8,482 4.83 8,401

18,504 110 14,054 2,383 58.2% 11,548 33.6% 7,671 4.86 7,423

17,150 104 12,530 1,717 64.8% 10,769 34.9% 7,014 4.89 6,722

16,007 NA 12,323 1,722 60.7% 9,477 34.6% 6,202 5.08 6,055

14,855 NA 9,348 1,733 52.2% 8,854 35.5% 5,710 5.57 5,374

12,460 NA 7,227 1,780 65.5% 5,479 37.5% 3,423 5.36 2,894

10,865 65.0 9,565 1,329 57.7% 6,549 38.5% 4,026 5.35 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 83,924 Investment Securities 172,710 Commercial Loans 172,562 Other Loans 610,208 Total Assets 1,243,646 Demand Deposits 181,356 Time Deposits 642,662 Long Term Debt 203,861 Common Equity 103,743 % Return on Assets 1.0 % Return on Equity 14.3 % Loan Loss Reserve 3.1 % Loans/Deposits 95.0 % Equity to Assets 6.7

104,317 151,569 218,298 625,519 1,309,639 150,837 630,565 267,158 68,307 0.3 4.9 2.4 110.7 6.2

10,481 72,951 152,841 229,354 575,442 84,348 260,112 99,393 47,660 1.5 17.2 1.4 107.1 8.9

11,685 42,629 122,065 273,069 481,996 89,119 221,124 72,404 45,492 1.8 19.8 1.1 113.8 8.9

16,211 41,834 108,903 201,934 481,741 87,712 226,738 79,668 40,335 1.7 19.7 1.1 111.9 8.6

14,020 33,717 98,515 189,071 427,849 81,082 193,776 73,580 37,596 1.7 19.5 1.2 118.6 8.8

2,745 32,953 48,729 204,344 387,798 74,387 173,140 63,642 34,255 1.7 19.3 1.3 117.0 8.7

3,174 27,947 47,292 149,342 349,259 74,094 142,822 50,205 30,107 1.7 20.0 1.5 117.3 8.7

2,530 40,308 47,547 124,952 307,569 65,362 121,904 38,530 26,996 1.2 12.8 1.8 110.9 9.2

1,598 38,655 60,541 10,583 272,426 55,096 114,463 32,981 26,103 1.6 16.2 2.1 104.7 9.7

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 420 Montgomery Street, San Francisco, CA 94104-1207. Telephone: 800-411-4932. Website: http://www.wellsfargo.com Chrmn, Pres & CEO: J.G. Stumpf

EVP & CFO: H.I. Atkins EVP, Chief Acctg Officer & Cntlr: R.D. Levy EVP & Treas: P.R. Ackerman EVP & Secy: L.A. Holschuh

Board Members: J. D. Baker, II, J. S. Chen, L. H. Founded: 1929 Dean, S. E. Engel, E. Hernandez, Jr., D. M. James, R. D. Domicile: Delaware McCormick, M. J. Mcdonald, C. H. Milligan, N. G. Employees: 267,300 Moore, P. J. Quigley, J. M. Runstad, S. W. Sanger, J. G. Stumpf, S. G. Swenson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WDC | WDC is in the S&P 500

Western Digital Corp S&P Recommendation SELL

★★★★★

Price $30.43 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Computer Storage & Peripherals

12-Mo. Target Price $28.00

Investment Style Large-Cap Blend

Summary This company designs and manufactures hard disk drives for personal computing.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $47.44– 23.06 Trailing 12-Month EPS $5.52 Trailing 12-Month P/E 5.5 $10K Invested 5 Yrs Ago $26,811

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.30 3.33 13.2 229.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.978 Nil Nil 90

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.41 6 NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the volatility of the disk drive industry, including significant exposure to the PC sector and ongoing erosion of average selling prices.

60

30 20

Quantitative Evaluations 10

S&P Quality Ranking

Vol.

D

Mil. 30 20 10 0

C

B-

B+ B

B+

A-

A

A+

66

Relative Strength Rank

MODERATE 68

5

4

5

4

3

LOWEST = 1

5 3

2

HIGHEST = 99

2

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Highlights ➤

The STARS recommendation for WDC has recently been changed to 2 (sell) from 3 (hold) and the 12-month target price has recently been changed to $28.00 from $36.00. The Highlights section of this Stock Report will be updated accordingly.

Investment Rationale/Risk ➤

The Investment Rationale/Risk section of this Stock Report will be updated shortly. For the latest News story on WDC from MarketScope, see below.

➤

10/20/10 09:21 am ET ... S&P LOWERS RECOMMENDATION ON SHARES OF WESTERN DIGITAL TO SELL FROM HOLD (WDC 30.2**): Sep-Q EPS of $0.84, vs. $1.25, misses our EPS estimate of $0.90. Revenues rose 8.5% to $2.4B, $33M above our forecast. Gross margins fell to 18.2% from 22.5% in Jun-Q due to pricing pressures of excess industry production capacity. We believe the excess capacity issue will persist, reflecting our view of slower PC unit growth. We are also concerned about the growth of tablet computers and increased usage of flash memory. We project lower gross margins for the next few quarters and cut our FY 11 (Jun.) EPS estimate by $1.67 to $2.30. We reduce our target price by $8 to $28. /J.Yin-CFA

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2011 2,396 -2010 2,208 2,619 2009 2,109 1,823 2008 1,766 2,204 2007 1,264 1,428 2006 1,010 1,117

3Q -2,641 1,592 2,111 1,410 1,129

4Q -2,382 1,928 1,993 1,367 1,086

Year -9,850 7,453 8,074 5,468 4,341

Earnings Per Share ($) 2011 0.84 E0.60 2010 1.25 1.85 2009 0.93 0.06 2008 0.31 1.39 2007 0.46 0.57 2006 0.31 0.47

E0.43 1.71 0.22 1.23 0.53 0.45

E0.43 1.13 0.86 0.94 0.94 0.53

E2.30 5.93 2.08 3.84 2.50 1.76

Fiscal year ended Jun. 30. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: WDC

Western Digital Corp Business Summary August 04, 2010 CORPORATE OVERVIEW. Western Digital designs, develops, manufactures and markets hard disk drives. The company's hard drives are used in desktop PC, notebook computers, enterprise servers, network attached storage devices, and consumer electronics products such as personal/digital video recorders, and satellite and cable set-top boxes. WDC's hard drive products include 3.5- and 2.5-inch form factor drives with capacities ranging from 40 gigabytes to 2 terabyte and rotation speeds up to 10,000 revolutions per minute. The company believes that these form factors represent its major growth areas, with 3.5-inch form factor hard drives used in the desktop, enterprise, consumer electronic and external storage markets, and 2.5-inch form factor hard drives serving the mobile PC/laptop, consumer electronic and external storage markets. WDC entered the solid-state drive market by acquiring SiliconSystems in the first quarter of 2009. A solid-state drive is a storage device that uses semiconductor rather than magnetic disks and heads to store data and is more commonly used in notebooks because of its lighter weight and higher durability. We expect the solid-state drive market segment to grow faster than the rest of the industry given the rapid growth of netbooks. However, we think solid-

state drives represented less than 3% of WDC's FY 10 (Jun.) total sales. Drives are sold globally to OEMs, distributors and retailers. Sales to OEMs accounted for 54% of revenues in FY 09, up from 51% in FY 08. Distributors made up 26% (31%) and retailers 20% (18%). Historically, WDC believes that sales of PCs and hard disk drives were similar in volume. However, over the past five years, the company's research indicates that growth in hard drives has outpaced the PC market. This shifting dynamic is based on a number of factors, including the growth of alternative products such as consumer electronics devices, the expansion of the external hard drive market, which allows for a more convenient way to store music and photos, and the increased use of multiple hard drives to deal with capacity constraints and safety issues.

Company Financials Fiscal Year Ended Jun. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 19.37 8.12 5.93 6.01 NA Nil 47.44 23.06 8 4

2009 13.17 4.20 2.08 2.01 Nil Nil 44.96 11.49 22 6

2008 11.16 5.66 3.84 3.88 Nil Nil 40.00 9.48 10 2

2007 7.73 3.42 2.50 2.50 Nil Nil 31.70 16.21 13 6

2006 5.24 2.48 1.76 1.82 Nil Nil 24.70 15.90 14 9

2005 3.29 1.54 0.91 0.87 Nil Nil 19.15 9.84 21 11

2004 2.36 1.17 0.70 0.58 Nil Nil 13.55 6.39 19 9

2003 1.61 1.13 0.88 0.81 Nil Nil 14.95 6.44 17 7

2002 0.54 0.51 0.28 0.14 Nil Nil 8.96 2.98 32 11

2001 0.04 -0.21 -0.71 -0.69 Nil Nil 6.79 1.95 NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

9,850 2,035 510 5.00 1,520 NA 1,382 1,400

7,453 1,106 479 17.0 501 6.19% 470 454

8,074 1,468 413 52.0 981 11.6% 867 875

5,468 625 210 4.00 443 NM 564 564

4,341 526 160 3.70 382 NM 395 407

3,639 332 135 Nil 202 1.93% 198 186

3,047 257 102 Nil 155 2.51% 151 125

2,719 237 50.4 Nil 188 4.03% 181 166

2,151 96.5 45.8 8.13 52.1 NM 53.2 27.0

1,953 18.0 51.9 8.94 -88.3 NM -87.1 -117

Balance Sheet & Other Financial Data (Million $) Cash 2,734 Current Assets 4,720 Total Assets 7,328 Current Liabilities 2,023 Long Term Debt 294 Common Equity 4,709 Total Capital 5,109 Capital Expenditures 737 Cash Flow 1,892 Current Ratio 2.3 % Long Term Debt of Capitalization 5.8 % Net Income of Revenue 14.0 % Return on Assets 21.9 % Return on Equity 35.0

1,794 3,230 5,291 1,525 400 3,192 3,592 519 949 2.1 11.1 6.3 9.3 16.0

1,107 2,731 4,871 1,564 482 2,696 3,205 615 1,280 1.8 15.0 10.7 22.3 39.3

700 2,029 2,901 1,130 10.0 1,716 1,726 324 774 1.8 0.6 10.3 22.6 39.3

551 1,492 2,073 859 19.4 1,157 1,177 302 554 1.7 1.6 9.1 21.6 42.5

485 1,181 1,589 818 32.6 702 735 233 333 1.4 4.4 5.5 14.4 33.4

378 857 1,159 587 52.7 488 540 132 253 1.5 9.8 5.0 14.9 37.1

393 744 866 506 Nil 327 327 61.9 231 1.5 Nil 6.7 24.1 84.0

224 528 637 493 Nil 103 103 47.7 99.0 1.1 Nil 2.5 9.3 97.1

168 386 508 340 112 6.80 129 50.7 -35.2 1.1 87.4 NM NM NM

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 20511 Lake Forest Drive, Lake Forest, CA 92630-7741. Telephone: 949-672-7000. Website: http://www.westerndigital.com Chrmn: T.E. Pardun

Pres & CEO: J.F. Coyne COO: T.M. Leyden SVP & CFO: W. Nickl Chief Acctg Officer & Cntlr: J.R. Carrillo

Investor Contact: R. Blair Founded: 1970 Board Members: P. D. Behrendt, K. A. Cote, J. F. Domicile: Delaware Coyne, H. T. DeNero, W. L. Kimsey, M. D. Lambert, L. J. Employees: 62,500 Lauer, M. E. Massengill, R. H. Moore, T. E. Pardun, A. Shakeel

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WU | WU is in the S&P 500

Western Union Co S&P Recommendation BUY

★★★★★

Price $17.90 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Data Processing & Outsourced Services

12-Mo. Target Price $20.00

Investment Style Large-Cap Blend

Summary Spun off from First Data Corp. in September 2006, Western Union is a leading independent provider of consumer money transfer services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $20.26– 14.65 Trailing 12-Month EPS $1.21 Trailing 12-Month P/E 14.8 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.36 1.48 13.2 660.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.46 10 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the sluggish global macroeconomy, which we expect will impact transaction volumes, offset by what we see as relatively high barriers to entry in WU's businesses and potential for operating margin expansion.

30

20 15

10

Quantitative Evaluations

Vol.

S&P Quality Ranking

114

Mil. 45 30 15 0 5

$11.816 1.34 $0.24 91

D

C

B-

NR B

B+

A-

A

Relative Strength Rank 3

3

MODERATE

4

3

A+

63 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Zaineb Bokhari on July 30, 2010, when the stock traded at $ 16.25. Highlights ➤

➤

➤

We expect revenue to rise 1% in 2010, to $5.1 billion, versus the 4% decline in 2009. We think some of the global remittance markets that WU serves have begun to stabilize as macroeconomic conditions gradually improve. We see slower growth in geographies such as the Persian Gulf states, but we expect regions such as Asia to show greater resilience and growth. In addition, we look for WU to invest up to 4% of sales (vs. 2 to 3% historically) in pricing and promotional initiatives as it repositions its domestic money transfer business. Finally, we see growth held back by lower volumes of U.S. consumer bill payments tied to consumer credit, including mortgages, auto loans and credit cards. We project 4% revenue growth for 2011, to $5.35 billion. We project gross and operating margins to remain flat in 2010, reflecting our outlook for investments in technology, marketing and distribution, the acquisition of Custom House, and the impact of the company's assumption of the retail money order portfolio from First Data (October 2009). We see margins benefiting in 2011 from a restructuring in 2010. We estimate EPS of $1.36 in 2010.

Investment Rationale/Risk ➤

➤

➤

We expect transaction volumes to recover in many of the regions WU serves in keeping with a gradual improvement in the global economy. We see WU benefiting from a recent restructuring but expect the company to invest in technology, marketing and pricing initiatives as it invests ahead of a recovery in demand. We view favorably agreements through which WU provides consumer money transfer services through banks, thus expanding the distribution of its services. We think WU, with more than $800 million in cash from operations estimated for 2010, has adequate near-term liquidity, and we view the shares as attractive. Risks to our recommendation and target price include worsening global economic trends, accelerating consumer adoption of digital alternatives to WU's money transfer offerings, and competition from traditional financial institutions and money transfer peers. We derive our 12-month target price of $20 by applying a 13.5X P/E multiple to our 2011 EPS estimate, within the historical average range for the shares of 9.4X-17.5X, but below the 15.7X mean for peers, reflecting our view of modest near-term revenue growth.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,233 1,273 2009 1,201 1,254 2008 1,266 1,347 2007 1,131 1,203 2006 1,043 1,114 2005 919.6 980.8

3Q -1,314 1,377 1,257 1,140 1,019

4Q -1,314 1,292 1,309 1,173 1,068

Year -5,084 5,282 4,900 4,470 3,988

Earnings Per Share ($) 2010 0.30 0.33 2009 0.32 0.31 2008 0.27 0.31 2007 0.25 0.26 2006 0.29 0.29 2005 ---

E0.34 0.26 0.33 0.28 0.34 0.32

E0.35 0.32 0.34 0.32 0.28 0.31

E1.36 1.21 1.24 1.11 1.19 0.96

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.060 0.060 0.060 0.060

12/09 02/25 05/14 09/22

12/17 03/17 06/16 09/30

12/21 03/19 06/18 10/04

12/30/09 03/31/10 06/30/10 10/14/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WU

Western Union Co Business Summary July 30, 2010 CORPORATE OVERVIEW. Western Union is a leading independent provider of consumer money transfer services. WU offers its services through a network of about 410,000 agent locations (at December 31, 2009) spanning more than 200 countries and territories. The company provides its services globally, mainly under the Western Union brand name and also under the Orlandi Valuta and Vigo brands. WU derives the majority of revenues from fees that consumers pay when they send money. The company's main segments include consumer-to-consumer (C2C; 85% of 2009 revenues) and Global Business Payments (formerly consumer-to-business or C2B; 14%). WU's core C2C services allow customers to transfer money to other individuals. The majority of these transfers are originated in cash at Western Union agent locations, although consumers can also send money via the Internet, telephone, credit or debit card and, in some cases, through bank debits. In 2009, C2C transactions increased 4%, to 196 million, while C2C transaction fees fell about 5%. Through its Global Business Payments segment, consumers or businesses can make payments to businesses electronically, over the telephone, via the Internet, or at one of WU's agent locations. The company has long-standing relationships with billers such as utilities, auto finance companies, mortgage

servicers, financial service providers and government agencies who accept such payments. In 2009, WU's Global Business Payment transactions increased less than 1%, to 415 million, while transaction fees fell 7%. CORPORATE STRATEGY. The pursuit of growth through international expansion is a key tenet of Western Union's growth strategy. The company believes that a majority of its C2C transactions involve at least one non-U.S. location. Outside the United states, WU's revenue base is well-diversified geographically. Building on and maintaining its well-recognized consumer brand is another key element to the company's strategy. WU spent between 5%-6% of revenues on marketing, advertising and developing customer loyalty programs in 2007, 2008 and 2009. The company also invested about 3% of annual revenues in selective price reductions on its C2C services in individual markets depending on the dynamics within those markets in 2006 and 2007; in 2008, such reductions accounted for 1% of revenues and 2% in 2009. We think the difference in growth between transaction fees and transaction volumes is evidence of this strategy.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 1.43 1.21 1.29 0.06 5% 20.64 10.05 17 8

2008 NM 1.33 1.24 1.22 0.04 3% 28.62 10.48 23 8

2007 NM 1.17 1.11 1.11 0.04 4% 24.83 15.00 22 14

2006 NM 1.32 1.19 1.18 0.01 1% 24.14 16.85 20 14

2005 NM NA 0.96 1.10 NA NA NA NA NA NA

2004 NA NA NA 0.95 NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

5,084 1,437 154 158 1,132 25.0% 849 904

5,282 1,500 61.7 171 1,239 25.8% 919 908

4,900 1,393 49.1 189 1,222 29.9% 857 857

4,470 1,415 104 53.0 1,335 31.5% 914 913

3,988 NA NA 202 1,063 29.5% 749 859

3,524 1,168 79.2 6.40 1,098 31.5% 752 734

3,121 1,051 78.4 NA 970 34.1% 639 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 1,685 Current Assets 1,985 Total Assets 7,353 Current Liabilities 1,020 Long Term Debt 3,049 Common Equity 354 Total Capital 3,402 Capital Expenditures 59.7 Cash Flow 1,003 Current Ratio 1.7 % Long Term Debt of Capitalization 89.6 % Net Income of Revenue 16.7 % Return on Assets 13.1 % Return on Equity NM

1,296 1,850 5,578 1,350 2,561 -8.10 2,823 53.9 981 2.1 90.7 17.4 16.2 NM

2,030 1,959 5,784 1,468 2,500 50.7 2,814 83.5 906 1.3 88.8 17.5 15.4 NM

1,422 1,631 5,321 882 2,996 -315 2,681 64.0 1,018 1.9 112.0 20.4 18.3 NM

1,186 NA 4,659 NA 3,500 -687 2,183 NA NA NA 160.3 18.8 NA NA

470 1,520 3,307 218 9.90 1,909 1,919 26.5 831 7.0 0.5 21.3 NA NA

NA NA NA NA NA NA NA 23.6 717 NA Nil 20.5 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. Pro forma data in 2005; balance sheet and book value as of Jun. 30, 2006. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 12500 East Belford Avenue, Englewood, CO 80112. Telephone: 866-405-5012. Website: http://www.westernunion.com Chrmn: J.M. Greenberg

Pres & CEO: H. Ersek EVP & CFO: S.T. Scheirman EVP, Secy & General Counsel: M.J. Wong SVP, Chief Acctg Officer & Cntlr: A.T. Schenkel

Investor Contact: G. Kohn (720-332-8276) Board Members: D. S. Devitre, H. Ersek, J. M. Greenberg, B. D. Holden, A. J. Lacy, R. Mendoza, M. Miles, Jr., D. Stevenson, L. F. levinson, W. von Schimmelmann

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1851 Domicile: Delaware Employees: 6,800

Stock Report | October 23, 2010 | NYS Symbol: WY | WY is in the S&P 500

Weyerhaeuser Co S&P Recommendation HOLD

★★★★★

Price $15.72 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Specialized REITS

12-Mo. Target Price $17.00

Investment Style Large-Cap Blend

Summary One of the world's largest integrated forest products companies, WY grows timber; makes and sells forest products and pulp; and engages in real estate construction and development.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $53.69– 15.06 Trailing 12-Month EPS $-0.86 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $7,990

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.30 0.80 52.4 211.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.327 1.27 $0.20 82

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.16 NM BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects that Weyerhaeuser operates in a cyclical industry, with large capital requirements and significant variability in both costs and prices. However, the company is one of the largest in the industry, and we believe it has a major base of assets and modest debt levels.

80 60 40 30 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0

D

C

B-

BB

B+

A-

A

Relative Strength Rank

5

3

2

3

WEAK

7

3

2

A+

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Revenue/Earnings Data

2010 Options: CBOE, P

Analysis prepared by Stuart J. Benway, CFA on August 03, 2010, when the stock traded at $ 16.91. Highlights ➤

➤

➤

Investment Rationale/Risk

We see sales rising 15%-20% in 2010 following the 41% decline in 2009 from continuing operations. Divestitures have helped reduce WY's revenue base by a third over the past two years. S&P expects the residential housing market to begin to recover this year, with housing starts seen increasing by 15%. This should lead to higher prices for lumber and panels and to higher closings in homebuilding. Pulp prices are also expected to be much higher in 2010.

➤

We look for conditions to improve somewhat in 2010. Timberland margins are likely to remain below normal due to deferred harvests. However, margins in wood products should improve, reflecting steep cost reductions and higher prices. We also look for higher volume and land sales in the real estate sector to aid profits. Our estimate is for positive operating margins in 2010 after two years of negative margins.

➤

For 2010, we see an operating profit of $0.30 per share, excluding unusual items but including land sales gains, compared to the operating loss of $2.12 in 2009. In 2011, we project a further earnings recovery to $0.80 per share.

➤

WY has divested assets to focus on its timber, wood products, real estate and fiber businesses. Although these sales generated significant proceeds, its lumber and homebuilding businesses have been hurt badly by the downturn in residential real estate. WY has reduced its annual dividend by over 90%. However, it is in the process of adopting the REIT form of corporate structure, which will likely result in higher cash flows over time due to a lower tax rate. Risks to our recommendation and target price include the lack of a housing recovery, a significant decline in wood product and pulp prices, and decreased values for timberland. Given the company's recent and potential corporate repositioning moves, we believe it is appropriate to value WY shares on a sumof-the-parts basis. Our model recognizes the cyclical characteristics of the wood products and real estate businesses, the relative stability of the fibers unit, and what we view as the significant value of the timberlands. Considering these factors, we derive a value of $17, which is our 12-month target price.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 1,419 1,805 2009 1,275 1,391 2008 2,096 2,174 2007 3,891 4,334 2006 5,256 5,657 2005 5,404 5,838

3Q -1,407 2,107 4,146 5,328 5,604

4Q -1,455 1,760 3,937 5,655 5,868

Year -5,528 8,018 16,308 21,896 22,629

Earnings Per Share ($) 2010 -0.09 0.07 2009 -1.25 -0.50 2008 -1.08 -0.98 2007 -0.07 0.17 2006 -2.36 1.20 2005 0.98 1.22

E0.13 Nil -0.95 0.34 0.75 1.16

E0.04 -0.83 -5.67 -0.21 1.67 -1.00

E0.30 -2.58 -8.61 0.23 1.44 2.36

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.050 0.050 26.420 0.050

01/04 04/15 07/12 10/15

01/27 04/28 07/20 11/03

01/29 04/30 07/22 11/05

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1933. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WY

Weyerhaeuser Co Business Summary August 03, 2010 CORPORATE OVERVIEW. Weyerhaeuser, one of the world's largest integrated forest products companies, is primarily engaged in growing and harvesting timber; the production, distribution and sale of wood and paper products; and real estate development. Through its timberlands segment (13% of 2009 sales), WY manages 22 million acres of forestland through company-owned or leased property in eight states and Canada. The wood products businesses (42%) produce and sell softwood and hardwood lumber, plywood and veneer, composite panels, oriented strand board, and engineered lumber. Products made by the pulp and paper unit (28%) include paper grade, absorbent, dissolving and specialty pulp grades. Paper products include liquid packaging board used for milk, juice, and tea. Through Weyerhaeuser Real Estate Company (17%), the company is involved in the development of single-family housing and residential lots, including the development of master-planned communities.

MARKET PROFILE. Weyerhaeuser operates in a highly cyclical and capitalintensive industry. Demand for the company's products is dependent on a number of factors including consumer spending, white collar employment levels, domestic and Japanese new home construction and repair and remodeling activity, and movements in currency exchange rates. Historical prices for pulp and wood products have been volatile, and, despite its size, Weyerhaeuser has had only a limited direct influence over the timing and extent of price changes for its products. Pricing is significantly affected by the relationship between supply and demand, and supply is influenced primarily by fluctuations in available manufacturing capacity.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 19.00 -0.18 -2.58 -3.55 0.60 NM 46.80 18.67 NM NM

2008 22.58 -5.80 -8.61 -7.30 2.40 NM 73.75 28.68 NM NM

2007 27.35 4.43 0.23 -0.25 2.40 NM 87.09 59.67 NM NM

2006 28.92 6.88 1.44 2.97 2.20 182% 75.50 54.25 62 45

2005 27.81 7.80 2.36 1.79 1.90 81% 71.85 60.62 30 26

2004 24.84 10.76 5.43 4.37 1.60 29% 68.59 55.06 13 10

2003 17.44 7.23 1.30 0.70 1.60 123% 64.70 45.40 50 35

2002 15.80 6.63 1.09 -0.75 1.60 147% 68.09 37.35 62 34

2001 25.45 5.94 1.61 NA 1.60 99% 63.50 42.77 39 27

2000 25.95 7.52 3.72 NA 1.60 43% 74.50 36.06 20 10

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

5,528 158 508 434 -842 32.5% -545 -762

8,018 38.0 593 550 -2,707 NM -1,819 -1,542

16,308 1,628 925 586 59.0 13.6% 51.0 -53.0

21,896 2,914 1,283 531 826 57.0% 355 728

22,629 3,443 1,337 730 906 35.8% 582 444

22,665 4,028 1,322 829 1,945 34.0% 1,283 1,029

19,873 2,716 1,318 796 436 33.9% 288 156

18,521 2,455 1,225 771 371 35.0% 241 -168

14,545 1,689 876 344 516 31.4% 354 2.35

15,980 2,536 859 351 1,323 36.5% 840 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,918 Current Assets 5,221 Total Assets 15,250 Current Liabilities 995 Long Term Debt 5,683 Common Equity 4,044 Total Capital 9,740 Capital Expenditures 239 Cash Flow -37.0 Current Ratio 5.5 % Long Term Debt of Capitalization 58.4 % Net Income of Revenue NM % Return on Assets NM % Return on Equity NM

2,432 6,085 16,735 1,864 5,557 4,814 12,228 608 -1,226 3.4 45.4 NM NM NM

114 5,990 23,806 2,921 6,522 7,981 17,830 880 976 2.1 36.6 0.3 0.2 0.6

243 4,121 26,862 3,129 7,675 9,095 20,461 837 1,638 1.3 37.5 1.6 1.3 3.8

1,104 4,876 28,229 3,255 8,262 9,800 22,097 861 1,919 1.5 37.4 2.6 2.0 6.1

1,197 5,293 29,954 3,149 10,144 9,255 23,932 492 2,605 1.7 42.4 5.7 4.4 15.7

202 4,021 28,109 2,525 12,397 7,109 23,800 608 1,606 1.6 52.1 1.4 1.0 4.2

122 3,888 28,219 2,994 12,721 6,623 23,400 930 1,466 1.3 54.4 1.3 1.0 3.6

204 3,061 18,293 1,863 5,715 6,695 14,787 660 1,230 1.6 38.6 2.4 1.9 5.2

123 3,288 18,195 2,704 5,114 6,832 14,323 848 1,699 1.2 35.7 5.3 4.6 12.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 33663 Weyerhaeuser Way South, Federal Way, WA 98063-9777. Telephone: 253-924-2345. Email: [email protected] Website: http://www.weyerhaeuser.com

Chrmn: C.R. Williamson Pres & CEO: D.S. Fulton COO: J.M. Hillman EVP & CFO: P. Bedient

SVP & CTO: M.P. Drake Founded: 1900 Investor Contact: K.F. McAuley (253-924-2058) Domicile: Washington Board Members: D. A. Cafaro, M. A. Emmert, D. S. Employees: 14,888 Fulton, J. I. Kieckhefer, A. G. Langbo, W. Murdy, N. Piasecki, R. H. Sinkfield, D. M. Steuert, K. Williams, C. R. Williamson

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: WHR | WHR is in the S&P 500

Whirlpool Corp S&P Recommendation BUY

★★★★★

Price $85.56 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Household Appliances

12-Mo. Target Price $108.00

Investment Style Large-Cap Blend

Summary Whirlpool, which acquired Maytag in 2006, is the world's largest manufacturer of home appliances. Sears, Roebuck is its biggest customer.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $118.44– 68.90 Trailing 12-Month EPS $7.17 Trailing 12-Month P/E 11.9 $10K Invested 5 Yrs Ago $13,008

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

9.44 9.40 9.1 76.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.503 2.01 $1.72 100

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.99 18 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects WHR's leading market share across many brands, offset by intense industry rivalry and heightened competition from foreign companies. We view home appliances to be cyclical, but less so than other large-ticket items, like home furnishings or automobiles.

120

60 40

20

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

12 8 4 0 5

D 4

3

2

4

3

2

2009

Analysis prepared by Erik Kolb on October 19, 2010, when the stock traded at $ 85.16.

➤

Following a sales decline of 10% in 2009, we forecast increases of 6.2% for 2010 and 4.6% for 2011, as the general economy rebounds. For 2010, the company estimates industry unit shipments will rise 10% in Brazil, compared to a 5% rise in the U.S. market, and no growth forecasted for Europe. We believe customer demand for large kitchen and laundry appliances is beginning to pick up for upgrades and replacements.

Investment Rationale/Risk ➤

➤ ➤

➤

We think WHR's addressable markets for appliances will also benefit from demand for energy savings performance spurred by federal tax credits. With improved cost controls, WHR's gross margins widened to 14% in 2009 from 13.3% in 2008, and we estimate gross margins will improve to about 15.7% in both 2010 and 2011. Following operating margins of 4.8% in 2009, we expect operating margins to rise to 6.9% in 2010. For the long term, we believe WHR will benefit from its larger scale and purchasing power. With material federal energy tax credits, we see operating EPS of $9.44 for 2010 and $9.40 for 2011.

➤

B+

A-

A

A+

MODERATE

LOWEST = 1

HIGHEST = 99

2010 Options: CBOE, P

Highlights

B+ B

57

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

B-

Relative Strength Rank

1

2007

C

We believe the industry association for U.S. appliances will report positive monthly shipments of major appliances in 2010. We also see sustainable strong demand for appliances in nonU.S. markets, especially in Asia and Latin America. In our opinion, WHR can gain market share with its scale advantages and price competitively without hurting margins. Risks to our opinion and target price include another economic recession that further weakens business conditions or growth prospects in WHR's major markets, particularly in the Americas and Europe; more competition and/or market share losses; and, narrower margins resulting from higher raw material costs. Our 12-month target price of $108 is based on a target P/E of 11.5X, slightly below the midpoint of the historical range for WHR and peers, applied to our 2011 EPS projection, which excludes non-recurring items. Given our view of an improving sales outlook, we think the Maytag merger is paying dividends through better economies of scale.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,272 4,534 2009 3,569 4,169 2008 4,614 5,076 2007 4,389 4,854 2006 3,536 4,747 2005 3,208 3,556

3Q -4,497 4,902 4,840 4,843 3,599

4Q -4,864 4,315 5,325 4,954 3,954

Year -17,099 18,907 19,408 18,080 14,317

Earnings Per Share ($) 2010 2.13 2.64 2009 -0.91 1.04 2008 1.22 1.53 2007 1.55 2.00 2006 1.70 1.26 2005 1.26 1.42

E2.25 1.15 2.15 2.20 1.68 1.66

E2.41 1.24 0.60 2.39 1.67 1.83

E9.44 4.34 5.50 8.10 6.35 6.19

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.430 0.430 0.430 0.430

02/16 04/20 08/17 10/19

02/24 05/19 08/25 11/17

02/26 05/21 08/27 11/19

03/15/10 06/15/10 09/15/10 12/15/10

Dividends have been paid since 1929. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WHR

Whirlpool Corp Business Summary October 19, 2010 CORPORATE OVERVIEW. Whirlpool Corp. (WHR) manufactures and markets a full line of major appliances and related products, primarily for home use. Products are manufactured in 12 countries and marketed worldwide under 13 main brand names. The company's growth strategy over the past several years has been to introduce innovative new products, strengthen customer loyalty, expand its global footprint, enhance distribution channels, and make strategic acquisitions where appropriate.

Eslabon de Lujo brand names. It manages appliance sales and distribution in Brazil, Argentina, Chile, and Peru through a Brazilian subsidiary, and in Bolivia, Paraguay, and Uruguay through outside distributors. Also, WHR manages appliance sales and distribution in Central American countries, the Caribbean, Venezuela, Colombia, Guatemala, and Ecuador through its Brazilian subsidiary and through distributors. In Latin America, Whirlpool has manufacturing facilities only in Brazil.

MARKET PROFILE. Of WHR's total sales in 2009, 56% were from North America. As the market leader, WHR's major product brands in the U.S. include Whirlpool, Maytag, KitchenAid, Jenn-Air, Roper, Estate, Admiral, Magic Chef, Amana, and Inglis. In Europe, which generated 19% of sales, products are marketed under the Whirlpool, Maytag, Amana, Bauknecht, Ignis, Laden, Polar and KitchenAid brand names. Markets also include Latin America and Asia.

COMPETITIVE LANDSCAPE. The company has been able to retain a number one position in brand and market share in most global regions. Combined with high reliability, WHR has developed strong customer loyalty. Competitors in the appliance industry include long-time incumbents Electrolux and General Electric, as well as expanding foreign operations such as LG Electronics, Bosch Siemens, Samsung, Fisher & Paykel, and Haier from China.

About 22% of total sales in 2009 were from Latin America which is its fastestgrowing market. In this region, WHR markets and distributes its major home appliances under the Whirlpool, Maytag, KitchenAid, Brastemp, Consul, and Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.86 11.28 4.34 4.34 1.72 40% 85.01 19.19 20 4

2008 NM 13.36 5.50 3.17 1.72 31% 98.00 30.19 18 5

2007 6.06 15.52 8.10 7.33 1.72 21% 118.00 72.10 15 9

2006 NM 13.54 6.35 6.33 2.15 34% 96.00 74.07 15 12

2005 21.49 12.65 6.19 5.99 1.72 28% 86.52 60.78 14 10

2004 19.85 12.35 5.90 5.58 1.72 29% 80.00 54.53 14 9

2003 15.23 12.00 5.91 5.71 1.36 23% 73.35 42.80 12 7

2002 5.82 9.62 3.78 2.12 1.36 36% 79.80 39.23 21 10

2001 11.10 6.32 0.50 -1.91 1.02 NM 74.20 45.88 NM NM

2000 13.97 10.39 5.20 NA 1.36 26% 68.31 31.50 13 6

17,099 1,257 525 219 293 NM 328 327

18,907 1,347 597 203 246 NM 418 241

19,408 1,717 593 203 786 14.9% 647 587

18,080 1,428 550 202 620 20.3% 486 484

14,317 1,291 442 130 598 28.6% 422 408

13,220 1,218 445 128 615 34.0% 406 384

12,176 1,219 427 137 652 35.0% 414 401

11,016 1,207 405 143 468 41.2% 262 147

10,343 1,147 396 162 89.0 48.3% 34.0 -130

10,325 1,178 371 180 580 34.5% 367 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,380 Current Assets 7,025 Total Assets 15,094 Current Liabilities 5,941 Long Term Debt 2,502 Common Equity 3,664 Total Capital 6,640 Capital Expenditures 541 Cash Flow 853 Current Ratio 1.2 % Long Term Debt of Capitalization 37.7 % Net Income of Revenue 1.9 % Return on Assets 2.3 % Return on Equity 9.8

146 6,044 13,532 5,563 2,002 3,006 5,277 547 1,015 1.1 37.9 2.2 3.0 12.1

201 6,555 14,009 5,893 1,668 3,911 5,648 536 1,240 1.1 29.5 3.3 4.6 18.0

262 6,476 13,878 6,002 1,798 3,283 5,481 576 1,036 1.1 32.8 2.7 4.4 19.3

524 4,710 8,248 4,301 745 1,745 2,749 484 864 1.1 27.1 2.9 5.1 25.2

243 4,514 8,181 3,985 1,160 1,606 3,074 511 851 1.1 37.8 3.1 5.2 27.9

249 3,865 7,361 3,589 1,134 1,301 2,734 423 841 1.1 41.5 3.4 5.9 40.6

192 3,327 6,631 3,505 1,092 796 2,083 430 667 0.9 52.4 2.4 3.9 22.8

316 3,311 6,967 3,082 1,295 2,126 3,725 378 430 1.1 34.8 0.3 0.5 1.5

114 3,237 6,902 3,303 795 1,684 2,801 375 738 1.0 28.4 3.6 5.3 20.7

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2000 N M 63, Benton Harbor, MI 49022-2692. Telephone: 269-923-5000. Email: [email protected] Website: http://www.whirlpool.com

Chrmn & CEO: J.M. Fettig EVP & CFO: R. Templin SVP, Chief Acctg Officer & Cntlr: L.M. Venturelli CTO: S. Sarraf

Secy & General Counsel: R.J. LaForest Founded: 1906 Investor Contact: G. Fritz (269-923-2641) Domicile: Delaware Board Members: S. R. Allen, H. Cain, G. T. DiCamillo, J. Employees: 66,884 M. Fettig, K. J. Hempel, M. F. Johnston, W. T. Kerr, J. D. Liu, M. L. Marsh, W. D. Perez, P. G. Stern, J. D. Stoney, M. A. Todman, M. D. White

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: WFMI | WFMI is in the S&P 500

Whole Foods Market Inc S&P Recommendation BUY

★★★★★

Price $39.89 (as of Oct 22, 2010)

GICS Sector Consumer Staples Sub-Industry Food Retail

12-Mo. Target Price $44.00

Investment Style Large-Cap Blend

Summary This company owns and operates the largest U.S. chain of natural and organic foods supermarkets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $43.18– 24.94 Trailing 12-Month EPS $1.31 Trailing 12-Month P/E 30.5 $10K Invested 5 Yrs Ago $6,336

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.39 1.63 28.7 171.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.857 Nil Nil 92

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.07 15 BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the intensely competitive environment in the retail food industry, partly offset by our view of WFMI's strong balance sheet and growing natural and organic food industry sales momentum.

40 20

8

Quantitative Evaluations

4

S&P Quality Ranking

Vol. Mil.

54

D

24 16 8 0 5

C

B-

B B

B+

A-

A

Relative Strength Rank

A+ STRONG

77 4

3

3 1

3

2

4

LOWEST = 1

HIGHEST = 99

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: ASE

Analysis prepared by Joseph Agnese on August 05, 2010, when the stock traded at $ 36.16. Highlights ➤

➤

➤

We expect FY 11 (Sep.) sales to increase 11.5% to $10.0 billion, from our estimate of $9.0 billion in FY 10, reflecting square footage growth of 5.0% from the opening of 11 net new stores, and as easier comparisons, an increased selection of low-priced products, and food inflation result in a comparable-store sales increase of about 6.0%. We believe margins will expand in both FY 10 and FY 11, reflecting increased operating leverage and our projection for lower new store opening costs in FY 10, as the company opens smaller and a fewer number of stores, and a 10% rise in FY 11 due to an acceleration in new store openings. We see improved inventory management leading to lower shrink expense and contributing to increased labor productivity. We expect net interest expense to decline significantly in FY 11 due to lower debt levels and the expiration of an interest rate swap agreement in October 2010. We project that FY 11 EPS will increase 17%, to $1.63, up from our estimate of $1.39 in FY 10.

Investment Rationale/Risk ➤

➤

➤

Revenue/Earnings Data

2010

We believe the adoption of a new pricing strategy, a focus on lower-priced (value) products, and a significant slowdown in square footage expansion will lead to a strengthening of the company's balance sheet and above-average industry sales growth levels in FY 10. Longer term, we expect plans to reaccelerate square footage growth while utilizing free cash flow to pay down debt will lead to both an acceleration in EPS growth and a reduction in risks.

Revenue (Million $) 1Q 2Q 2010 2,639 2,106 2009 2,467 1,858 2008 2,457 1,866 2007 1,871 1,463 2006 1,667 1,312 2005 1,368 1,085

3Q 2,163 1,878 1,841 1,514 1,338 1,133

4Q -1,829 1,789 1,743 1,291 1,115

Year -8,032 7,954 6,592 5,607 4,701

Earnings Per Share ($) 2010 0.32 0.39 2009 0.20 0.19 2008 0.28 0.29 2007 0.38 0.32 2006 0.40 0.36 2005 0.35 0.29

0.38 0.25 0.24 0.35 0.37 0.29

E0.30 0.20 0.01 0.24 0.28 0.07

E1.39 0.85 0.82 1.29 1.41 0.99

Risks to our recommendation and target price include lower-than-expected comparable-store sales growth on weaker-than-expected consumer demand.

Fiscal year ended Sep. 30. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Due to a stronger-than-expected rebound in comparable-store sales results in the first three quarters of 2010 and our expectation for sales strength to continue, we believe the stock should trade in line with its 10-year historical average premium of 1.9X compared to the S&P 500, but below its long-term P/E average of 35X as our projected EPS growth estimates are still below historical levels. We apply a P/E multiple of 27X to our FY 11 EPS estimate of $1.63, to reach our 12-month target price of $44.

No cash dividends have been paid since 2008.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Dividend Data

Stock Report | October 23, 2010 | NNM Symbol: WFMI

Whole Foods Market Inc Business Summary August 05, 2010 CORPORATE OVERVIEW. Whole Foods Market, established in 1980, has grown into the largest U.S. retailer of natural and organic foods, with $8.0 billion in sales in FY 09 (Sep.). Reflecting a series of store openings and acquisitions, the company has expanded from a single Austin, TX, store in 1980 to a chain of more than 280 stores in 37 states plus Washington, DC; six stores in Canada; and five stores in the United Kingdom. The company strives to differentiate its stores from those of its competitors by tailoring its product mix, customer service attitude and store environment to appeal to health conscious and gourmet customers. CORPORATE STRATEGY. The company opens or acquires stores in existing regions, and in metropolitan areas in which it believes it can become the leading natural foods supermarket retailer. In developing new stores, WFMI seeks to open large format units of 35,000 sq. ft. to 50,000 sq. ft., located on premium sites, often in urban, highly populated areas. Although approximately 30% of its store base consists of acquired stores, the company expects more of its future growth to come from developing new stores. As of June 2010, WFMI had signed leases for 48 stores averaging approximately 41,600 square feet in size,

which is about 11% larger than its existing store base average. It operated about 11.2 million square feet of retail space, and had about 2.0 million square feet (18% of existing sq. ft.) of retail space under development at June 2010 Stores average about 37,500 sq. ft., and offer a selection of some 30,000 food and non-food products. Each store contributes an average of almost $30 million in annual sales and averages about 7.6 years old. Products sold include natural and organic foods and beverages; dietary supplements; natural personal care products; natural household goods; and educational products. Natural foods can be defined as foods that are minimally processed, largely or completely free of artificial ingredients, preservatives and other non-naturally occurring chemicals, and as near as possible to their whole, natural state. Organic foods are based on the minimal use of off-farm inputs and on management practices that restore, maintain and enhance the ecology.

Company Financials Fiscal Year Ended Sep. 30 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.38 2.66 0.85 0.92 Nil Nil 34.40 9.06 40 11

2008 5.47 2.49 0.82 0.82 0.78 95% 42.48 7.04 52 9

2007 4.97 2.60 1.29 1.29 0.69 53% 53.65 36.00 42 28

2006 9.00 2.48 1.41 1.40 0.88 62% 78.27 45.56 56 32

2005 9.06 1.93 0.99 -0.21 0.42 42% 79.90 44.14 81 45

2004 6.82 1.84 1.05 0.85 0.23 22% 48.74 32.96 47 32

2003 5.57 1.54 0.83 0.70 Nil Nil 33.81 22.39 41 27

2002 4.21 1.34 0.70 0.58 Nil Nil 27.30 17.74 39 25

2001 2.98 1.16 0.61 0.38 Nil Nil 23.25 9.73 38 16

2000 2.11 0.85 0.26 NA Nil Nil 15.94 8.59 60 32

8,032 559 255 42.1 251 41.5% 147 128

7,954 470 234 42.4 207 44.6% 115 115

6,592 484 186 4.21 305 40.0% 183 183

5,607 475 156 0.03 340 40.0% 204 202

4,701 363 134 2.22 237 42.5% 136 -28.0

3,865 341 112 7.25 229 40.0% 137 109

3,149 285 98.0 8.11 173 40.0% 104 85.0

2,690 248 85.9 10.4 141 40.0% 84.5 70.4

2,272 209 78.8 17.9 89.8 42.5% 51.6 43.0

1,839 181 63.9 15.1 63.5 54.5% 28.9 NA

Balance Sheet & Other Financial Data (Million $) Cash 430 Current Assets 1,055 Total Assets 3,783 Current Liabilities 684 Long Term Debt 739 Common Equity 1,628 Total Capital 2,780 Capital Expenditures 315 Cash Flow 374 Current Ratio 1.5 % Long Term Debt of Capitalization 26.6 % Net Income of Revenue 1.8 % Return on Assets 4.1 % Return on Equity 9.4

30.5 623 3,381 666 929 1,506 2,435 522 348 0.9 38.2 1.4 3.5 7.7

Nil 668 3,213 785 736 1,459 2,195 140 369 0.9 33.5 2.8 7.0 12.8

2.25 624 2,043 510 8.61 1,404 1,413 132 360 1.2 0.6 3.6 10.4 14.7

309 673 1,889 418 12.9 1,366 1,379 116 270 1.6 0.9 2.9 8.0 11.8

198 485 1,520 331 165 988 1,173 110 249 1.5 14.0 3.5 10.1 15.5

166 364 1,197 240 163 776 942 84.1 202 1.5 17.3 3.3 9.7 15.2

12.6 172 943 176 162 589 751 61.4 170 1.0 21.6 3.1 9.5 16.9

1.84 145 829 156 251 409 660 49.0 130 0.9 38.0 2.3 6.5 14.4

0.40 152 760 143 298 307 605 111 92.8 1.1 49.2 1.6 4.1 9.4

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 550 Bowie St, Austin, TX 78703-4644. Telephone: 512-477-4455. Website: http://www.wholefoods.com Chrmn: J.B. Elstrott

Pres & COO: A.C. Gallo Co-CEO: J.P. Mackey Co-CEO: W. Robb EVP, CFO, Chief Acctg Officer & Secy: G.J. Chamberlain

Investor Contact: C. McCann (512-477-4455) Board Members: J. B. Elstrott, G. E. Greene, S. M. Hassan, S. Kugelman, J. P. Mackey, W. Robb, J. A. Seiffer, M. Siegel, J. D. Sokoloff, R. Sorenson, W. A. Tindell, III

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1978 Domicile: Texas Employees: 52,500

Stock Report | October 23, 2010 | NYS Symbol: WMB | WMB is in the S&P 500

Williams Cos Inc. (The) S&P Recommendation BUY

★★★★★

Price $20.99 (as of Oct 22, 2010)

GICS Sector Energy Sub-Industry Oil & Gas Storage & Transportation

12-Mo. Target Price $23.00

Investment Style Large-Cap Blend

Summary As an integrated natural gas company, Williams produces, gathers, processes and transports natural gas across the country.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.66– 17.53 Trailing 12-Month EPS $0.53 Trailing 12-Month P/E 39.6 $10K Invested 5 Yrs Ago $10,695

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.17 1.35 17.9 584.7

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.272 2.38 $0.50 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.19 -14 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the volatility of WMB's E&P segment, offset by a business portfolio focused on regulated industries with largely fixed returns.

40 30 20 15

Quantitative Evaluations

10

S&P Quality Ranking

Vol.

D

Mil.

B-

B B

B+

A-

A

A+

99

45 30 15 0 5

C

Relative Strength Rank

MODERATE 70

LOWEST = 1 4

3

HIGHEST = 99

4

3

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Michael Kay on August 10, 2010, when the stock traded at $ 20.35. Highlights ➤

Despite a pullback in activity throughout 2009, as lower prices warranted reduced drilling plans, WMB saw an 8% boost in production. On improved Piceance Basin economics and bolton acquisitions made in 2009, we expect WMB to accelerate production growth in 2010. After making its initial investment in the Marcellus Shale in 2009, WMB plans to expand midstream capabilities in the play through Williams Partners (WPZ 45, NR). Longer term, we look for E&P to benefit from the development of drilling prospects, especially in the Piceance Basin, the Powder River Basin and the Marcellus Shale, where WMB is acquiring acreage.

Investment Rationale/Risk ➤

➤ ➤

➤

WMB spent $2.4 billion on expansion in 2009, with 60% for E&P, 20% for midstream, and 19% for pipelines. Capex is budgeted at $3.475 billion-$3.975 billion in 2010 and $2.4 billion-$3.7 billion in 2011. EPS guidance is $1.00-$1.45 for 2010 and $1.15-$2.50 for 2011. WMB is allocating about 50%-55% of future capex to E&P and 32%-35% to WPZ. Operating EPS of $0.94 in 2009 fell 56%, mainly on lower gas prices. We see 2010 and 2011 EPS of $1.25 and $1.52, respectively, on improved pricing and lower operating costs.

➤

In February, WMB completed a $12 billion restructuring, contributing gas pipeline and U.S. midstream assets and L.P. and G.P. interests in Williams Pipeline Partners (WMZ 33, NR) to WPZ. WMB now owns 84% of the new WPZ, versus 24% of WMZ previously. We see a growing midstream business, 3 major pipelines and solid E&P prospects driving future growth. WMB sees lower NGL prices and delays at the deepwater Gulf of Mexico Perdido Norte project, but higher capex on Marcellus acquisitions, increased interest in Overland Pass and a new Parachute facility in the Piceance Basin. Risks to our recommendation and target price include sharply higher interest rates, slowerthan-projected economic growth, a sustained decline in natural gas prices, and lower rates for FERC regulated pipelines. We see improving fundamentals in all business segments in 2010. Our 12-month target price of $23 reflects a blend of peer-average relative metrics, given our view of high-quality pipelines and a strong asset base in E&P, including an enterprise value to projected 2011 EBITDA multiple of 6X, a target P/E of 15X our 2011 EPS forecast, and our proved reserve NAV of $23.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 2,596 2,292 2009 1,922 1,909 2008 3,204 3,701 2007 2,368 2,824 2006 3,028 2,715 2005 2,954 2,871

3Q -2,098 3,245 2,860 3,300 3,082

4Q -2,326 2,202 2,506 2,770 3,676

Year -8,255 12,352 10,558 11,813 12,584

Earnings Per Share ($) 2010 -0.33 0.32 2009 -0.29 0.21 2008 0.70 0.70 2007 0.28 0.40 2006 0.22 -0.11 2005 0.34 0.07

E0.26 0.24 0.62 0.38 0.19 0.01

E0.28 0.29 0.23 0.34 0.25 0.12

E1.17 0.75 2.26 1.39 0.55 0.53

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.110 0.110 0.125 0.125

11/19 01/21 04/27 07/14

12/09 03/10 06/09 08/25

12/11 03/12 06/11 08/27

12/28/09 03/29/10 06/28/10 09/13/10

Dividends have been paid since 1974. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WMB

Williams Cos Inc. (The) Business Summary August 10, 2010 CORPORATE OVERVIEW. The Williams Companies (WMB) primarily finds, produces, gathers, processes and transports natural gas. Operations are concentrated in the Pacific Northwest, Rocky Mountains, Gulf Coast, Southern California and Eastern Seaboard. In February 2009, WMB announced a business strategy focused on migrating to an integrated natural gas business comprised of a smaller portfolio of natural gas businesses, reducing debt and increasing liquidity via asset sales, strategic levels of financing, and reductions in operating costs. Beginning with the first quarter of 2010, WMB's business segments will be Exploration & Production, Williams Partners and Other. CORPORATE STRATEGY. WMB has transitioned toward aggressively focusing on the market in which it perceives a sustainable competitive advantage, primarily its E&P segment and its midstream segment. WMB has about 4.5 Tcfe of proved reserves (97% natural gas, 57% proved developed), with natural gas produced from tight sands formations and coal bed methane. Proved reserves were flat with 2008.

E&P profit fell about 67% in 2009 on a drop in natural gas prices. In 2010, WMB plans to accelerate drilling activity and sees production growth of about 12%, but believes it can return to over 20% growth should prices spike. WMB grew natural gas production by 8% in 2009, despite a pull-back in drilling activity reflecting a weak economy and plummeting natural gas prices. In the Piceance Basin, which represents about 56% of total WMB volumes, production grew 7%. Piceance production is expected to grow 12% in 2010, to about 781 MMcfe/day, as WMB accelerates its drilling program in the play. In the Powder River Basin, WMB is producing about 244 MMcfe/day, up 7% in 2009. WMB made its initial investment at Marcellus Shale in 2010, in a joint venture with Rex Energy Corp. (REXX 10, NR), with 44,000 net acres for $33 million. WMB expects $1.9 billion-$2.1 billion of E&P capex in 2010.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 12.75 3.35 0.75 0.80 0.44 59% 21.54 9.52 29 13

2008 12.85 4.46 2.26 2.14 0.43 19% 40.75 11.69 18 5

2007 9.51 3.16 1.39 1.41 0.39 28% 37.74 25.17 27 18

2006 8.48 1.97 0.55 0.78 0.35 63% 28.32 19.35 51 35

2005 7.70 1.75 0.53 0.64 0.25 47% 25.72 15.18 49 29

2004 7.06 1.37 0.18 0.05 0.08 44% 17.18 8.49 95 47

2003 5.96 1.27 -0.03 -0.26 0.04 NM 10.73 2.51 NM NM

2002 7.15 0.53 -1.14 -1.34 0.42 NM 26.35 0.78 NM NM

2001 9.43 3.17 1.67 1.40 0.68 41% 46.44 20.80 28 12

2000 13.26 3.80 1.95 NA 0.60 31% 49.75 29.50 26 15

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

8,255 NA 1,469 585 943 38.1% 508 471

12,352 3,853 1,310 594 2,221 32.1% 1,334 1,266

10,558 2,938 1,082 685 1,461 35.9% 847 852

11,813 2,124 866 659 579 35.6% 333 480

12,584 1,972 740 664 557 38.4% 317 388

12,461 1,903 668 833 246 53.4% 93.2 27.3

16,834 1,849 671 1,241 71.0 51.3% 15.2 -144

5,608 1,566 775 1,325 -617 NM -502 -699

11,035 3,389 798 747 1,533 41.1% 835 703

10,398 2,602 832 1,010 1,415 39.1% 873 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,188 Current Assets 3,793 Total Assets 25,280 Current Liabilities 2,477 Long Term Debt 8,258 Common Equity 8,447 Total Capital 17,292 Capital Expenditures 2,314 Cash Flow 1,977 Current Ratio 1.5 % Long Term Debt of Capitalization Nil % Net Income of Revenue 6.2 % Return on Assets 2.0 % Return on Equity NA

800 4,411 26,006 3,519 7,683 8,440 20,127 3,475 2,644 1.3 38.2 10.8 5.2 18.0

1,699 5,538 25,061 4,431 7,757 6,375 18,558 2,816 1,929 1.3 41.8 8.0 3.4 13.6

2,269 6,322 25,402 4,694 7,622 6,073 17,656 -2,509 1,198 1.3 43.2 2.8 1.2 5.8

1,597 9,697 29,443 8,450 7,591 5,428 15,741 1,299 1,057 1.1 48.2 2.5 1.2 6.1

930 6,044 23,993 5,146 7,712 4,956 15,238 787 762 1.2 50.6 0.7 0.4 2.1

2,316 8,795 27,022 6,270 11,040 4,102 17,595 957 657 1.4 62.7 0.1 0.0 0.0

2,019 12,886 34,989 11,309 11,896 4,778 20,723 1,824 274 1.1 57.4 NM NM NM

1,301 12,938 38,906 13,495 10,621 6,044 21,532 1,922 1,633 1.0 49.3 7.6 2.3 14.0

1,211 15,477 40,197 16,804 10,532 5,892 20,693 4,904 1,705 0.9 50.9 8.4 2.7 15.2

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Williams Ctr, Tulsa, OK 74172-0140. Telephone: 918-573-2000. Website: http://www.williams.com Chrmn, Pres & CEO: S.J. Malcolm

Pres: J.C. Bumgarner, Jr. SVP & CFO: D.R. Chappel SVP & Chief Admin Officer: R.L. Ewing SVP & General Counsel: J.J. Bender

Investor Contact: T.N. Campbell (918-573-2944) Founded: 1908 Board Members: J. R. Cleveland, K. B. Cooper, I. F. Domicile: Delaware Engelhardt, W. R. Granberry, W. E. Green, J. H. Employees: 4,801 Hinshaw, W. R. Howell, G. A. Lorch, W. G. Lowrie, F. T. MacInnis, S. J. Malcolm, J. D. Stoney

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: WIN | WIN is in the S&P 500

Windstream Corp S&P Recommendation STRONG BUY

★★★★★

Price $12.45 (as of Oct 22, 2010)

GICS Sector Telecommunication Services Sub-Industry Integrated Telecommunication Services

12-Mo. Target Price $13.00

Investment Style Large-Cap Value

Summary This company was formed through the July 2006 combination of former Alltel wireline assets and Valor Communications and continues to grow via acquisitions. It provides telephone service to 3 million lines in rural markets.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$13.05– 6.02 $0.69 18.0 NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.87 0.91 14.3 483.2

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.015 8.03 $1.00 53

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.92 5 BB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the stable rural markets that WIN serves and our view of its lower-than-peer debt leverage, offset by potential risks in integrating acquisitions.

16

12

8

Quantitative Evaluations

6

S&P Quality Ranking

Vol.

D

C

B-

NR B

B+

A-

A

A+

Mil. 30 20 10 0

Relative Strength Rank

MODERATE 54

LOWEST = 1

5

4

5

HIGHEST = 99

Revenue/Earnings Data

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Analysis prepared by Todd Rosenbluth on August 19, 2010, when the stock traded at $ 11.18. Highlights ➤

➤

➤

We project revenues of $3.7 billion in 2010 and $3.8 billion in 2011, including contributions from recently closed acquisitions. On an organic basis, we see broadband customer additions nearly offsetting the impact of increasing access line losses, but growth will likely slow given an above-average penetration rate. We expect lower universal service funding, from the loss of access lines, and we see this pressuring revenues. We expect WIN to generate EBITDA of $1.83 billion in 2010 and $1.91 billion in 2011, similarly helped by acquisitions, as well as cost synergies from consolidated billing systems. We forecast that EBITDA margins will stay near 50%, despite synergies due in part to the loss of higher-margin voice revenues and addition of lower-margin NuVox operations. We look for interest expense to be higher in 2010, as new debt was taken on to complete the acquisitions. We forecast operating EPS of $0.87 in 2010 and $0.91 in 2011, with modest share repurchases in late 2009 offset by stock issued in mergers.

Investment Rationale/Risk ➤

➤

➤

With approximately 65% of WIN's expected free cash flow in 2010 being used to support its dividend, we see the dividend as secure. In our view, due to its rural operations and high broadband penetration, WIN's access line base has been much more stable than that of peers, and we expect improved demand from business customers when the economy becomes stronger. We believe recent acquisitions are being integrated smoothly. Despite our view of risks from the company's acquisition strategy and potential new regulations for rural telecom companies, we see the stock as attractive. Risks to our recommendation and target price include increased cable telephony competition, federal or state regulatory changes that pressure cash flow, and inability to support the dividend. Using a projected enterprise value/EBITDA multiple of 6.4X, in line with rural telecom peers with similar operating structures, we have a 12-month target price of $13. At our target price, WIN's dividend yield would still be an above-average 7.7% and its P/E multiple a slightly higher than peers 14X.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 847.9 917.3 2009 755.0 752.9 2008 811.7 799.9 2007 783.7 826.7 2006 703.0 125.5 2005 712.6 736.5

3Q -734.3 794.1 822.6 771.4 728.9

4Q -754.4 777.5 827.8 827.6 745.5

Year -2,997 3,172 3,261 3,033 3,414

Earnings Per Share ($) 2010 0.17 0.17 2009 0.20 0.21 2008 0.28 0.27 2007 0.21 0.24 2006 -0.22 2005 ---

E0.23 0.18 0.24 0.25 0.21 0.27

E0.25 0.18 0.21 1.25 0.25 0.23

E0.87 0.77 0.98 1.94 1.02 0.83

Fiscal year ended Dec. 31. Next earnings report expected: Early November. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.250 0.250 0.250 0.250

11/04 02/18 05/05 08/04

12/29 03/29 06/28 09/28

12/31 03/31 06/30 09/30

01/15/10 04/15/10 07/15/10 10/15/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: WIN

Windstream Corp Business Summary August 19, 2010 CORPORATE OVERVIEW. In July 2006, Alltel Corp. spun off its wireline operations into a separate entity. Immediately after the consummation of the tax free spin-off, the entity merged with Valor Communications, and the resulting company was renamed Windstream Corporation. As of June 2010, WIN had 3.1 million access lines. The company also had just under 2 million long distance customers and 1.3 million broadband customers (41% of total access lines), up 9% on a pro forma basis from a year earlier. WIN operates primarily in rural markets in the southern U.S., such as Lexington, KY, and Lincoln, NE, with an average of about 20 access lines per square mile.

company.

CORPORATE STRATEGY. Since becoming a public company, WIN has looked to make small acquisitions and benefit from expense savings (consolidating call centers and IT systems) and expanding service bundles via broadband and digital TV. WIN completed its acquisition of D&E Communications (114,000 incumbent access lines), a deal worth $170 million, in November 2009. In the fourth quarter of 2009, WIN acquired Lexcom Inc. (23,000 lines) for $141 million, and in February 2010, it acquired, for $460 million, NuVox, which offers phone services to business customers. In June 2010, WIN acquired Iowa Telecom Services (240,000 lines) in a larger $1.1 billion deal. Combined, the four recent deals should provide $55 million in synergies, according to the

COMPETITIVE LANDSCAPE. We believe that WIN's access line count, which fell 4% in the 12 months ended June 2010, has been hurt by increased competition. Wireless coverage in rural markets has improved in recent years, and we think that many customers have dropped their landlines. However, the line loss percentage has improved from 5% in mid-2009 and is less severe than at peers.

WIN provides a wholesale satellite TV product from Echostar with 382,000 customers (up 21% from a year earlier), to retain its wireline customers and improve revenue per customer. During 2009, WIN also had success in upgrading existing DSL customers with higher-speed offerings and was offering 12 Mbps of broadband service, 10 times the speed of traditional DSL service, in certain markets. WIN has also targeted its broadband product to customers without a wireline phone.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 2.02 0.77 0.88 1.00 130% 11.65 6.28 15 8

2008 NM 2.10 0.98 0.87 1.00 102% 14.05 6.37 14 7

2007 NM 3.08 1.94 0.98 1.00 52% 15.63 12.38 8 6

2006 NM 1.88 1.02 0.95 0.38 37% 14.43 11.13 14 11

2005 NM 2.08 0.83 0.80 NA NA NA NA NA NA

2004 NA 2.22 0.96 0.80 NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

2,997 NA 538 410 546 38.7% 335 379

3,172 1,646 493 416 718 39.4% 435 385

3,261 1,705 540 443 1,169 21.6% 917 462

3,033 1,398 450 210 722 38.3% 446 451

3,414 1,617 593 391 662 40.5% 394 382

2,934 NA 509 35.6 646 40.2% 386 382

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 1,063 Current Assets 1,456 Total Assets 9,145 Current Liabilities 709 Long Term Debt 6,271 Common Equity 261 Total Capital 6,556 Capital Expenditures 298 Cash Flow 872 Current Ratio 2.1 % Long Term Debt of Capitalization 95.7 % Net Income of Revenue 11.2 % Return on Assets 3.9 % Return on Equity 130.4

297 709 8,009 665 5,358 252 6,681 318 928 1.1 80.2 13.7 5.4 91.4

72.0 498 8,211 641 5,331 700 7,137 366 1,457 0.8 74.7 28.1 11.3 156.8

387 877 8,031 685 5,456 470 6,917 374 895 1.3 78.9 14.7 6.9 22.5

119 533 7,751 459 5,525 533 7,064 NA 987 1.2 78.2 11.5 NA NA

NA NA NA NA NA NA NA 338 895 NA Nil 13.2 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 4001 N Rodney Parham Rd, Little Rock, AR 72212-2442. Telephone: 501-748-7000. Website: http://www.windstream.com Chrmn: D.E. Foster

Pres & CEO: J. Gardner COO: B.K. Whittington EVP, Secy & General Counsel: J.P. Fletcher CFO: A.W. Thomas

Investor Contact: M. Michaels (501-748-7578) Board Members: C. Armitage, S. E. Beall, III, D. E. Foster, F. X. Frantz, J. Gardner, J. T. Hinson, J. K. Jones, W. A. Montgomery, A. L. Wells

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2000 Domicile: Delaware Employees: 7,385

Stock Report | October 23, 2010 | NYS Symbol: WEC | WEC is in the S&P 500

Wisconsin Energy Corp S&P Recommendation HOLD

★★★★★

Price $59.49 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $56.00

Investment Style Large-Cap Blend

Summary WEC serves more than 1.1 million electric customers in Wisconsin and Michigan's Upper Peninsula, and more than 1 million natural gas customers in Wisconsin.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $60.00– 42.89 Trailing 12-Month EPS $3.35 Trailing 12-Month P/E 17.8 $10K Invested 5 Yrs Ago $17,957

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

3.78 4.16 15.7 116.9

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.954 2.69 $1.60 70

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.40 11 BBB+

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view of the company's strong and steady cash flow from the regulated utility operations, and a regulatory environment that has historically been supportive. We believe this is only partially offset by the higher risk profile of the company's non-regulated power generating subsidiary, as well as by the high level of capital expenditures the company expects to incur over the next five years.

60

50

40 35

Vol. 27

Mil.

Quantitative Evaluations

6 4 2 0

S&P Quality Ranking

5 2

1

D

3

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Analysis prepared by Justin McCann on August 04, 2010, when the stock traded at $ 54.83. Highlights ➤

➤

➤

Excluding a one-time gain of $0.02, we expect operating EPS in 2010 to rise about 18% from 2009's $3.20, which grew more than 5% from 2008's $3.03. In addition to increases in electric and gas rates, a sharp decline in natural gas costs and the more favorable weather in the second quarter, results in the first half of 2010 were aided by the new Oak Creek Unit 1 power plant, which commenced operations in February 2010. We do not expect WEC to issue any new common shares in 2010. For full-year 2010, operating EPS is expected to benefit from the rate increases implemented in the first half and a gradual recovery in the local economy. For 2011, we expect earnings to benefit from higher returns from the utilities, increased earnings from WEC's investment in a transmission company, and from a full year of the Oak Creek Unit 2 power plant that is scheduled to become operational in November 2010. Under the company's current dividend policy, WEC has targeted a dividend payout ratio of between 40% and 45% of earnings for the years 2010 and 2011. Starting in 2012, the company plans to target a payout ratio of 45% to 50%.

Investment Rationale/Risk ➤

➤

➤

The stock is up about 9% year to date, outperforming WEC's electric as well as gas utility peers. This follows a nearly 20% gain in 2009, which substantially outperformed WEC's electric utility peers, and only slightly underperformed its gas utility peers. The yield from WEC's dividend (2.9%) and its dividend payout ratio (50% of its 2009 operating EPS) are still well below those of peers (4.8% and 64%, respectively), but we believe that WEC's current dividend policy will result in additional increases over the next couple of years. We look for the shares to realize a modest total return. Risks to our investment recommendation and target price include unfavorable regulatory rulings, as well as further delays in bringing the second Oak Creek power plant into operation, which could result in sharply higher costs. The company increased its dividend more than 18% with the March 2010 payment and, under its current policy, plans to raise the annual dividend at a rate of about half that of its EPS growth. Our 12-month target price is $56, reflecting a premium-to-peers P/E of 13.5X our operating EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

C

B-

AB

B+

A-

A

Relative Strength Rank

A+

MODERATE 61

LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,256 890.9 2009 1,396 842.5 2008 1,432 946.1 2007 1,301 906.5 2006 1,247 814.4 2005 1,095 788.5

3Q -821.9 852.5 881.5 839.8 797.3

4Q -1,067 1,201 1,149 1,095 1,135

Year -4,128 4,431 4,238 3,996 3,816

Earnings Per Share ($) 2010 1.10 0.74 2009 1.20 0.54 2008 1.04 0.49 2007 0.85 0.49 2006 0.88 0.50 2005 0.76 0.48

E0.85 0.50 0.65 0.70 0.60 0.56

E1.09 0.96 0.85 0.80 0.65 0.77

E3.78 3.20 3.03 2.84 2.64 2.56

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.400 0.400 0.400 0.400

01/21 04/22 07/22 10/14

02/10 05/12 08/11 11/09

02/12 05/14 08/13 11/12

03/01/10 06/01/10 09/01/10 12/01/10

Dividends have been paid since 1939. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WEC

Wisconsin Energy Corp Business Summary August 04, 2010 CORPORATE OVERVIEW. Wisconsin Energy Corporation (WEC) is a holding company that primarily operates in two segments: utility energy and nonutility energy. The principal utilities (under the trade name We Energies) are Wisconsin Electric Power Company and Wisconsin Gas LLC). On October 29, 2009, WEC announced that it had reached a definitive agreement to sell the Edison Sault Electric Company for $61.5 million. In April 2009, WEC sold its water utility for $14.5 million. WEC's non-regulated segment consists primarily of We Power, which was formed to design, construct, own and lease to Wisconsin Electric the new generating capacity included in the company's "Power the Future" strategy. In 2009, utility operations contributed 99.8% of total operating revenues. CORPORATE STRATEGY. WEC's goal is to strengthen its utility business through the development of a reliable power supply and the upgrade of its infrastructure, and to continue the divestiture of its non-energy and real estate operations. The company has initiated its "Power the Future" strategy, which is expected to significantly improve the supply and reliability of power. The company has invested in four new electric generation facilities (three of which have been completed) and is also upgrading the existing ones. The strategy also includes an upgrade of existing distribution facilities. WEC is working to achieve operational synergies by integrating the businesses of

Wisconsin Electric and Wisconsin Gas, which it believes will result in improved customer satisfaction. MARKET PROFILE. In 2008, We Energies served nearly 1.12 million electric customers in Wisconsin and (through its Edison Sault unit) the Upper Peninsula of Michigan, nearly 1.06 million gas customers in Wisconsin, and about 465 steam customers in Milwaukee. Over the next five years, WEC estimates that the utility energy segment in the service territories will grow at an annual rate of 0.5% to 1.0%; annual peak electric demand is projected to grow at a rate of 1.0% to 1.5%. In 2009, residential customers accounted for 36.6% of electric utility revenues; small commercial/industrial customers 32.5%; large commercial and industrial users 22.6%; other retail 0.8%; other wholesale 3.6%; resale-utilities 1.8%; and other 2.1%. Residential customers accounted for 62.6% of gas utility revenues in 2009; commercial/industrial customers, 32.4%; transported gas, 3.2%; and other, 1.8%. In 2009, coal accounted for 52.3% of the company's total fuel sources; purchased power 37.6%; natural gas 7.7%; hydroelectric 1.3%; and wind 1.1%.

Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 26.73 3.20 1.93 1.35 42% 50.62 36.31 16 11

2008 24.76 3.03 -0.16 1.08 36% 49.61 34.89 16 12

2007 22.72 2.84 2.70 1.00 35% 50.48 41.06 18 14

2006 20.92 2.64 2.70 0.92 35% 48.70 38.16 18 14

2005 0.71 2.56 2.55 0.88 34% 40.83 33.35 16 13

2004 17.53 1.03 0.84 0.83 81% 34.60 29.50 34 29

2003 12.86 2.06 1.97 0.80 39% 33.68 22.56 16 11

2002 11.26 1.44 0.93 0.80 56% 26.48 20.17 18 14

2001 10.61 1.77 1.19 0.80 45% 24.62 19.13 14 11

2000 10.03 1.27 NA 1.37 108% 23.56 16.81 19 13

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

4,128 349 NA 4.42 NA 36.6% 377 227

4,431 332 NA 4.41 NA 37.7% 359 -18.7

4,238 328 NA 4.00 NA 39.1% 337 320

3,996 326 NA 3.60 NA 35.9% 313 319

3,816 332 NA 3.61 NA 33.0% 304 302

3,431 327 NA 2.64 2.80 39.7% 122 98.5

4,054 332 NA 2.68 18.6 35.6% 244 233

3,736 321 NA 2.03 11.2 38.8% 167 108

3,929 342 NA 2.17 15.2 41.9% 209 142

3,355 336 NA 1.64 16.2 44.9% 154 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 12,543 Capital Expenditures 818 Net Property 9,071 Capitalization:Long Term Debt 3,906 Capitalization:% Long Term Debt 52.3 Capitalization:Preferred Nil Capitalization:% Preferred Nil Capitalization:Common 3,567 Capitalization:% Common 47.7 Total Capital 7,769 % Operating Ratio 89.2 % Earned on Net Property 7.6 % Return on Revenue 9.1 % Return on Invested Capital 6.2 % Return on Common Equity 10.9

11,832 1,137 8,517 4,105 55.2 Nil Nil 3,337 44.8 8,298 90.0 8.2 8.1 6.1 11.1

10,805 1,212 7,681 3,203 50.8 Nil Nil 3,099 49.2 6,902 90.4 8.4 7.9 6.8 11.2

10,476 929 7,053 3,104 51.8 Nil Nil 2,889 48.2 6,618 90.2 8.5 7.8 7.5 11.2

9,651 745 6,363 3,061 50.9 Nil Nil 2,955 49.1 6,666 89.2 9.2 8.0 7.2 10.8

9,025 637 5,903 3,270 55.3 Nil Nil 2,645 44.7 6,507 86.9 6.5 3.6 7.1 4.9

9,017 659 5,926 3,605 60.1 Nil Nil 2,393 39.9 6,712 88.6 9.6 6.0 8.1 10.5

8,406 557 4,399 3,261 60.4 Nil Nil 2,139 39.6 6,039 86.8 10.7 4.5 13.6 8.0

8,014 672 4,188 3,468 62.8 Nil Nil 2,056 37.2 6,147 88.4 14.5 5.3 8.0 10.2

8,065 611 4,152 2,933 59.3 Nil Nil 2,017 40.7 5,617 90.5 11.1 4.6 7.9 7.7

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 231 West Michigan Street, Milwaukee, WI 53201. Telephone: 414-221-2345. Website: http://www.wisconsinenergy.com Chrmn, Pres & CEO: G.E. Klappa

EVP & CFO: A.L. Leverett EVP & General Counsel: J.C. Fleming SVP & Chief Admin Officer: K.A. Rappe Chief Acctg Officer & Cntlr: S.P. Dickson

Investor Contact: C.F. Henderson (414-221-2592) Board Members: J. F. Bergstrom, B. L. Bowles, P. W. Chadwick, R. A. Cornog, C. S. Culver, T. Fischer, G. E. Klappa, U. Payne, Jr., C. P. Stratton, Jr.

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1981 Domicile: Wisconsin Employees: 4,692

Stock Report | October 23, 2010 | NYS Symbol: WYN | WYN is in the S&P 500

Wyndham Worldwide Corp S&P Recommendation SELL

★★★★★

Price $29.49 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Hotels, Resorts & Cruise Lines

12-Mo. Target Price $21.00

Investment Style Large-Cap Blend

Summary This company sells interests in vacation ownership resorts, facilitates the exchange and rental of access to vacation properties, and franchises hotels.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.77– 16.39 Trailing 12-Month EPS $1.74 Trailing 12-Month P/E 17.0 $10K Invested 5 Yrs Ago NA

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.80 2.00 16.4 178.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

3.33 5 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our view that the company's business is sensitive to changes in consumer confidence and hotel room demand, as well as the receptivity of credit markets to its securitized vacation ownership receivables.

40 20

8 4

Quantitative Evaluations S&P Quality Ranking

Vol. Mil.

D

24 16 8 0 5

$5.268 1.63 $0.48 NM

C

B-

NR B

B+

A-

A

Relative Strength Rank

A+ STRONG

83 4

3

4

3

LOWEST = 1

3

HIGHEST = 99

2

1 1

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

Options: CBOE, Ph

Analysis prepared by Mark S. Basham on August 04, 2010, when the stock traded at $ 25.85. Highlights ➤

➤

➤

Investment Rationale/Risk

For 2010, we forecast WYN revenues will increase about 3.0%-3.5%, with growth held down by no deferred timeshare sales being recognized in 2010, versus $190 million of deferred revenues in 2009. This should be partly offset by a lower provision for losses on timeshare finance contracts. We expect vacation exchange and rental revenues to increase by a high single digit percentage, and project lodging revenues will rise about 2%.

➤

Expenses are likely to be slightly higher in 2010 compared to 2009, primarily reflecting the effects of cost cuts enacted in 2009 being somewhat outweighed by modest cost inflation. Interest expense is likely to rise by nearly 50%, due to higher rates under WYN's renegotiated credit facilities. On a tax rate projected to be 365 basis points lower than in 2009, we expect EPS to advance to $1.80, from $1.61 in 2009.

➤

We estimate unadjusted EBITDA in 2010 will approximate $825 million to $850 million. We note that this is not comparable to "adjusted EBITDA" as presented by WYN. In 2011, we expect revenues in all three operating segments to increase in the low single digits, with EPS of $2.00 and EBITDA of $900 million.

➤

Revenue/Earnings Data

2010

Our Sell opinion reflects our view that the stock is overvalued after the sharp rise in share price since the S&P 500 bottomed in early March 2009. We believe that lodging industry fundamentals will likely improve modestly in 2010, with a full recovery not until 2012 at the earliest. Although the cost reductions WYN has achieved may serve it well through the downturn, we think substantial operating and financial risks remain. Risks to our recommendation and target price include a quick positive turnaround in consumer confidence and a related boost to travel spending. Also, future travel activity could be aided by additional stimulus measures. We believe the stock should have a slightly lower P/E and enterprise value-to-EBITDA multiple than some lodging industry peers in our coverage universe given the company's higher revenue mix of vacation exchange, ownership sales and financing, as well as legacy tax liabilities. Our 12-month target price of $21 reflects an enterprise value/EBITDA multiple of 8.0X applied to our 2011 EBITDA estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue (Million $) 1Q 2Q 2010 886.0 963.0 2009 901.0 920.0 2008 1,012 1,132 2007 1,012 1,100 2006 870.0 955.0 2005 795.0 867.0

3Q -1,016 1,226 1,216 1,047 948.0

4Q -913.0 911.0 1,032 970.0 861.0

Year -3,750 4,281 4,360 3,842 3,471

Earnings Per Share ($) 2010 0.27 0.51 2009 0.25 0.39 2008 0.24 0.55 2007 0.45 0.52 2006 0.46 0.37 2005 -0.44

E0.61 0.57 0.80 0.65 0.45 0.61

E0.41 0.40 -7.62 0.59 0.48 0.46

E1.80 1.61 -6.03 2.20 1.77 1.73

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.120 0.120 0.120 0.120

02/24 05/13 07/22 10/21

03/04 05/25 08/24 11/22

03/08 05/27 08/26 11/24

03/15/10 06/11/10 09/10/10 12/10/10

Dividends have been paid since 2007. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: WYN

Wyndham Worldwide Corp Business Summary August 04, 2010 CORPORATE OVERVIEW. Wyndham Worldwide (WYN) operates lodging, vacation exchange and rental and vacation ownership businesses. The Wyndham Hotel Group franchises hotels in various segments of the lodging industry under brands such as Super 8, Days Inn, Ramada, Travelodge, and Wyndham Hotels. As of December 31, 2009, WYN's lodging business had 7,114 franchised hotels with 597,674 rooms in operation. As of December 31, 2009, there were also about 950 hotels with about 108,100 rooms in the development pipeline, of which 51% represented new construction and 43% were in international markets. On July 21, 2008, WYN acquired U.S. Franchise Systems, Inc. for $131 million. Previously part of the Hyatt hotel business, U.S. Franchise Systems includes the Microtel Inns & Suites and Hawthorn Suites brands. At the time of purchase, the Microtel system included 298 all new construction economy hotels with 35 more under construction, and the Hawthorn chain was comprised of 91 all-suites, extended-stay hotels.

WYN's vacation exchange and rental business has access for specified periods, often on an exclusive basis, to about 65,000 vacation properties located in approximately 100 countries. Membership as of December 31, 2009, was 3.8 million. Wyndham Vacation Ownership markets and sells vacation ownership interests, provides consumer financing in connection with the purchase by individuals of vacation ownership interests, manages properties for property owners' associations, and develops and acquires vacation ownership resorts. It operates principally under its two primary brands, Wyndham Vacation Resorts and WorldMark by Wyndham. WYN has developed or acquired over 155 vacation ownership resorts in North America, the Caribbean and the South Pacific that serve over 820,000 owners of vacation ownership and other real estate interests. WYN's gross sales of vacation ownership interests totaled $1.3 billion in 2009, down from $2.0 billion in 2008. Inventory of unsold interests was approximately $1.3 billion as of December 31, 2009.

Wyndham Exchange and Rentals (previously Group RCI) provides vacation exchange products and services to developers, managers and owners of intervals of vacation ownership interests, and markets vacation rental properties. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 1.41 2.59 1.61 1.61 0.16 10% 21.45 2.77 13 2

2008 NM -5.00 -6.03 1.47 0.16 NM 25.00 2.55 NM NM

2007 NM 2.96 2.20 2.20 0.08 4% 39.40 23.28 18 11

2006 NM 2.63 1.77 1.75 Nil Nil 34.87 25.48 20 14

2005 NM 2.37 1.73 1.97 Nil Nil NA NA NA NA

2004 NA NA NA NA NA NA NA NA NA NA

2003 NA NA NA NA NA NA NA NA NA NA

2002 NA NA NA NA NA NA NA NA NA NA

2001 NA NA NA NA NA NA NA NA NA NA

2000 NA NA NA NA NA NA NA NA NA NA

3,750 834 178 114 493 40.6% 293 293

4,281 865 184 99.0 -887 NM -1,074 261

4,360 821 139 96.0 655 38.5% 403 404

3,842 824 148 67.0 542 35.1% 352 352

3,471 699 135 41.0 523 29.8% 367 419

3,014 719 119 34.0 587 39.9% 349 NA

2,652 602 107 6.00 500 37.2% 299 NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA

Balance Sheet & Other Financial Data (Million $) Cash 155 Current Assets 1,740 Total Assets 9,352 Current Liabilities 1,885 Long Term Debt 3,183 Common Equity 2,688 Total Capital 6,255 Capital Expenditures 135 Cash Flow 471 Current Ratio 0.9 % Long Term Debt of Capitalization Nil % Net Income of Revenue 7.8 % Return on Assets NA % Return on Equity NA

136 1,914 9,573 2,169 3,331 2,342 6,136 187 -890 0.9 54.3 NM NM NM

276 2,056 10,459 2,180 3,195 3,516 7,638 194 542 0.9 41.8 9.2 4.0 11.4

269 2,052 9,520 1,977 1,322 3,559 5,663 191 500 1.0 23.3 9.2 3.8 8.2

106 1,874 8,590 2,212 1,733 3,464 5,987 134 502 0.9 28.9 10.5 NA NA

94.0 2,075 8,343 1,179 1,478 4,679 6,447 116 468 1.8 22.9 11.6 NA NA

NA NA NA NA NA NA NA 102 406 NA Nil 11.3 NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 22 Sylvan Wy, Parsippany, NJ 07054. Telephone: 973-753-6000. Website: http://www.wyndhamworldwide.com Chrmn & CEO: S.P. Holmes

EVP & CFO: T.G. Conforti EVP, Secy & General Counsel: S.G. McLester SVP & Chief Acctg Officer: N. Rossi SVP & CIO: D. Kornick

Investor Contact: M. Happer (973-753-5500) Board Members: M. J. Biblowit, J. E. Buckman, G. Herrera, S. P. Holmes, B. R. Mulroney, P. Richards, M. H. Wargotz

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 2003 Domicile: Delaware Employees: 24,600

Stock Report | October 23, 2010 | NNM Symbol: WYNN | WYNN is in the S&P 500

Wynn Resorts Ltd S&P Recommendation BUY

★★★★★

Price $104.42 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Casinos & Gaming

12-Mo. Target Price $115.00

Investment Style Large-Cap Growth

Summary This company is involved in the design, development, financing and construction of gaming projects in Las Vegas and Macau.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $107.36– 51.73 Trailing 12-Month EPS $0.88 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $26,142

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.70 2.00 61.4 123.5

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$12.897 0.96 $1.00 48

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.70 NM BB

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

In our view, there is likely to be an opportunity for additional expansion by WYNN in Macau. However, we see uncertainty surrounding the regulatory environment there and the extent to which demand in that market will develop, adding to risk.

150 80 40 20

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 24 16 8 0 5

D

C

B-

NR B

B+

A-

A

Relative Strength Rank 3

STRONG 90

4

3

2

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P, Ph

Analysis prepared by Esther Y. Kwon, CFA on October 11, 2010, when the stock traded at $ 102.33. Highlights ➤

➤

➤

We estimate that net revenue in 2010 will rise approximately 33% from the $3.0 billion reported for 2009, bolstered by the April 2010 opening of Encore at Wynn Macau, which includes approximately 410 luxury suites and four villas in addition to restaurants and retail and gaming space. In the U.S., we believe revenue will be pressured by increased price competition on an excess supply of hotel rooms and lower spending per visit, despite improvement in the second half. In Macau, we forecast revenue rising over 50%, while we see Las Vegas increasing at a low to mid-single digit pace. For 2010, we estimate higher EBITDA, driven by the opening of the Encore in Macau, and wider property margins, with general strength in the Macau market more than offsetting operating inefficiencies at Encore. With Las Vegas revenues likely to struggle until the second half, we look for expense deleveraging in the first half but steady improvement in the third and fourth quarters and into 2011. With our projection for more shares outstanding, we see EPS of $1.70 in 2010, up significantly from 2009's operating EPS of $0.26. For 2011, we forecast EPS of $2.00.

Investment Rationale/Risk ➤

➤

➤

We see WYNN's results benefiting from strength in its Macau operations, which we estimate will account for over 75% of 2010 total property EBITDA. We also forecast improving Las Vegas Strip fundamentals in the second half of 2010 and 2011 as higher margin convention visitation accelerates and the hotel room supply outlook becomes more benign in 2011 and 2012, after large increases in 2008 and 2009. Risks to our opinion and target price include the possibility that profit contributions from Macau will be lower than we anticipate, or that Las Vegas properties will experience an accelerated decline in room revenue or gaming handle. Our 12-month target price of $115 is based on an EV/EBITDA multiple of approximately 15X our 2011 EBITDA estimate, a premium to gaming peers but below the historical average. We believe a higher-than-peers multiple is warranted based on WYNN's exposure to the Macau market, which we see as having better prospects over the long term, and what we view as its solid balance sheet compared to peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 908.9 1,033 2009 740.0 723.3 2008 778.7 825.2 2007 635.3 687.5 2006 277.2 273.4 2005 Nil 201.1

3Q -773.1 769.2 653.4 318.1 251.4

4Q -809.3 614.3 711.3 563.6 269.4

Year -3,046 2,987 2,688 1,432 722.0

Earnings Per Share ($) 2010 0.22 0.42 2009 -0.30 0.21 2008 0.41 2.42 2007 0.54 0.82 2006 -0.12 -0.20 2005 -0.30 -0.43

E0.43 0.28 0.49 0.41 6.43 -0.09

E0.48 -0.04 -1.49 0.57 -0.51 -0.10

E1.70 0.17 1.92 2.34 6.24 -0.92

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

4.0 Spl. 0.250 0.250

11/09 04/29 07/29

11/17 05/10 08/10

11/19 05/12 08/12

12/08/09 05/26/10 08/26/10

Dividends have been paid since 2006. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: WYNN

Wynn Resorts Ltd Business Summary October 11, 2010 CORPORATE OVERVIEW. Wynn Resorts is involved in the design, development, financing and construction of gaming projects in Las Vegas and Macau. The company's first such project, Wynn Las Vegas, opened in April 2005. We believe that the cost of this project was about $2.7 billion. Wynn Las Vegas, which occupies about 215 acres of land, includes 2,716 guest rooms and suites, an approximate 110,000 sq. ft. casino with 1,920 slot machines, 22 food and beverage outlets, an 18-hole golf course, about 223,000 sq. ft. of meeting space, a Ferrari and Maserati dealership, and about 74,000 sq. ft. of retail space. The company also operates the Encore at Wynn Las Vegas, which includes about 2,034 guest suites, plus an approximately 76,000 square foot casino with 790 slot machines, entertainment and other facilities. This facility opened in December 2008.

opened in September 2006, and included about 600 hotel rooms or suites, about 100,000 sq. ft. of gaming space, seven restaurants, and additional facilities. A second phase included additional casino space and other facilities. We believe that Wynn Macau, including the second phase, had a project budget of about $1.2 billion. The Encore at Wynn Macau, which opened in April 2010, includes approximately 410 luxury suites and villas in addition to restaurants, retail and gaming space. Also, the company has submitted an application for a land concession on 52 acres in Macau's Cotai Strip area, where we expect additional WYNN-related development could occur. There are a limited number of companies with casino operating rights in Macau.

In China, the company is operating Wynn Macau under a 20-year concession agreement with the government of Macau. The initial stage of Wynn Macau Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 24.39 3.59 0.17 0.17 4.00 NM 74.90 14.50 NM NM

2008 13.75 4.32 1.92 1.92 Nil Nil 124.77 28.06 65 15

2007 16.79 4.24 2.34 2.29 6.00 256% 176.14 85.53 75 37

2006 14.75 7.20 6.24 1.00 6.00 96% 98.45 52.44 16 8

2005 14.16 0.13 -0.92 -1.00 Nil Nil 76.45 42.06 NM NM

2004 15.64 -2.29 -2.37 -2.41 Nil Nil 72.99 27.50 NM NM

2003 11.38 -0.54 -0.62 -0.64 Nil Nil 28.61 12.76 NM NM

2002 11.70 -0.49 -0.68 -0.69 Nil Nil 14.39 10.76 NM NM

2001 12.92 -0.25 -0.45 -84.35 NA NA NA NA NA NA

2000 NA -49.28 -79.62 NA NA NA NA NA NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

3,046 674 411 211 42.1 7.12% 20.7 20.7

2,987 608 263 260 149 NM 210 210

2,688 708 220 188 327 21.1% 258 252

1,432 249 175 206 799 21.3% 629 44.1

722 77.5 103 103 -90.8 NM -90.8 -98.6

0.20 -81.5 6.98 2.69 -207 NM -206 -210

1.02 -46.9 5.74 9.03 -45.8 NM -48.9 -50.9

1.16 -24.8 8.93 1.90 -30.8 NM -31.7 -32.0

1.16 0.73 8.16 NA -17.7 NM -17.7 -17.3

0.13 -10.2 6.07 0.03 -15.9 NA -15.9 NA

Balance Sheet & Other Financial Data (Million $) Cash 1,992 Current Assets 2,283 Total Assets 7,582 Current Liabilities 726 Long Term Debt 3,587 Common Equity 3,034 Total Capital 6,750 Capital Expenditures 541 Cash Flow 431 Current Ratio 3.2 % Long Term Debt of Capitalization Nil % Net Income of Revenue 0.7 % Return on Assets NA % Return on Equity NA

1,134 1,411 6,743 724 4,290 1,593 5,886 1,333 473 2.0 72.9 7.0 3.2 11.9

1,275 1,582 6,299 585 3,539 1,948 5,640 1,007 478 2.7 62.8 9.6 4.7 14.4

789 1,096 4,660 511 2,381 1,646 4,123 643 804 2.1 57.7 43.9 14.6 39.2

434 685 3,945 270 2,091 1,563 3,654 877 12.5 2.5 57.2 NM NM NM

330 451 3,464 170 1,628 1,644 3,272 1,008 -199 2.7 49.8 NM NM NM

342 402 1,733 71.2 730 1,002 1,733 415 -43.1 5.7 42.1 NM NM NM

110 112 1,399 20.7 382 992 1,378 66.3 -22.8 5.4 27.7 NM NM NM

39.3 41.6 389 4.02 1,501 972 2,473 29.1 -9.56 10.4 0.1 NM NM NM

54.4 56.6 387 4.80 0.33 382 382 85.7 -9.86 11.8 0.1 NM NA NA

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 3131 Las Vegas Blvd S, Las Vegas, NV 89109. Telephone: 702-733-4444. Email: [email protected] Website: http://www.wynnresorts.com

Chrmn & CEO: S.A. Wynn Vice Chrmn: K. Okada COO: M.D. Schorr Investor Contact: J. Strzemp (702-770-7555)

EVP & Chief Admin Officer: J. Strzemp Founded: 2002 Board Members: L. Chen, R. Goldsmith, R. R. Irani, R. J. Domicile: Nevada Miller, J. A. Moran, K. Okada, M. D. Schorr, A. V. Employees: 18,900 Shoemaker, D. B. Wayson, E. P. Wynn, S. A. Wynn, A. Zeman

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: XEL | XEL is in the S&P 500

Xcel Energy Inc. S&P Recommendation HOLD

★★★★★

Price $23.89 (as of Oct 22, 2010)

GICS Sector Utilities Sub-Industry Multi-Utilities

12-Mo. Target Price $23.00

Investment Style Large-Cap Value

Summary This company offers energy-related products and services to 3.4 million electricity customers and 1.9 million natural gas customers in eight western and midwestern states.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $24.00– 18.53 Trailing 12-Month EPS $1.51 Trailing 12-Month P/E 15.8 $10K Invested 5 Yrs Ago $16,386

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

1.65 1.71 14.5 459.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$10.981 4.23 $1.01 59

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.45 6 A-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the steady cash flow that we expect from the regulated electric and gas utility operations, which have a relatively low-cost power supply, our view of a relatively healthy economy in most of the company's service territory, and a generally supportive regulatory environment.

24 22 20 18 16

Quantitative Evaluations

Vol. Mil.

S&P Quality Ranking

24 16 8 0 5

D 4

3

2007

2008

2009

B+

A-

A

A+

MODERATE

Analysis prepared by Justin McCann on October 11, 2010, when the stock traded at $ 23.47. Highlights Excluding $0.05 of net one-time charges, we expect 2010 EPS from continuing operations to grow about 10% from 2009's $1.50, which excluded $0.02 of one-time charges. In the first half of 2010, operating EPS was aided by electric rate increases in Colorado and South Dakota and more favorable weather in the second quarter. This was partially offset by higher operating and maintenance expenses. For the second half of 2010, we believe that in addition to the rate hikes in Colorado and South Dakota, EPS will benefit from the increased demand due to the above normal summer temperatures. For 2011, we expect growth to be driven by a gas rate increase in Minnesota, and electric rate increases in Texas and Wisconsin. On January 5, 2010, XEL was authorized an $8 million increase in its South Dakota electric rates (effective January 18). Earlier, on December 4, 2009, its Public Service of Colorado utility was authorized a $128.3 million increase. However, due to the delay in placing a power plant into service, only $67 million was implemented on January 1, 2010; $121 million would be implemented upon the plant being placed in service, and the full $128.3 million on January 1, 2011.

Investment Rationale/Risk ➤

➤

➤

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE

➤

B B

61 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

B-

Relative Strength Rank

3

1

➤

C

The stock is up more than 10% year to date. In addition to the strong recovery in the utility sector, we believe the 2009 and 2010 rebound in the stock price has reflected the expectation of a gradual recovery in the economy. As of July April 26, 2010, XEL had available credit lines of $1.97 billion and cash of $18.4 million. We believe this $1.98 billion of total liquidity is more than adequate for XEL's near-term requirements. We believe the stock is fairly valued at its current level. Risks to our recommendation and target price include the possibility of a severe economic downturn in the company's service territory, unfavorable legislative or regulatory decisions, and/or a sharp decline in the average P/E of XEL's electric and gas utility peers. We expect the shares to be partially supported by the yield from the dividend (recently 4.3%), which is just slightly below the recent electric and gas utility peer average (4.6%). We expect the company to increase its dividend at a rate of 2% to 4% a year. Our 12-month target price of $23 reflects a premium-to-peers P/E of 13.5X our operating EPS estimate for 2011.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,807 2,308 2009 2,696 2,016 2008 3,028 2,616 2007 2,764 2,267 2006 2,888 2,074 2005 2,381 2,074

3Q -2,315 2,852 2,400 2,412 2,289

4Q -2,618 2,708 2,603 2,467 2,882

Year -9,644 11,203 10,034 9,840 9,625

Earnings Per Share ($) 2010 0.36 0.29 2009 0.38 0.25 2008 0.35 0.24 2007 0.28 0.16 2006 0.36 0.24 2005 0.31 0.18

E0.55 0.48 0.51 0.59 0.53 0.47

E0.39 0.37 0.36 0.31 0.23 0.24

E1.65 1.49 1.46 1.34 1.35 1.20

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.245 0.245 0.253 0.253

12/16 02/17 05/19 08/25

12/22 03/23 06/22 09/21

12/24 03/25 06/24 09/23

01/20/10 04/20/10 07/20/10 10/20/10

Dividends have been paid since 1910. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: XEL

Xcel Energy Inc. Business Summary October 11, 2010 CORPORATE OVERVIEW. Xcel Energy Inc. (XEL) is a holding company with a diverse portfolio of regulated and nonregulated subsidiaries. The company's utility subsidiaries are Northern States Power Company of Minnesota and Wisconsin (NSPM and NSPW, respectively), Public Service Company of Colorado (PSCo), and Southwestern Public Service Co. (SPS), which provide electric and gas services in eight western and midwestern states, and WestGas Interstate Inc. (WGI), an interstate natural gas pipeline. XEL's nonregulated subsidiaries include Eloigne Co., which operates rental housing projects. The electric utility operations accounted for 79.9% of operating revenues in 2009; the natural gas utility operations for 19.3%; and non-regulated and other for 0.8%.

on system reliability and continues to invest in transmission and distribution systems. To recover the cost without the delay caused by the filing of rate cases, XEL gets regulatory approval for rate riders. This ensures fair returns on the company's investment. The company is also working to apply intelligence technology to its electric grid, creating a "smart grid" that will provide customers with more reliability, choice and control over their energy use. Given the current economic environment, XEL remains committed to maintaining a strong balance sheet to provide it with the financial flexibility to respond appropriately to the challenges and opportunities it will face.

CORPORATE STRATEGY. XEL plans to continue investing in the core utility business and to earn the authorized returns. The company has a strong focus Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 15.92 1.49 1.51 0.97 65% 21.94 16.01 15 11

2008 15.35 1.46 1.11 0.94 65% 22.90 15.32 16 10

2007 14.70 1.34 1.31 0.91 68% 25.03 19.59 19 15

2006 14.28 1.35 1.35 0.88 65% 23.63 17.80 18 13

2005 13.11 1.20 1.15 0.85 71% 20.19 16.50 17 14

2004 12.99 1.27 1.21 0.81 64% 18.78 15.48 15 12

2003 12.95 1.23 1.03 0.75 61% 17.40 10.40 14 8

2002 11.44 -4.36 -4.57 1.13 NM 28.49 5.12 NM NM

2001 17.91 2.27 1.68 1.50 66% 31.85 24.19 14 11

2000 15.79 1.54 NA 1.47 96% 30.00 16.13 19 10

Income Statement Analysis (Million $) Revenue Depreciation Maintenance Fixed Charges Coverage Construction Credits Effective Tax Rate Net Income S&P Core Earnings

9,644 916 NA 2.98 116 35.1% 686 688

11,203 948 NA 2.92 103 34.4% 646 487

10,034 827 NA 2.62 71.8 33.8% 576 554

9,840 822 NA 2.43 56.0 24.2% 569 566

9,625 782 NA 2.43 0.88 25.8% 499 472

8,345 708 NA 2.36 33.6 23.2% 527 498

7,938 756 NA 2.50 NA 23.7% 510 417

9,524 1,037 NA 1.54 NA NM -1,661 -1,745

15,028 949 NA 2.37 NA 28.2% 785 579

11,592 792 NA 2.54 NA 34.2% 546 NA

Balance Sheet & Other Financial Data (Million $) Gross Property 30,858 Capital Expenditures 1,711 Net Property 18,508 Capitalization:Long Term Debt 7,889 Capitalization:% Long Term Debt 51.6 Capitalization:Preferred 105 Capitalization:% Preferred 0.70 Capitalization:Common 7,283 Capitalization:% Common 47.7 Total Capital 15,821 % Operating Ratio 88.6 % Earned on Net Property 8.1 % Return on Revenue 7.1 % Return on Invested Capital 7.6 % Return on Common Equity 9.6

29,546 2,050 17,689 7,732 52.2 105 0.70 6,964 47.1 17,699 90.6 8.1 5.8 7.0 9.7

26,726 2,096 16,676 6,342 49.8 105 0.80 6,301 49.4 15,415 89.5 8.4 5.7 7.4 9.4

25,219 1,626 15,549 6,450 52.1 105 0.85 5,817 47.0 14,751 89.9 7.8 5.8 7.4 10.1

24,054 1,304 14,696 5,898 51.3 105 0.91 5,484 47.7 13,813 98.6 13.0 5.2 6.9 9.2

23,160 1,274 14,096 6,493 55.0 105 0.89 5,203 44.1 14,019 88.8 7.8 6.3 7.0 10.1

22,371 951 13,667 6,519 55.0 105 0.89 5,222 44.1 14,017 88.1 8.0 6.4 7.3 10.1

29,119 1,503 18,816 7,044 59.6 105 0.89 4,665 39.5 13,303 78.0 13.0 NM 12.4 NM

31,770 5,366 21,165 12,612 66.7 105 0.56 6,194 32.8 22,040 87.1 10.7 5.2 10.9 13.5

25,000 2,196 15,273 8,060 58.7 105 0.76 5,562 40.5 15,996 87.0 11.2 4.7 10.3 10.0

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 414 Nicollet Mall, Minneapolis, MN 55401-1993. Telephone: 612-330-5500. Website: http://www.xcelenergy.com Chrmn & CEO: R.C. Kelly

Pres & COO: B.G. Fowke, III CFO: D.M. Sparby Chief Admin Officer: M. McDaniel Treas: G.E. Tyson, II

Investor Contact: P. Johnson (612-215-4535) Founded: 1909 Board Members: F. W. Corrigan, R. K. Davis, B. G. Domicile: Minnesota Fowke, III, R. C. Kelly, A. F. Moreno, C. J. Policinski, A. Employees: 11,351 P. Sampson, D. A. Westerlund, K. Williams, T. V. Wolf

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: XRX | XRX is in the S&P 500

Xerox Corp S&P Recommendation STRONG BUY

★★★★★

Price $11.42 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Office Electronics

12-Mo. Target Price $14.00

Investment Style Large-Cap Blend

Summary This company serves the worldwide document processing market, offering a complete line of copiers, printers and other office equipment, as well as business process outsourcing services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range Trailing 12-Month EPS Trailing 12-Month P/E $10K Invested 5 Yrs Ago

$11.72– 7.32 $0.44 26.0 $8,982

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.92 1.10 12.4 1,383.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$15.794 1.49 $0.17 85

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.57 29 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Xerox operates in a cyclical industry marked by lively price and marketing competition for often commoditized printer and copier products. We observe a trend toward lackluster organic revenue growth, although we note XRX's efforts to improve profitability through acquisitions and cost control.

16 12 8

4

Quantitative Evaluations

Vol. 348

Mil.

S&P Quality Ranking

90 60 30 0 5

D 4

3

3

3

2

3

4

5

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2008

2009

Analysis prepared by Thomas W. Smith, CFA on October 21, 2010, when the stock traded at $ 11.21.

➤

➤

➤

We expect revenues to rise 43% in 2010, reflecting our forecast of a printer industry rebound and the acquisition of information services provider Affiliated Computer Services (ACS) in February 2010 in a stock and cash deal valued at approximately $6.4 billion plus $2 billion in assumed debt. We believe the combination is broadening geographic sales territories for ACS services via XRX's global sales network, and helping to smooth revenue flows for XRX. For 2011, we project a revenue increase of 7%, based on a further printer industry recovery and growth in ACS's traditional markets in business process outsourcing services. Following a deep downturn for the printer industry in 2009, we expect net margins, excluding acquisition and restructuring-related charges, to widen in 2010 and 2011, as unit volumes rise, cost control initiatives continue, and higher-margin operations acquired from ACS are brought into the mix. We estimate operating EPS of $0.92 in 2010 and $1.10 in 2011, excluding acquisition and restructuring charges.

Investment Rationale/Risk ➤

➤

➤

B

B+

A-

A

A+

STRONG 88

LOWEST = 1

HIGHEST = 99

2010 Options: ASE, CBOE, P, Ph

Highlights

B-

Relative Strength Rank

1

2007

C

B

We believe XRX is recovering from cyclically low demand for printers seen in 2009, and is benefiting from having more service offerings, a result of the ACS acquisition. We foresee more stability in overall results, as well as opportunities for new sales on an expanded customer list. We think XRX is realizing some of the potential savings from several rounds of restructuring and from sales of new color printing products. Risks to our recommendation and target price include integration risks arising from the ACS acquisition, an aggressive pricing environment, and challenges in deploying new products and services effectively. The company's cost efficiency efforts could prove less effective than we project. We apply a target P/E multiple of 13X, a discount to the level for Information Technology sector peers in the S&P 500 Index, to our 2011 operating EPS estimate of $1.10 to obtain a value of $14.30, and round down to $14 for our 12-month target price. We see a compelling valuation based on our view of rising earnings amid steadier revenue patterns.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 4,721 5,508 2009 3,554 3,731 2008 4,335 4,533 2007 3,836 4,208 2006 3,695 3,977 2005 3,771 3,921

3Q -3,675 4,370 4,302 3,844 3,759

4Q -4,219 4,370 4,882 4,379 4,250

Year -15,179 17,608 17,228 15,895 15,701

Earnings Per Share ($) 2010 -0.04 0.16 2009 0.05 0.16 2008 -0.27 0.24 2007 0.24 0.28 2006 0.20 0.26 2005 0.20 0.35

E0.22 0.14 0.29 0.27 0.54 0.06

E0.28 0.20 Nil 0.41 0.22 0.27

E0.92 0.55 0.26 1.19 1.22 0.90

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.043 0.043 0.043 0.043

02/25 05/20 07/15 10/14

03/29 06/28 09/28 12/29

03/31 06/30 09/30 12/31

04/30/10 07/30/10 10/29/10 01/28/11

Dividends have been paid since 2008. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: XRX

Xerox Corp Business Summary October 21, 2010 CORPORATE OVERVIEW. Xerox is a large operator in the global document markets, providing document equipment such as printing and publishing systems; digital copiers; laser and solid ink printers; fax machines; and digital multifunctional devices, which can print, copy, scan and fax. Increasingly, the company has also aimed at related service markets, including traditional supplies and printer support, and newer areas such as document management and business processes. The latter range from claims reimbursement and electronic toll transactions to customer call centers and HR benefits management. By improving clients' document systems, the company claims it can save an enterprise up to 30% on its printing costs. In 2009, equipment sales represented 23% (27% of sales in 2008) of total revenue, with the remaining 77% (73%) coming from post-sale operations including maintenance, services, supplies and financing.

terprises and companies in the graphic communications industry with highend devices that enable digital on-demand printing, digital full-color printing, digital monochrome printing, and enterprise printing. Office serves global, national and small to medium-size commercial customers with a lineup of digital printers, and copiers. The Other segment includes revenue from paper sales, value-added services, wide-format systems and global imaging system network integration solutions and electronic presentations systems. The company operates in over 160 countries and derived 54% of revenues in 2009 (52% in 2008) from the U.S., 33% (34%) from Europe, and 13% (14%) from other areas. The company has manufacturing plants in the U.S. and Europe, and also outsources manufacturing via a multi-year master supply agreement with Flextronics, which accounts for about 20% of XRX's worldwide production.

The company reported in three operating segments in 2009, according to the type of customer served. Production represented 30% of 2009 revenues (30% in 2008), Office 56% (56%), and Other 14% (14%). Production provides large enCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 3.08 0.91 0.55 0.52 0.17 31% 9.75 4.12 18 7

2008 2.50 0.94 0.26 0.73 0.17 65% 16.43 4.83 63 19

2007 4.93 1.88 1.19 1.16 0.04 3% 20.18 15.26 17 13

2006 5.04 1.95 1.22 1.27 Nil Nil 17.31 13.16 14 11

2005 4.68 1.62 0.90 0.88 Nil Nil 17.02 12.40 19 14

2004 4.29 1.45 0.78 0.75 Nil Nil 17.24 12.55 22 16

2003 1.57 1.25 0.36 0.53 Nil Nil 13.89 7.90 39 22

2002 NM 1.38 0.10 -0.17 Nil Nil 11.45 4.20 NM NM

2001 0.52 1.72 -0.17 -1.33 0.05 NM 11.35 4.69 NM NM

2000 2.86 0.96 -0.44 NA 0.65 NM 29.31 3.75 NM NM

15,179 1,347 698 256 668 22.8% 485 457

17,608 2,340 613 567 -1.00 NM 230 670

17,228 2,699 656 316 1,535 26.0% 1,135 1,101

15,895 2,165 636 305 922 NM 1,210 1,235

15,701 2,159 637 231 928 NM 933 862

15,722 2,451 686 708 1,116 30.5% 776 666

15,701 2,585 748 362 494 27.1% 360 434

15,849 2,803 1,035 401 306 19.6% 154 -128

17,008 3,011 1,332 457 418 NM -109 -931

18,701 1,946 948 605 -323 NM -257 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,799 Current Assets 9,731 Total Assets 24,032 Current Liabilities 4,461 Long Term Debt 8,925 Common Equity 7,050 Total Capital 17,104 Capital Expenditures 95.0 Cash Flow 796 Current Ratio 2.2 % Long Term Debt of Capitalization 52.2 % Net Income of Revenue 3.2 % Return on Assets 2.1 % Return on Equity 7.3

1,229 8,150 22,447 5,450 7,422 6,238 15,329 206 843 1.5 48.4 1.3 1.0 3.1

1,099 8,540 23,543 4,077 7,571 8,588 16,159 236 1,791 2.1 46.8 6.5 5.0 14.4

1,399 8,754 21,709 4,698 6,284 7,080 13,364 215 1,846 1.9 47.0 7.6 5.5 18.1

1,322 8,736 21,953 4,346 6,765 6,319 13,973 181 1,512 2.0 48.4 5.9 4.0 13.9

3,218 10,928 24,884 6,300 7,767 6,244 14,900 204 1,389 1.7 52.1 4.9 3.1 14.7

2,477 10,335 24,591 7,569 8,739 3,291 13,418 197 1,037 1.4 65.1 2.3 1.4 11.1

2,887 11,019 25,458 7,787 11,485 1,893 14,001 146 1,116 1.4 82.0 1.0 0.6 4.4

3,990 12,600 27,689 10,260 11,815 1,820 14,313 219 1,209 1.2 82.5 NM NM NM

1,741 13,022 29,475 6,268 16,042 3,493 20,323 452 638 2.1 78.9 NM NM NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 45 Glover Ave, Norwalk, CT 06856-4505. Telephone: 203-968-3000. Website: http://www.xerox.com Chrmn & CEO: U.M. Burns

COO & EVP: J.A. Firestone SVP, Secy & General Counsel: D.H. Liu CFO: L. Zimmerman CTO: S.V. Vandebroek

Investor Contact: J.H. Lesko (800-828-6396) Board Members: G. A. Britt, U. M. Burns, R. J. Harrington, W. C. Hunter, R. A. McDonald, N. J. Nicholas, Jr., C. Prince, III, A. N. Reese, M. A. Wilderotter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1906 Domicile: New York Employees: 53,600

Stock Report | October 23, 2010 | NNM Symbol: XLNX | XLNX is in the S&P 500

Xilinx Inc S&P Recommendation HOLD

★★★★★

Price $25.20 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Semiconductors

12-Mo. Target Price $28.00

Investment Style Large-Cap Growth

Summary This company is the world's largest supplier of programmable logic chips and related development system software.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $29.40– 21.01 Trailing 12-Month EPS $1.73 Trailing 12-Month P/E 14.6 $10K Invested 5 Yrs Ago $11,844

S&P Oper. EPS 2011E S&P Oper. EPS 2012E P/E on S&P Oper. EPS 2011E Common Shares Outstg. (M)

2.41 2.36 10.5 258.8

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$6.523 2.54 $0.64 99

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.96 29 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the cyclicality of the semiconductor industry, offset by the company's position as the largest competitor in a fast-growing niche, its diverse end markets, and its sharing of factory operations risk with chip foundry partners.

30

24 20

16

Quantitative Evaluations Vol.

S&P Quality Ranking

Mil. 45 30 15 0 5

D

C

B-

B B

B+

A-

A

Relative Strength Rank 3

WEAK

20

3

LOWEST = 1

1

A+

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: ASE, CBOE, P

Analysis prepared by Clyde Montevirgen on October 22, 2010, when the stock traded at $ 25.12. Highlights ➤

➤

➤

We project that revenues will rise 33% in FY 11 (Mar.), compared to essentially flat sales in FY 10. Although we are concerned about rising inventory throughout the supply chain slowing orders over the near-term, we believe longerterm growth will be supported by improving global economic conditions and as FPGAs replace ASICs. We are positive about XLNX's proprietary nature of its products, long product cycles, and 40 and 45 nanometer (nm) products, which should provide a reliable sales base. We think XLNX will be able to maintain fairly steady gross margins in the mid-60% area due to what we view as its cost-effective manufacturing partnerships with chip foundries and its product portfolio of higher-margin programmable devices. However, we see minor fluctuations based on varying customer and product mixes and yields. Although we expect rising expenses to support new products and related sales, we look for operating margins to widen to 35% in FY 11, from 24% in FY 10. Our EPS projections assume an effective tax rate of 23% and a decrease in the diluted share count of around 4%.

Investment Rationale/Risk ➤

➤

➤

Our hold recommendation reflects our view of healthy fundamentals and fair valuations. XLNX has enough business with products using older geometries to support growth, in our opinion. Having improved its cost structure, it boasts above industry profitability and returns, and also has what we see as a strong balance sheet and cash flows. However, we are concerned about new offerings from its main rival Altera (ALTR 29, Hold) leading to market share loss and below-industry growth over the next few quarters as inventory builds throughout the supply-chain. Overall, we think valuations should be similar to the industry's. Risks to our recommendation and target price include weaker-than-expected economic conditions, dependence on chip foundry partners, and fluctuations in chip inventories. Our 12-month target price of $28 is based on a price-to-earnings multiple of approximately 12X, near the industry average to account for our view of relative growth, return on equity, and risk, applied to our calendar 2011 EPS estimate.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2011 594.7 -2010 376.2 415.0 2009 488.3 483.5 2008 445.9 444.9 2007 481.4 467.2 2006 405.4 398.9

3Q -513.4 458.4 474.8 450.7 449.6

4Q -529.0 395.0 475.8 443.5 472.3

Year -1,834 1,825 1,841 1,843 1,726

Earnings Per Share ($) 2011 0.58 E0.65 2010 0.14 0.23 2009 0.30 0.29 2008 0.28 0.30 2007 0.24 0.27 2006 0.21 0.24

E0.60 0.38 0.51 0.35 0.26 0.23

E0.58 0.54 0.26 0.34 0.27 0.32

E2.41 1.29 1.36 1.25 1.02 1.00

Fiscal year ended Mar. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.160 0.160 0.160 0.160

01/20 04/28 07/21 10/20

02/08 05/17 08/09 11/08

02/10 05/19 08/11 11/10

03/03/10 06/09/10 09/01/10 12/01/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: XLNX

Xilinx Inc Business Summary October 22, 2010 CORPORATE OVERVIEW. Founded in 1984, Xilinx is the world's leading supplier of programmable logic devices (PLDs) based on market share. These devices include field programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs). They are standard integrated circuits (ICs) that are programmed by customers to perform desired logic operations. The company believes it provides high levels of integration and creates significant time and cost savings for electronic equipment manufacturers in the telecommunications, networking, computing and industrial markets.

Older generations include the Virtex-5 (65nm) and Virtex 4 (90nm).

Xilinx's FPGAs are proprietary ICs designed by the company; they provide a combination of the high logic density usually associated with custom gate arrays, the time-to-market advantages of programmable logic, and the availability of a standard product. Like other chipmakers, Xilinx utilizes manufacturing process technologies that enable the PLD to increase functionality. Generally, the smaller the process technology, the higher the chip's performance and density and the lower the power consumption. XLNX has several product families, including the Virtex, Spartan and CoolRunner lines. The Virtex-6 is the latest generation FPGA produced on 40 nanometer (nm) process technology.

Xilinx sells its products globally to OEMs and to electronic components distributors that resell them. Avnet distributes the majority of the company's products worldwide and accounted for 81% of XLNX's accounts receivable in FY 09. However, no single end customer accounted for more than 10% of Xilinx's revenues.

Products are classified as new, mainstream, base and support. New products accounted for 47% of FY 09 (Mar.) sales (33% in FY 08), mainstream products 37% (46%), base products 11% (15%), and support products 5% (6%). Revenue by end market in FY 09 broke down as follows: 44% (43% in FY 08) communications, 32% (32%) industrial and other, 16% (17%) consumer and automotive, and 8% (8%) data processing.

Company Financials Fiscal Year Ended Mar. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Calendar Year Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2010 7.26 1.53 1.29 1.30 0.60 47% 2009 25.45 15.00 20 12

2009 5.74 1.58 1.36 1.48 0.56 41% 2008 28.21 14.28 21 10

2008 5.45 1.46 1.25 1.28 0.36 29% 2007 30.50 21.14 24 17

2007 5.54 1.24 1.02 1.01 0.36 35% 2006 29.98 18.35 29 18

2006 7.53 1.19 1.00 0.78 0.28 28% 2005 32.30 21.25 32 21

2005 7.24 1.05 0.87 0.58 0.20 23% 2004 45.40 25.21 47 26

2004 6.79 1.05 0.85 0.57 Nil Nil 2003 39.20 18.50 46 22

2003 5.44 0.57 0.36 0.05 Nil Nil 2002 47.15 13.50 NM NM

2002 5.26 -0.02 -0.34 -0.31 Nil Nil 2001 59.25 19.52 NM NM

2001 5.82 0.36 0.10 0.35 Nil Nil 2000 98.31 35.25 NM NM

1,834 527 65.2 6.58 422 15.2% 357 360

1,825 513 61.0 29.0 498 24.6% 376 409

1,841 485 61.0 0.17 474 21.1% 374 382

1,843 424 73.9 Nil 431 18.7% 351 348

1,726 489 69.5 Nil 457 22.4% 354 277

1,573 442 63.1 Nil 401 21.9% 313 205

1,398 412 67.9 Nil 351 13.6% 303 204

1,156 283 72.5 Nil 170 26.0% 126 18.1

1,016 87.3 106 0.06 -193 NM -114 -103

1,659 568 93.5 0.17 61.1 42.3% 35.3 132

Balance Sheet & Other Financial Data (Million $) Cash 1,387 Current Assets 1,907 Total Assets 3,184 Current Liabilities 357 Long Term Debt 355 Common Equity 2,120 Total Capital 2,475 Capital Expenditures 28.2 Cash Flow 423 Current Ratio 5.3 % Long Term Debt of Capitalization 14.3 % Net Income of Revenue 19.5 % Return on Assets 11.9 % Return on Equity 18.5

1,325 1,752 2,826 233 690 1,738 2,511 39.1 437 7.5 27.5 20.6 12.6 22.0

1,296 1,820 3,137 341 1,000 1,672 2,756 45.6 435 5.3 36.3 20.3 11.8 21.7

636 1,700 3,179 303 1,000 1,773 2,875 111 425 5.6 34.8 19.0 11.0 15.6

783 1,648 3,174 345 Nil 2,729 2,821 67.0 424 4.8 Nil 20.5 11.4 13.1

449 1,466 3,039 298 Nil 2,674 2,741 61.4 376 4.9 Nil 19.8 10.5 12.1

337 1,302 2,937 381 Nil 2,483 2,556 41.0 371 3.4 Nil 21.7 11.3 13.7

214 1,175 2,422 314 Nil 1,951 2,108 46.0 198 3.7 Nil 10.9 5.3 6.5

230 999 2,335 196 Nil 1,904 2,140 94.9 -7.51 5.1 Nil NM NM NM

209 1,102 2,502 350 Nil 1,918 2,152 223 129 3.1 Nil 2.1 1.5 1.9

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 2100 Logic Drive, San Jose, CA, USA 95124-3400. Telephone: 408-559-7778. Email: [email protected] Website: http://www.xilinx.com

Chrmn: P.T. Gianos Pres & CEO: M.N. Gavrielov COO: R.G. Petrakian Investor Contact: J.A. Olson (408-559-7778)

SVP, CFO & Chief Acctg Officer: J.A. Olson Board Members: J. L. Doyle, J. G. Fishman, M. N. Gavrielov, P. T. Gianos, W. G. Howard, Jr., J. M. Patterson, A. A. Pimentel, M. Turner, Jr., E. W. Vanderslice

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1984 Domicile: Delaware Employees: 2,948

Stock Report | October 23, 2010 | NYS Symbol: XL | XL is in the S&P 500

XL Group Plc S&P Recommendation BUY

★★★★★

Price $21.98 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Property & Casualty Insurance

12-Mo. Target Price $21.00

Investment Style Large-Cap Blend

Summary Bermuda-based XL, which originally provided excess liability coverage, has expanded into providing a broad array of commercial lines insurance, reinsurance, and other risk management services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $22.52– 15.59 Trailing 12-Month EPS $0.46 Trailing 12-Month P/E 47.8 $10K Invested 5 Yrs Ago $3,932

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.30 2.55 9.6 342.1

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$7.519 1.82 $0.40 88

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

2.68 NA NA

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects our concerns about XL's exposure to catastrophe losses and the adequacy of its loss reserves in certain liability lines of business, and our view that XL could face writedowns of its fixed income investment portfolio and certain other investments.

100 40

10 4

Quantitative Evaluations Vol. 140

Mil. 45 30 15 0 5

S&P Quality Ranking

NR

96

D

C

B-

B

B+

A-

A

Relative Strength Rank 3

2

3

STRONG

4

3

A+

78 LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, P, Ph

Analysis prepared by Cathy A. Seifert on August 06, 2010, when the stock traded at $ 17.99. Highlights ➤

➤

➤

We expect earned premiums to decline by 2% to 5% in 2010, and to be fractionally lower in 2011, following declines of 14% in 2009 and 7.8% in 2008. Our forecast reflects our view of improved stability of the XL franchise, offset by the impact of competitive pricing in the core property casualty line, coupled with reduced writings in the life insurance and financial guarantee lines. Net written premiums declined 17% in 2009. We expect net investment income to be flat to modestly lower in 2010, following a decline of 21% in 2009. The decline experienced in 2009 reflected a challenging investment environment and steps XL took to lower the risk profile of its investment portfolio. We estimate operating EPS of $2.30 for 2010 and $2.55 for 2011, versus $2.69 of operating EPS reported for 2009 and $3.49 of operating EPS in 2008. Our estimates exclude realized investment gains/losses. XL reported a 2008 net loss of $11.02 a share, due mainly to a $1.4 billion charge taken to (among other things) terminate a reinsurance agreement with Syncora Holdings (formerly Security Capital Assurance).

Investment Rationale/Risk ➤

➤

➤

Our Buy recommendation reflects our view that the shares are undervalued versus peers, particularly in light of what we see as progress XL is making in rebuilding its franchise and derisking its balance sheet. At current levels, the shares are trading at about 0.8X June 30, 2010, tangible common equity, versus 1.3X to 1.5X for most of XL's peers. Risks to our recommendation and target price include a greater-than-anticipated decline in premium rates and underwriting margins; a more significant deterioration in the credit quality of XL's investment portfolio; and not fully executing on its balance sheet restructuring. Our 12-month target price of $21 assumes that the shares will trade at approximately 8.2X our operating earnings per share estimate for 2011. This represents a discount (albeit less of one than before) to most of XL's peers.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,637 -2009 1,555 1,725 2008 2,174 2,125 2007 2,483 2,597 2006 2,473 2,499 2005 2,401 4,108

3Q -1,486 1,744 2,153 2,364 2,296

4Q -1,448 1,106 1,902 2,496 2,479

Year -6,194 7,148 9,136 9,833 11,285

Earnings Per Share ($) 2010 0.37 E0.64 2009 0.53 0.23 2008 1.20 1.34 2007 3.06 3.00 2006 2.56 2.10 2005 3.18 0.97

E0.53 -0.03 -6.09 1.82 2.32 -7.53

E0.69 -0.12 -4.36 -6.88 2.62 -5.51

E2.30 0.61 -11.02 1.15 9.60 -9.14

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.100 0.100 0.100 0.100

10/23 02/26 04/30 07/26

12/11 03/11 06/11 09/13

12/15 03/15 06/15 09/15

12/31/09 03/31/10 06/30/10 09/30/10

Dividends have been paid since 1992. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: XL

XL Group Plc Business Summary August 06, 2010 CORPORATE OVERVIEW. Bermuda-based XL Capital was formed in 1986 by a consortium of Fortune 500 companies to provide excess liability coverage. Since then, XL has expanded (mostly via acquisitions) to include insurance, reinsurance, and other financial services. In January 2010, XL announced plans to redomesticate its holding company to Ireland from the Cayman Islands. Gross written premiums of nearly $6.7 billion in 2009 (down 19% from $8.3 billion in 2008) were divided: insurance 63%, reinsurance 28%, and life operations 9%. Insurance business written includes general liability, as well as other specialized types of liability coverage, such as directors' and officers' liability and professional and employment practices liability coverage. An array of property coverage, as well as marine and aviation coverage, is also offered. Insurance net written premiums of $3.27 billion in 2009 were divided: professional liability 41%, casualty 17%, property 11%, marine/energy/aviation/satellite 16%, and other specialty lines 15%.

9%. Life operations include reinsurance written from other life insurers, principally to help in managing mortality, morbidity, survivorship, investment and lapse risks. Net written premiums totaled $532.9 million in 2009 and were divided: annuity risks 25%, life insurance 75%. In December 2008, XL completed a strategic review of its life reinsurance business, which is now in runoff mode. In July 2001, the company acquired Winterthur International, for about $330.2 million in cash (as adjusted). As part of the transaction, XL received certain post-closing arrangements protecting it against (among other things) certain types of adverse loss development. XL valued the post-closing payment at $1.45 billion, and Winterthur Swiss Insurance Co. (the seller) believed the post-closing payment was $541 million. In December 2005, an independent actuarial review concluded that Winterthur's estimate was closer than the estimate submitted by XL. As a result of this difference, XL recorded a fourthquarter 2005 after-tax charge of $834.2 million.

Reinsurance business written includes treaty and facultative reinsurance to primary insurers of casualty risk. Reinsurance net written premiums totaled $1.47 billion in 2009 and were divided: property 38%, casualty 15%, property catastrophe 21%, professional lines 11%, marine, energy aviation and satellite 6%, and other lines (including political risk, surety and structured indemnity) Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Operating Earnings Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 25.09 NA 0.61 0.40 66% 19.03 2.56 31 4

2008 16.74 NA -11.02 1.14 NM 52.26 2.65 NM NM

2007 41.31 NA 1.15 1.52 76% 85.67 48.16 43 24

2006 45.93 NA 9.60 1.52 16% 72.90 59.82 8 6

2005 37.08 NA -9.14 2.00 NM 79.80 60.03 NM NM

2004 42.55 NA 8.13 1.96 24% 82.00 66.70 10 8

2003 37.07 NA 2.69 1.92 71% 88.87 63.49 33 24

2002 36.13 5.10 2.88 1.88 65% 98.48 58.45 34 20

2001 28.35 -3.67 -4.55 1.84 NM 96.50 61.50 NM NM

2000 31.86 4.52 4.03 1.80 45% 89.25 39.00 22 10

Income Statement Analysis (Million $) Premium Income Net Investment Income Other Revenue Total Revenue Pretax Income Net Operating Income Net Income

5,707 1,320 -833 6,194 195 NA 75.0

6,640 1,769 -1,261 7,148 -2,331 NA -2,554

7,205 2,249 -318 9,136 534 NA 276

7,570 1,978 8,904 9,833 2,007 NA 1,763

2,238 1,475 8,864 11,285 -1,194 NA -1,252

1,406 995 7,426 10,028 1,260 NA 1,167

6,969 780 268 8,017 451 NA 412

5,990 735 -147 6,578 442 701 406

3,476 563 18.0 4,057 -764 -465 -576

2,035 542 140 2,717 451 NA 506

Balance Sheet & Other Financial Data (Million $) Cash & Equivalent 3,994 Premiums Due 2,598 Investment Assets:Bonds 28,058 Investment Assets:Stocks 17.8 Investment Assets:Loans Nil Investment Assets:Total 31,822 Deferred Policy Costs 654 Total Assets 45,580 Debt 2,451 Common Equity 9,432 Property & Casualty:Loss Ratio 61.5 Property & Casualty:Expense Ratio 32.1 Property & Casualty Combined Ratio 93.6 % Return on Revenue 1.2 % Return on Equity 1.0

4,717 4,273 25,636 361 Nil 29,477 714 45,682 3,190 6,615 66.1 29.6 95.7 NM NM

4,328 4,610 33,608 855 Nil 39,585 755 57,762 2,869 9,948 59.8 29.0 88.8 3.0 2.1

2,656 4,698 36,121 891 Nil 42,137 870 59,309 3,368 16,422 60.7 27.8 88.5 18.6 11.3

4,085 4,842 32,310 869 Nil 38,171 866 58,455 3,413 14,078 107.1 25.8 132.9 NM NM

2,631 4,934 25,100 963 Nil 30,066 845 49,015 2,721 12,286 68.6 27.4 96.0 11.9 10.0

2,698 4,847 19,494 583 Nil 22,821 778 40,764 1,905 10,171 75.3 27.3 102.6 5.2 3.9

3,785 4,833 14,483 575 Nil 17,956 688 35,647 1,878 6,569 68.0 29.0 97.0 6.0 6.6

2,044 2,182 10,832 548 Nil 13,741 394 27,963 1,605 5,437 105.0 34.9 139.9 NM NM

1,074 1,120 8,605 557 Nil 10,472 309 16,942 450 5,574 70.4 36.4 106.8 18.6 9.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 Hatch Street Upper, Dublin, Ireland 2. Telephone: 441-292-8515. Website: http://www.xlgroup.com Chrmn: R.R. Glauber

Pres: P. Rochaix CEO: M.S. McGavick EVP & CFO: I.M. Esteves EVP, Secy & General Counsel: K.R. Gould

Investor Contact: D.R. Radulski (441-294-7460) Founded: 1986 Board Members: D. R. Comey, R. R. Glauber, H. N. Domicile: Cayman Islands Haag, J. Mauriello, M. S. McGavick, E. M. McQuade, C. Employees: 3,565 S. Rose, E. E. Thrower, J. Vereker

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NNM Symbol: YHOO | YHOO is in the S&P 500

Yahoo! Inc

★★★★★

S&P Recommendation STRONG BUY

Price $16.31 (as of Oct 22, 2010)

GICS Sector Information Technology Sub-Industry Internet Software & Services

12-Mo. Target Price $19.00

Investment Style Large-Cap Growth

Summary This company is one of the world's largest providers of online content and services.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $19.12– 12.94 Trailing 12-Month EPS $0.77 Trailing 12-Month P/E 21.2 $10K Invested 5 Yrs Ago $4,620

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

0.71 0.87 23.0 1,348.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$21.984 Nil Nil 72

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

0.81 43 NR

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

The company is a large and well-capitalized leader in a number of areas related to Internet content and services. However, in our view, the markets in which it participates change rapidly and have relatively low barriers to entry, which has contributed to the notable competition and inconsistent financial execution that we have observed.

25 20 15

10

Vol.

Quantitative Evaluations

701

Mil. 240 160 80 0 5

S&P Quality Ranking 3

3

D

5

4

3

C

B-

B B

B+

A-

Relative Strength Rank

1

STRONG

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, P, Ph

➤

We project that revenues will increase 2% to 5% annually through 2012, reflecting a healthier global economy, greater demand for display advertising, benefits of a search advertising deal with Microsoft (MSFT 25, Hold), and challenges in terms of usage and in the fees area.

➤

We believe revenues will continue to benefit from secular growth in online advertising. We think annual operating margins bottomed in 2008, due to changed broadband alliances and aggressive investments in new initiatives, and we see improvements through 2012. EPS should benefit from a $3 billion share repurchase program announced in June 2010. YHOO announced a search technology and advertising agreement with MSFT in July 2009. MSFT powers YHOO's search results and nonpremium related advertising, and YHOO sells the companies' premium search inventory. Although the deal was initially perceived by some as disappointing for YHOO, we think it will enable YHOO to better focus and invest in its core media operations, and we see notable financial benefits.

Investment Rationale/Risk ➤

HIGHEST = 99

2010

Analysis prepared by Scott H. Kessler on October 21, 2010, when the stock traded at $ 15.80. Highlights

A+

86

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

➤

A

3

We think an increasing percentage of advertising budgets are being spent online. We also see multiple potential positive catalysts for YHOO, including possible monetization efforts around its major investments in Asia-based businesses, continuing benefits from the MSFT deal, and improvements associated with new content and social media-related efforts.

➤

Risks to our opinion and target price include the potential for continuing user activity declines, issues related to the search partnership with MSFT, and global economic weakness.

➤

After excluding the value of YHOO's Asia-based equity investments, our relative P/E and P/ E-to-growth analyses (including a discount given recent company changes and challenges) yields a value of $13. Our DCF analysis, with assumptions including a WACC of 12.7%, projected annual FCF growth of 9% from 2010 to 2014, and a perpetuity growth rate of 3%, results in an intrinsic value of $7. Weighing these assessments, and adding the value of YHOO's investments in Asia-based companies that we estimate at about $9 per share, results in our 12-month target price of $19.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,597 1,601 2009 1,580 1,573 2008 1,818 1,798 2007 1,672 1,698 2006 1,567 1,576 2005 1,174 1,253

3Q 1,601 1,575 1,786 1,768 1,580 1,330

4Q -1,732 1,806 1,832 1,702 1,501

Year -6,460 7,209 6,969 6,426 5,258

Earnings Per Share ($) 2010 0.22 0.15 2009 0.08 0.10 2008 0.37 0.09 2007 0.10 0.11 2006 0.11 0.11 2005 0.14 0.51

0.30 0.13 0.04 0.11 0.11 0.17

E0.24 0.11 -0.22 0.15 0.19 0.46

E0.71 0.42 0.29 0.47 0.52 1.28

Fiscal year ended Dec. 31. Next earnings report expected: Late January. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NNM Symbol: YHOO

Yahoo! Inc Business Summary October 21, 2010 CORPORATE OVERVIEW. Yahoo! is one of the world's largest Internet companies. It classifies properties in six categories: Front Doors (including the Yahoo front page, My Yahoo, and the Yahoo Toolbar), Communities (including Yahoo Groups and Flickr), Search, Communications (including mail and messaging offerings), Audience (consisting of offerings in areas such as information/entertainment offerings related to news, finance, sports, music, movies, television, games, autos, real estate, food, consumer technology, kids and health), and Connected Life (including Yahoo Mobile and Yahoo Digital Home).

Blake Jorgensen became CFO in June 2007. Soon thereafter, co-founder Jerry Yang replaced Terry Semel as CEO, and long-time CFO Sue Decker became President and COO. Many other important executives have also left YHOO since early 2007, and the pace and magnitude of these departures increased around mid-2008, in our view. Carol Bartz replaced Jerry Yang as CEO and Sue Decker left in January 2009, and Tim Morse replaced Jorgensen as CFO in July 2009.

Hundreds of millions of users every month visit the online properties of YHOO and its unconsolidated subsidiaries (excluding the 35% stake in Yahoo Japan and 43% interest in privately held Chinese Internet conglomerate Alibaba Group), making it one of the world's most popular Internet destinations. Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 6.18 0.94 0.42 0.33 Nil Nil 18.02 10.81 43 26

2008 5.26 0.87 0.29 0.33 Nil Nil 30.25 8.94 NM NM

2007 3.70 0.94 0.47 0.46 Nil Nil 34.08 22.27 73 47

2006 4.25 0.89 0.52 0.51 Nil Nil 43.66 22.65 84 44

2005 3.59 1.54 1.28 0.56 Nil Nil 43.45 30.30 34 24

2004 2.94 0.79 0.58 0.24 Nil Nil 39.79 20.57 69 35

2003 1.64 0.31 0.19 0.03 Nil Nil 22.74 8.25 NM NM

2002 1.47 0.18 0.09 -0.32 Nil Nil 10.68 4.47 NM NM

2001 1.52 0.03 -0.08 -0.85 Nil Nil 21.69 4.01 NM NM

2000 1.69 0.11 0.06 NA Nil Nil 125.03 12.53 NM NM

6,460 1,252 739 NA 825 26.6% 598 470

7,209 1,477 790 NA 693 37.9% 424 464

6,969 1,355 659 Nil 1,000 33.7% 660 651

6,426 1,481 540 Nil 293 NM 751 744

5,258 1,505 397 Nil 2,672 28.7% 1,896 840

3,575 1,000 311 Nil 1,280 34.2% 840 353

1,625 455 160 Nil 391 37.6% 238 35.5

953 198 109 Nil 180 39.7% 107 -377

717 34.5 131 Nil -81.1 NM -92.8 -966

1,110 390 69.1 Nil 264 71.2% 70.8 NA

Balance Sheet & Other Financial Data (Million $) Cash 3,291 Current Assets 4,595 Total Assets 14,936 Current Liabilities 1,718 Long Term Debt NA Common Equity 12,493 Total Capital 12,519 Capital Expenditures 434 Cash Flow 1,337 Current Ratio 2.7 % Long Term Debt of Capitalization Nil % Net Income of Revenue 9.3 % Return on Assets 4.2 % Return on Equity 5.0

3,452 4,746 13,690 1,705 43.0 11,242 11,269 675 1,214 2.8 0.4 5.9 3.3 4.1

2,001 3,238 12,230 2,300 Nil 9,533 9,545 602 1,319 1.4 Nil 9.5 5.6 7.1

2,601 3,750 11,514 1,474 750 9,161 9,919 689 1,291 2.5 7.6 11.7 6.7 8.5

2,561 3,450 10,832 1,204 750 8,566 9,316 409 2,293 2.9 8.0 36.0 18.9 24.2

3,512 4,090 9,178 1,181 750 7,101 7,896 246 1,151 3.5 9.5 23.5 11.1 14.6

1,310 1,722 5,932 708 750 4,363 5,151 117 398 2.4 14.6 14.6 5.5 7.2

774 970 2,790 412 Nil 2,262 2,294 51.6 216 2.4 Nil 11.2 4.1 5.1

926 1,052 2,379 359 Nil 1,967 1,997 86.2 37.8 2.9 Nil NM NM NM

1,120 1,291 2,270 311 Nil 1,897 1,926 94.4 140 4.1 Nil 6.4 3.7 4.5

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 701 First Avenue, Sunnyvale, CA 94089. Telephone: 408-349-3300. Email: [email protected] Website: http://www.yahoo.com

Chrmn: R.J. Bostock Pres & CEO: C.A. Bartz COO: J. Marcom, Jr. EVP & CFO: T.R. Morse

EVP, Secy & General Counsel: M.J. Callahan Founded: 1995 Board Members: C. A. Bartz, R. J. Bostock, P. S. Hart, E. Domicile: Delaware C. Hippeau, S. M. James, V. I. Joshi, A. Kern, B. D. Employees: 13,900 Smith, G. L. Wilson, J. Yang

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: YUM | YUM is in the S&P 500

YUM! Brands Inc. S&P Recommendation HOLD

★★★★★

Price $49.57 (as of Oct 22, 2010)

GICS Sector Consumer Discretionary Sub-Industry Restaurants

12-Mo. Target Price $50.00

Investment Style Large-Cap Growth

Summary This company operates, franchises, has interests in or licenses the largest number of fast food restaurants in the world, with more than 37,000 units in over 110 countries, including the KFC, Pizza Hut and Taco Bell chains.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $49.63– 32.49 Trailing 12-Month EPS $2.27 Trailing 12-Month P/E 21.8 $10K Invested 5 Yrs Ago $21,247

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

2.49 2.67 19.9 468.6

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$23.228 2.02 $1.00 76

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.02 7 BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

STARS

Volume Above Avg.

No Change

LOW

MEDIUM

HIGH

Below Avg.

YUM competes primarily in the fast food industry, in which its concepts possess a very strong brand name presence domestically and in certain foreign markets. However, operating margins can vary widely due to fluctuations in food costs. Furthermore, YUM's profits can be affected by changing currency exchange rates given its large and fast-growing international business.

50

35 30 25

2-for-1 Vol.

Quantitative Evaluations

Mil. 30 20 10 0 5

S&P Quality Ranking D 4

3

3

B-

B

B+

A-

A

Relative Strength Rank

1

STRONG 81

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

LOWEST = 1

2007

2008

2009

Options: ASE, CBOE, Ph

➤

➤

➤

YUM's growth strategy is focused primarily on developing markets. YUM's most recent 2010 new restaurant guidance for each division is for about 475 new units in its China division and about 900 in the Yum Restaurants International division (YRI). In the U.S., YUM expects about 200 openings, offset by a similar number of closings. Year-to-date 2010 results through September benefited from continued aggressive expansion in China, positive foreign currency translation at YRI, and food and other commodity cost deflation. This was particularly so in China, where food and paper margins improved by 220 basis points (bps). Same-store sales grew 5% in China. In the U.S., same-store results were flat, as strength at Pizza Hut offset weakness at KFC. We expect costs, as well as forex, to become less favorable in the fourth quarter of 2010 and into 2011. However, we think continued international expansion will more than offset domestic weakness, and project that 2010 EPS of $2.49, compared to $2.22 in 2009. For 2011, we see an increase in EPS to $2.67.

Investment Rationale/Risk ➤

➤

➤

HIGHEST = 99

2010

Analysis prepared by Erik Kolb on October 08, 2010, when the stock traded at $ 47.24. Highlights

A+

3

2

1

C

A

We think YUM is making steady progress expanding internationally, especially in China, but also in other areas. We think areas with low stores per capita, but rising incomes, such as in certain sections of Africa, represent further growth opportunities. But we believe additional efforts are needed to reinvigorate results at U.S. KFC restaurants, which have lagged of late. While food costs have been relatively low to date in 2010, we expect less favorable conditions in 2011 as the worldwide economic recovery likely continues. Risks to our recommendation and target price include less favorable energy, food and labor costs, a material strengthening of the dollar (making foreign profits worth less in dollars), and slower growth in international markets. Our 12-month target price of $50 is based on our relative P/E analysis. We apply an 18.7X multiple to our $2.67 2011 EPS estimate to derive a $50 value. Although this multiple is slightly above peers, we think this is warranted given our view of YUM's attractive international growth prospects.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 2,345 2,574 2009 2,217 2,476 2008 2,408 2,653 2007 2,223 2,367 2006 2,085 2,182 2005 2,054 2,153

3Q 2,862 2,778 2,835 2,564 2,278 2,243

4Q -3,365 3,383 3,262 3,016 2,899

Year -10,836 11,279 10,416 9,561 9,349

Earnings Per Share ($) 2010 0.50 0.59 2009 0.46 0.63 2008 0.50 0.45 2007 0.35 0.39 2006 0.29 0.34 2005 0.25 0.29

0.74 0.69 0.58 0.50 0.42 0.35

E0.57 0.45 0.43 0.44 0.42 0.39

E2.49 2.22 1.96 1.68 1.46 1.28

Fiscal year ended Dec. 31. Next earnings report expected: Early February. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.210 0.210 0.210 0.250

11/20 03/12 05/20 09/14

01/13 04/14 07/14 10/13

01/15 04/16 07/16 10/15

02/05/10 05/07/10 08/06/10 11/05/10

Dividends have been paid since 2004. Source: Company reports.

Stock Report | October 23, 2010 | NYS Symbol: YUM

YUM! Brands Inc. Business Summary October 08, 2010 CORPORATE PROFILE. Yum! Brands has the world's largest quick service restaurant (QSR) system, with over 37,000 restaurants, including licensee units, in more than 110 countries and territories. The company operates and franchises restaurants under the KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W All American Food concepts. In 2009, the company's brands generated close to $36 billion in systemwide sales (up 1% in constant currencies) and $10.8 billion in worldwide revenues, down 4.1% from 2008.

in the U.S. and 5,715 units internationally, of which 8% in the U.S. and 25% of the non-U.S. units were operated by the company.

KFC (originally Kentucky Fried Chicken) is the leader in the U.S. chicken QSR segment, with about a 42% market share at year-end 2009 (44% in 2008), according to NPD Group CREST. At the end of 2009, there were 5,162 units in the U.S. and 11,102 units internationally, of which 17% in the U.S. and 31% internationally were operated by the company.

Long John Silver's operates mostly in the U.S., with 1,134 franchised-operated restaurants in total, including 110 multi-brand locations that include LJS. LJS had a 36% market share of the U.S. QSR seafood segment in 2009. A&W operates 344 units in the U.S. and 293 outside the U.S.

Taco Bell is the leader in the U.S. Mexican food QSR segment, with about a 52% market share (54%). At the end of 2009, it had 5,604 units in the U.S. and 251 units internationally. About 23% of U.S. and 1% of international locations were operated by YUM.

Pizza Hut is the world's largest restaurant chain specializing in ready-to-eat pizza products. At December 31, 2009, it led the U.S. pizza QSR segment with about a 14% market share (15%). As of December 2009, there were 7,566 units Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 NM 3.42 2.22 2.16 0.78 35% 36.96 23.37 17 11

2008 NM 3.10 1.96 1.76 0.68 35% 41.73 21.50 21 11

2007 0.27 2.67 1.68 1.69 0.52 31% 40.60 27.51 24 16

2006 0.81 2.46 1.46 1.51 0.26 18% 31.84 22.11 22 15

2005 1.04 2.07 1.28 1.26 0.22 17% 26.90 22.37 21 18

2004 1.20 1.95 1.21 1.15 0.10 8% 23.74 16.07 20 13

2003 0.42 1.67 1.01 1.04 Nil Nil 17.71 10.77 18 11

2002 NM 1.54 0.94 0.80 Nil Nil 16.58 10.18 18 11

2001 NM 1.39 0.81 0.68 Nil Nil 13.33 7.89 16 10

2000 NM 1.29 0.69 NA Nil Nil 9.64 5.89 14 9

10,836 2,185 580 212 1,396 22.4% 1,071 1,041

11,279 1,971 560 253 1,280 24.7% 964 863

10,416 1,808 533 199 1,191 23.7% 909 913

9,561 1,724 479 154 1,108 25.6% 824 849

9,349 1,538 469 127 1,026 25.7% 762 754

9,011 1,518 448 129 1,026 27.9% 740 704

8,380 1,471 401 173 886 30.2% 618 635

7,757 1,375 370 172 858 32.1% 583 494

6,953 1,220 354 158 733 32.9% 492 416

7,093 1,217 354 176 684 39.6% 413 NA

Balance Sheet & Other Financial Data (Million $) Cash 353 Current Assets 1,208 Total Assets 7,148 Current Liabilities 1,653 Long Term Debt 3,207 Common Equity 1,025 Total Capital 4,321 Capital Expenditures 797 Cash Flow 1,651 Current Ratio 0.7 % Long Term Debt of Capitalization 74.2 % Net Income of Revenue 9.9 % Return on Assets 15.7 % Return on Equity NM

164 951 6,506 1,722 3,564 -112 3,509 935 1,524 0.6 101.6 8.6 14.0 NM

789 1,481 7,242 2,062 2,924 1,139 4,063 742 1,442 0.7 71.9 8.7 13.4 70.6

319 901 6,353 1,724 2,045 1,437 3,482 614 1,303 0.5 58.7 8.6 13.6 57.1

158 837 5,698 1,605 1,649 1,449 3,098 609 1,231 0.5 53.2 8.2 13.4 50.1

62.0 747 5,696 1,376 1,731 1,595 3,326 645 1,188 0.5 52.0 8.2 13.1 54.5

192 806 5,620 1,461 2,056 1,120 3,176 663 1,019 0.6 64.7 7.4 11.2 72.1

130 730 5,400 1,520 2,299 594 2,893 760 953 0.5 79.5 7.5 11.9 167.0

110 547 4,388 1,805 1,552 104 1,656 636 846 0.3 93.7 7.1 11.5 NM

133 688 4,149 1,216 2,397 -322 2,085 572 767 0.6 115.0 5.8 10.2 NM

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1441 Gardiner Lane, Louisville, KY 40213. Telephone: 502-874-8300. Email: [email protected] Website: http://www.yum.com

Chrmn, Pres & CEO: D.C. Novak Vice Chrmn: J.S. Su COO: E.J. Brolick SVP, Chief Acctg Officer & Cntlr: T.F. Knopf

SVP, Secy & General Counsel: C.L. Campbell Founded: 1997 Investor Contact: B. Bishop (502-874-8905) Domicile: North Carolina Board Members: D. W. Dorman, M. Ferragamo, J. D. Employees: 350,000 Grissom, B. G. Hill, R. Holland, Jr., K. G. Langone, J. S. Linen, T. C. Nelson, D. C. Novak, T. M. Ryan, J. S. Su, R. D. Walter

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Stock Report | October 23, 2010 | NYS Symbol: ZMH | ZMH is in the S&P 500

Zimmer Holdings Inc. S&P Recommendation BUY

★★★★★

Price $51.29 (as of Oct 22, 2010)

GICS Sector Health Care Sub-Industry Health Care Equipment

12-Mo. Target Price $62.00

Investment Style Large-Cap Growth

Summary This company, spun off by Bristol-Myers Squibb in August 2001, manufactures orthopedic reconstructive implants, fracture management products, and dental implants.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $64.77– 46.27 Trailing 12-Month EPS $3.25 Trailing 12-Month P/E 15.8 $10K Invested 5 Yrs Ago $8,255

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

4.32 4.75 11.9 201.0

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance 10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

1.05 10 A-

STARS

40 30 Vol. Mil. 15 10 5 0 2

3

MEDIUM

HIGH

Our risk assessment reflects Zimmer's operations in a highly competitive industry characterized by relatively short product life cycles, requiring a significant number of new product introductions to maintain market share and gross profit margins. Many of the company's customers are reimbursed by the federal government through Medicare, and a more restrictive budgetary environment could result in lower prices paid to medical device suppliers such as Zimmer. However, this is offset by the company's position as one of the dominant manufacturers in the orthopedic device industry, with substantial global sales force capabilities and an expansive product line.

60

3

LOW

Below Avg.

80

4

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

Qualitative Risk Assessment

30-Week Mov. Avg.

5

$10.307 Nil Nil 79

4

1 J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010

Quantitative Evaluations S&P Quality Ranking

B+

Options: ASE, CBOE, P, Ph

Analysis prepared by Phillip M. Seligman on July 28, 2010, when the stock traded at $ 53.46. Highlights ➤

➤

➤

We estimate revenues will climb 3.6% in 2010 to over $4.2 billion, with knee implant sales of more than $1.8 billion, hip implant sales of almost $1.3 billion, other reconstructive sales of $363 million, spinal sales of $253 million, trauma (fracture management) sales of $243 million, and other surgical product sales of $306 million. We assume unfavorable foreign exchange will subtract 50 basis points (bps) from the top line, but that revenue growth, in constant currency, accelerates through the year, mainly on new hip and knee products. We believe gross margins will widen by 30 bps in 2010, on improved manufacturing efficiency, new products, and currency hedge gains. We expect the R&D cost ratio to rise by 10 bps reflecting ZMH's need to fill in product-line gaps, while the SG&A cost ratio declines by 30 bps on cost controls. Interest expense should be above 2009 levels, due to the $1 billion note offering ZMH completed in 2009's fourth quarter. We forecast EPS of $4.32 (before $0.28 in net one-time costs) in 2010, versus $3.94 in 2009 (before $0.62 in net one-time costs). We look for $4.75 in 2011.

Investment Rationale/Risk ➤

➤

➤

We think the long-term global demand drivers for ZMH's orthopedic implants remain intact, given aging populations and the rise of obesity levels. In addition, we think eventual insurance coverage for up to 32 million additional Americans via health care reform may expand ZMH's potential market down the road. We also think ZMH's share losses in the global hip and knee markets have slowed, and we expect the company to shortly return to market growth rates in both arenas on new products. In the interim, orthopedic procedure volume growth has slowed in the U.S. and Europe amid challenging economic conditions, but we see a seasonal pickup in 2010's fourth quarter. They remain strong in Asia Pacific, where we are positive on ZMH's planned acquisition of a Chinese firm, pending approvals. Risks to our recommendation and target price include lower Medicare reimbursement and significant device reimbursement cuts in key overseas markets. Our 12-month target price is $62, or 14.4X our 2010 EPS estimate. This multiple represents a discount to the stock's historical levels to reflect our view of recent market share losses.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

D

C

B-

B

B+

A-

A

Relative Strength Rank

A+ WEAK

29 LOWEST = 1

HIGHEST = 99

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 1,063 1,058 2009 992.6 1,020 2008 1,059 1,080 2007 950.2 970.6 2006 860.4 881.6 2005 828.5 846.8

3Q -975.6 952.2 903.2 819.8 762.5

4Q -1,107 1,030 1,074 933.6 848.3

Year -4,095 4,121 3,898 3,495 3,286

Earnings Per Share ($) 2010 1.01 0.82 2009 0.91 0.98 2008 1.02 0.99 2007 0.98 0.97 2006 0.82 0.81 2005 0.70 0.76

E0.97 0.70 0.95 0.19 0.76 0.67

E1.24 0.74 0.75 1.12 1.02 0.80

E4.32 3.32 3.72 3.26 3.40 2.93

Fiscal year ended Dec. 31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data No cash dividends have been paid.

Stock Report | October 23, 2010 | NYS Symbol: ZMH

Zimmer Holdings Inc. Business Summary July 28, 2010 CORPORATE OVERVIEW. Zimmer Holdings primarily designs, develops, manufactures and markets orthopedic reconstructive implants and fracture management products. The former division of Bristol-Myers Squibb was spun off to BMY shareholders in August 2001. Zimmer's reconstructive implants (81% of 2009 sales) are used to restore function lost due to disease or trauma in joints such as knees, hips, shoulders and elbows. The company offers a wide range of products for specialized knee procedures, including The NexGen Complete Knee Solution, NexGen Legacy, NexGen Revision Knee, Innex Total Knee System, M/G Unicompartmental Knee System, and Prolong Highly Crosslinked Polyethylene Articular Surface material. Hip replacement products include the VerSys Hip System, the ZMR Hip System, the Trilogy Acetabular System and a line of specialty hip products. The company also continues to develop a portfolio of minimally invasive hip replacement procedures. ZMH sells the Coonrad/Morrey product line of elbow replacement implant products, along with a line of restorative dental products.

stabilize damaged bone and tissue to support the body's natural healing process. The most common stabilization of bone fractures concerns the internal fixation of bone fragments, which can involve the use of an assortment of plates, screws, rods, wires and pins. ZMH offers a line of products designed for use in fracture fixation. In October 2008, the company acquired the spinal business of Abbott Labs for $360 million in cash. ZMH makes and markets other orthopedic surgical products (7%) used by surgeons for orthopedic as well as non-orthopedic procedures. Products include tourniquets, blood management systems, wound debridgement products, powered surgical instruments, pain management devices, and orthopedic soft goods that provide support and/or heat retention and compression for trauma of the knee, ankle, back and upper extremities, including the shoulder, elbow, neck and wrist.

In the spine/trauma area (12%), the company sells devices used to reattach or Company Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Cash Flow Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 9.78 4.89 3.32 3.67 Nil Nil 60.64 30.67 18 9

2008 8.96 4.92 3.72 3.56 Nil Nil 80.92 34.10 22 9

2007 9.76 4.22 3.26 3.94 Nil Nil 94.38 63.00 29 19

2006 7.15 4.21 3.40 3.36 Nil Nil 79.11 52.20 23 15

2005 7.94 3.68 2.93 2.73 Nil Nil 89.10 60.19 30 21

2004 2.52 2.92 2.19 2.08 Nil Nil 89.44 64.40 41 29

2003 0.38 1.87 1.38 1.31 Nil Nil 71.85 38.02 52 28

2002 1.88 1.43 1.31 1.24 Nil Nil 43.00 28.00 33 21

2001 0.41 0.89 0.77 0.70 Nil Nil 33.30 24.70 43 32

2000 NM 0.92 0.81 NA NA NA NA NA NA NA

4,095 1,480 337 20.6 998 28.1% 717 789

4,121 1,510 275 7.00 1,122 24.3% 849 812

3,898 1,553 230 NA 1,132 31.6% 773 936

3,495 1,369 197 4.00 1,169 28.5% 835 823

3,286 1,297 186 14.0 1,040 29.5% 733 682

2,981 1,026 181 32.0 732 25.9% 542 515

1,901 633 103 13.0 438 33.6% 291 277

1,372 426 25.0 12.0 389 33.7% 258 244

1,179 272 23.4 7.40 241 37.8% 150 137

1,041 291 23.0 29.0 239 34.3% 157 NA

Balance Sheet & Other Financial Data (Million $) Cash 758 Current Assets 2,738 Total Assets 7,786 Current Liabilities 691 Long Term Debt 1,128 Common Equity 5,639 Total Capital 6,766 Capital Expenditures 229 Cash Flow 1,055 Current Ratio 4.0 % Long Term Debt of Capitalization 16.7 % Net Income of Revenue 17.5 % Return on Assets 9.6 % Return on Equity 12.7

213 2,179 7,239 771 460 5,650 6,114 488 1,124 2.8 7.5 20.6 12.2 15.3

466 2,083 6,634 749 104 5,450 5,554 331 1,003 2.8 1.8 19.8 12.3 14.9

266 1,746 5,974 628 100 4,921 5,024 142 1,032 2.8 1.9 23.8 14.2 17.3

233 1,576 5,722 607 82.0 4,683 4,767 105 919 2.6 1.7 22.3 12.8 16.9

155 1,561 5,696 701 624 3,943 4,574 101 723 2.2 13.6 18.1 9.9 15.2

78.0 1,339 5,156 645 1,008 3,143 4,158 45.0 394 2.1 24.2 15.3 9.7 10.6

16.0 612 859 401 Nil 366 366 34.0 283 1.5 Nil 18.9 32.1 115.0

18.4 509 745 373 214 78.7 293 54.7 173 1.4 73.0 12.7 22.4 NM

50.0 487 669 217 500 -48.0 452 NA 180 2.2 110.6 15.1 NA NA

Income Statement Analysis (Million $) Revenue Operating Income Depreciation Interest Expense Pretax Income Effective Tax Rate Net Income S&P Core Earnings

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 345 East Main Street, Warsaw, IN 46580. Telephone: 574-267-6131. Email: [email protected] Website: http://www.zimmer.com

Chrmn: J.L. McGoldrick Pres & CEO: D. Dvorak COO: R.C. Stair EVP & CFO: J.T. Crines

SVP & CSO: C.R. Blanchard Investor Contact: P. Blair (574-371-8042) Board Members: B. J. Bernard, M. N. Casper, D. Dvorak, L. C. Glasscock, R. A. Hagemann, A. J. Higgins, J. L. McGoldrick, C. B. Pickett

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Founded: 1927 Domicile: Delaware Employees: 8,200

Stock Report | October 23, 2010 | NNM Symbol: ZION | ZION is in the S&P 500

Zions BanCorp S&P Recommendation HOLD

★★★★★

Price $21.69 (as of Oct 22, 2010)

GICS Sector Financials Sub-Industry Regional Banks

12-Mo. Target Price $26.00

Investment Style Large-Cap Blend

Summary ZION has more than 500 full-service banking offices in Utah, California, Texas, Nevada, Arizona, and five other western states. At mid 2010, it had assets of $52.1 billion and deposits of $42.0 billion.

Key Stock Statistics (Source S&P, Vickers, company reports) 52-Wk Range $30.29– 12.50 Trailing 12-Month EPS $-4.00 Trailing 12-Month P/E NM $10K Invested 5 Yrs Ago $3,371

S&P Oper. EPS 2010E S&P Oper. EPS 2011E P/E on S&P Oper. EPS 2010E Common Shares Outstg. (M)

-2.14 0.56 NM 173.3

Market Capitalization(B) Yield (%) Dividend Rate/Share Institutional Ownership (%)

Price Performance

$3.760 0.18 $0.04 86

Beta S&P 3-Yr. Proj. EPS CAGR(%) S&P Credit Rating

1.00 NA BBB-

Qualitative Risk Assessment

30-Week Mov. Avg.

10-Week Mov. Avg.

12-Mo. Target Price

Relative Strength

GAAP Earnings vs. Previous Year Up

Down

Volume Above Avg.

No Change

STARS

LOW

MEDIUM

HIGH

Below Avg.

Our risk assessment reflects the company's credit exposure to housing and commercial real estate in California, Arizona, and Nevada, offset by its sizeable capital levels and recent progress towards resolution of much of the nonperforming assets.

80 40 20 10

Quantitative Evaluations Vol.

S&P Quality Ranking

60

Mil. 30 20 10 0 5

D

C

B-

B+ B

B+

A-

A

Relative Strength Rank 4

3

3

MODERATE

47

3

2

A+

LOWEST = 1

1

HIGHEST = 99

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

2007

2008

2009

2010 Options: CBOE, Ph

Analysis prepared by Erik Oja on July 22, 2010, when the stock traded at $ 20.04. Highlights ➤

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We expect the reported net interest margin to rebound to nearly 4.0%, after a second quarter dip to 3.58%, caused by expenses related to debt, and we forecast 2010 net interest income of $1.80 billion, down 5.4% from 2009, caused by loan shrinkage. We expect core non-interest income to increase 3.5% in 2010. Second quarter net chargeoffs rose from first quarter levels, breaking a string of quarterly improvements, and we think casting doubt on how rapidly ZION's credit quality will return to normalized levels of health. However, provisions fell for the fourth consecutive quarter, and provisions to net chargeoffs were only 0.93, indicating ZION has begun releasing reserves for the first time in several years, a positive. However, continuance of reserve releases will require meaningful future declines in chargeoffs, which we think will happen, barring a major economic downturn. We forecast 2010 net chargeoffs of $915 million, down from $1.175 billion in 2009. Our 2010 provisioning forecast is $830 million, down from $2.02 billion in 2009. We project a loss per share of $1.93 in 2010, EPS of $0.56 in 2011, and EPS of $1.17 in 2012.

Investment Rationale/Risk ➤

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ZION's second quarter results missed expectation, as net chargeoffs increased from first quarter levels, thus limiting how quickly loan loss provisions could decline. Management also delayed, to late 2010, from mid-2010, its expectation of when the company would be able to return to profitability, citing provisions, net interest margins, and loan growth. However, we point to positive trends such as a lower formation of new nonperforming loans, and lower securities writeoffs, as indicators that ZION's recovery is still on track. The U.S. economic recovery is likely dependent on numerous government support programs. It is very uncertain how the U.S. economy and ZION's credit quality will improve as these programs are withdrawn. Risks to our recommendation and target price include worsening employment trends and declining housing industry indicators. Our 12-month target price of $26 equals a below-peers multiple of 1.4X our year-end estimate of tangible book value per share of $18.60. This equals an above-peers 46.4X our 2011 EPS estimate, and a premium 22.2X our 2012 estimate, a reflection of recovering earnings.

Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.

Revenue/Earnings Data Revenue (Million $) 1Q 2Q 2010 673.3 693.2 2009 494.4 1,250 2008 901.1 795.3 2007 915.9 931.0 2006 767.1 824.1 2005 525.8 562.3

3Q -902.5 825.3 963.6 876.9 594.5

4Q -672.0 642.9 807.3 901.2 666.5

Year -3,319 3,165 3,776 3,369 2,349

Earnings Per Share ($) 2010 -0.57 -0.84 2009 -7.47 -0.21 2008 0.98 0.65 2007 1.36 1.43 2006 1.28 1.35 2005 1.20 1.30

E-0.47 -1.43 0.31 1.22 1.42 1.34

E-0.26 -1.26 -4.37 0.40 1.32 1.32

E-2.14 -9.92 -2.66 4.42 5.36 5.16

Fiscal year ended Dec. 31. Next earnings report expected: NA. EPS Estimates based on S&P Operating Earnings; historical GAAP earnings are as reported.

Dividend Data (Dates: mm/dd Payment Date: mm/dd/yy) Amount ($)

Date Decl.

Ex-Div. Date

Stk. of Record

Payment Date

0.010 0.010 0.010 0.010

10/30 01/29 04/23 07/23

11/09 02/08 05/06 08/06

11/12 02/10 05/10 08/10

11/20/09 02/24/10 05/26/10 08/25/10

Dividends have been paid since 1966. Source: Company reports.

Stock Report | October 23, 2010 | NNM Symbol: ZION

Zions BanCorp Business Summary July 22, 2010 CORPORATE OVERVIEW. ZION provides a full range of banking and related services through banking subsidiaries in ten Western and Southwestern states as follows: Zions First National Bank in Utah and Idaho; California Bank & Trust, Amegy Corporation and its subsidiary, Amegy Bank, in Texas, National Bank of Arizona, Nevada State Bank, Vectra Bank Colorado, in Colorado and New Mexico, The Commerce Bank of Washington, and The Commerce Bank of Oregon. ZION's parent company also owns and operates certain nonbank subsidiaries that engage in the development and sale of financial technologies and related services, and in wealth management services.

posit market share of about 4.6%, up from 4.0% a year earlier, ranking sixth. In California, ZION had 110 branches, $10.0 billion in deposits, up from $8.2 billion a year earlier, and a deposit market share of about 1.2%, ranking 12th. In Texas, ZION had 84 branches, $8.3 billion in deposits, up from $6.8 billion a year earlier, and a market share of 1.8%, ranking seventh. In Arizona, ZION had 76 branches, almost $4.0 billion of deposits, and a deposit market share of about 4.8%, ranking fourth. In addition, ZION had a total of 64 branches and $3.6 billion in deposits in Colorado, Idaho, Washington State, New Mexico and Oregon.

MARKET PROFILE. As of June 30, 2009 (latest available FDIC branch-level data), ZION had 506 branches, and about $42.3 billion in deposits. About 53.6% of deposits were concentrated in Utah and California. In Utah, ZION had 111 branches, $12.7 billion in deposits, up from $9.7 billion a year earlier, and a deCompany Financials Fiscal Year Ended Dec. 31 Per Share Data ($) Tangible Book Value Earnings S&P Core Earnings Dividends Payout Ratio Prices:High Prices:Low P/E Ratio:High P/E Ratio:Low

2009 20.35 -9.92 -5.65 0.10 NM 25.52 5.90 NM NM

2008 27.24 -2.67 -0.67 1.61 NM 57.05 21.07 NM NM

2007 27.02 4.42 4.46 1.68 38% 88.56 45.70 20 10

2006 25.15 5.36 5.36 1.47 27% 85.25 75.13 16 14

2005 20.45 5.16 5.04 1.44 28% 77.67 63.33 15 12

2004 23.29 4.47 4.33 1.26 28% 69.29 54.08 16 12

2003 20.96 3.74 4.42 1.02 27% 63.86 39.31 17 11

2002 17.21 3.44 3.17 0.80 23% 59.65 34.14 17 10

2001 15.19 3.15 2.42 0.80 25% 64.00 42.30 20 13

2000 13.06 1.86 NA 0.89 48% 62.88 32.00 34 17

Income Statement Analysis (Million $) Net Interest Income Tax Equivalent Adjustment Non Interest Income Loan Loss Provision % Expense/Operating Revenue Pretax Income Effective Tax Rate Net Income % Net Interest Margin S&P Core Earnings

1,898 22.8 126 2,017 NA -1,623 NM -1,216 3.94 -703

1,972 23.7 191 650 58.9% -315 NM -266 4.18 -73.1

1,882 26.1 395 152 61.7% 738 32.0% 494 4.43 483

1,765 24.3 527 72.6 57.4% 913 34.8% 583 4.63 579

1,361 21.1 439 43.0 56.4% 742 35.5% 480 4.58 469

1,174 NA 425 44.1 57.8% 624 35.3% 406 4.32 394

1,095 NA 426 69.9 63.7% 546 39.1% 340 4.45 402

1,035 NA 402 71.9 59.8% 481 34.9% 317 4.56 292

950 NA 388 73.2 63.9% 440 35.8% 290 4.64 223

803 NA 274 31.8 75.9% 243 32.8% 162 4.27 NA

Balance Sheet & Other Financial Data (Million $) Money Market Assets 732 Investment Securities 4,548 Commercial Loans 19,139 Other Loans NA Total Assets 51,123 Demand Deposits 12,324 Time Deposits 29,517 Long Term Debt 2,033 Common Equity 4,190 % Return on Assets NM % Return on Equity NM % Loan Loss Reserve 3.8 % Loans/Deposits 96.4 % Equity to Assets 8.6

2,703 4,509 34,333 7,659 55,093 9,683 31,633 2,657 4,920 NM NM 1.6 101.2 9.2

1,500 6,895 31,508 7,744 52,947 9,618 27,305 2,815 5,053 1.0 9.8 1.2 103.1 9.8

369 6,790 27,559 7,260 46,970 25,869 9,113 2,495 4,747 1.3 12.9 1.1 99.1 10.0

667 6,996 23,122 7,131 42,780 9,954 22,689 2,746 4,237 1.3 13.7 1.1 92.3 9.5

593 5,786 16,337 6,395 31,470 6,822 16,471 1,919 2,790 2.0 15.2 1.2 97.1 13.3

569 5,402 10,404 9,613 28,558 5,883 15,014 1,843 2,540 1.2 13.8 0.9 142.6 8.9

543 4,238 13,648 5,195 26,566 5,117 15,015 1,310 2,374 1.2 13.6 1.4 96.0 9.2

280 3,463 4,110 13,304 24,304 4,481 13,361 781 2,281 1.3 14.3 1.5 97.0 8.8

528 4,188 3,615 10,843 21,939 3,586 11,484 420 1,779 0.8 9.4 1.3 96.6 8.1

Data as orig reptd.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review. Office: 1 S Main St 15th Fl, Salt Lake City, UT, USA 84133. Telephone: 801-524-4787. Website: http://www.zionsbancorporation.com Chrmn, Pres & CEO: H.H. Simmons

Vice Chrmn, EVP & CFO: D.L. Arnold EVP, Secy & General Counsel: T.E. Laursen EVP & CIO: J.T. Itokazu SVP & Cntlr: A.J. Hume

Investor Contact: C.B. Hinckley (801-524-4787) Founded: 1961 Board Members: D. L. Arnold, J. C. Atkin, R. D. Cash, P. Domicile: Utah Frobes, J. D. Heaney, R. B. Porter, S. D. Quinn, H. H. Employees: 10,529 Simmons, L. E. Simmons, S. Wheelwright, S. T. Williams

Redistribution or reproduction is prohibited without written permission. Copyright ©2010 The McGraw-Hill Companies, Inc.